Interest rates

[funkyfreo]

For all the hoo-ha on this board from neo-cons and the ultra left, and their private bitter ideological wars, I think it is clear that this election was won on:

i) interest rate fear/homeowner aspirations.
ii) The strong economy (this will also help the state Labor parties in elections because lets face it, no one turfs govts in strong economic climes).
iii) a mis-timed and over enthusiastic Forest policy that played right into Howards game plan and swung over a lot of moderate labor types who felt sold out (even though they were not).

But the key is interest rates, and the fear they would rise under Labor. Now the Libs did explain, when cornered that they just meant they will rise less under Libs than under Labor, not that they will not rise under Libs. But how much rise in interest rates will be enough to sink the Libs at the next election.

Any good economist would say that the Libs spending promises are inflationary, so what margin do they have.

1%, 2-3%???? It is absolutely critical to this govt that interest stays LOW or they are GORN!!!

 

[dr nick]

the imminent decline (apparantly) in housing prices might help to keep inflation and rates low.

 

[- PC -]

For all the hoo-ha on this board from neo-cons and the ultra left, and their private bitter ideological wars, I think it is clear that this election was won on:

i) interest rate fear/homeowner aspirations.
ii) The strong economy (this will also help the state Labor parties in elections because lets face it, no one turfs govts in strong economic climes).
iii) a mis-timed and over enthusiastic Forest policy that played right into Howards game plan and swung over a lot of moderate labor types who felt sold out (even though they were not).

But the key is interest rates, and the fear they would rise under Labor. Now the Libs did explain, when cornered that they just meant they will rise less under Libs than under Labor, not that they will not rise under Libs. But how much rise in interest rates will be enough to sink the Libs at the next election.

Any good economist would say that the Libs spending promises are inflationary, so what margin do they have.

1%, 2-3%???? It is absolutely critical to this govt that interest stays LOW or they are GORN!!!

Thats probably a fair summation and also holding an election on a Saturday means all us bogons who had a drink forgot to have a protest vote. I must admit the saying ''if it aint broke why fix it '' came to mind but as you say people are comfortable and happy and that over rode any concern over honesty and security

 

[dr nick]

''if it aint broke why fix it ''

I personally hate this saying. What's wrong with the notion that things can be improved?

 

[Dry Rot]

Given that we have a crap economy which relies upon a good spread versus US rates to support our currency and keep the billions borrowings we can't afford to keep flowing in, I'd say they will rise in line with US rates which are coming off 50 year lows.

And Howard's ridculous spending promises (ALP just as bad) will put further pressure on rates.

 

[- PC -]

I personally hate this saying. What's wrong with the notion that things can be improved?

I agree but its about been willing to take that risk with someone untried when everything is travelling smoothly.

And I am also old enough to know that ''improvement'' comes at a cost to someone..and then they go back to the old ways anyway

 

[timelord]

Given that we have a crap economy which relies upon a good spread versus US rates to support our currency and keep the billions borrowings we can't afford to keep flowing in, I'd say they will rise in line with US rates which are coming off 50 year lows.

And Howard's ridculous spending promises (ALP just as bad) will put further pressure on rates.

The second part I agree with - and don't forget the bribes that were dished out back at Budget time also. Although the ALP's spending wasn't as brash as the Coalition's.

But the first part I don't agree with. Our currency against the US has strengthened to the correct level recently (Costello always said when it was in the low 50's that it was undervalued and he was right) and I think it will stay there no matter what happens in the US. Interest rates will definitely go up if Kerry gets in (that argument that got Howard in may work in the US as well, but I think the rates will go up anyway - just that under Kerry they'll go up more because he'll put taxes back up to where they were when Clinton was in office). But that's a domestic issue in the US.

Our debts aren't exclusively to the US also. And they are coming out of a recession.

 

[Dry Rot]

But the first part I don't agree with. Our currency against the US has strengthened to the correct level recently (Costello always said when it was in the low 50's that it was undervalued and he was right) and I think it will stay there no matter what happens in the US. Interest rates will definitely go up if Kerry gets in (that argument that got Howard in may work in the US as well, but I think the rates will go up anyway - just that under Kerry they'll go up more because he'll put taxes back up to where they were when Clinton was in office). But that's a domestic issue in the US.

Our debts aren't exclusively to the US also. And they are coming out of a recession.

OK then, what's your explanantion for the historical spread of 3 or 4 percentage points over US rates? Forget Kerry, a chap called Greenspan has indicated that their rates will be going up.

Perhaps you don't also agree that our economy is crap, then could you explain why you disagree with many leading economists who are very concerned about our debt binge, faltering manufacturing exports and persistent high current account deficits?

 

[timelord]

I should point out that what I was disgreeing with was that our rates would follow the US rates - not that our economy is crap. Our economy - it would be more accurate to say - is lopsided. OK, if that equals crap in your opinion then that's OK, I'll accept that. I just think that crap indicates that the whole thinng is up the creek and I think there are parts of it (like the dollar's value and interest rates for instance) which are good.

