#264 - Did The RBA Just Wreck Australians?

The government just introduced 5% deposits. People can go and put a 5% deposit for a home. Dumb. All they're doing is creating future debt servitude for young people in the country. Stupid. And all that's going to do is pump up the price again because this whole short-term idea of trying to help mortgage holders by dropping 25 basis points to alleviate a couple hundred bucks a month, it's probably caused some big

problems long-term. They should have just bloody left it. What's happening in the government level is they're so afraid of the word recession that they're pulling all the levers they can to avoid it, which includes cutting rates. But here's the thing. If you cut rates and inflation goes up, you might avoid a recession for a period of time. But if inflation gets entrenched, you start to whittle away the wealth of the country. We're currently

in the greatest property bubble in the country's history in the last 130 years. It's obvious. I'm Lloyd James Ross, seven-figure investor and entrepreneur, and I've helped thousands of business owners and professionals turn financial stress into success. If you're stuck in old money habits, overwhelmed by investing, or unsure where to start, this is for you. I'll give you the mindset and strategies to take control, grow your wealth, and achieve financial freedom. It's time to

make your money work for you. We saw the July inflation data come in, and it is coming in hot, meaning that's bad. What do I mean by that? Well, the Consumer Price Index, or CPI Index, which is the rate at which prices of goods and services rise on a monthly and annual basis, is they saw this. Since the start of the year to June, CPI, or inflation, was running at about 1.9%, which is right in

the band of where the Reserve Bank wants to see inflation. However, Last month, they cut the rates 0.25% down to 3.6%. So the cash rate or the reserve rate with the RBA is 3.6%. And that's coming down lower, which is going to stifle inflation. I mean, how stupid do you have to be as a reserve bank to not realize that people

are spending money already, there's full employment. you're immigrating a whole Canberra every single year into the country, what do you think's going to happen if you reduce rates? Of course, it's going to tick up inflation. And that's exactly what's happened. It's exactly what's happened. So the data to July has come in at 2.8%. So the expectations were probably around 2.1, it's 2.8, that's a huge pump. That's like a 40% uplift in inflation. So inflation rose by 40% from the

expected numbers. Now, CPI or Consumer Price Index, the number they're running from, it covers generally housing, tobacco, it covers food, and those numbers, frankly, are actually higher. If you look at those specific three numbers of inflation, food is like 3%, housing has gone up over 3%, and tobacco is 6.5%. So Australians, yeah, we like to eat, we like to have shelter and we like to smoke. So you think about that. So the number's probably more like 3.1%, which

is unbelievable. So that's almost like a 50% jump in the inflation rate. And the reason that's happened is because the RBA has dropped rates when they should have left them as is. They should have left them. And the reason why they didn't is because most people in Australia have gone and borrowed to the hilt as much as they can to buy overpriced housing. Now, before you tell me it's not overpriced, let me tell you something. Housing is a financial asset and

there is an episode on here. If you go click through, hit the subscribe button and go click through the episode we talk about with housing and what's happening in the housing industry. We've done lots of episodes on that but there's some fresh ones so go check it out. Housing is a financial asset and the reason it's a financial asset is because you can lease it out to a tenant and get income from it and you produce yield, right? So the asset can yield income

and cash flow. And of course, because it's attached to land, over time with population growth and demand, the supply of land is static and demand, which is population growth, makes the price of the land go up over time, right? And so, it's a financial asset. And the reason I

know it's overpriced is because if you were to go and buy a property and lease it out, the rental return of say three and a half percent, which is what the tenant pays you, three and a half percent of the asset value is what the rental return would be. The rent doesn't cover the repayments of a typical mortgage. Doesn't because if mortgage rates, the retail rates to say 6%, which they are, and you've got rental yields at three and a half to 4% that the

assets not producing enough to cover the repayments of a mortgage. So it's prima facie overpriced. Now, if yields were more like five or over 5%, it would be fairly priced or potentially undervalued, but it's not. And the reason it's also not is because there's tons of signals that dictate that it's overpriced. There's people living in tents. The government just introduced, just this week, they introduced 5% deposits

where people can go and put a 5% deposit for a home. And all that's gonna do is pump up the price again, because people are gonna be able to get in a little bit easier. Mind you, that doesn't make it easier for them to service the loan, which is still important, but it does reduce the amount of deposit required. So that's gonna pump up a little bit. And they brought that policy forward three months. Why? Because they're trying to get it to the next edge. They're trying to save the

property market. And if you look at what the RBA did, with the rate cut, they are trying to save the property market, or they're trying to save people with these big mortgages that they should never really have got. But because of the policies and the immigration coming into the country, it's created a property bubble. And it's

getting ridiculous now, really, frankly, but that's what's happened. And so you've got this situation structurally where you've got inflated housing because of immigration, frankly, If you pull in six or seven or eight thousand people a year and there's only so much housing to go around, and by the way, there's only 53,000, 53,000 market jobs, meaning non-government jobs available. So what the hell are 700 or 600,000 people going to do when they come here when there's only

