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24 January 2008

The Economic Management Paradox

They say if you get 4 Economists in the room you'll end up with 5 opinions.

I am sure many people are struggling with the concept that rising petrol and grocery prices contribute to inflation and the need to raise interest rates to curb expenditure and those same rises in prices are also putting significant pressure on people's home budgets. So it seems like an illogical double whammy to the household budget.

This is the strange economic balancing act the Reserve Bank must play in managing the overall economy in a global market. When it comes to the global economy we always seem to look to the US. In the US, interest rates are on the way down, the property market has stalled and whilst some are avoiding the word, some are saying recession could be just around the corner. This lead the US Reserve Bank to make a surprise 3/4 percent reduction in official interest rates with a further predicted next month.

There is one significant difference of our economy from the US predicament at the moment ... the full impact of the sub-prime market fallout hasn't been felt here. Here in Australia due to our lending practices the big banks are not exposed to the level of risk that they are exposed to in the US. Put simply ... our lenders here didn't lend to as many people who couldn't afford to borrow the money as they did in the US.

We will almost assuredly see an official interest rate rise by the Australian Reserve Bank in February 2008. I think this one together with petrol and grocery prices is going to bite much harder than any of the previous rate rises.

Whilst the over all property market will remain steady and Brisbane is set to continue to rise, I believe the consequence will be for us to see some bargains come onto the market in the form of duress sales.

Keep your eye out for these opportunities. I know we will!

Yours in property

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