I agree with you that it's Greenspan that makes the decisions in the US. Same here with our Reserve Bank governor (Whose name escapes me as I type this!). I was merely saying that I expect Kerry to put taxes up if he gets in, and that will push interest rates up in the US.

Now on the bad parts of the economy - you're right about household debt. That's out of control and Costello is doing NOTHING about it - except chuck money at it. That's not going to solve the problem. It all boils back to what I've said since the weekend - greed. Everyone wants money, and credit cards (for example) are seen by most as free money, when it ISN'T!! That's where the ALP had a point about the one off payments, because it encourages spending rather than debt payment.

The current account deficit is another worry, as we open up our markets to the world when we aren't ready for it yet! It's going to eat us alive, cost jobs and all that - and it's no wonder under those circumstances that the ALP took their time looking at the FTA with the US!

Manufacturing exports is in the same problem area - open markets. When we have slave traders going unpunished, even within this country (and the unions are trying to do the right thing, but they get treated like morons by the authorities - the old "cry wolf" syndrome but that's no excuse) the legit businesses can't compete and the whole sector contracts.

Just to clear up that little misunderstanding!

 

[bunsen burner]

1%, 2-3%???? It is absolutely critical to this govt that interest stays LOW or they are GORN!!!

I think interest rates will hover around the 8% mark for the next few years. 9% and the govt. will have to explain, and 10% they will be in deep trouble.

 

[Dry Rot]

I should point out that what I was disgreeing with was that our rates would follow the US rates - not that our economy is crap.

I agree with you that it's Greenspan that makes the decisions in the US. Same here with our Reserve Bank governor (Whose name escapes me as I type this!). I was merely saying that I expect Kerry to put taxes up if he gets in, and that will push interest rates up in the US.

Just to clear up that little misunderstanding!

No problem.

Our rates don't follow US per se, but changes in US rates can affect the rest of the world. As I said before, there is usually a spread or difference of about 3-5 percentage points between our rates and theirs, and a very strong correlation in their respective movements. So if Greenspan ends up putting US rates by say 2% over 18 months, ours will go up by roughly the same amount.

Either way, Howard told a great lie about interest rates.

 

[timelord]

So if Greenspan ends up putting US rates by say 2% over 18 months, ours will go up by roughly the same amount.

That rather depends on why the US rate went up. If it's international pressure, then yes you're right. But if it's tax rises (under Kerry) then no I don't expect us to follow it percentage point for percentage point.

Either way, Howard told a great lie about interest rates.

Of course he did. That one we'll agree on 100 percent! It's a disgrace that a majority of Australians didn't see that as well.

 

[Dry Rot]

That rather depends on why the US rate went up. If it's international pressure, then yes you're right. But if it's tax rises (under Kerry) then no I don't expect us to follow it percentage point for percentage point.

Doesn't matter what the reason is, we need to maintain the spread because our economy is crap and the differntial supports an inflow of funds.

That's the link.

 

[timelord]

But what if the other economic powers don't follow the US? We could be shooting ourselves in the foot keeping up with the US in that manner. So the link doesn't always work like that. A crap economy would be even more crap if we "kept up with the Jones's" at the expense of other economies.

 

[Dry Rot]

But what if the other economic powers don't follow the US? We could be shooting ourselves in the foot keeping up with the US in that manner. So the link doesn't always work like that. A crap economy would be even more crap if we "kept up with the Jones's" at the expense of other economies.

Sorry, I don't think you are getting this.

Say you are a Japanese investor investing offshore. You have numerous choices.

My point about the spread over US rates is thus: we have to offer a risk premium because we have a fundamentally dodgy economy versus the rest of the world. Overseas investors reckon that the risk reward equation is OK here with our higher rates.

If the US raises rates by a few percentage points and we don't, we'll be stuffed with a massive capital outflow.

That's my understanding how it works.

 

[Leper]

Either way, Howard told a great lie about interest rates.

A great lie all right. Best thing about it for him is his lie was "under us rates will be lower than under labour".

Many people probably didn't stop to think that such a lie can never be proven as a lie, because when they put rates up in about February (next month would probably be too soon due to the obvious finger pointing that would take place, and then you've got Xmas), he'll just say "labour would have put them up more".

In the absence of an election rates would probably have gone up a month or 2 ago - they election has actually given us about a 6 month reprieve.

 

[funkyfreo]

A great lie all right. Best thing about it for him is his lie was "under us rates will be lower than under labour".

Many people probably didn't stop to think that such a lie can never be proven as a lie, because when they put rates up in about February (next month would probably be too soon due to the obvious finger pointing that would take place, and then you've got Xmas), he'll just say "labour would have put them up more".

