The Concept of Money turned Upside Down: Off Its Rocker…

It’s nearly 40 degrees, and it feels as though the sun is burning a hole right through the shirt on your back.

Barely a breath of wind blows on your face. You are completely drenched in sweat. And those blasted flies just won’t leave you alone.

No matter how many times you swipe, swat, rub and curse, they always manage to find a hole in your defence. Each one a cursed blight as you set about your work.

You drag your mower out of the shed and fill it with fuel. Round and round you wind the handle on your old man’s Victa. You release the small trigger, and after a couple of false starts, it roars into life.

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With the mower now bellowing away, you feel a sense of relief. At least the old bugger is running.

Yet it also fills you with a sense of dread. Designed and manufactured when OH&S were just some letters in the alphabet, the sound of the mower bores a hole right through your eardrums.

Of course, you could have waited until later in the afternoon when the thermometer dropped a few degrees and a breeze had finally started to blow.

But you had plans on your mind. Once the mowing was done, you were free to catch up with friends. You might ride to the pool, or head into town and watch a movie at the creaky old cinema.

Either way, any stalling only delayed the inevitable. Sure, you could choose when you did your jobs. But doing, and finishing them was not negotiable. No such thing as ‘I ran out of time’.

Maybe you earned some pocket money for doing your jobs. Or maybe you never earned a cracker. Doing jobs was the way you contributed, your little part in helping the household chug along.

And even now, when you really can’t be bothered and all you want to do is sit on the couch, you don’t. You instinctively get up off your backside and just get on with it. Just like you did when you were a kid.

Whether your old man threw a few bob your way or not, one thing he never did was ask you to pay for the privilege. Not once did he hit you up for some money to let you mow his lawn.

Not only would he have never asked (after all, fair’s fair), the thought just would never have crossed his mind. Who would ever charge their kids money for simply doing their jobs?

Whether you want to believe it or not, this crazy scenario might just about be on our doorsteps. However, it is not about doing work and expecting to be paid. But it is to do with money.

The Concept of Money and Negative Interest Rates…

The whole notion of money and how it works could about to be turned on its head. And everything you learned about when you were growing up — how to work and save, to only buy what you can afford — might soon go out the window.

When you get your head around it, you won’t be alone in thinking the whole world might just be off its collective rocker.

Did you ever think in your lifetime that when depositing money into your bank account, you might actually be charged for the privilege?

Or that when you take out a loan, the bank might pay you interest?

Yep, the whole thing seems totally bonkers. Yet it is something that might soon come our way.

It’s the crazy world of negative interest rates. A world where it costs you money to own money.

With the cash rate at a measly 0.75%, the RBA is quickly running out of any meaningful buffer. And as we just recently learned, they almost cut rates again on Melbourne Cup day. Surely nowhere near enough margin if the wheels fall off, and the economy really does head south.

But that is the world that the central banks have created. A world where owning money could become a liability.

And owing money? You absolute beauty. The more the merrier…whoever invented this?

There was a time when defending your currency was a priority. The stronger your currency, the stronger your economy and institutions must be chugging along. There was even a sense of pride in it.

But central banks have been in a race of their own. This time it’s a race to the bottom. Unable to compete in a global environment due to higher wages — the above mentioned OH&S and a whole swag of other things — central banks are using the last remaining tool in their arsenal…currency.

By lowering rates into oblivion, so too should their currency fall. The problem is, if everybody is doing the same thing, then nobody wins.

And this is the dilemma that investors must face as we roll into the end of this year and into 2020. With the whole concept of money and interest upside down and back to front, investors must work out how they are going to generate income.

Buying an asset only to flip it later for a profit might keep working for a while yet…but will it still work when interest rates hit zero? What will we all do then?

More importantly, what will you do in the meantime to pay all the bills? If you need a million bucks to generate just $10,000 from a term deposit, will you ever have enough money?

Forget what you learned growing up, because the rules have all changed. As we move into 2020, it is income, not capital growth that we all need to focus on.


Matt Hibbard,
For The Rum Rebellion

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