Exams, elections, and the truth behind economics…
Pheww!
I have just completed my last exam for the year, and I have to say that I am feeling quite drained. Its been a tough couple of weeks, what with exams and the thrills and excitement of politics in this country. So much has been in the news, stuff that has excited me and pushed my proverbial buttons. I have found myself so involved in head-space that I have often had to force myself to stop, smell the roses, and remind myself that there is a more peaceful world south of the ol’ grey matter that is warm and fuzzy and doesn’t get caught up in clever arguments, rote-learned facts and intellectual trickery.
Now I’m not one to slink away from the argy-bargy that is a federal election, but boy will I be glad when it’s all over. If I have to see another political advertisement, I may just scream. But a reminder of a few things that have come up.
- Most importantly, a report out today says that Australia is the worst greenhouse gas polluter per capita, far exceeding both the USA and China. I wonder which party will be taking note of that?!
- The corrupt funding of projects only in Coalition-held electorates, while funding was rejected in electorates held by the ALP…. now that can’t be kosher.
- A number of top cops sent packing after corruption scandals.
- Some much-needed rain in Victoria that actually caused flooding in some highland parts.
I haven’t just been idly studying for my exams either. I too have been getting into a little bit of election fever myself. Given the hooha about interest rates, and which government is better at managing an economy, I decided to put down my pathophysiology textbook and contact the Reserve Bank of Australia directly. Basically, I asked for the truth. And unless they have sent me a bunch of hokum, then they prove to be quite interesting. I will post up all the links to info on their websites they sent, but for the sake of the normal folk I will summary what is most pertinent to us all: the interest rates for standard house mortgages from a bank. In summary:
- The peak rates doing the Fraser Liberal Government, when John Howard was Treasurer, was ~14%.
- The peak of rates under the following Labor Government was 17%, reached in 1990 (the ALP under Hawke and Keating took office in 1983, and the rates were still about 14%)
- By the time the Liberals took office under John Howard and Peter Costello, the interest rates had fallen to ~9%.
- These rates bottomed out in 1998 to a little over 6%. They began to steadily climb (with the odd drop) right up to the present day, where they a little over 8%.
It would seem then that this current government haven’t really been that instrumental in making interest rates fall - if anything they have overseen a time when they bottomed out, but also saw them rise. Remembering too, that the rise in interest rates from Howard’s 14% and Keating’s 17% is only a rise of 3%. Keating’s management and policies saw the rates fall by 8%.
A few other tidbits of info to keep in mind: during this same period, median wages have roughly doubled, but house prices have increased 5 times. While average inflation has been low and steady, it is somewhat of an illusion as everyday items that we all buy on a daily basis (like, bread, milk, groceries, petrol, etc) have seen their prices massively inflated, balanced only by the massive drop in the prices of ‘big ticket’ items like TV’s, stereos, mobile phones, DVD players, etc etc. National productivity between 1983 and 1996 went from low to high, whilst productivity between 1996 and now have actually fallen to what they were in the early ’80’s. And whilst interest rates may be low, the deregulated credit market for consumers basically means that everyone now is further in debt - as an example, the house we sold in 1992/3 for $160,000 (when interest rates were about 15-16%) now sells for $600,000 (interest rates at 8%). Work out the maths…
Anyway, here are the links from the RBA - its best you see for yourself and make up your own minds….
1. CASH RATE TARGET & CASH RATE - Monetary policy decisions are expressed in terms of a target for the cash rate, which is the overnight money market interest rate. For the definition of the Cash Rate see - http://www.rba.gov.au/Glossary/detail.asp?form_term=cash+rate&term=cash% 20rate and for the Cash Rate Target see - http://www.rba.gov.au/Glossary/detail.asp?offset=50&term=cash%20rate%20t arget Data on the Cash Rate Target from 1990 to the present can be viewed at the following link - http://www.rba.gov.au/Statistics/cashrate_target.html Prior to 1990 the Reserve Bank did not publish a cash rate target, so the cash rate did not indicate the stance of monetary policy at the time. The measures used as the “cash rate” prior to 1990 are detailed below: Jan 1979 to Dec 1989 - the unofficial 11 am call rate, averaging daily observations. (Source: RBA Occasional Paper No. 10 - column F.) - ref http://www.rba.gov.au/Statistics/occasional_paper_10.XLS Jan 1976 to Dec 1978 - the official (authorised dealers’) rate, being a weighted average on loans outstanding using daily observations. (Source: RBA Occasional Paper No. 10 - Column D.) - ref http://www.rba.gov.au/Statistics/occasional_paper_10.XLS Note: Some further explanation is available by opening the “Notes to Series” link in the top left corner of the spreadsheet. Jun 1964 to Dec 1975 - the official (authorised dealers’) rate, being a weighted average on loans outstanding using averages of Wednesday data. (Source: RBA Statistical Bulletin Financial Supplement.) - not available on-line Jun 1959 to May 1964 - the official (authorised dealers’) rate, being a weighted average on loans outstanding using last Wednesday observations. (Source: RBA Statistical Bulletin Financial Supplement.) For your convenience I have attached an excel file containing the “cash rate” data from all these sources from 1959 to the present. 2. MORTGAGE RATES - You will find historical data on a range of indicator lending rates at the following link - ref http://www.rba.gov.au/Statistics/Bulletin/F05hist.xls This includes interest rates on mortgages from banks, building societies and mortgage managers. Please note the link to the ‘Notes to Tables’ in cell A9 which will provide some definitions/explanation of the table. 3. BANK ACCEPTED BILLS - Historical interest rates for bank bills from 1993 can be found at the following link - ref http://www.rba.gov.au/Statistics/HistoricalInterestRatesYields/1993_to_2 007.xls Earlier data (from 1976) is available at the following link - ref http://www.rba.gov.au/Statistics/occasional_paper_10.XLS
