Seemingly tricky question. Simle answer. Interest rates are so low because the economy is stuffed.

The term "sovereign debt" has a specific meaning: government debt in a foreign currency. Or more precisely, in a currency that the government doesn't issue (which is why eurozone nations have such big problems).

Australia has taken on very little sovereign debt in the past thirty years, and none at all in the last twenty.

So sovereign debt is a red herring: the real problem is that since the GFC, governments have been far too timid about taking on debt. They want the private sector to do so instead, but the private sector will only take on debt when it's profitable to do so. So interest rates have been reduced to make it more profitable to do so. And when merely reducing interest rates wasn't enough, some governments resorted to QE.

Does anyone know if Australia engages in quantitive easing? I am always suspicious how our dollar decreases against the greenback and yet we are not the ones metophorically printing the money.

The stats this article relies on look wrong to me. Australia’s real bond yield was not below 0 for 50%+ of the years between 1945-46 and 1968-69. Using the RBA preliminary annual database data for 1945-46 to 1968-68 to compare the long-term bond yield with annual growth in the consumer price deflator yields 7 of 24 years with real interest rates below 0. I couldn’t find Consumer Price Index data before 1948/49, but for the 20 years from 1949-50 to 1969-69 there were only 5 years when this inflation measure exceeded the bond yield.

True, most years the real yield was less than 3%, but 3%pa real is actually a pretty good return on a risk-free investment. Would that real wages grew that fast.

Ps sorry, I couldn’t find the RBA Preliminary Annual Database I used for this analysis on the web, but this is the reference:

http://www.rba.gov.au/publications/rdp/1977/7701.html

Quantitative easing is as simple as a few strokes of a keyboard, we could literally double the money supply; as an alternative to borrowing ever more foreign capital, or lowering the interest rate to historical lows.

Aidan is correct, and something former insightful Leaders didn't shy away from; in order to build the visionary Snowy Mountains Scheme! Even though burdened with historically high war debt!

But only if this money was exclusively earmarked for income earning infrastructure projects!

Such as the long overdue range crossing project and rapid rail?

And given bulk freight forwarding remains possibly one of the most profitable business models in the world!?

Crack on building a Nuclear powered national shipping line; rolled out as rollon roll off fast ferries; that fill in the missing rapid rail links between us and our major trading partners.

Roll on roll off minimizes the workforce need to load and unload commodities, which could remain untouched in the same "sealed" containers from supplier to destination; and delivered as complete train loads?

which is the most efficient method of transporting manufactured or bulk trade goods!?

And given the cheapest power in the world; (very doable as carbon free power) those trade goods could include finished steel and aluminum, made via the locally invented direct reduction process; and consequently more than competitive than anything the emerging economies can create, via outdated traditional methods!?

If we started to simply sell more trade goods to the world than we buy, we wouldn't need to keep stimulating the economy with historically low interest rates?

We've bought a lemon, with the fundamentally flawed advice, we should do what we do best; (which is not actually finally or factually established) and therefore massively over reliant on easily corrupted service industries, the very first to go with any new GFC!

Which often have an adverse effect on housing affordability!

We need at long last to learn from our historical mistakes,, rather than like the proverbial mad hatter, endlessly repeating them; and tantamount to simply/endlessly changing the deck chairs on the Titanic!?
Rhrosty.

Economists were invented to make astrologers look good.

The only sense I have ever been able to make of the economy is by looking at the demographics of the relevant country. At the moment the baby boomers of Australia the US and UK are entering retirement in droves. The first thing a retirees does is go for a holiday, then thy go into hibernation, and horde most their money, either just to make it last, or so they can leave it to the kids. It is the only reason I can think of that the Americans could get away with creating trillions of dollars, and not cause massive inflation.

All that playing around with interest rates ever did was to stuff up the economy. When they are to high only the gamblers and the rip off merchants borrow money, when they are too low then people look elsewhere for decent returns and often get burnt.

Interest rates a kept low to encourage Chinese money laundering through real estate thus:
Interest rates remain low, property market overheats, giving greater opportunity to launder vast sums through overpriced real estate.

Warmair, put ten economists in the same room and you can guarantee they'll come up with thirty different opinions!?
Cheers, Rhrosty.

Aiden, my theory has always been that big business is what drives our nation, as it's big business that tenders for and bank rolls most major projects this then involves large business who take on the roll of project managers and small business contracts to do the work.

