The Reserve Bank of Australia has ramped up warnings that US President Donald Trump's debt-funded fiscal stimulus may have parallels to the late 1960s era that presaged nearly two decades of rampant inflation and skyrocketing interest rates. Speaking as the three-month US Treasury yield surpassed the yield on the benchmark S&P 500 for the first time since the 2008 crisis, Reserve Bank deputy governor Guy Debelle said the US was deploying a large amount of debt-funded stimulus in an economy already close to full employment."It's not something you normally do at this stage of the cycle," he said. "It's been done in the past and hasn't often ended up all that well."
When the RBA deputy governor warns of risk of inflation and interest rates like the 1970s, it is worth reminding ourselves what inflation and interest rates were like in the 1970s. What do you think would happen if Australians with mortgages found themselves with mortgage rates 5% or 10% higher than they are today? It would not be good!
I'm busy working on my blog posts. Watch this space!