Why you shouldn't believe that interest rates will be higher under Labor

[chicken]

As an economist, I am intrigued by how many people still believe that a Liberal government will keep interest rates lower and fear that a Labor government will see interest rates back up to 17%.

Firstly, the high interest rates of 17% were a phenomenon seen in most major economies in the world at that time - the necessary step taken to take control of high inflation (again, a global issue). The recession that followed in the early 1990s was again also suffered by most major economies, so its a far stretch to say that the Labor government caused all of this. Governments and central banks from around the world have now learnt from their earlier mistakes regarding letting inflation get out of control.

The Reserve Bank controls interest rates - not governments. The Reserve Bank raises and lowers interest rates depending on what is happening to Australian inflation. Governments can have an impact on inflation through their policies, and on this front, I believe current Liberal policies (think $34 billion tax cuts - and those of the past few years) are more inflationary than Labor's policies and therefore likely to result in higher interest rates. Labor's focus on infrastructure spending increases the productive capacity of the economy, thereby helping to reduce inflationary pressures (not immediately, but down the track).

I'm just frustrated how Howard won the last election by misleading the public by promising that he could keep interest rates lower (knowing full well that the government does not have control of interest rates) and yet the same beliefs still seem to be held by the general public this time around.

[stellarella]

Yep what a great reason!!!!

Governments do not control interest rates!

I cant believe people think that they do.....and continue to vote as though they do. :confused:

[our little treasures]

I am also amazed at how people keep saying oh but labour had us all paying high interest.:ecomcity: :ecomcity:

[forbetoel]

No governments don't control interest rates, which is why I am always ammused by John Howard proudly taking claim to low interest rates, and then when they start to rise, he suddenly takes the stance that it is out of his hands? :confused: So which way do you want it Johnny?

[grass is always greener]

Thankyou, someone who can spell it out for others that it isnt up to the government to raise or lower interest rates, so why should the liberal government be staking clain to it. I am sure i have heard JH say that he has no control over the rate rise, but it is labours fault for the 17% interest rate.

[forbetoel]

I am sure i have heard JH say that he has no control over the rate rise, but it is labours fault for the 17% interest rate.
\


You have heard correctly!:yes:
Very interesting indeed!:detective:

[~Emmylou~]

Thank YOU Chicken!!! :yelclap: :yelclap: :yelclap:

I want to do this :banghead: when I hear this furfy being trotted out.

[Sheer Bliss]

:yelclap: :yelclap:

[our little treasures]

Funny, where are all the liberal supporters now??

[Phyllis Stein]

Thanks for making that clear Chicken!

Yep, and I just love that Labor spending is seen as irresponsible, when it's about investing in the country's future, yet Liberal tax cuts that mean little in real terms to the average family, are seen as responsible???

[spoon]

That is what my father explained to me too. He is an accountant and an financial advisor.

Thank you chicken.

:yelclap:

[V8]

I agree too, my dad is a big person who mentions the interest rates under the Labour government, i can't see it happening again and as you said it's not controlled by the governments.

[canberramomma]

Hee, hee. Yes, makes me wonder why the media isn't all over this.

My cousin, who is a much sought after economist, though that Keating was the best leader Oz ever had (in terms of our country's economy) as he had a long term view as to how Australia could be a world leader. It just took a bit of short term pain. I'd happily pay higher interest rates and higher energy bills if it meant my kids had a reasonable future. Under a Liberal Government, I just don't see this happening!!

[forbetoel]

Hee, hee. Yes, makes me wonder why the media isn't all over this.

My cousin, who is a much sought after economist, though that Keating was the best leader Oz ever had (in terms of our country's economy) as he had a long term view as to how Australia could be a world leader. It just took a bit of short term pain. I'd happily pay higher interest rates and higher energy bills if it meant my kids had a reasonable future. Under a Liberal Government, I just don't see this happening!!

:yes: The howard government are riding high on the reforms put in place by the Keating government. Interest rates were already on the way down when the Libs took power in 96. :yes:

[cmd'smum]

Funny, where are all the liberal supporters now??