While interest rates may be low, there are two major problems, one being our very anti competitive IR laws and regulations, the other being the lack of confidence big business has in our governments, recent examples being the threat of the super tax on miners, as well as the threat of a tax crack down on big businesses who profit share off shore.

While the average punter looks at rates and says, yes, that 2% decrease eases my burden by few grand a year, big business has to commit tens if not hundreds of billions to fund major projects and so long as the uncertainty remains in governments or even the threat of changes such as what will happen should labor get back in, big business will remain cautious and interest rates won't really matter.

Big business chooses to be here, it doesn't have to be and that's our main problem.

There are literally thousands of out of work miners wondering why their two on two off $130 K a year jobs have dried up and it's simply because they were blind to the fact that unions secured these unsustainable working conditions through their manipulation of the situation when we had far more jobs than workers.

Unions refuse to accept that what goes up, must also be allowed to come back down and their one eyed approach to job security is just driving our big businesses elsewhere. But, as usual, they are blind.

World debt is 3 times the GDP of the planet. World gambling. derivative market is 21 times the GDP of the planet. Derivatives under the rules must be honoured first,then come share holders and last depositors.

If they raise interest rates the whole system collapses.The central bankers will just print our currencies into oblivion.

Rehctub: It's well established fact that Governments can borrow for around half what private commercial interests pay!?

Nor are they burdened with a tax bills or hanger on dividend expectant shareholders/totally unproductive drones.

Even so, they endlessly claim they do it better?

And probably true if you add in things like gold plated delivery systems, Brownouts and perishable goods destroying blackouts!?

Or captive markets treated no better than herds sent to the abattoirs to be stripped of all their salable components; as they are price-gouged a far as human tolerance or the actual reality of alternative options will allow!?

While there might be the occasional exception that proves the rule?

Nowhere can I find a single example of where privatisation has resulted in cheaper commodities/goods/services?

But plenty or where exploitative capitalists have driven down real wages to where they pay more to keep kept slaves as the principal labor force?

What would Americans pay for food on the supermarket shelves if not for mexican migrant workers and the slave wages they earn?

And just don't start me on child labor or the work related practises in some foreign plantations/factories, hardly better or more humane than the workhouses in famine ravaged Ireland!

Is that what you mean by better?

Or should that just read cheaper?
Rhrosty.

Rhrosty, we live in a country whereby you can have anything you want, provided you are prepared to pay for it, and that included high wages and unsustainable working conditions, and we are about to see just how much we will pay for that when our car manufacturers pack up and leave.

Now you can keep the high wages and unsustainable working conditions, you just have to give something up in return, and in this case it's jobs and job security because we simply can't have both.

There is a classic example now where workers have been sacked, only to have the fair work commission order they be reinstated and paid. This will do unsustainable long term damage as big businesses see this and take it into account when forward planning. Chances are, this type of big brother intervention may just sway them away from Oz in future years but only time will tell.

Rhrosty some times you really get it so wrong.

The only places wealth & prosperity has been generated is where private enterprise has generated it, just ask the Russians. You can't generate wealth by printing money either, just ask the Rhodesian/Zimbabweans about that.

Mate even China had to switch to a private enterprise industrial system to become profitable. Rather than drive wages down, everywhere that industrialises has a rapid growth in wages.

As for government getting involved, just look at our health system. Private hospitals make a fortune, public hospitals waste an even bigger one.

Interest rates are low because of 6 years of Krudd/Gillard mismanagement, & the failed economy they left us. God lets hope we don't get another lefty bunce back in power. Another lot would probably give us Keating's 17% interest rates back.

Arjay, despite their high gross value, the net value of those contracts is zero.

The claim that shareholders would be paid ahead of depositors is an outright lie.
How secure the depositors' money is is a matter for national governments, but no government would permit an insolvent bank to pay its shareholders.

___________________________________________________________________________________________

rehctub, it's our dollar rather than our wages that's unsustainably high.

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Hasbeen, our public hospitals are generally more efficient than our private hospitals. The reason some of the latter make a fortune is because they charge more rather than passing the benefits on to their patients.

Money is not wealth, but when money's so scarce that unemployment is high, more money is needed to create wealth. The wealth generation process effectively involves printing money whether in the public sector or private sector. And while State Owned Enterprises don't generally have a good track record, there are some very efficient ones out there. Exactly the same can be said for privatised utilities.

Rudd did not mismanage the economy. Gillard did, but nowhere near as much as Abbott.

