Short-changed on a rate cut

The Reserve Bank's interest rate cut will give only some retailers the chance to have a good Christmas. And it will also not remove three underlying problems in the community.

That's why there are much bigger rate cuts to come.

In terms of the consumer, the people with mortgages who benefit from interest rate reductions outweigh retired people living on income securities, so the uptick in overall consumer confidence plotted by Morgan Research should be maintained (A fine Christmas forecast for Gerry Harvey, October 28).

But retailers should not crack the champagne because many are in for a deep shock. According to Ernst & Young, an incredible 35 per cent of 2012 Christmas shopping will be online. And worse still only 57 per cent of Australians prefer local sites, so the purchasing will be going abroad. Overseas suppliers have performed better on reliable delivery so are gaining the business.

The first of the deep underlying problems is that a large proportion of first home buyers are not prepared to borrow large sums unless buying a dwelling is cash positive compared to renting – the so-called ‘Triguboff' factor.

Australia's largest apartment developer is seeing this trend in the demand for his apartments (Young buyers tear up the housing plan, December 3).

However if interest rates are reduced by another three quarters of a per cent to make buying a house cash positive we are going to see sharp rises in house prices because the investors will rush in.

The second underlying problem is that everyone except the top people in Canberra can see that Australia is facing an enormous fall in mining investment, which will affect employment in the nation, and the associated fall in mineral prices will slash government revenue. In turn that makes public servants nervous.

Changing this will require a totally new approach from our politicians, chief executives and union officials. It also needs a lower dollar. In due course the dollar will fall but in the meantime the high dollar is hitting our employment-creating industries. Lower interest rates should help.

Our third problem is that for many months the statistician has been under-estimating real unemployment. The way the statistician asks the questions means that vast numbers of recently retrenched people do not show up. (The unmasking of middle class unemployment, October 11).

But in coming months this will change and the official unemployment rate will start to catch up to real unemployment. And Morgan Research, which has the best measures of real unemployment, is now indicating a further real unemployment rise is ahead.

Fourthly, many small enterprises in Australia are in considerable trouble. A lot more are set to go to the wall. This trend will accelerate as miners cut spending. However a big fall in the Australian dollar will help.

So get set for further interest rate reductions as the deep underlying problems become more apparent. But in the meantime Christmas spending, helped by the latest rate cut, will help.