:laughing:

Great post chicken!:yelclap: :yelclap:

[andie_pandie]

Great work and well said CHICKEN, as a Mortgage Broker I would have absolutely no problems with Labour coming in if they won the election.

It was a totally different time back then and as you said the rates are definately not set by the Government, they are always set by the Reserve Bank. There are so many variables that are taken into consideration such as employment, spending, growth etc.

Also just because a election is looming please do not think that the reserve bank will remain on hold in Nov, Dec and into the new year. There are tips that the rates still have movement in them. I was at a conference just over a week ago and one of the countries top economists was there and it was interesting to listen to him.

I think there has been a lot of wait and see in the last few years with relation to interest rates, just remember there have been 9 increases since 2002, this could have happened with any government.

[RedPanda]

I completely agree Chicken. However, governments can have a slight influence on how inflation is controlled. For example, the excessive spending that both sides are currently promising (although I think the Liberal Party has vowed to spend more than the ALP) will not be good for inflation. Likewise, tax cuts lead to increased consumer confidence, which leads to higher spending, which again adds to inflation. No government can promise to keep rates down, however an irresponsible government can definitely add to inflationary pressure.

[reAllytee]

I completely agree Chicken. However, governments can have a slight influence on how inflation is controlled. For example, the excessive spending that both sides are currently promising (although I think the Liberal Party has vowed to spend more than the ALP) will not be good for inflation. Likewise, tax cuts lead to increased consumer confidence, which leads to higher spending, which again adds to inflation. No government can promise to keep rates down, however an irresponsible government can definitely add to inflationary pressure.

Exactly what i would have said.

My DP works in the mortgage industry so we too know how it all works.

[IAdoreYou]

I’m fully aware that the RBA has control.

It all comes back to “good economics” that is something Labour hasn’t proved to the Australian people yet, why shouldn’t we be concerned? We have a 40 billion credit debt hanging over our head also?

It’s the banks that are a concern, our current government is doing a great job keeping up with them and keeping the “economy” running the way it is, the reserve bank go by a criteria based in the “Monetary policy” which the current government has to present each month, its around the clock economics that determine the “cash rate”.

Banks just keeping handing out money, its rumored in the paper the Chinese and the Americans are sailing the same way, and in a couple of years we will all be watching the race of “who can print the most money” the fastest!

All I know that Liberal have kept things stable, and whatever criteria they are meeting it's working and why gamble on that?

[Ashleigh<3]

I’m fully aware that the RBA has control.

It all comes back to “good economics” that is something Labour hasn’t proved to the Australian people yet, why shouldn’t we be concerned? We have a 40 billion credit debt hanging over our head also?

It’s the banks that are a concern, our current government is doing a great job keeping up with them and keeping the “economy” running the way it is, the reserve bank go by a criteria based in the “Monetary policy” which the current government has to present each month, its around the clock economics that determine the “cash rate”.

Banks just keeping handing out money, its rumored in the paper the Chinese and the Americans are sailing the same way, and in a couple of years we will all be watching the race of “who can print the most money” the fastest!

All I know that Liberal have kept things stable, and whatever criteria they are meeting it's working and why gamble on that?

I agree.

[LovelyRita]

All I know that Liberal have kept things stable, and whatever criteria they are meeting it's working and why gamble on that?

It's working? The country in my view is very broken. I am happy to take on new leadership for this country (I don't see it as a gamble what so ever), than stick with what I have seen over the last 11 years. :gloomy:


Thanks for posting this chicken. I think it is important information to know, especially as so many people believed John Howards lies about interest rates at the last election.

[Verdi]

John Howard has kept them low.

I guess most of you don't remember the 80's.

The goverment has to be responsible with managing the economy if they over spend (which labor has had the tendency to do) then inflation will go up and so does the Interest Rates, so yes the goverment does control Rate hikes to an extent.

With the all the promises Rudd is making i wonder how the economy will manage it????????

[forbetoel]

John Howard has kept them low.

I guess most of you don't remember the 80's.

The goverment has to be responsible with managing the economy if they over spend (which labor has had the tendency to do) then inflation will go up and so does the Interest Rates, so yes the goverment does control Rate hikes to an extent.

