Hi Mr. Dad,

Welcome to the community we are glad to have you.

In Module 8 our free video basics of trading course, the link to which you can find below, we have a section designed to give people a basic understanding of what moves interest rates.

InformedTrades : Learn Trading. Trading Education. | - Basics of Trading Course

As far as your questions, they are all very relavent, however unfortunately most of them do not have easy answers. I personally could write a book exploring the intricacies of each of these points, but I will do my best to give a quick view on each one, which I hope will generate a discussion that we can all learn more from.

While much of the subprime issue started in the United States it is a global issue because much of the debt has been spread around the globe and is held by institutions in various other countries such as Australia.

This hurts global economic growth and therefore makes it more likely that central banks from around the world including Australia lower interest rates to try and stimulate economic growth, all else being equal.

The US Trade deficit has to be funded which creates a demand for debt financing. For a variety of factors this has not happened up to this point, but over the long term this should make global interest rates higher, all else being equal.

Same goes here as the one above. More demand for credit should mean higher interest rates all else being equal.

There are a number of arguments as to what is causing the world food crisis, but one thing that I think everyone agrees on is that it is driving food prices higher. This increases inflation, but also hurts economic growth, as the fact that consumers are spending more on food means they have less to spend on other goods and services that drive economic growth.

At the heart of the debate here in my opinion is wether or not a central bank can affect the price of food through monetary policy, something that the demand elasticity (amount that people will reduce or increase consumption based on price) is very inelastic (people will continue to consume similar amounts even with higher prices and vice versa).

There is a global divide on this with the European Central Bank reacting to higher food and energy prices by raising interest rates, and the US Central Bank cutting or leaving rates unchanged due to the affects these factors have on economic growth.

Australia is unique in this sense, because as peter pointed out, so much of its global trade is related to commodities, so the central bank has in recent history reacted by raising interest rates as well. Now that commodity prices are starting to come down that trend could reverse however.

Same answer as above.

There is much debate on this point as well, and we have several videos which cover this topic which you can find at the links below:

Why the US Dollar is Still King of the Currency World

Will the US Dollar Remain King of the Currency World?

Videos above go into this.

Ultimately, how this will affect interest rates is how much spillover there is into the broader Australian economy as a result of problems at banks such as this. Currently it is looking like the economy is being affect more than expected, making interest rates more likely to come down in the future, all else being equal.

Hope that helps. Would be interested to hear any other view on this so feel free to post below as always with any questions or comments.

Best Regards,
Dave

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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.