Look, I know I should wash my car myself.
But, it's a wagon. It's high. And the roof rack doesn't allow for easy access to the roof, and I didn't have a high pressure hose, and…
… and, well, I'm just lazy sometimes
Finished judging me? Good!
(You're not wrong. It's just unpleasant, so stop it! 🙂 )
Anyway, where was I?
Oh yes.
So… I decided to take the car down to the hand carwash place at my local shopping centre, grab a bite of lunch, and write an article while I waited.
(I wasn't sure what I was going to write about but, well, the story just kinda came to me. Read on…)
I parked the car, jumped out, and the car wash bloke walked up.
Here's how it went:
Me: "Just an external wash and vacuum please, mate."
Him: "Do you want a polish?"
Me: "No, thanks"
Him: "It'll look better with a polish."
Me: "No, just the wash and vacuum." [I hate it when people push stuff like that. But I let it slide.]
[He looks around the car]
Him: "That'll be $110."
Me: [rueful smile] No thanks, mate.
But it's okay, because I knew there was another one in the next suburb, and there were good cafes nearby.
I drove over, and parked the car.
The sign says "Wagons from $60" (I drive a 2016 Prado).
Me: "Just an external wash and vacuum please, mate."
Him: "No worries."
[Looks around the car]
Him: "That'll be $140."
Bloody hell.
Suffice it to say, the car remains dirty at the time of writing.
And I saved myself $140 in a matter of seconds.
Now, for context, the last time I had it washed (too long, but not more than a few months), it was $85. I thought that was a lot, but grimaced and paid it.
Maybe 18-24 months ago, the same thing cost $65.
Now, other than a jaw-dropping story, I reckon this tells us a lot about the economy.
First, inflation is rampant.
Second, as both a cause and an effect, I'm guessing the staff are getting paid a LOT more than they were a few years back.
And third, the last 8 months of rate rises are clearly hurting some people, but the rest of the country is still spending up.
Big.
I'm going to bet you have your examples, too.
To be fair, I'm the first to say that a couple of anecdotes don't make for representative data, let alone conclusive proof of anything.
But, seriously…
If you want to know why the RBA continues to hike rates – you don't have to look far, do you?
It's also why the inflation fight is so important. Whatever the causes of inflation – low rates, money printing, war, COVID etc. etc. – the job of the central bank is to clamp down on the second-order impacts that mean a car wash can ask for more than double the rate it was charging just a couple of years ago.
But it also calls into stark relief the bluntness of interest rates as the tool they've been given.
The RBA's official cash rate has gone from 0.1% to 3.1%, but the car wash is still busy enough to charge double and be full (he told me it'd be a 2-hour rate, even at that price!).
Meaning?
Meaning that rates aren't impacting everyone.
Probably not even most of us.
Renting? Rates don't impact you.
Paid off your place? Rates don't impact you (but might actually help if you're getting more on your savings).
Paying off a mortgage? Thanks – you're carrying the can on this one.
It's not quite that simple, of course.
Higher rates impact small businesses (and large businesses) who've borrowed to grow.
And renters will end up having rents jacked up by landlords desperate to cover soaring repayments.
And then, of course, there's the second-order impact of money being sucked out of spending and into repayments – money that'll take cash out of the economy, that might have otherwise been spent at the shops.
But predominantly, it's a very, very blunt tool, as I said, which disproportionately hurts some, actually helping others.
Yes, it's ever been the case.
Yes, they chose to take on the debt.
But let me ask you: isn't it likely we can find a better way to stimulate and/or cool the economy?
Something that shares the pain just a little more equitably?
Because even that 'mortgage paying' group isn't a single mob.
Some bought a home 29 years ago, at prices that now seem like a steal. When rates go up, it hurts those people… a little. Because wages and house prices have grown a lot in the meantime.
And those who bought 5, 3 and 1 year ago?
They're in a very different boat.
Should we really just shrug and say 'Well, that's just the way it is'?
I don't think so.
If it was up to me, I'd use a three-pronged approach.
Interest rates absolutely have a role. So that's the first bit.
The second and third?
I reckon there's a case to alter the rates of the Superannuation Guarantee Levy (paid by employers) to take money out of the economy (and into Super) when things are running too hot, and to put more money into the economy when it needs a push.
(It'd still average the legislated amount, currently 10.5%, and when we got less in the pay packet, at least we'd know it was going to our own retirement.)
And the third is considered by our pollies to be the Tax Which Must Not Be Named (a Harry Potter reference for those who haven't read the books!); the GST.
It should be easy enough to bump it up and down in line with the needs of the economy.
Of course, the question is how would you do it without those changes becoming political poison. And how, if the decision-makers weren't independent, would you make sure the 'temporary' changes didn't become permanent?
I think it's solvable, but those are definitely the right questions.
In the meantime?
We've got a LOT of borrowers about to get a rude shock when their fixed rates suddenly become variable at much higher rates.
We've got a LOT of recent borrowers who will increasingly struggle with higher repayments, as house prices fall.
And we've got a LOT of inflation, meaning the RBA has little choice but to act, making sure they put rising prices to the sword, even if they end up going a little too far in the process (because going to far is much better, in the long term, than not going far enough).
There are lessons to be learned from the past few years.
Central banks were too cautious.
Governments were too reckless.
Regulators were too obsequious.
Banks were too optimistic.
Borrowers were too trusting.
Those are some of the lessons we've learned.
And they can be fixed.
But the most painful lesson, for many, might be in having to carry the can for the rest of us. And that's something we should all learn from, and we should change before the next time.
Now, where did I put that car detergent and chamois?
Fool on!
