Interest Rates and Politics - What do you think?

[TraderPro]

Check the following rates...SMH article about interest ...

So Howard failed the Australian people because he promised no more rises - although interest rates are rising...

Do we really need the interest rates to rise?
(Economists say yes - to slow down our economy, decrease inflation... etc)

So is Labor using a political tactic to misdirect people from the real issues? Focusing on Howard's promises and not on the need of an interest rate rise?

 

[kyme]

I think interest rates are only going one way in longer term and thats up due to Australia's debt level. Interest rates are historically used for 2 purposes one to boost/cool down the economy or increase/decrease aussie dollar exchange rate. In my view and I'ld say most bankers John Howard was blatantly lying at last election when he said a vote for him was for low interest rates and a vote for labour was a vote for record rates of 17 %. Yes rates were 17% under labour but at that time they were sky high worldwide under governments of all persuasions,. Actually I think Australia's highest interest rates were under John Howard (think he was treasurer) in early 1980's when business loan rates were in low 20's. Don't hear him referring tho that, he's not stupid. Of course labour taking political advantage of current situation, getting their own back. I think it's funny when any government takes credit for falling rates, my first thought goes to what's wrong with the economy that needs it. In regard inflation I'm not unduly concerned myself if it trends up a bit, pensioners trying to live off interest would benefit at least. The elephant in the room is Australia's debt level, average mortgage committments far higher now as percentage of income than back when interest rates were 17%, people just got too greedy thinking historically low rates were here forever. I really can't see this ending well, its only a matter if time. All recent interest rate rises have been to control inflation the country hasn't had to worry about exchange rates for some time. As I said before in regard interest rates the world economies are linked to a certain extent. International investors go where the highest rates/less risk is. If rates go up in USA/ Europe etc we may well have to put up our rates whether our economy would be adversely affected or not to protect exchange rate. Australia is not a nation of savers, our economy runs on overseas debt just like USA (they may even be in worse shape economically worse than us). To me protecting your wealth at moment is not a matter of voting labour or liberal because both will be subject to world economy. I think it important for everyone to exercise extreme caution taking on any serious bebt for forseeable future.

 

[krisbarry]

I loved seeing John Howard squirm in his little radio interview broadcast on the news the other night.

Appears that if you cannot beat them, join 'em.

He now takes the side of the RBA saying that we need another rate rise, but just a few months back he went on the attack against the RBA

get it right John...or is it "not happy Jan"

 

[carmo]

Yes it obviously not an election year or Howard would not be saying we need a rise. I also think the "17% under Labour" has been flogged to death and Howard sounds like a scratched record!!

 

[krisbarry]

17% under Labor is that same level of interest that faces home owners in todays market, as people have borrowed much biggers levels of debt to afford rising house prices.

In actual fact interest rates/debt levels in the current market are probably even higher than that of the days of 17%.

So it really is a throw-away line and a false economy.

It once took 23% of wages to service homeownership, now it takes 31% or higher.

Yes the cookie is crumbling...who is ready to pick up the crumbs?

 

[Smurf1976]

Low interest rates will ultimately ruin the lives of many financially illiterate people. A rise at some point is inevitable, markets are cyclical as we all know.

Those who were tricked by the notion that low interest rates are here to stay will join many before them who made the mistake of projecting the recent past into the long term future. Indeed quite a few will find themselves literally bankrupt at the hands of the property boom and lax credit standards.

The sooner the rise happens, the less harm done although I think we're already well past the point where some harm to individuals can be avoided. The effects of the housing slump are getting just a bit obvious with all those empty houses for sale, the dropping asking prices and the reality that the states which lead the slump, NSW and Tasmania, are now both officially in recession.

Yes, that's right, nearly one third of Australians lives in a state that is officially in recession. The downside of the property boom would seem to be here.

 

[Buster]

17% under Labor is that same level of interest that faces home owners in todays market, as people have borrowed much biggers levels of debt to afford rising house prices.

ahh.. No.. 17% is much different to 7%.. I'm not a mathematician, or a rocket scientist, but i'm tipping it's a difference close to about 10%..

In actual fact interest rates/debt levels in the current market are probably even higher than that of the days of 17%.

I can't tell if you're taking the rinse mate, please tell me you are..

So it really is a throw-away line and a false economy.

