The Question of interest rates... (1 Viewer)

[Not-That-Bright]

The Question of interest rates...

It seems to me that howard isn't the only deciever in this campaign,
Yes the RBA sets interest rates, however the government has strong influence over the economic factors used to determine interest rates.

Mr latham himself has said that he will if elected place downward pressure on interest rates
http://www.smh.com.au/articles/2004/09/02/1093939055762.html?oneclick=true

In his address to the press club today he said that Bob Hawke has himself taken responsibility for the rise of interest rates under his government (why would he if the government has no power?) and he yet again stated that he would keep interest rates low.

While it can be said that howard is simply riding the wave of overseas interest rates.. this is not really true,
http://nationalforum.com.au/the_domain/archives/ambit_gambit/90 Day Bank Bills.pdf
that graph shows that under labor our rates have often been much larger than those of the US.

There are comments by respected economic analysts which say that howard is lying.. this is true, for instance
http://www.heraldsun.news.com.au/common/story_page/0,5478,10615799%5E1702,00.html Bob McMullan

His point is that "Interest rates don't respond to political parties, they respond to good policy...History doesn't support what John Howard is saying, independent commentators don't support what John Howard is saying, the financial markets don't support what John Howard is saying.", Which is actually fairly flawed, although it is true that it is the 'good' policy that puts downward pressure on interest rates different political parties do have different histories about how they create their policies which stem from their core ideologies & labor does have a history of having huge government expenses which did affect interest rates dramatically.'

However as the article i read pointed out.. Bob McMullan maybe isn't that good at predicting the future as he said interest rates would be huge under a howard government when they first came to power.

 

[mervvyn]

The assumption is of course that mega mega low interest rates are totally desirable, and that on the whole they should always be going down. But surely there must come a point where they are TOO low and people can borrow too much?

 

[Sarah168]

It CAN get to that stage, and that is when the question of inflation pops up...

 

[mervvyn]

Yeah, so just how low is too low?

 

[Estel]

Not-that-bright, where is the proof that current Liberal policy puts more downward pressure than current Labor policy?

 

[Sarah168]

Yeah, so just how low is too low?

When spending and consumption get out of hand and the level of economic growth is surpassing the sustainable rate of growth (3.75%). We're currently at around 3.5% or so. Im probably not the best person to explain this cos my economic knowledge is limited to high school economics lol. But interest rates are unlikely to dip THAT low considering the other issue that the media pounces on alot - the current account deficit.

It is true that the 17% rates under Hawke were abit of a horror story with the lead up to the 1990 recession, but the Keating government demonstrated good economic policy formation by gradually putting downward pressure in order to foster economic growth and bring the economy back to it's feet. Of course, from a consumer's (and voter's, I guess) point of view, that isnt good enough. Economic management is most effective when considered in terms of "long run" consequences. By pleasing the people (Im not saying this is a bad thing but it's a political tool) and keeping interest rates very low, leads to a multitude of other economic problems which the media as well as many voters don't take notice of as much (another advantage for the political party in question).

"Labor has promised to put downward pressure on interest rates by keeping the Budget in surplus and reducing both spending and tax as a share of GDP."

Funny how nobody notices the fiscal stances taken by the Liberals this year. They reduced the surplus down to the tiny 0.7bn (relatively) [putting upward pressure on interest rates], but disguised it by strutted about announcing maternity payments, family payments, increased funding for aged care etc etc. Of course, Costello acted as if the government has money coming out of it's ears. Much of it WAS for political means and ends. Many an economist has commented on the short-sightedness of the stance taken by the Liberals and wondered how long they would be able to shout the "We're keeping interest rates low" slogan. Surprisingly they have fared quite well, but to depend on this in a political campaign is pathetic. Personally, I would favour respected economist's opinions (including Bernie Fraser) over biased sensationalised lukewarm stats with attempted grabs for credibilty by putting "THE RBA" in bold letters.

 

[Not-That-Bright]

oh there is none, i don't wish to extend the idea that under latham interest rates will go up... it is however true that labor governments usually spend more than they can pushing interest rates up..

If you want to talk about current policy, judging from election promises it is possible that John howard himself could raise interest rates.

 

[jayz]

doesn't matter who is going to be in government, interest rates will rise by the end of the yr, hopefully b4 chirstmas to restrict crazy credit card spending ,

i can't even afford to think about purchasing a property in 10 years time

 

[Bambul]

This thread has been pretty friendly so far, I sure hope my post doesn't make it hostile (fingers crossed).

The Hawk government was able to raise interest rates in the 1980s because back then the RBA wasn't independent - the Treasury set interest rates. Since the early 90s the RBA has been independent (it began as an unwritten rule under the Labor government and was codified by the Liberal government).

All state governments (all ALP) have run budget surpluses most of the time (save the off deficit every now and then - but the current government did run 2 deficits in '96 and '02). Paul Keating ran about 4 budget surpluses when he was treasurer, John Howard had 5 budget deficits - no surpluses - during his time as treasurer, and interest rates hit double figures during those years.

The financial markets and independent economists all predict no difference to interest rates under the ALP or the liberal party. The economists bit is improtant, there aren't any independent economists who agree with John Howard. His claim is excellent politics, but mediocre economics.

I should say that I think Peter Costello has been an excellent treasurer and that I prefer him to Simon Crean and Bob McMullan. If I was just voting on the economy then my vote would go to the Liberals purely because of Peter Costello, despite the fact that I don't think interest rates will be different either way.

 

[Nick]

This thread has been pretty friendly so far, I sure hope my post doesn't make it hostile (fingers crossed).

