In the February 2009 edition of this column I suggested that the time to fix a homeloan was when the rate dipped towards the 5% level. Sadly this occurred for just a very brief period during March when a work colleague fixed his homeloan for three years at 4.99%. Well done him. Bad luck Westpac.

Since that time fixed rates have climbed inexorably, even though our good friends at the Reserve Bank have kept official rates on hold. This is because whereas variable homeloan rates are (loosely) linked to changes in the RBA's benchmark, fixed rates reflect the credit market's perceptions of both Australia and the international economy's changing circumstances.
And my, hasn't our collective financial position changed since the dark days
of late 2008/early 2009.

First, unemployment expectations have come down markedly. In the aforementioned February column I prophesied that the jobless rate would peak around 7.5%. That now seems pessimistic, given that the current rate is still well below 6%. What employers have done differently during this slowdown is reduce workers' hours rather than sacking a proportion en masse. Hats off to those business owners who chose this more humane and sustainable employment path.

Second, the Federal Government's stimulus packages appear to have kept consumer confidence alive, as evidenced by the strong share price performances of JB Hifi and Harvey Norman, as well as the recent decision by Myer to refloat on the stock exchange. Whether handing out such large sums was a good policy in the long run remains to be seen; in the short run, however, this policy has done its bit to avoid a major trough in household spending.

The third and final means by which our economy has avoided the dark fate that has befallen so many of its global brethren is that none of our banks collapsed. To paraphrase Ratty from the 'Wind In The Willows', there is nothing, absolutely nothing half as damaging to a financial system as a run on a bank (apologies to Kenneth Grahame). Be it from luck, prudent regulation or divine intervention, Australia's banks went into the Financial Crisis well capitalised and with relatively few bad loans on their books. As a result, credit has stayed freely available, thus propping up both the small business and housing market sectors, neither of which can function without reasonably priced loan finance.

Although the three main saviours of our economy were the Federal Government, the RBA and the Big Four commercial banks, I fear the latter two could also be its undoing. The cheap credit that has done so much to maintain confidence cannot last forever because eventually it must lead to both inflation (something the RBA is sworn to eradicate) and lower profit margins (something Bank shareholders will only endure for so long). Soon Australia's central bank chief Glenn Stevens will move from his current 'tightening bias' with respect to monetary policy to an actual rate rise; and hard earned experience with the commercial banks suggests they will be quick to follow.

So rates will rise soon, and that's bad news in the short term. But this inevitable move upwards probably indicates that in the longer term, we are out of the economic woods, which to those with strong memories of March this year is undoubtedly good to hear.