It once took 23% of wages to service homeownership, now it takes 31% or higher.?

You may well be right StoppedClock, but I seem to remember the average size of a house being 11 - 13 squares.. I guess an extra 10% of your wage for an increase in 'living space' somewhere in the order of 50% seemed like a good deal to most Aussies.. Haven't we been through all of this before??

Yes the cookie is crumbling...who is ready to pick up the crumbs?

It's all doom and gloom.. You should change your handle to 'Chicken Little'.. Whilst I agree, some markets are overheated (ie Perth) most of the Eastern states look like reasonable value at the minute, IMHO anyways..

Pesonally I think the Government does have significant bearing on the interest rates, not directly like the RBA, but obviously good fiscal policies are responsible for a stable growing economy.. Johnny and Co have done a pretty good job after the 'wild ride' we experienced prior to the labour party being ejected from office..

Interestingly, my line of work is traditionaly much better off when Labour are in office (although most of the young fella's probably wouldn't know that as the Libs have been in for a long, long time), but I think the Libs have done a damn good job. Sure there's the odd blunder.. But unless the labour party can actually develop some policies and neck Beazley (my local member unfortunately) I'll vote Johnny and Co in next time around..

Regards,

Buster

 

[kyme]

You may well be right StoppedClock, but I seem to remember the average size of a house being 11 - 13 squares.. I guess an extra 10% of your wage for an increase in 'living space' somewhere in the order of 50% seemed like a good deal to most Aussies.. Haven't we been through all of this before??

House sizes certainly gone up but what about size of the block, 50% smaller? 75 % smaller?. A house just like a car is a depreciating assett in the long term, normally long term capital gain comes from the land the house is built on. Reckon most of Mcmansions being built today will be demolition material in 100 years, actually probably lot sooner than that. Sure economy seems to be going great but government been ignoring longer term problems staring us in the face of massive debt the country as a whole has accumulated. "First" home owners now practically a non existant class in our society. Unless they inherit a house they will be facing a lifetime of rent. What's government going to do about that?, won't need to I suppose as coming recession will solve that problem. Bit of two minds re that because I think of owning a house as a lifestyle decision not an wise investment decision. If you know what you are doing there are much better investment options.

 

[macca]

Becoming a home owner obviously depends on where you want to live and how much money you earn.

For example, in Sydney there a lot of people earning $60k plus and quite a few on $80k+ and you can buy a house from $210,000, so not that bad when interest rates are only 7%. If married/ partnered you could live on one wage, bank the other and pay cash after 5 years if you really wanted too.

There is a problem in the new estates where the state government and utility companies charge the developers about $140k per block for infrastructure costs, by the time you add englobo land costs and roads, advertising and sales costs it gets way too dear for the first home owner.

It is a problem when folk want to buy where they can't really afford but that is life. We would all love to have everything but sometimes we have to wait a bit don't we.

I realise that the laborites hope that if they repeat the BS often enough someone will believe them BUT Howard did not say before the last election that there would be no interest rates rises under a Lib govt. He said that historically interest rates are lower under a Liberal govt than under a Labor govt.

I believe a country needs a strong viable opposition, the Labor party accuses the Libs of telling lies and then goes about telling even more themselves.

Strange mob

 

[kyme]

There is a problem in the new estates where the state government and utility companies charge the developers about $140k per block for infrastructure costs, by the time you add englobo land costs and roads, advertising and sales costs it gets way too dear for the first home owner.

$140K for infrastructure! So whats cost of a new block in Sydney?

 

[Smurf1976]

$140K for infrastructure! So whats cost of a new block in Sydney?

If houses with land are selling from $210K then the land would seem to be pretty close to worthless. The cost of infrastructure and the house being most or all of the $210K.

More to the point, if houses in Sydney really are available from $210K then that's a damn good reason why the other cities are due a rather large correction.

That said, unless there's been a truly massive house price crash in Sydney then I very much doubt that $210K will buy what would fit most people's definition of a "house". That is, minimum 10 squares on a minimum of 400 square metres of land, in liveable condition, safe to go outside and not lacking any basic facilities such as a working kitchen, laundry, bathroom etc. Either that or it's not actually in Sydney or suburbs within commuting distance for ordinary working people.

 

[smoothsatin]

ahh.. No.. 17% is much different to 7%.. I'm not a mathematician, or a rocket scientist, but i'm tipping it's a difference close to about 10%..

