Times are tough all over

[Aliantha]

We call them variable rate mortgages, and in Australia, a variable rate is the most common mortgage you'll get and pretty much always has been.

I note tw, that having fixed rate mortgages hasn't saved the US economy, or any other country's economy.

Also, regardless of whether mortgages are fixed or variable, you surely must realize that as interest rates go up, more people are locked into higher mortgage repayments for the same thing their neighbour has at a lower price. And of course with an inflated economy which Australia has had for many years now, housing prices are inflated which of course means that people have been paying even more on the capital aside from the interest at whatever rate it's at.

As I said, it's not just housing interest rates which have contributed to this issue. It's fuel costs also. Every household in Australia has much higher expenses than it did 3 or 4 years ago. Do you think fixed rate mortgagees should have realized that was going to happen?

You asked for an explanation and I've given you one. Personally we have a fixed rate mortgage which is now lower than it would have been if we'd taken a fixed rate mortgage out six months ago when we bought this house. The recent interest rate drops means we're saving over $250/month which goes a long way towards paying our utilities.

It doesn't matter what sort of mortgage you have if you haven't allowed yourself some breathing space for fluctuations in the market.

[tw]

Originally Posted by Aliantha

I note tw, that having fixed rate mortgages hasn't saved the US economy, or any other country's economy.

American is chock full of ARMs - variable rate mortgages - sub-prime mortgages. ARMs are one reason why mortgage backed securities all went crashing at the same time. America 30 years ago did not foolishly market or apply for ARMs.

The way I read it, Australians were doing the same irresponsible mortgaging that Americans were doing - ARMs - sub-prime loans.

Fuel prices also contribute. However, to subvert responsible action as a result of higher energy prices, America mortgaged itself (ie 0% car loans) to avoid and ignore the necessary recession. While whining Americans complained about high gas prices (ie $1.80 per gallon), Americans continues to say to industry, "Make the most stupid vehicles that only an accountant would design." Americans complained about high gas prices, then bought even more SUVs. Gas had to go to $4 per gallon before Americans said, “Oh, energy not something to waste.”

BTW, the same stupidity occurred in 1970s America. Then when patriotic Americans with Japanese citizenship provided superior products, Americans put up tarrifs and other corporate welfare to protection the problem. Deja vue.

Then America said the economy is no longer is dependent on energy. Well, those energy bills have yet to start causing job losses - another lesson from the 1970s.

Essentially, you are saying Australians were doing the same money games that business school graduates were promoting in America. As I read it, Australians are not suffering due to events in the American economy. Australians are suffering because they did exactly same as Americans.

Meanwhile, Australia is far more attached to commodity exports. Have economic changes in commodity markets also contributed to problems in Australia? If so, how?

[tw]

Originally Posted by Aliantha

... you surely must realize that as interest rates go up, more people are locked into higher mortgage repayments for the same thing their neighbor has at a lower price. And of course with an inflated economy which Australia has had for many years now, housing prices are inflated which of course means that people have been paying even more on the capital aside from the interest at whatever rate it's at.

In the 1970s, the same reasoning is why interest rates were kept low. Therefore the economy only got worse. Of course. A mismanaged economy that throws money at problems (ie tax cuts without spending cuts, tax rebate checks, excessively low interest rates, etc) only gets worse years later.

How did America finally fix the housing market and all other problems? Housing interest rates were jacked up to 20% because central bank interest rates rose well above 10%. Only then was the American economy fixed in the early 1980s.

High interest rates do not create the problem. High rates and the resulting hardships may be necessary to fix the problem now. Otherwise economic forces take further revenge later.