Edward Down writes: Adam Schwab uses cherry-picked economic data and is completely wrong (“Higher interest rates harm the young and the poor? What self-serving tripe”). Using solely interest rates to control inflation is a macabre government policy decision. The government should be using every tool in its armoury.
The moment inflation rears its ugly head the government should remove money from the economy by raising the SRD (Statutory Reserve Deposit requirement) ratio (like the Chinese government does) so banks have to keep more money in liquids and government securities. This reduces the amount of money they can lend. This has an instantaneous impact on those inflationary projects which rely on borrowed money, while leaving existent debt-funded projects untouched.
Hit businesses with a super profit tax. The surest sign that the writer’s claim that our current inflation rise is supply-cost driven is completely false is the bumper profits reported by those businesses supplying an inelastic product, those products we can’t do without. Food, transport, electricity and banks come to mind. The huge profits show that these companies are raising prices not to cover their rising costs, but because they see an opportunity to make a bumper profit. That profit motive — which is highly, highly inflationary — needs to be crunched with a super profits tax.
Kathryn Maxwell writes: I agree with Adam Schwab’s take on interest rates. On the NSW South Coast we are already seeing those with holiday homes and investment properties putting them up for sale.
Contributing to inflation was all the money printing by central banks since 2008 and by Australia’s Federal Reserve during the COVID pandemic. One thing that was not mentioned is that we borrow funds from overseas. Our banks compete for the same funds to then lend to businesses and households in Australia. Central banks have increased interest rates to 4.5% in the US, UK, Canada and New Zealand. Australia must follow this path too. This is the joy of being part of the global economy with insufficient domestic savings. The level of household debt is way too high in Australia.
Tony Demarchi writes: I’m in a single-income family that has been struggling ever since everything went up, even with a 13% increase in pay on an already above-average wage during COVID. I’m about to start a second part-time job to stay afloat. I haven’t had steak in more than two years, don’t smoke and don’t buy much junk food. No way could me and mine afford current property prices even if they dropped by 20%.
Schwab, my friend, you are woefully out of touch. Your argument about the young being able to afford property and be able to save is bullshit. How is that going to happen when there are queues to rent properties and the demand for property outstrips supply?
I’m sick and tired of seeing bullshit articles spewing the RBA propaganda and telling everyone “everything is fine”. Everything is not fine. People should be panicking. When big international banks start to default because of the interest rate hikes it’s definitely time to panic.
Senator Nick McKim writes: Schwab fails spectacularly in both economic and political analysis. In railing against a “blissful collective hallucination” on the causes of inflation, he appears utterly ignorant of the fact that the RBA itself has found that between half and three-quarters of the rise in inflation is the result of supply-side shocks — including price mark-ups — that its models are not well suited to understanding and that monetary policy can do little to offset.
Schwab also had the misfortune of claiming interest rate rises were a “triple-benefit” for young people on the day that Moody’s released research showing housing affordability is the worst it has been since the GFC, in large part because of interest rate rises.
I wouldn’t concern myself with Schwab’s tosh if not for his insinuation that the Greens have opposed recent interest rate rises because I am motivated by personal gain. This is lazy, cynical and comically wrong. The Greens’ entire suite of economic policies is redistributive to the disadvantage of well-remunerated people like me. For example, the Greens are strongly opposed to the stage three tax cuts that would benefit me and every other parliamentarian to the tune of $9075 a year. And we want to tax corporate super profits and introduce a wealth tax.
And that’s before we get to our policies to freeze rents for two years, abolish the capital gains tax discount and abolish negative gearing, all of which are specifically about improving housing affordability.
Unlike Schwab’s economic fantasy, this would actually bring a triple benefit to young people, and no benefit at all to people like me.
Vicki Dixon writes: Schwab makes some salient points about the negative effects of historically low interest rates in funding speculative asset acquisition. It has contributed to a growth in the cost of housing in Australia which has far outpaced wages and made owning a home more difficult. Imposing different borrowing rates on homeowners and investment borrowers may help shift investors away from speculation in the housing market over time.
However, this is only part of the story. A tax system in which money earned through growth in the value of housing investment assets is taxed less than money earned through labour is also part of the problem. A combination of reduced capital gains tax on money made by selling investment housing and negative gearing on investment properties have also contributed to speculation in our housing market and rising housing costs. Australia needs to change taxation policies not just interest rates if housing is ever to become affordable again.
We also need to examine our migration policy and the pressures which a fast-growing population has placed on housing in capital cities. If the government cannot significantly invest in affordable housing for average workers and help to increase the housing pool then it needs to slow immigration and pay to upskill the current workforce while it also works towards gaining a mandate for significant investment in affordable housing.
These are long-term problems and will need long-term solutions.
Shayne Coward writes: I work for a man who owns 50-odd van parks. Recently we were told to tighten our budget because the interest rates were starting to hurt. Then he bought another park. I don’t begrudge this — good on him — but interest rates slow spending by the non-wealthy to the point of losing their homes to minimise spending but the rich keep spending.
Simon Stewart writes: I am not an economist, but I have been wondering how much of the RBA rate rises are related to supporting the Australian dollar at around the US$0.65 mark. As the US continues to raise its interest rates the strength of the US dollar increases. The Australian government has close to $1 trillion in debt run up during the GFC and then COVID. If the RBA doesn’t raise our interest rates to match rises in the US rate, the value of our dollar will fall, therefore increasing the amount of Aussie dollars required to pay back the debt. So the politicians may jump up and down about the big bad RBA but really the RBA is doing them a favour.
Also, are the people with mortgages and renters really the ones doing the spending in the general economy? I would be looking at the people who have paid off their mortgages and investment properties and have savings or generous super accounts. I wonder how much profiteering is happening on rental rates on properties that are debt free?
I am in my 50s, still have a $500,000 mortgage and I have no rental properties.
Janice Black writes: I am disturbed by Philip Lowe’s conversations of late and the performance of the RBA past and present. The government should be doing something by bringing back the emergency measures used during COVID, such as protecting tenants from eviction because of non-payment of rent; controlling rents by making laws that any increase over 10% higher is not on, and so on.
If the high inflation rate is not coming down markedly then it proves that it is not the mortgage belt that is spending up big. That nonsense about mortgage holders having a buffer is just that, nonsense. My niece is a childcare worker and her mortgage repayments have gone up $300 a week and she certainly has no buffer.
Thanks for being a voice exposing idiots that do harm.
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