If the government gives financial recommendations – do the opposite!

With the Australian central ‘bank’, the Reserve ‘Bank’ of Australia, cutting interest rates to an all-time low, many industry commentators came out and put their spin on the decision.

Amongst them was the incumbent governments Treasurer, who suggested:

“Now is the time to borrow and invest, whether you be a household or small business – now is the time to have a go,” Mr Hockey said after the decision.

The way I read that is simple – if that is what the government is recommending – and many people will be influenced by this – then there will be blood on the streets (figuratively speaking)for those who do just that. Those who expand their debt on the recommendation of the government will most likely be amongst the victims of an economic contraction placing them in jeopardy, during the next 1-2 years.

It reminded me of the time in about 2007 when the Australian government changed the super-annuation rules allowing a larged one off deposit into personal retirement plans and encouraged people to do so.

Many sold their real estate and invested the cash from the sale into predominantly stock market based retirement schemes. Within about 18 months the stock market had crashed, with most losing about 50% of their stock value, and real estate held firm for the most part.

So if the government is recommending you get into further debt – consider the opposite direction!