And 17% is less than 22% under Howard (the then treasurer) in 1982.

Honestly, "john and co have done a good job". What exactly have they done that's so good?

Key reason why interest rates have been driven down in the past decade is globalisation/competition. No one disagrees with this. Look at policy decisions made by both parties in the last 30 or so years. Gough decreased tariffs etc to encourage cheaper goods and more competitive markets which decrease price levels/ decreases the demand for money/ decreases the price of money, which is also known as interest rates. As soon as the libs got in after Gough, they put tariffs etc back up again! This is a consistant theme in Australia's political history. All the national competition policy etc was developed under Labor. They made all the tough decisions when Liberal wouldn't. I am not saying they are perfect, frankly they are full of pragmatic fence jumpers, but history speaks for itself and Labors policies have on balance been superior for the Australian economy than the Libs.

 

[kyme]

Gonna get abused for this I'm sure, but I reckon Paul Keating was a good PM. He took the middle ground re Industrial relations and the economy. He totally pissed off left wing of the unions in process. But libs been reaping the rewards of his policies last 10 years. Troulble is the libs are too arrogant now and have abandoned the middle ground and gone extreme right wing re Industrial relations etc. The labour party offers nothing for me, I am well off, do not to have to work and will never be on any govt benefit so if selfish would have to vote liberal at next election. I have friends in same position as me who are liberal voters but feel they will have to vote against the current govt at next election for the good of the whole of australia.

 

[Julia]

Gonna get abused for this I'm sure, but I reckon Paul Keating was a good PM. He took the middle ground re Industrial relations and the economy. He totally pissed off left wing of the unions in process. But libs been reaping the rewards of his policies last 10 years. Troulble is the libs are too arrogant now and have abandoned the middle ground and gone extreme right wing re Industrial relations etc. The labour party offers nothing for me, I am well off, do not to have to work and will never be on any govt benefit so if selfish would have to vote liberal at next election. I have friends in same position as me who are liberal voters but feel they will have to vote against the current govt at next election for the good of the whole of australia.

Kyme,

Could you say exactly why the "good of the whole of Australia" will be ensured by voting Labor at the next election?

Thanks.

Julia

 

[Buster]

And 17% is less than 22% under Howard (the then treasurer) in 1982.

Hmmm.. Yes, 17 is less than 22.. I'd have to agree with you there..

I don't remember the interest rates ever reaching 22% though.. So I googled and googled, scoured the RBA web site, and everything I found suggests that the rates were about 13% in '82.. including the following part of an article that pretty much sums up who did what and when.. Interestingly the writer of the article appears to believe that the Government has significant bearing on the interest rates. Anyway over to him.. [FairFax, Tim Colebatch]


"It is accurate, if unfair, as a sketch of the Whitlam years. Mortgage rates were 7 per cent when Whitlam took office and 10 per cent when he was cashiered. The economic incompetence of his government was a key reason for that rise.

Then came Fraser and Howard. From 10 per cent, mortgage rates rose to 13.5 per cent, before slipping to 12.5 per cent when they were voted out in March 1983. There too, the incoherence of the Government's economic policies was a powerful force driving up rates, but not the only one.

Then came Hawke. Mortgage rates fell, rose, then rose again as the Government and the Reserve lost the plot in 1989. Rates peaked at 17 per cent for nine months, causing the recession that cost Hawke his job. But by then they had fallen to 12 per cent, and then to 10.5 per cent by 1996."

Honestly, "john and co have done a good job". What exactly have they done that's so good?

Ummm, the Aquaducts?? Well, I'll have to say right from the outset that I'm not particularly fond of anyone in politics (Poly=Many Tics=Blood Sucking Parasites) but it seems, to me anyway, the very day they took the wheel there was a huge shift in sentiment throughout the country.. and they have managed to maintain the course of economic reform to the point that we all seem to be doing much better these days than ten years ago..

What exactly have they done thats so bad??

BTW anyone who belives that interest rates would stay at 5% for evermore (alluded to in/by numerous other posts/ers) is living on Planet Reebok ..

