–Thanks to the rise in rates, credit card interest rates are 20% higher than this time last year. And it means, with current balances, Aussies are paying about $500 million in interest on stuff they already bought. Is it too late to buy into the Visa IPO?

–By the way, today’s Daily Reckoning turned into a rather in-depth look at the fundamental trends in the Aussie economy. If you want the share market news and some trading analysis, we recommend you amble on over to Money Morning. Today’s DR has a big task: to determine Australia’s role in global economy history. If that’s not your style, go straight to the weekend and pass our passionate discussion of the terms of trade.

–But before passion, something more mundane. What is so annoying about the credit card headline?

–Well, it suggests that credit card debt has actually declined. It hasn’t. It’s just growing less fast. This is like those ridiculous announcements that periodically emanate from the bowels of the U.S. Government about the size of the Federal deficit.

–In the months that the deficit grows less fast than the month before, you see headlines like, “Deficit shrinks.” Of course it’s deliberate deception (a lie, if you like). If a tumor grows less fast it doesn’t mean it’s less dangerous. It’s still cancer (nearly all debt is malignant). And growing less fast isn’t really a qualitative improvement.

–The goods news for Glenn Stevens is that high interest repayments on credit cards will eat into domestic consumption. The bad news is that the higher rates actually led to lower repayments according to the latest RBA figures. Repayments in February fell by 7.9% from $18.21 billion to $16.71 billion. That was for the month, by the way.

–You may have felt cheated that we did not spend more time, as we promised, digesting the hard truths published in the Reserve Bank’s Financial Stability Review last month. But one chart did come to mind in light of yesterday’s credit card news. It’s the climb in household interest repayments as a percentage of disposable income.

–Not surprisingly, it’s on the rise. Granted, the combined number includes many older homeowners who are willing to carry higher debt loads later in life. But the simple truth is that paying interest on debt is not a good way to accumulate wealth. Never has been. Never will be. Simply not possible to get rich by spending the bank’s money.

–Let’s put it this way: unless wages rise (something that would probably cause the Reserve Bank to put up rates again), Australians on the margin of the boom will have to use their credit cards to finance essential consumption, and they will pay dearly to do so. Either that, or they will have to reduce consumption. “If we do not discipline ourselves,” the old saying goes, “life will do it for us.”

–But there are congratulations in order. So congratulations Australia! You’re getting a $30 billion raise.

–Reserve Bank economists now reckon that the recent coking and thermal coal deals inked between Aussie sellers and overseas buyers will haul in another $30 billion to the economy this year. That is not the kind of news the RBA wants to hear while it’s busy putting out inflationary bush fires in the economy. But facts are facts.

–Thirty billions dollars in coal and iron ore earnings, where will it go? To producers? To investors? To mining service companies like Walter Diversified Services (ASX:WDS)?

–While you think on that, let’s talk about “terms of trade” for a moment. “Terms of trade” is one of those terms of the trade that gets throw around by economists all the time. But what does it mean?

–The simple definition is this: it’s the ratio between export prices to import prices. If you get more for what you sell and pay less for what you buy, your terms of trade improve. And guess what people? Thanks to this particular moment in history, Australia gets a lot more for what it sells and pays a lot less for what it buys (except for crude oil).

–The chart below is taken from a 2005 Reserve Bank research paper called “Long-Term Patterns in Australia’s Terms of Trade,” by Christian Gillitzer and Jonathan Kearns. If you’d like to read the whole thing, you can find it here.