Did you listen to Tito Mboweni?

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kaspaas

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Tito Mboweni is constantly bemoaning the fact that personal debt levels are increasing all the time.


In view of the announcement this afternoon if rates are to be increased or not:

Did you heed Tito Mboweni's call to reduce your debt?


I did... And should he increase the interest rate this afternoon by 50 pionts, my monthly repayments should be slightly less than they were directly after the previous increase.
 
Nope, do not like hearing bad news, especially when I drive home, the car can be a dangerous weapon, but yes I did decrease my debt, now if he would only decrease the interest rate I would get even more
 
Just bought a new car today :D. I didnt have much choice, so I guess I have now increased my debt some more. But got a nice increase at work, so hopefully all balances out, as long as Tito doesnt keep increasing the rate :cool:
 
Seeing as I suck at economics can someone explain to me why increased prices brought on by increased interest rates and therefore less personal money (due to higher bills) is helping the economy.

I hear, 'you must decrease your debt', but my salary stays the same when interest rates get risen so I then have less money due to higher bills.

Please explain to me in laymans terms why we must be forced to endure a rising interest rate when the man in the streets salary is stretched enough as it is.
 
schitz011 said:
Seeing as I suck at economics can someone explain to me why increased prices brought on by increased interest rates and therefore less personal money (due to higher bills) is helping the economy.

I hear, 'you must decrease your debt', but my salary stays the same when interest rates get risen so I then have less money due to higher bills.

Please explain to me in laymans terms why we must be forced to endure a rising interest rate when the man in the streets salary is stretched enough as it is.
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In theory when consumption outstrips production capacity inflation increases. Much of that consumption is driven by borrowing, so you they try to reduce consumption by increasing what it costs to borrow money. The increased rates should also pull money out of circulation. I don't think anyone can prove this really works.

South Africa's debt levels are not the problem or a problem. The only reason to reduce your debt level is to reduce the amount of interest you're paying, but how can you reduce it if all your spare money is being taken by increasing food, fuel, and now interest, costs? Our saving levels might be a bit low, but increased interest rates aren't really going to help. Even with high debit interest rates the returns the average person gets on their savings is so pitiful that they can't blamed for spending the money instead.
 
I paid off and cut up all of my credit cards except for my main one.

Stops the temptation to spend unneccesarily.

My motto have always been, "If i cant afford it cash, i cant have it".
 
noxibox said:
In theory when consumption outstrips production capacity inflation increases. Much of that consumption is driven by borrowing, so you they try to reduce consumption by increasing what it costs to borrow money. The increased rates should also pull money out of circulation. I don't think anyone can prove this really works.

South Africa's debt levels are not the problem or a problem. The only reason to reduce your debt level is to reduce the amount of interest you're paying, but how can you reduce it if all your spare money is being taken by increasing food, fuel, and now interest, costs? Our saving levels might be a bit low, but increased interest rates aren't really going to help. Even with high debit interest rates the returns the average person gets on their savings is so pitiful that they can't blamed for spending the money instead.
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Another line of thought (mine for one), is if my budget is "smaller" I can afford less. So I buy less expensive products - forcing the more expensive product manufacturers to cut costs or prices, which in turn leads to lower inflation rates.

Valid?
Who knows. :D
 
TBH I don't have a credit card (I share Lion fishes sentiment) and a modest house, my car is mine outright, so very little debt.

As noxibox stated, a lot of the effects of an interest hike are passed on via increases in the cost of things, but salaries do not rise to meet the shortfall, there by forcing people to incur more debt just to make ends meet as it were.

Surely if debt incurred mostly on credit cards is to blame, rather hike their rates seperate from bond rates etc? After all house prices are already vastly inflated without the added pressures of increased bond rates every month just because people are going wild on their credit cards.
 
I have a credit card, but don't live off any debt. I clear it every month...
 
Moederloos said:
Another line of thought (mine for one), is if my budget is "smaller" I can afford less. So I buy less expensive products - forcing the more expensive product manufacturers to cut costs or prices, which in turn leads to lower inflation rates.
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It should be possible to look at previous high interest periods to see if manufacturers reduced prices.

What we really want is for manufacturers to expand their capacity.
 