With the all the promises Rudd is making i wonder how the economy will manage it????????

So is Howard both responsible for having low interest rates, as well as the last 5 rises? And remember it was the Keating government that already had the % reates dropping when Howard took over. I dont know why we need to bring up the last recession all the time, it was a GLOBAL recession, it was unavoidable.

[chicken]

John Howard has kept them low.

I guess most of you don't remember the 80's.

The goverment has to be responsible with managing the economy if they over spend (which labor has had the tendency to do) then inflation will go up and so does the Interest Rates, so yes the goverment does control Rate hikes to an extent.

With the all the promises Rudd is making i wonder how the economy will manage it????????

John Howard has not kept them low - the RBA has!!!

As I said, governments can influence interest rates via their policies, and I agree with an earlier poster that both parties are currently embarking on very expansionary policies, which is likely to add to inflationary pressure. Indeed, I had a meeting with a representative of the RBA last year who implied 'off-the-record" that the inflationary impact of last year's tax cuts were only offset after three subsequent rate rises. My point was simply that it is misleading of the Liberal party to imply that their policies are more fiscally responsible and more likely to lead to lower interest rates.

The Australian economy is currently experiencing a once-in-a-generation terms of trade boom (mostly due to strong growth in China). This has resulted in an enormous transfer of wealth from the rest of the world into Australia. This is the main reason why the government has been able to generate massive budget surpluses in recent years, despite handing out generous tax cuts. Without the terms of trade boom, the budget balance would be in very serious deficit right now.

[IAdoreYou]

The RBA can only make decisions based on vital criteria the "government" have to produce each month. The past 11 years the Liberals have kept to their word and just did that, kept the "cash rate" which reflects interest rates LOW!

The"cash rate" which determines what percentage the banks can put on our mortages keeps changing with the economy, that's why you can swap and change home loans to LOWER rates, why does nobody get that???

I may be a pragmatist, but only because I don't like hearing how my parents had to bring us up and they didn't have anything like we have today a house full of the latest appliances and gadgets, we are also living in a country with a "40 billion credit card debt".

It's the BANKS that keep giving out money, our mortgages are there assests!
Mother nature has also given us the drought pushing up food prices and still the Libs have keep the "cash rate" low -- hats off to them.

This will be my last post on this subject, sounds like I just repeat myself

Happy voting and goodluck!

[IAdoreYou]

OH, and pragmatism means to solve porblems using practical solutions!!

:wave:

[chicken]

The RBA can only make decisions based on vital criteria the "government" have to produce each month. The past 11 years the Liberals have kept to their word and just did that, kept the "cash rate" which reflects interest rates LOW!



Seriously, I have no idea what this means. Like I said, I am an economist and I get paid to predict interest rate movements, both in Australia and in overseas markets, so I think I know who controls interest rates, and it is not the government!!!

I have no idea what these 'vital criteria' are that you talk about. The RBA's aim is to keep inflation between 2-3%, and they decide each month whether or not to change rates based on information available to them at the time. The majority of this economic information comes from the Australian Bureau of Statistics.

You are right that it is the cash rate that matters, but once again, the Liberal government does not have control over setting this - only the RBA has!!! I don't know how much clearer I can be. Hats off to JHo though for doing such a great job of brainwashing the general public.

[spoon]

Seriously, I have no idea what this means. Like I said, I am an economist and I get paid to predict interest rate movements, both in Australia and in overseas markets, so I think I know who controls interest rates, and it is not the government!!!

I have no idea what these 'vital criteria' are that you talk about. The RBA's aim is to keep inflation between 2-3%, and they decide each month whether or not to change rates based on information available to them at the time. The majority of this economic information comes from the Australian Bureau of Statistics.

You are right that it is the cash rate that matters, but once again, the Liberal government does not have control over setting this - only the RBA has!!! I don't know how much clearer I can be. Hats off to JHo though for doing such a great job of brainwashing the general public.

:yelclap:

[IAdoreYou]

Seriously, I have no idea what this means. Like I said, I am an economist and I get paid to predict interest rate movements, both in Australia and in overseas markets, so I think I know who controls interest rates, and it is not the government!!!