The Hawk government was able to raise interest rates in the 1980s because back then the RBA wasn't independent - the Treasury set interest rates. Since the early 90s the RBA has been independent (it began as an unwritten rule under the Labor government and was codified by the Liberal government).

All state governments (all ALP) have run budget surpluses most of the time (save the off deficit every now and then - but the current government did run 2 deficits in '96 and '02). Paul Keating ran about 4 budget surpluses when he was treasurer, John Howard had 5 budget deficits - no surpluses - during his time as treasurer, and interest rates hit double figures during those years.

The financial markets and independent economists all predict no difference to interest rates under the ALP or the liberal party. The economists bit is improtant, there aren't any independent economists who agree with John Howard. His claim is excellent politics, but mediocre economics.

I should say that I think Peter Costello has been an excellent treasurer and that I prefer him to Simon Crean and Bob McMullan. If I was just voting on the economy then my vote would go to the Liberals purely because of Peter Costello, despite the fact that I don't think interest rates will be different either way.

voting on economics seems silly at this age anyway since we don't have mortgages etc

better to vote on something cool like foreign affairs while you're still young

 

[Sarah168]

I prefer Peter Costello over Simon Crean definately. But his expertise is confined to economic matters, so Im still supporting the ALP.

 

[neo o]

This thread has been pretty friendly so far, I sure hope my post doesn't make it hostile (fingers crossed).

The Hawk government was able to raise interest rates in the 1980s because back then the RBA wasn't independent - the Treasury set interest rates. Since the early 90s the RBA has been independent (it began as an unwritten rule under the Labor government and was codified by the Liberal government).

All state governments (all ALP) have run budget surpluses most of the time (save the off deficit every now and then - but the current government did run 2 deficits in '96 and '02). Paul Keating ran about 4 budget surpluses when he was treasurer, John Howard had 5 budget deficits - no surpluses - during his time as treasurer, and interest rates hit double figures during those years.

The financial markets and independent economists all predict no difference to interest rates under the ALP or the liberal party. The economists bit is improtant, there aren't any independent economists who agree with John Howard. His claim is excellent politics, but mediocre economics.

I should say that I think Peter Costello has been an excellent treasurer and that I prefer him to Simon Crean and Bob McMullan. If I was just voting on the economy then my vote would go to the Liberals purely because of Peter Costello, despite the fact that I don't think interest rates will be different either way.

Since Latham has promised to keep the budget in surplus, and Howard is likely to maintain wafer thin surpluses or deficits so small that they have no real effect, inflationary pressures won't come from overspending.

But isn't it true that Latham's proposals to move back to a more centralised labour market, will prevent (or hamper) productivity gains from moving inline with wage increases, and consequently add to inflationary pressures that may force the RBA's hand and cause them to raise interest rates?

 

[Ribbon]

I havn't done any economics but at work some people were saying that lathams policy to get unemployment down to 5%, if he can actually do it, will out rates up because less unemployed = less people to fill vacancies = individuals can bargain for higher pay = ppl getting paid for = inflation = upward pressure on interest rates

It kindof makes sense to me, does anyone who knows economics agree/disagree?

 

[Not-That-Bright]

I prefer Peter Costello over Simon Crean definately. But his expertise is confined to economic matters, so Im still supporting the ALP.

Well.. he is the treasurer?

 

[neo o]

I havn't done any economics but at work some people were saying that lathams policy to get unemployment down to 5%, if he can actually do it, will out rates up because less unemployed = less people to fill vacancies = individuals can bargain for higher pay = ppl getting paid for = inflation = upward pressure on interest rates

It kindof makes sense to me, does anyone who knows economics agree/disagree?.

Yep that's true. There's even a curve called the Phillip's curve, which shows the inverse relationship between inflation and unemployment.

The thing is though, currently in Australia we have low unemployment AND low inflation, which people *think* is primarily due to alot of the changes made to the labour market (from the Accords of the Hawke/Keating governments mainly, we should be starting to feel the effect of Howard's 1996 Workplace Relations Act soon as well).

However, what Latham wants to do is roll back alot of these changes, which will create some problems. :uhhuh:

 

[Not-That-Bright]

Yea i think rolling back anything is kinda bad...

 

[jayz]

But isn't it true that Latham's proposals to move back to a more centralised labour market, will prevent (or hamper) productivity gains from moving inline with wage increases, and consequently add to inflationary pressures that may force the RBA's hand and cause them to raise interest rates?

i dunt quite understand how low productivity with high wages equate to inflation (high wage may not mean high spending) plz explain, thx

current interest rates can not increase due to various factors, internationally, aussie dollar will be overvalued if Irate increases, domestically, debt financing will also become a problem. From what i can see, there should be no reason y rates will not rise prior to christmas, if the US economy...hopefully recovers, and with oil under control (bloody terrorism)

has any party promised anything on future interest rate changes in their campaign?

 

[Sarah168]

Well.. he is the treasurer?

No dah .

 

[mervvyn]

i dunt quite understand how low productivity with high wages equate to inflation (high wage may not mean high spending) plz explain, thx

current interest rates can not increase due to various factors, internationally, aussie dollar will be overvalued if Irate increases, domestically, debt financing will also become a problem. From what i can see, there should be no reason y rates will not rise prior to christmas, if the US economy...hopefully recovers, and with oil under control (bloody terrorism)

has any party promised anything on future interest rate changes in their campaign?

They appear to have promised to "put downward pressure" on rates by maintaining surplus budgets and whatever else. In reality, they can't promise much beyond that with regards to interest rates, as there are more factors influencing the RBA than just the budget, that are beyond the government's control for the large part.

 

[Generator]

http://webdiary.smh.com.au/archives/margo_kingston/000320.html

Read the edit at the bottom of the page... Fantastic .