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We might have seen the ‘R-word being thrown around again recently. Of course, we’re talking about recession. Some commentators will have you believe that if interest rates keep rising dramatically, Australia could be heading for a recession or a “technical recession”.
However, it’s more complicated than some of the clickbait headlines we’ve read this week.
Appearing on Channel Nine’s Today Extra this week, Mark Bouris discussed the recent bloodbath on stock exchanges around the world. He warned Australians not to fall for the fear-mongering or “jawboning” as he called it.
“You will probably see the unemployment number kick up but I don’t think we will see a recession,” he said. “Our Reserve Bank won’t let that happen. They are not going to put interest rates up and put us in recession. If recession looks imminent, the Reserve Bank will stop or put rates down.”
The confusing fact facing all consumers is that interest rates are rising to help control inflation, yet it’s rising interest rates that are generating talks of recession.
“What has sparked the crash are fears that inflation and the control of inflation – or in other words, putting interest rates up to keep inflation down – will create a recession.”
“It’s totally counterintuitive,” Mark said on Today. “Equally it’s counterintuitive that the people who probably spend the least amount of money to protect their mortgage will be the most affected, that is mortgage holders because they will put their interest rates up.”
“Yes, we are worried about the cost of living. Yes, we are worried about interest rates going up. But at the same time we’ve got to control inflation.”
“So really what they’re saying is you have to take a lot of pain and if you go back many, many years ago, Paul Keating referred to this as ‘the recession we had to have’ to control inflation. And if Paul Keating was still the treasurer or maybe the prime minister today, he would say the same thing.”
Even if Australia was to avoid a recession, someone will have to bear the brunt of all this economic turmoil and Mark’s concern is that it will likely be retailers, small business owners and mortgage holders. However, Mark provided a calm reminder of past experiences:
“One thing that I’ve seen on a number of occasions, through the GFC, through COVID, through previous periods, is that these things last for about six months, or 12 months, and then the markets bounce back at an even greater rate than what they were before.”
“So remember, during the GFC, everybody’s superannuation fund imploded. Everybody panicked. Some people started cashing out, then within a year, 18 months, the stock market picked up as did the property market.”
See Mark’s entire appearance on Today Extra by clicking the video above.
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