53,000 open market jobs available and the government jobs are done? I'm pretty sure they're even stopping government jobs happening now because they had employed a lot into the sector. And Australia is now one of the highest employees in the public sector, in the government. So what are they going to do with the 550,000 other people? They can't all be Uber drivers, right? So you're going to have this situation where

property is being pumped up, and it shouldn't be. And the reason why people are mortgaged to the Hiltons is because they have to borrow money to buy the houses, right? And so we've caused this ourselves. And of course when the RBA drops rates to save mortgage holders, because they've got a million dollars worth of debt, and every little morsel of cut, like 0.25 or 25 basis points, That's

going to save them a couple hundred bucks a month. But that couple hundred bucks a month to a couple who's already both working, got kids in daycare, and is paying at their butt for petrol and gas and energy because of energy policy, then a little bit does count for them. So the RBA is considering mortgage holders when they make these cuts. But what they don't realize, well, they might realize, is that when you cut rates, you

really crank up inflation. Because what you're doing then is you're creating more You're certainly creating more debt availability because people are borrowing more money. And it's also pumping up the price of things because you are alleviating some cash flow in the household budget for them to go and buy more cigarettes and buy more groceries and so forth. So that's how it happens. Now, why is this a problem? Why are you talking about this,

Lloyd? Why is it such a catastrophic decision? And I put it on my stories on Instagram yesterday and a friend of mine said, what does this mean?

Cause I put there that the RBA made a catastrophic mistake by cutting rates. The inflation's gone up by 40% in the last month from the start of the year to now it's cranked up. And the reason why it's an error is because if inflation gets entrenched and you can't get hold of it and it starts to grow, you know, 3%, 4%, 5%, if inflation goes up to five or more percent, which is what's happening currently in the UK, I believe is. that

you start to cook the currency, obviously. And people in Australia call our currency the Pacific peso because the policies in place currently in the country are making our dollar worth a lot less. And that's why people are running to things like Bitcoin and so forth because they're trying to find something that doesn't destroy their gains of wealth, right? And it's also why they also want property too, because when you do buy property, you do

have a hedge against inflationary pressures. But it doesn't work so good when you've got a massive mortgage and it's costing you more than, you know, you're sucking out your whole life to pay for it. This is who cares, right, about inflation if that's happening. But if inflation does get carried away, then it has a huge impact on the economic growth of the country. Just quickly, if you're ready to take control of your finances but feel stuck on

where to start, I have a solution. My book, Money Bias Happiness, simplifies investing and wealth building with practical steps to help you achieve financial peace. Get your copy via the link in the show notes and let's get your money working for you. Now back to the episode. What's happening in Australia is we're very anemic, like we're like a 0.5% fall in GDP away from having an actual technical recession.

And by all accounts, and you'll say this in the comments no doubt too, we have been in a GDP per capita recession for seven quarters or eight quarters, so the last almost two years. And so we are. But what's happening in the government level is they're so afraid of the word recession that they're pulling all the levers they can to avoid it, which includes cutting rates. But here's the thing, if you cut rates, And

inflation goes up. You might avoid a recession for a period of time, but if inflation gets entrenched, you start to whittle away the wealth of the country and it starts to get extremely difficult to grow. And you can go into what's called stagflation. And

stagflation occurs when you start to drop rates to stoke growth. But it has the opposite effect because of inflation and all of a sudden you get negative growth. And all of a sudden you cannot pull the lever of dropping rates to restoke the economy. You can't do it anymore. And you get stagflation. And stagflation is where we go into a bit of a death spiral towards negative growth for consecutive quarters.

And that scares the government. And so it should. Because it's what happened in the 1970s with the oil embargo, where the price of oil went way up. And oil is in everything. It's in our phones. It's in everything, right? Plastics. So when price of oil goes up, everything goes up. So we had this massive spike in inflation. And of course, the

currency was just getting burnt. And if you go into hyperinflation, you can destroy the currency and it can absolutely turn the country into an absolute economic tornado. And it's what happened in Germany before World War II. It's happened in many other countries. And they've had to, I mean, the economy's just basically been destroyed and job losses go way up, many bad things happen. So if you go and look at history, stagflation is not a good place to be. And so what the government

will want to do is prevent that happening. So they'll have to actually bring inflation down. Here's the only way you can pretty much do that, is the only way to do that is to increase the rates, increase the cash rate, increase the reserve rate. So that means we're gonna, if inflation ticks up again and again and again, and we can't get hold of it, to actually break inflation and bring it down again, you have to lift rates above the rate of, way

above the rate of inflation. So don't be surprised if instead of a rate cut or two that people are expecting in November, on the 4th of November, the RBA will have a chance to either keep rates the same, cut them or increase them. And they meet first Tuesday of every month to do that. And when they do it next time, don't be surprised to see no cuts. They'll probably