Aidan you have the problem with reality and truth. Here is evidence of "bail in" http://cecaust.com.au/bail-in/ Cyprus style bank confiscation of deposits was passed. Even Rhonda Jamb on Graham Young's blog knows this.http://www.ambitgambit.com/2014/12/03/could-the-banks-seize-our-cash-g20-sold-us-a-pup/

Derivatives are honoured and they are interwoven into our whole finance system. Why do you deny the reality ?

Are interest rates low? That is a very general question. Do we borrow from the reserve Bank?
I think Reserve Bank interest rates are low because many many people are now awake to borrowing when the rate is low, and then having to pay more than expected.

Many people now have experience with foreclosure following interest rate hikes, hikes sometimes reaching a record high.

Many children have grown up while observing and listening to their parents struggle to meet the increase in interest rates. Now as adults they try not to borrow.

To many people, interest is a dirty thing, a destructive soul destroying thing bordering on legal extortion. Foreclosure involves threat bordering on terror/ism.
Money should be money with enough of it to live while able to afford daily needs like adequate healthy food and reasonable non-plastic clothing.
I think many people are tired of being ripped right off. Why borrow? Why buy goods in general under such circumstances?

Just look at the cost of petrol now, about $1.50 per litre while a barrel of oil is less than $50. What an absolute rip off.
Cost of fuel affects all food and merchandise consumers.
Productive infrastructure and properly remunerated employment is needed, then government could generate tax revenue, instead of milking cash from motorists through excise tax at the pump. No wonder the motor industry is on it’s knees. No wonder consumers reduce spending.

Government should be up and running with development of new PRODUCTIVE infrastructure instead of just engaging in new road 'infrastructure' that produces no export product whatsoever.

Who wants to borrow money under such downhill sliding circumstances involving such hopelessness? Of course if you have a well paid job these problems may not be seen and understood.
Cont’d……..

Continued…….
Young people get conned into housing but soon many learn their mistake.
Major media lets it all happen. Major media is stifling news of new economic development opportunity.

Whatever happened to all the "seasonal adjustment" in GDP and GNP and other reported figures?

Why was fish removed from the CPI? Fish used to be a staple food for poor people. The CPI is supposed to be an economic indicator.

Then there are the hidden cameras and 10 km over the limit $109 speeding fines and 5 minute late $104 parking fines that are all bleeding available cash from pockets and purses of would be consumers.

Foreign investment in real estate is causing inflation in the housing and rental market.
New Zealand has recently found over 40 percent of housing and land real estate sales in Auckland have Chinese names. (And I like Chinese people).
Now there is talk of a bubble burst as government consider controlling such foreign purchase, that will likely decrease the value of what buyers have already paid.

I blame major media for failure to report truth of reality.
For example why was fish was removed from the CPI. WHY?
Just look at the price of fresh healthy fish now, quality local fish, not imported catfish.

Why has the major media gagged the real state of ocean and river seafood that is now causing 70 percent of fish product consumed or used in Australia to be imported?
The plight of our own professional and amateur fishing tourism industries and livelihood of all associated families has not been duly reported by major media.
Many people dependent on coastal community economies in general are now surviving on social security resources instead of productively supplying seafood and pleasure to the nation.
Who in those communities and associated industry want to borrow and pay unstable and usually increasing interest rates?

Why do we have to pay interest to use money we need?

Rehctub
The very large mining companies in Australia only employ a very small number of people, yet they have a profound effect on the economy due their influence on the exchange rate.

http://www.allianz.com.au/business/small-business-insurance/news/small-businesses-in-australia

Coal high A$142 or US$142 Jan 2011 per tonne
Coal now A$81 or US$60

Iron high of A$187 or US$ 187 Jan 2011
Iron ore now A$70 or US$51.5

http://www.indexmundi.com/commodities/?commodity=coal-australian&months=60

http://www.indexmundi.com/commodities/?commodity=iron-ore&months=60

http://www.xe.com/currencycharts/?from=AUD&to=USD&view=5Y

There most definitely should have been a windfall tax on the miners, there was a huge spike in coal and Iron ore prices around 2011 which in turn pushed up the Aussie dollar to such an extent that all our other exports became uncompetitive.

The miners wages were not too high, as the price we were getting for our coal and iron ore was so high we could have paid the miners much more and it would not have made the slightest difference to the bottom line of the miners. The present situation is we have a world wide oversupply of both iron ore and coal so prices are going to stay down for a very long time. We have finished the construction phase of building the mines and that means a big reduction in staff so in every way the mine worker is going to get a raw deal and now you want to push down his wages further ?

