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Tuesday, October 05, 2004

If interest rates are scary then....

surely the government must take claim for the fact that the electorate is more concerned about this than any other economic indicator? Doesn't this imply that the current economy is built on net household debt rather than net household assets? If the latter were true, people would be crying out for higher interest rates. But in this volatile government funded housing boom, the merest tweak in rates will wreak far more havok than under Keating. Despite record low rates, more income is spent in real terms on mortgage repayments under Howard than under Keating. It does not matter that the rate is low, more money is going to the banks than ever before. Interest rates are low, because the economy is stagnant. Banks are not dumb. If you can return at a significant margin over the borrowing rate, the banks are losing out, therefore rates rise. This is what happens when the economy is worth investing in. At the moment it is not, so rates are incredibly low. When this situation changes rates will rise, Howard's IR policy will keep wages low and everyone will be stuffed. Economic management is amongst other things, a question of balancing rates, inflation, wages and taxes and this government has done nothing whatsoever to provide economic stability for the many in the long term.

By the way, what happened to the thing that Howard devoted so much time to, the FTA?

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