Rising interest rates

[trev]

Interest rates are on the rise in Australia with the Reserve Bank increasing them by 0.25% to 3.25%. The consensus is that they will continue to increase, maybe by as much as 1.5% over the next 12 months.
Although the previous rate of 3% is low by our standards, it was of course much higher than most developed countries. The rise in rates is blamed by some on the present government's stimulus package which is claimed by its detracters to be too much for too long for an economy that never went into recession, only slowed a bit with the global economic crisis.
I agree with the criticism of the government's stimulus. Underlying inflation has reduced, but is still above the reserve Bank target range and therefore even though it is good to have prevented a recession, we cannot afford to go into a boom with our current inflation rate, our economy needs to slow for long enough that the rate of inflation continues to fall further. This is not going to happen with our current policies.
Several recent trade deals involving natural gas sales to China and India means that a massive investment boom in that industry will commence within months, to hit full steam within 12 months. For the government to add further stimulus of its own is absolutely crazy.

[Zkribbler]

I agree that Australia should be among the first of the G-20 countries to begin ending its stimulous package. It had a well regulated banking industry, which insulated it from the U.S. mortgage bubble. The economy's in good shape. To continue its extraordinary measures will only lead to trouble.

[ricketyclik]

Interest rates are on the rise in Australia with the Reserve Bank increasing them by 0.25% to 3.25%. The consensus is that they will continue to increase, maybe by as much as 1.5% over the next 12 months.
Although the previous rate of 3% is low by our standards, it was of course much higher than most developed countries. The rise in rates is blamed by some on the present government's stimulus package which is claimed by its detracters to be too much for too long for an economy that never went into recession, only slowed a bit with the global economic crisis.
I agree with the criticism of the government's stimulus. Underlying inflation has reduced, but is still above the reserve Bank target range and therefore even though it is good to have prevented a recession, we cannot afford to go into a boom with our current inflation rate, our economy needs to slow for long enough that the rate of inflation continues to fall further. This is not going to happen with our current policies.
Several recent trade deals involving natural gas sales to China and India means that a massive investment boom in that industry will commence within months, to hit full steam within 12 months. For the government to add further stimulus of its own is absolutely crazy.

I agree with the government's stimulus. It's all very well to say we never went in to recession, but where would we have been without the stimulus? That, the bank guarantees and the first home buyers' (vendors') grant helped to maintain confidence exactly when it was sorely needed. The GFC could have gone very differently for Australia.

[Ben Kenobi]

Finally! Glad to see one country taking the steps others should have done so long ago. Interest rates need to rise to reflect the true risks associated with lending.

[MRT144]

I agree with the government's stimulus. It's all very well to say we never went in to recession, but where would we have been without the stimulus? That, the bank guarantees and the first home buyers' (vendors') grant helped to maintain confidence exactly when it was sorely needed. The GFC could have gone very differently for Australia.

Specious reasoning and fearmongering.

[ricketyclik]

Specious reasoning and fearmongering.

Please elaborate and rebuff.

[MRT144]

Please elaborate and rebuff.

You don't know what Australia would be without stimulus and you speculate (inducing fear in the speculation) that things would decidedly worse without.

[ricketyclik]

You don't know what Australia would be without stimulus and you speculate (inducing fear in the speculation) that things would decidedly worse without.

Business and consumer confidence plummeted in Oz on the tail of the Lehman Brothers collapse, to levels well below our previous recession in the early 90's. On the announcement of the stimulus package they rebounded to only slightly unhealthy levels. On the announcement of the second quarter of positive growth after the stimulus package they returned to pre-recession levels.

Our growth never went negative, unemployment so far has only risen about 3.5%, and property prices have remained stable in the face of the fact that we now have property to income to earnings ratios at similar to levels in the US just prior to the crash.

How else would you explain these phenomena?

[Dale]

How else would you explain these phenomena?

One thing I learnt at Uni in my economics degree is that as an economist it's easy to say something and prove it.

Like any form of accounting/economics forcasts, it's too easy to manipulate the figures to say what you want.

For instance, unemployment figures have only risen 3.5% because at the start of the year Centrelink changed the formula on how to calculate it. It's easy to manipulate figures.

[ricketyclik]

One thing I learnt at Uni in my economics degree is that as an economist it's easy to say something and prove it.

Like any form of accounting/economics forcasts, it's too easy to manipulate the figures to say what you want.

For instance, unemployment figures have only risen 3.5% because at the start of the year Centrelink changed the formula on how to calculate it. It's easy to manipulate figures.

OK, let's get concrete then. I don't know anyone personally who has lost their job in Australia. Do you?

Of course there are plenty, because unemployment has risen. But if the numbers were substantially higher than reported, I would have expected to know someone who had lost their job.

[Dale]

OK, let's get concrete then. I don't know anyone personally who has lost their job in Australia. Do you?

Of course there are plenty, because unemployment has risen. But if the numbers were substantially higher than reported, I would have expected to know someone who had lost their job.

About 25 from a previous company I worked at last year which went broke due to severe drop in sales (tourist industry) and 65 at my current work due to a second season being put on hold by the broadcaster till next year due to funding (TV industry).

And I know of a LOT of other companies which have entered liquidation. Greysonline.com.au is now booming since they have quadrupled in liquidation auctions from failing companies.

Centrelink's unemployment rate does NOT include:
- retrenched workers within 90 days of retrenchment
- unemployed on the first stage of benefits (that's up to 6 months from unemployment date)
- any unemployed person receiving any other form of benefit (I got pushed onto family allowance instead of newstart when the previous company liquidated)

And since Centrelink's unemployment rate only counts those receiving benefits that eliminates any unemployed person who does not qualify for payments. IE: any person with a partner who earns more than $36,000.

They call that the "hidden unemployed" and some estimates puts the true unemployment rate at double the official statistic. Thus the 5.8% (June 2009) would be more true at 11.6%.

[ricketyclik]

Sounds like it's worse than I thought. What you describe justifies the need for stimulus.

[MRT144]

Business and consumer confidence plummeted in Oz on the tail of the Lehman Brothers collapse, to levels well below our previous recession in the early 90's. On the announcement of the stimulus package they rebounded to only slightly unhealthy levels. On the announcement of the second quarter of positive growth after the stimulus package they returned to pre-recession levels.

Our growth never went negative, unemployment so far has only risen about 3.5%, and property prices have remained stable in the face of the fact that we now have property to income to earnings ratios at similar to levels in the US just prior to the crash.

How else would you explain these phenomena?

You were't in danger of a recession in the first place? Consumer confidence doesn't make recession. The very fact that one quarter of positive GDP rescued the Australian economy from recession seems to make the case that stimulus wasn't needed at all. A feather touch would have done the job just as well.

And recessions aren't all that bad either.

[MRT144]

Sounds like it's worse than I thought. What you describe justifies the need for stimulus.

What doesn't justify stimulus then? Seriously.

[ricketyclik]

You were't in danger of a recession in the first place? Consumer confidence doesn't make recession. The very fact that one quarter of positive GDP rescued the Australian economy from recession seems to make the case that stimulus wasn't needed at all. A feather touch would have done the job just as well.

And recessions aren't all that bad either.

Declines in consumer and business confidence are exactly what make recessions. What do you think causes a contraction in demand?

The only just positive growth occurred after the stimulus was in place, so without the stimulus it would have been negative, ie, recession, consumer and business confidence plummets, downward spiral.

Recessions are bad. Unemployment rises, businesses fail, families break down and lives are ruined.