Key reason why interest rates have been driven down in the past decade is globalisation/competition. No one disagrees with this. Look at policy decisions made by both parties in the last 30 or so years. Gough decreased tariffs etc to encourage cheaper goods and more competitive markets which decrease price levels/ decreases the demand for money/ decreases the price of money, which is also known as interest rates. As soon as the libs got in after Gough, they put tariffs etc back up again! This is a consistant theme in Australia's political history. All the national competition policy etc was developed under Labor. They made all the tough decisions when Liberal wouldn't. I am not saying they are perfect, frankly they are full of pragmatic fence jumpers, but history speaks for itself and Labors policies have on balance been superior for the Australian economy than the Libs.

Okey Dokey.. I'm tippin you'll be voting for Kim Sleazy..

Cheers,

Buster.

 

[Buster]

Gonna get abused for this I'm sure, but I reckon Paul Keating was a good PM.

Funny you say that Kyme.. I was quite happy to see Keating take the helm. I thought that's exactly who we need in there, now we'll see some action, he'll be tearing off heads and taking no prisoners.. but.. NOTHING!!!!

In fact his lack of performance (other than feathering his own nest) was the reason that I voted for the Libs for the very first time..

Big disappiontment..

Regards,

Buster

 

[quinny]

17% under Labor is that same level of interest that faces home owners in todays market, as people have borrowed much biggers levels of debt to afford rising house prices.

ahh.. No.. 17% is much different to 7%.. I'm not a mathematician, or a rocket scientist, but i'm tipping it's a difference close to about 10%..

I think what he means is that the level of debt has changed too. For example, say back when interest rates were 17% the price of a house was around $150,000. Today, with rates around 7% the price of a house is over $300,000.
So a loan of $150,000 at 17% is the same as $350,000 at 7.3%.

That's not even taking amortisation into account.

 

[Smurf1976]

I don't remember the interest rates ever reaching 22% though..

That's because they were subject to government controls. Banks couldn't simply decide to change rates as they do now, they were regulated directly by the government as part of the political process (hence all banks were basically the same).

The downside is obvious. If the wholesale price of anything exceeds the retail price then nobody is going to be selling to the public. And they weren't. Banks were only able to lend out their own depositors' funds rather than acting as middle men borrowing from the market and lending to the borrower as they do now. Hence they had a serious shortage of money to lend - known as a "credit crunch".

Raising interest rates is one way to slow an economy. Inducing a credit crunch is another. Either way people can't just go and borrow money and buy a house - either they can't afford the repayments (rising interest rates) or they simply can not get a loan in the first place even if they could easily repay it (credit crunch).

So, capped rates under government controls with Johnny versus higher rates in the absence of government regulation of banks under Keating. Both, thankfully, without the massive debt to income ratio that is considered "normal" today.

 

[kyme]

Kyme,

Could you say exactly why the "good of the whole of Australia" will be ensured by voting Labor at the next election?

Thanks.

Julia

I mean current policies too much in favour of big business as opposed to workers at moment. There have been times in past under other governments when policies too much in favour of workers as well. What we need is government for a fair go for everyone. Think the worst thing for the Howard government was their winning control of the senate at last election, ie both houses of parliament, power corrupts.

 

[kyme]

Hmmm.. Yes, 17 is less than 22.. I'd have to agree with you there..

I don't remember the interest rates ever reaching 22% though.. So I googled and googled, scoured the RBA web site, and everything I found suggests that the rates were about 13% in '82.. including the following part of an article that pretty much sums up who did what and when.. Interestingly the writer of the article appears to believe that the Government has significant bearing on the interest rates. Anyway over to him.. [FairFax, Tim Colebatch]

I was a Banker for 26 years. Official RBA rates may have been around 13% in 82 as you said, but at that time all banks were subject to govt legislation that max home loan rate they could charge was 13.5%. To qualify for that rate the bank had very onerous conditions to qulaify eg high average savings balance over 2 years. Very many (maybe most) didn't qualify so the Bank could charge couple % higher than 13.5%, but that won't show in official figures. Business rates were not subject to 13.5% limit and that's where rates being at their highest under John Howard comes from. Removal of those government controls for new loans were aimed at making a more level playing field for everyone. When home loan rates were 17% the old loans were still only getting charged 13.5%, in effect new borrowers were subsidising the older generally better off borowers to a certain extent. In hindsight if those lending controls were kept in place (savings requirements for loan eligibilty etc) Australia current massive debt may not be such a problem as it is now.