Posts Tagged ‘financial crisis’

Australian Interest Rates drops by 1% from 4.25% to 3.25%
Wednesday, February 4th, 2009

MEDIA RELEASE

No: 2009-01
Date: 3 February 2009
Embargo: For Immediate Release

STATEMENT BY GLENN STEVENS, GOVERNOR
MONETARY POLICY

At its meeting today, the Board decided to reduce the cash rate by a further 100 basis points, to 3.25 per cent, effective 4 February 2009.

There was a significant deterioration in world economic conditions late in 2008. The effects on household and business confidence of the financial turmoil following Lehman’s collapse, and continuing strains on major financial institutions, saw a significant downturn in demand around the world. As a result, the major advanced economies contracted sharply in the December quarter, as did a number of emerging market economies. The Chinese economy, though still growing, has slowed markedly. Global inflation, having reached high rates during the middle of 2008, is now declining.

Measures to stabilise financial systems have contributed to an improvement in the functioning of credit markets over the past couple of months. This, in conjunction with expansionary macroeconomic policy measures being taken around the world, should assist in promoting global recovery over time. But the near-term outlook for the global economy is the weakest for many years.

Economic conditions in Australia have also been affected, though less than in other advanced economies. Australia’s financial system remains in a strong condition and large interest rate reductions over recent months have been passed through in substantial measure to end borrowers. Nonetheless, the combination of last year’s financial turmoil, a severe global downturn and substantial falls in commodity prices has had a significant dampening effect on confidence, and therefore on prospects for growth in demand. Inflation has begun to moderate and, given recent developments, it is likely to continue to decline.

In these circumstances, the Board judged that a further sizable reduction in the cash rate was appropriate, to give further support to demand. In making its decision, the Board took into account the package of measures announced by the Government earlier today. The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad.
-> RBA

Financial Crisis – Summary to Date
Tuesday, November 25th, 2008

I just read this article, and I think it does a pretty good job of explaining the financial crisis up to now, and also what is currently ‘brewing’ in the background (which might actually come true depending which way the world decides to turn)

I think the world needs to prepare themselves for another shock as more companies are being dried up of credit (ie. loans) Obvious things will become worse:

  1. Cut backs on any business expansions
  2. They will be forced to fire more staff
  3. Leading to mortgage defaults
  4. Meaning more bad debts, and tighter credit
  5. The loop continues…

Until now, Australia has been very sheltered from a lot of this financial crisis. As the financial crisis drags out and becomes worse, people are starting to hear that the mining/resource/oil/gas industry are scaling back their operations, which then leads to redundancies across their workforce.

At the same time, Australian banks are most probably preparing themselves for Babcock and Brown to go under after their trading halt got extended for another week. It’s not that pretty when it starts affecting your backyard, and this is what we’re starting to see. It’s happened so fast, and most people are not prepared for it.

So watch your back pocket, and if possible, borrow as much as possible for a buffer just in case the worse is yet to come.

The financial crisis has morphed into several simultaneous crises that feed upon each other. The real estate bust crippled the banks. Crippled banks starved companies of credit. Starved companies laid workers off. Laid-off workers defaulted on mortgages, deepening the bust in real estate. By a similar process, crippled financial institutions stopped making auto loans, which caused people to stop buying cars, which pushed the carmakers to the brink. If the carmakers go down, a whole new round of job losses and mortgage defaults will slam into the financial system – Source