IR flexibility has dramatically increased over the last 20 or so years, usually to the determent of the lower paid workers who are today probably worst off now despite the fact that on average wages have risen. There are plenty of workers who are on poorly paid contacts who simply can't afford to take a holiday during the year. Conditions generally have declined for the low end of the workforce and unions are rapidly losing any clout, except in the government sector and a few large industries, which is all largely irrelevant as the vast majority of workers are employed in the service industries and not by the big multinational miners.

Interest rates are low because the economy is stuffed.

Arjay, I deny what you claim is reality because there's no real evidence for it! I know the CEC claim there is, but they claim a lot of things (including that Obama works for MI6) so their word counts for nothing.

The CEC have sighted Govt and Banking documents and they are not alone. Put your head back in the sand.

.......Rehctub
The very large mining companies in Australia only employ a very small number of people, yet they have a profound effect on the economy due their influence on the exchange rate.

Warmair that is such a distorted view as to only count those employed by mining companies and disregard those who the mining industry engages by way of contractors, consultants, project managers and their collective staff is a total manipulation of the figures.

As for mining wages, why is it that mining companies are looking to the likes of Singapore to operate their machines remotely, it's because our wages have hit saturation point.

As for the mining tax, like anything you need to put nit into prospective.

My recent butcher shop cost me about $40K to set up yet in it's first full year is likely to earn somewhere in the order of $250 K profit.

If I were a miner, you would have me pay $75,000 in tax, leaving $175,000 then allowing 12% return on investment I could pocket a further $4,800.00, then pay 40% of the balance in tax. You're kidding!

May I suggest that if you want to tax any super profits, you target the banks as they invest very little and would move off shore at a heart beat.

The mining tax was a dumb idea but it has already done irreparable damage.

Rehctub

The problem is this the dollar rose to such a high value in 2011 that all other non mining exports became highly uncompetitive and it became more attractive to import goods rather than make them here, the most obvious example is the car industry which will soon be gone.

The dollar has now come down to more sensible value, but it is too late for many of our exporters and local manufacturers.
It would have been much better for the economy to have curbed the boom in coal and Iron ore, it would have kept the dollar lower and the prices of Iron ore and coal higher over the longer term by reducing the over supply.

The mining industry in Australia is easily competitive with the rest of the world but that does not mean that they won't stop looking for ways to cut costs such as using robotic trucks. Rio Tinto produces high grade ore at a cost of $20 a tonne yet even at the current price of $80 is doing very nicely thank you. The mining tax was originally designed to capture some of the windfall from the sudden spike in prices when Iron hit $120 dollars a tonne.

For example if your butcher shop were suddenly able to increase prices by 50% you would have made $375K profit. Under a super windfall tax your increase in profit would now be reduced to $75K and your total profit $325K. I don't think you would be too unhappy about that. I never minded paying tax so long as I made a decent return myself, I certainly did not whinge when I made an unexpected extra 50%.

Oh Arjay, you have learned nothing while you have been away, have you.

>>World debt is 3 times the GDP of the planet<<

Think about that statement for a moment. If someone is a debtor, then someone else is a creditor. So by any definition, net world debt (debt minus credit) must be zero.

It's pretty much the same mistake you make with derivatives, isn't it.

>>...derivative market is 21 times the GDP of the planet<<

You perpetually ignore the fact that there are two sides to the derivative, the call and the put, leaving the net derivative exposure a tiny fraction of your scary number.

>>Derivatives under the rules must be honoured first,then come share holders and last depositor<<

If you understood the structure of derivatives and bank deposits, you would realize that this statement is meaningless out of context. It is of course entirely possible that if an individual Bank were to find itself in negative territory once it has "unwound" its exposure to derivatives, it might have to find emergency means to stay afloat. But if you were to hang on to your shares on the basis that you were more likely to be paid out than depositors, you clearly understand nothing about shares, or the stock market.

>>The CEC have sighted Govt and Banking documents and they are not alone<<

Maybe they have. But it is clear that their understanding of those documents is at much the same level as yours.

I've said it before. Open a textbook on finance, Arjay, instead of opening hysterical, badly-informed and conspiracy-laden web sites. You may actually learn something, and be able to contribute to these topics from something other than a position of total ignorance.