In the absence of an election rates would probably have gone up a month or 2 ago - they election has actually given us about a 6 month reprieve.

Don;t forget that Latham signed a low-interest rates guarentee. Just because it got less TV coverage does not mean it also was not bull********.

 

[Leper]

Intersting I didn't know about that (all news I get here is whatever I read on the internet sites and watch on CNN / BBC - which is more about propaganda justifying Iraq than Aussie politics).

Did he guarantee to keep it below a certain level and time - eg "rates will not rise above X% before 200X", or was it just "I'll keep 'em low"? Hope it's the former, which provides a yardstick to measure any Howard lie when the time comes.

 

[funkyfreo]

Intersting I didn't know about that (all news I get here is whatever I read on the internet sites and watch on CNN / BBC - which is more about propaganda justifying Iraq than Aussie politics).

Did he guarantee to keep it below a certain level and time - eg "rates will not rise above X% before 200X", or was it just "I'll keep 'em low"? Hope it's the former, which provides a yardstick to measure any Howard lie when the time comes.

http://crikey.com.au/politics/2004/09/03-0004.html

It was a guarantee to put downward pressure on, but the media message and impact was essentially a guarantee to have low interest rates. ie unimplementable bunkum, just like the Libs interest rate propaganda. No worse mind you, but no better.

 

[telsor]

I think the idea that interest rates wont rise before xmas isn't wishful thinking.

Remember, it isn't a political decision..It's the reserve bank which decides such things.

Yes, they are appointed by the government of the day so it's hard to claim their completely non-political and they do have a standing policy not to adjust rates in the lead up to an election, but apart from that, they pretty much do as they choose.

The reason to raise rates would be to cut spending ( and therefore limit inflation )...The leadup to christmas would be a good time to eat into that 'discretionary spending'.

The other reason is to cut the national debt...the bulk of this debt is average people and their loans...like home loans.

 

[bunsen burner]

Many people probably didn't stop to think that such a lie can never be proven as a lie,

You just don't get it, do you?

There's no guarantee that interest rates would be higher under Latham. But why are people going to risk going with an inexperienced unknown quanity when Howard has delivered for 8 years?

Do you really blame people for not wanting to take the risk?

 

[bunsen burner]

"I'll keep 'em low"? Hope it's the former, which provides a yardstick to measure any Howard lie when the time comes.

It was this one. Typical of the crap that Latham spouted for 10 months - general sweeping statements with no real facts and figures how he was going to achieve most of it.

On one hand Latham says that interest rates are independent and not affected by the govt and then he turns around and says he is committed to keeping them low. It's no surprise people didn't trust him (not his integrity necessarily, but more his ability to run an economy).

 

[Leper]

Thanks FF - sounds like a very vague guarantee to me, like "we'll do our best to keep them low". But of course Johnny's promise was equally vague.

Agree with your comments Telsor - I always wondered why it is that when the Reserve Bank is supposedly non-political and "do as they choose", that the govt of the day can still have enough influence over them to put interest rate policy on hold in the lead up to an election. Would the same apply if we were in the downward part of the rate cycle?

As for the timing around Christmas, I don't know if raising rates Nov / Dec (like they did last year) would have any significant impact on discretionary spending. Reasong being by the time the banks pass on the increase (usaully takes a week or two) and then increase your minimum payment (usually the next month's = Dec), most people have spent what they would have spent anyway.

 

[Frodo]

What Howard said was that under the coalition interest rates would be lower than under Labour/Green

Now unless you are completely dumb you have to agree with him. As I have said before the scrapping of workplace agreements and getting back to collective bargaining would have caused wage blow out. In turn prices rise and inflation rises. The result is an increase in interest rates. Period.

The election promises will mean nothing, they are controllable.

With control of the senate there will be more industrial relations changes. In three years time the unions will be baying for blood. Now IF the unions still controll the ALP then the so called "Lie / Scare" will be ripe for the plucking again.

The ALP's only hope is to shed the unions control over it and give it back to grass root members.

 

[timelord]

Sorry, I don't think you are getting this.

Say you are a Japanese investor investing offshore. You have numerous choices.

My point about the spread over US rates is thus: we have to offer a risk premium because we have a fundamentally dodgy economy versus the rest of the world. Overseas investors reckon that the risk reward equation is OK here with our higher rates.

If the US raises rates by a few percentage points and we don't, we'll be stuffed with a massive capital outflow.

That's my understanding how it works.

You talk about Japan, and then you go back to the US rates. What about the Japanese rates, or Europe's for example.

We will only be stuck with that capital outflow if all the economies - or at least the majority of them - raise their interest rates and we don't. If just the US raise their rates and no one else does the outflow won't happen. Or if it did it would be a meaningless trickle. But if we went with the US all the time no matter what we could risk an outflow to other countries - that's what I meant with "Keeping up with the Jones's".