Wednesday, November 07, 2007

FUD and Interest Rates...

Home Buying

Another RBA meeting, another interest rate rise. Seems to be a common occurence lately. And, of course, during an election campaign an event like this, in a country addicted to credit like we are, brings out all the fear mongers and blame stormers.

Back at the last election, John Howard made a promise to keep the interest rates low if he was reelected. Part of the electorate knew it was complete hogwash and ignored the statement, but the rest of them who over extended themselves in the wuest to get into their 'Australian Dream' got scared and believed the snivelling little cunt fellow and proceeded to vote to keep him in power. That said, Latham wasn't really an effective adversary and wouldn't have been a good choice anyway.

Now we come to this election and the Coalition have changed their tune to try and keep the voters they scared last time round by saying that even though interest rates are high now (13 year high actually), the rates would be higher if Labor gets into power. The Coalition use the 17% interest rates that lead to the end of Keatings reign as the reason to say this. Sadly, it seems that the voting population are believing this tripe. Do any of them learn about the things that affect them? Or do they just rely on the spoon fed garbage that passes for news in this country?

A quick history lesson... Back in the 70s when the Fraser government was in power, the interest rates were still controlled by the government and thus were kept low as a government policy, consequently inflation was high. Then came along the Hawke government, which gave the RBA the job of setting monetary policy to keep inflation down and employment high as well as floating the Australian dollar on the world market. As a consequence of this, interest rates ballooned to over 17% to control inflation and spending.

The peak interest rate of 17% was reached in January 1991, after which the interest rates starting dropping rapidly during the 'recession we had to have' and by January 1995, interest rates were back below 9%. When John Howard came to power in the 1996 election, interest rates were continuing on a downward path. By December 2001, the rate had dropped to 4.25%. Since then however, the rate has been climbing in line with Australia's booming economy.

Even though the Howard government enjoyed taking credit for the lowest interest rates in 20 years or more (actually it was from programmes put in place 10 years earlier), in reality, the government no longer has a direct say in what interest rates are doing. The policies of the government can influence the economy and that in turn drives the decision of the RBA.

You can almost guarantee at least another 2 rate rises over the next 6-9 months regardless of who wins the election on November 24. But after that, I don't think anyone knows for sure. Both parties are promising loads of tax cuts (up goes inflation) as well as large projects (up goes spending) which will no doubt affect the economy and influence further rate rises. If rates keep climbing, it will put pressure onto a sizable segment of the public who are already close or are over extended in their borrowings and all sorts of excrement will hit the rotating air movement device if they go to the wall.

In the end though, I wish the electorate would see through the tax cut and welfare gifts and just want things to be properly funded and properly managed and then we might start to get a decent government. But, I don't see that happening anytime soon...

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