Are you sure?

The Reserve Bank and the Treasurer, Peter Costello, have strongly resisted calls for the minutes to be published. (In 2004 then-governor Ian Macfarlane went as far as to use his powers to legally block a freedom of information application for the release of the minutes and voting records from board meetings.)

Defenders of the status quo argue that airing the minutes would discourage the six "outside" board directors, drawn largely from business, from participating frankly in policy debates. It could even discourage them from being on the board at all, denying it the real-world expertise which gives an extra dimension to the forecast-based analysis of the bank's economic professionals.

It could mean the successful structure of the RBA governance would have to be abandoned for no good reason, pushing it towards the approach of central banks such as the Federal Reserve or the Bank of England, which have boards made up of expert economists rather than largely "lay" members.

"If it ain't broke, don't fix it," they argue.

But shedding even more light on its decision making by publishing its board deliberations could only help Australians better understand where their mortgage payments and business borrowing costs are headed, and why.



hmmmmmmm, why would "Peter Costello" be involved in one of these meetings???? really, I wonder wonder why ... OH wait a minute, he was the guy supporting the prime minister the other night .. Oh okay .. that's why.

ciao :wave: last final post!

I say publish the minutes!!!

[chicken]

The Government is responsible for setting the RBA's target (ie the 2-3%) band and also for making senior RBA staff appointments - I didn't say the government had no relationship at all with the RBA. But the RBA is independent in matters of setting monetary policy.

I've just seen the latest inflation numbers - not the 0.7% figure that will be reported on the news, but the 0.9% 'core' measure of inflation that matters to the RBA. I can bet you now that on tonight's news, Costello will be saying that there is no need for interest rates to be raised. He can say whatever he likes (as he always does). The RBA will pay no attention - and I can bet you rates will be going up again next month. Let's see how the Liberals like that one!! If they really had any control over rates, would they be raising them just before an election?

[IAdoreYou]

- I didn't say the government had no relationship at all with the RBA. But the RBA is independent in matters of setting monetary policy.

fair enough .. it honestly sounded like that before though!

Happy Voting and thanks for a great debate :thumbsup:

GOODLUCK everybody ..

[our little treasures]

John Howard has not kept them low - the RBA has!!!

As I said, governments can influence interest rates via their policies, and I agree with an earlier poster that both parties are currently embarking on very expansionary policies, which is likely to add to inflationary pressure. Indeed, I had a meeting with a representative of the RBA last year who implied 'off-the-record" that the inflationary impact of last year's tax cuts were only offset after three subsequent rate rises. My point was simply that it is misleading of the Liberal party to imply that their policies are more fiscally responsible and more likely to lead to lower interest rates.

The Australian economy is currently experiencing a once-in-a-generation terms of trade boom (mostly due to strong growth in China). This has resulted in an enormous transfer of wealth from the rest of the world into Australia. This is the main reason why the government has been able to generate massive budget surpluses in recent years, despite handing out generous tax cuts. Without the terms of trade boom, the budget balance would be in very serious deficit right now.


Seriously, I have no idea what this means. Like I said, I am an economist and I get paid to predict interest rate movements, both in Australia and in overseas markets, so I think I know who controls interest rates, and it is not the government!!!

I have no idea what these 'vital criteria' are that you talk about. The RBA's aim is to keep inflation between 2-3%, and they decide each month whether or not to change rates based on information available to them at the time. The majority of this economic information comes from the Australian Bureau of Statistics.

You are right that it is the cash rate that matters, but once again, the Liberal government does not have control over setting this - only the RBA has!!! I don't know how much clearer I can be. Hats off to JHo though for doing such a great job of brainwashing the general public.

You must love repeating yourself:D

[Odessa]

Chicken, I admire your determination ;) Thank you for your post. It's great to see people everywhere starting to talk about this and realise the Howard Government has lied to us about it's control of interest rates.

On talkback radio last week Mr Howard admitted that his party's promise to keep interest rates at record lows was only a 2 day promise:

http://www.youtube.com/watch?v=b3g1IIsHlB0

Watch the above clip, listen to him try and weasel his way out of an outright LIE.