keep it on hold next month. And in November, usually about the Melbourne Cup, on the Melbourne Cup, our big horse race here, our annual sporting event, they may even have to put it back up. And so this whole short-term idea of trying to help mortgage holders by dropping like 25 basis points to alleviate a couple hundred bucks a month, it's probably caused some big problems long-term. They should have just bloody left it. They should have just left it at 4.5% and let the

property market swallow it. But they're too afraid because of the backlash, they're too afraid of their own properties falling in value, because property is a religion in this country. And heaven forbid it ever goes backwards by a millimeter, because then, oh my God, right? But the reality is, if you want a nice steady growing economy, having the odd recession is not a bad thing. You can't have something just go straight up. The

only Ponzi schemes do that. Like Bernie Madoff's Ponzi scheme goes straight up. And you're not going to have a property market that just goes up forever. It's not going to happen. So we either deal with it now or we don't. And it looks like they're not going to. They're dropping the deposit rates to 5%. Dumb. Dumb. All they're doing is creating future debt servitude for young people in the country. Stupid. It's going to prop the prices up again. Then they're cutting rates when they

should increase them and keep them. So I hope that the RBA in the future, lifts rates back up, you have foreclosures, short-term pain, to then bring prices back down a little bit to where they're a little bit more affordable for people, and you have a better country. But of course, the underlying or the outlier to that equation, as to whether that will happen or not, is of course, immigration. I watched a wonderful talk from Pauline Hanson yesterday. Now, love it

or hate it, I don't really care. And you're welcome to put some comments down below. to what you think, but I saw her do a talk yesterday and it was just spot on. Drop immigration to 130,000 a year, which

sustains the birth rate and doesn't have a reducing population. A lot of people think that we need all these people. We don't. We get all of our wealth from resources in the ground. We only need 130,000 coming in to sustain growth. We don't need crazy number of people here. So drop the immigration rate down to 130k, start to shift the energy policy and start producing gas and nuclear projects. And again, all you nuclear, anti-nuclear people, pop your comments below,

have a whinge below. I'm happy to come and talk to you about it. But you can't have a country that's producing all these natural resources and have energy problems. And then of course, leave rates a bit higher so we can have the recession that we need to have. to reset prices and help the people that are in this country, to help the citizens of the country, not the people just coming in randomly who haven't been here and built the country. So go check

that out. I think if you go to her Twitter account or X account, you can listen to what she said. Now, love or hate her, what she says, she's the only one who's got any balls to say what we need to say so we can save the economy in this country. Because I don't know about you, but I love living in a prosperous country. I love it when we can afford housing. I love it when we have steady sustainable growth and right now we're on the precipice of not that.

Anyway, that's why the RBA may have made a catastrophic mistake. I believe they did by cutting rates and don't be surprised if you see him on hold and then don't be surprised if you see him go up. So prepare for it, buckle up, start putting things in place now to to actually de-lever if you're leveraged up, to just de-leverage. No one says you've got to keep a flip in hand. You can rent. Again, I know the comments, oh my God, that's the worst thing you could say, but

I rent and I sleep well at night. Sometimes it's not about keeping up with the Joneses, it's not about how big your house is, it's not about I'm on the property ladder, it's about are you happy and are you financially at peace? Most people aren't. So perhaps shift your objectives, shift your approach, start making some money moves to be financially at peace and not simply on the treadmill or on the rat race of trying to keep up with the Joneses who've got their fourth property. Because it

doesn't look like it's going to end well from here going forward. It will happen. We're currently in the greatest property bubble in the country's history in the last 130 years. It's obvious. It's obvious. So just be aware if you take the 5% deposit and put in now and rates go up, don't be surprised if you have to then foreclose because you messed up. It's not a good time to be making the

bold property acquisition is in my eyes. But again, you got to do what you need to do, but just be ready for what's going to happen in rates because they may go up and that may impact you massively. All right, that's it. Leave me a comment. Come fight me in the comments below or come and give me some love. I don't mind. I reply to all the comments, right? My buddy says, why do you reply to all the comments? It's brutal. I'm like, because I still love

everyone. They're entitled to their opinion and it makes a lot of fun, right? I ain't scared for a fight. So, all awesome love. And if you love, thank you. Thank you for watching the show. And if you are watching Spotify, we have a video podcast on Spotify too, share this episode with a friend and hit the subscribe button if you want more. I can't wait to see the comments. What do you think about inflation going up? And what do you think about where the RBA should set rates? Leave

your comments below and I'll see you in the next episode. Thanks for listening to Money Grows on Trees. If you enjoyed the episode, leave a five-star review on Apple Podcasts and Spotify and subscribe to us on YouTube so you never miss an episode. And if you're serious about building wealth, make sure to check out the links in the show notes and follow me on all social media platforms, at LloydJamesRoss for