Originally posted by ocean view
MB & MULTI I AGREE
100% WITH YOUR LAST COMMENTS.
.. let's just see the RBA try it! Move these rates to say 8.5 or 9%.
If they do I rek'n 200% increase in divorces, homeless people, real estate agents with 500% more stock in the window's with only the wealthy there to buy. Mental health problems,, I could write all night.
I beleive the gov't has put themselves into a corner, and the winners are existing home owners. I can not see rates going over 8.5% in my life time. (Now I can see the post's comming)
But hey that's my opinion! And I will stick to it. A3/4 % increase would shake the foundations in the home market !!!!
CHEERS OCEAN VIEW
OV and Multi, thanks for the support!
OV, re: your comment about the RBA trying to increase rates beyond a certain level.
In short - I agree with you.
The long answer is..... very long!
This is something I wrote some weeks ago:
http://www.somersoft.com/forums/showthread.php?s=&threadid=10359
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It is an old argument, but it still holds. When it comes to macro (and micro) managing the economy, the Coalition has the runs on the board.
The ALP does not.
The "recession we had to have", interest rates pushing 19% and 10+% unemployment are all ALP legacies.
John Edwards (Chief Economist at HSBC) wrote Paul Keating's Biography (Edwards used to be Keating's economics adviser) - in it there are some fascinating insights into economic management during Keatings term as Treasurer (1983-1991).
Like this little gem. The book acknowledges (it actually names names) that certain people in Treasury and Keating himself were of the opinion that for interest rates to be falling in time for a particular federal election - they first had to rise (to about 17%).
This is completely reprehensible.
Interestingly, the book acknowledges that the RBA Governor of the time (Fraser) was happy with this arrangement (Fraser was appointed by Keating, first as Secretary to the Treasury, and then as Governor of the RBA).
But at least one senior RBA official - an Assistant Governor by the name of Ian McFarlane was not. He was of the opinion that rates should fall immediately.
In light of this (and a few other things I know about him) I would have to say that McFarlane is precisely the sort of person you want running the RBA.
His 7 year term ends in a couple of months and personally I believe he will be reappointed.
And rightly so.
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Of course, since that time McFarlane has been reappointed for a further 3 years. And good luck to him. I believe he is doing a good job and even if people disagree with that, the fact is that there are no obvious contenders to replace him at the moment.
I actually suspect that Ken Henry may get the nod in due course, he's only been Treasury Secretary for 2.5 years and he is quite young (mid 40's) - so he has plenty of time.
But returning to the issue of interest rates:
Owing to the screw up of the late 80's, we have:
1. A Coalition Government that has busted its ass proving that it is a better economic manager than the ALP
2. An ALP opposition that, when they eventually get in Government, will probably have as a Number 1 priority putting some economic runs on the board and distancing itself totally from the Hawke-Keating legacy.
So either way, high interest rates are politically unpalatable.
But the RBA is independent......
Just on that point, this is something else I have had to say:
http://www.somersoft.com/forums/showthread.php?s=&threadid=10866
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The RBA is independent but, and lets just put it this way, the Treasurer can be a VERY persuasive man.
In other words, I don't believe the RBA ever does anything which is completely opposed to what the Treasurer wants - though from time to time there may be slight differences in opinion between Treasury and the RBA.
Certainly the RBA never goes out on a limb and starts doing things which would make it very difficult for the Treasurer to implement and manage his major policy - Fiscal Policy ("the Budget").
(see Patrick's comments re: a quick jumo to 10%)
If you look at:
http://www.rba.gov.au/Statistics/cashrate_target.html
you can see that in the past 13 years the vast majority of rate changes have been small adjustments. Particularly in recent years 25 or 50 basis points (1/4 or 1/2 a %) seems to be the norm.
The reason for this is that owing to the monumental balls up of the late 80's and early 90's it finally become accepted that Monetary Policy cannot be used to "fine tune" the economy. These days, MP sits at the bottom (as a platform of sorts) of a suite of other policies in managing Australia's domestic economy
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I believe it is important to protect the independance of the RBA.
However it certainly would not work, if the RBA was run by a bunch of cowboys.
I'm not sure if I have the confidence to make a "not in my lifetime" prediction, but...barring any unforeseen catastrophic events....then I believe that (sustained) double digit interest rates will not be seen for a long time.
That is I accept that it would be possible for IR to hit double digits, although:
- I can't see that in the next few years, and
- if it did happen, it would only be briefly (certainly none of this 17+% from the late 80's).
Revisiting an earlier comment that I made re: MP being a "platform".
If it came to the crunch, I believe that the Cth Govt would use other policies, rather than tightening MP.
I think that lesson has been learnt (that an overly tight MP will kill the economy)
MB