Moederloos said:
Another line of thought (mine for one), is if my budget is "smaller" I can afford less. So I buy less expensive products - forcing the more expensive product manufacturers to cut costs or prices, which in turn leads to lower inflation rates.

Valid?
Who knows. :D
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right on the money there...consumer spending had gotten out of hand in the last few years causing the inflation we are seeing now. only way to reduce spending - which is a major factor in rise of inflation - is to raise interest rates...

on a good side...it's good for the ones who manage to save some cash.
 
schitz011 said:
TBH I don't have a credit card (I share Lion fishes sentiment)
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As long as you are disciplined you should have a credit card. Why pay for things now when you can at least earn a little interest on it while the bank gives you a month of interest-free credit? As long as you pay the full amount each month. I never use cash if I can avoid it.
 
derekc said:
consumer spending had gotten out of hand in the last few years causing the inflation we are seeing now. only way to reduce spending - which is a major factor in rise of inflation - is to raise interest rates...
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Food and fuel are central factors.

In fact we want people to consume. We want them to consume so much more that previous levels look like no-one was buying anything. But we need to have added capacity to keep up with the demand. We should want to look back on this so-called boom as one of our low points.

derekc said:
on a good side...it's good for the ones who manage to save some cash.
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Of course people will be saving less now.
 
Why do they pretend our debt levels are unusual or excessive?

As far as I know the US (and possibly other countries) excludes food and fuel from their inflation rate calculation. Maybe these factors should be excluded since they are beyond the bank's control. Removing them will also give a clearer picture of consumption-related inflation and whether interest rates are having any impact. It does pose a problem with regard to annual "cost of living" increases since these are generally based on the inflation rate, which already isn't really a reflection of anyone's real increased cost of living. For most people food and fuel are their main costs.
 
On the upside a rate increase should improve the exchange rate. Even better if other countries lower their interest rates. It will make imports cheaper, so we can send more money out of the country.
 
There seems to be a lot of FUD and misunderstanding of why the rates were increased on these forums. Here is a quick inflation primer.

The Increase in the rate is an attempt to reduce inflation (not over indebtedness). Inflation is a complex, dynamic process which cannot be ascribed to a single cause. It can originate from the demand side or the supply side of the economy.

So called demand-pull inflation is caused by an increase in the money supply. The most common causes of this are:
1) increased consumption spending by households, as a result of a greater availability of consumer credit or the availability of cheaper credit;
2)increased investment spending by firms,
3)increased government spending,
4) increased export earnings.

From the supply side prices can be pushed up by:
1) increases in wages and salaries
2) increases in the cost of imported capital and goods
3) increases in profit margins
4) decreased productivity

Inflation has a number of effects which are bad (and some which are good). The main ones which the reserve bank are worried about are that it tends to discourage production investement in favour of speculation investement (so you don't create jobs) and discourages savings (pensions etc). And obviously it causes a steady increase in the cost of living which often has severe socio political effects (Look at Zimbabwe).

The whole thing is a very complex balancing act. You want some inflation, but not too much.

noxibox said:
South Africa's debt levels are not the problem or a problem. The only reason to reduce your debt level is to reduce the amount of interest you're paying.
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Are you on drugs? High levels are debt are a big problem. Come on, this is basic stuff. If you have no savings what happens when you retire? Anyone? Anyone? Not only do you have to figure out what you are going to live on, but the bank is going to come around and take anything you do have. It's a massive problem in SA that people don't save enough for their retirement. To say that thats not important is just ludicrous. In addition, getting out of debt is the most important step on the way to creating real wealth.

noxibox said:
As far as I know the US (and possibly other countries) excludes food and fuel from their inflation rate calculation.
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You can't exclude them because then you have an inaccurate inflation rate. Though I'm sure Zimbabwe would like your suggestion. It would drastically reduce their inflation rate and prove that they are living in paradise.

noxibox said:
In fact we want people to consume. We want them to consume so much more that previous levels look like no-one was buying anything. But we need to have added capacity to keep up with the demand.
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Again you are way, way off the mark. Aside from the inevitable massive inflation, bankrupcy and starving retirees, there are profound macro economic effects where economies over heat. Again, it's a balancing act. One which our Reserve Bank are hgenerally doing very well.

Seriously Noxi, as far as economics go, you don't seem to have a clue.
 
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