If you could buy a house with the money in your pocket, you would ... but you can't. Instead, you need to borrow obscene amounts of cash if you want to purchase a house in a major city on the east coast of Australia.

Extraordinarily though, borrowers with purchasing power and investors are doing just that, borrowing obscene amounts of money.

Why? Well because interest rates are now sitting comfortably at historic lows.

There's one problem though, and it's a rather large one: most millennials can't afford the deposit required to obtain a home loan in the first place. In many cases that means they will never own a home.

This isn't just a sentimental home ownership debate though - or something related to smashed avocado (long story if you haven't been following the news).

This is a generation wealth problem. Younger Australians are growing up in a world where inflation and wages expectations are low, and the idea of a bricks and mortar life-long asset is simply out of reach. Those who do own a home though? Well, they're sitting pretty.

An unprecedented run of low interest rates

The last time the Reserve Bank raised the official cash rate was in November 2010. That was to 4.75 per cent. This month the bank left the rate unchanged at just 1.5 per cent, a record low it's been at for four months.

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Many economists have told me that this is a "recessionary" cash rate. And of course it is. Most other economies around the world with extreme monetary policy are in - or trying to recover from - a recession. Obvious examples include Britain and Japan.

The thing is, having rates this low creates distortions in the economy. Those distortions are often acceptable because the alternatives, whether they be a recession or depression, are unpalatable. What if though, as is the case in Australia, you're not in recession? Then what happens?

Read on. It will become all too clear.

Door opens for Boomers to get rich

If you own a property, and enjoy a reasonably well paid job, it's never been easier to pay off your mortgage.

Now that some fixed rate loans come as low as 3.5 per cent, borrowers who wouldn't otherwise have been able to finance a large loan now can.

In fact just after the last official interest rate cut by the Reserve Bank, lender ING had a week-long backlog of mortgage applications to process. Cashed-up borrowers couldn't get in fast enough.

If you have owned your home for some time, you will have made an absolute killing over the past decade. Property prices in Sydney's eastern suburbs and the lower north shore, for example, have risen at least 40 to 50 per cent over the past 5 years.

A terrace in North Sydney sold for $2 million last month. That was a near 100 per cent increase on its last sale price of $995,000 around a decade ago. It also sold for $740,000 in 2001.

The wealth generated by this property appreciation is staggering.

Millennials miss out

So while well-heeled boomers, and those whose homes and investment properties have risen spectacularly in price over the past decade get rich, the younger generation really struggles.

They struggle on several fronts. You see we've found ourselves in a low inflation, low interest rates world. I'm not the first to say this. Not by a long shot. However we really need to highlight what this means for the younger generation.

Long gone is the life-long career. Now we have more younger Australians going into insecure casual and part-time work.

Under those working conditions you often do not receive holiday or sick pay, making it very difficult to save. In many cases cash left over is used for life's small luxuries, as a way to maintain some level of personal happiness.

Obviously too, though, if you are struck down with a serious illness, under these working conditions, you're really in trouble.

The point I'm trying to make here is that the net effect of the Reserve Bank dropping interest rates to "recessionary levels" has been to create a sense of unease in the jobs market. Employers aren't convinced the economy is strong enough to withstand a shock.

That makes them hesitant to commit to younger workers. Those younger workers are often gainfully employed, but they're not saving, or investing (not so surprising given the ultra-low returns), and are incredibly vulnerable to serious financial pain if they get sick or can't work for long periods of time.

Some sort of logic

A senior researcher at a company that regularly crunches the numbers on the property market, CoreLogic, told me recently that younger Australians should start to think of an alternative to a mortgage (as a life-long asset).

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What could that be? Well there a few options like: shares, bonds and term deposits. They're all considered alternative "asset classes" to property.

Is there any logic to that? I'm not so sure. You see property ownership isn't just a sentimental concept. It's an accepted way of storing, and hopefully growing, extensive wealth - hundreds of thousands of dollars' worth, or millions!

You see it's a leveraged investment, which means the return you receive for your asset is amplified by the amount you borrow against it. Plainly, unless you really knew what you're doing, you wouldn't borrow $300,000 to invest in the share market.

That would be too risky. Property, however, has been accepted as a big leveraged investment.

According to figures from the Australian Securities Exchange (ASX), over the 10 year period to the end of December 2015, only residential property held its own capital gain at 8 per cent per annum, making it the best performing asset class.

Property panacea

Let's forget for a moment all this talk about property prices rising. What if there is a crash? Surely then the younger generation can start to build wealth? Not so fast.

If there is a property market crash, that would also likely produce a significant drag on economic growth, which could cause further wages pain for millennials, making it difficult to obtain a loan in the first place. The economy is too reliant on the booming property market.

At the other end of the spectrum I have anecdotal evidence that older Australians are hoarding and refinancing their current mortgages to purchase multiple investment properties. Why? Because monetary policy has never been so accommodating for them, and it won't stay that way forever.

The recession we refuse to have

Former prime minister Paul Keating famously said the recession of the early 1990s was one Australia "had to have". The excesses built up over the 1980s needed to be purged.



It's a very different story today. We are in the midst of what we are led to believe is a record run of "sustainable economic growth" - the holy grail of economic policy. Rather than "sustainable" though, I would argue we have been lucky.

China's insatiable demand for Australia's raw materials saved the economy immediately following the global financial crisis, and the debt-fuelled property and construction industry has been holding up the economy in the wake of the resources boom (without loads of evidence it's leading to growth elsewhere).

Rather than leave interest rates around 3 per cent, the Reserve Bank has chosen to lower the official cash rate to the historic low of 1.5 per cent, and keep it there for some time.

It's the recessionary interest rate we had to have, so we didn't experience the recession we refused to have. Unfortunately, it's come at a big cost for hundreds of thousands of younger Australians.