By Denis Bright
It is no consolation to mortgagees that the eleventh interest rate increase from the RBA in a year still leaves Australians with a lower interest rate than most comparable developed economies.
Knowing that current interest rates in Australia are still low by historical standards is also a vacuous perspective. The sheer cost of affordable housing extends to outer metro fringe zones and regional whistle stops. Even at Rappville (NSW) in the Cowper electorate where the trains no longer stop, the local real estate agency has just one modest house that is a notch under $400,000 in price.
Closer to the metropolitan centres of power and influence, there is more acute immediate pain for applicants for new rental contracts as landlords cash in on shortages of accessible and affordable housing options.
The contractual binds faced by mortgagees who were enticed into home purchases by low interest rates in a competitive property market under lower interest rate regimes is now unbearable. Many householders were attracted to properties that they could not sustainably afford after recent interest rate changes and the termination of interest rate ceilings.
Peter Hannam of The Guardian (2 May 2023) shows the extent of the financial burden on mortgagees in the battle against unacceptable levels of inflation:
Although Australian home loan rates are low by our own historical standards, the sheer cost of the original property purchases are extracting a terrible financial toll. In the early 1990s under a more severe interest rate regime, comfortable houses were available for less than $200,000 in a wage regime where incomes were adjusted for inflation despite record levels for post-1945 unemployment rates.
Pet galahs were said to be sprooking economics in the lead up to the recession we had to have in the early 1990s. That squawking about the potential of J Curves to turn the economy around did not eventuate. The Australian dollar had dipped to below 50 cents to the Greenback in the mid-1980s, but all that pain produced no positive results.
The Australian economy needed an optimum dollar and an optimum rate of interest. Journalists should have advocated diversification through the harvesting of capital flows into key sectors through government investment funds which had not yet eventuated to respond to the structural challenges within the economy. The graphics from The Guardian chart the consequences of interest rate hikes.
More interest rate pain can be expected in Australia as major neoliberal financial markets in the US and Britain from higher interest rates as the conventional counter-inflationary measure. Even in Australia, unemployment rates of around 5 per cent can be expected at the end of the Albanese Government’s first parliamentary term.
Conservative Britain is even more right-wing than the Australian LNP in economic management. Unlike Britain, Australian governments have a bipartisan commitment to viable investment funds like the Future Fund and the various state and territory investment funds. These should be opened up to private sector capital flows offering entry into the Australian economy for overseas investors who could be attracted by the long-term stability of the Australian dollar without the need for guaranteed dividends as in the days of the old government loan schemes. Superannuation funds attract our savings under similar conditions and warn of the possibilities of downturns in dividends in difficult times.
Also missing from the discussion of interest rate hikes in the mainstream media is the impact of overseas induced pressures on local interest rates. There are legitimate overseas components of this problem like the impact of COVID-19 on supply networks for very basic items. Then there is the added impact of additional spending by national governments for strategic commitments mainly to the US Global Military Alliance in the vast networks of NATO countries through direct membership commitments and support from associate countries like Australia which joined up in the Gillard years through our commitment to the US troop surge in Afghanistan.
As mentioned in previous articles, major economies like the US and Britain have structural weaknesses and are no longer at the cutting edge of economic innovation outside their vibrant military industrial complexes which are hosting Prime Minister Albanese after the Coronation on his state visit to Britain:
“I’m honoured to represent Australia at the Coronation of The King and The Queen Consort, a historic occasion. I am proud to join a group of remarkable Australians who will also attend the Coronation, showcasing our truly diverse and dynamic nation.
“This will be the third occasion that I meet with Prime Minister Sunak. We will discuss the Australia-United Kingdom Free Trade Agreement, which will shortly enter into force, and will deliver benefits for Australian exporters, Australian workers and our economy more broadly.
“I will meet with the highly trained and skilled workers at the Barrow-in-Furness shipyard, who will be an important part of helping Australia acquire nuclear-powered submarines through AUKUS.”
The Barrow-in-Furness Shipyard is of course operated by BAE Systems as a commercial investment with a global turnover of AU$40 billion. It is the world’s seventh largest military construction site on 2021 data. BAE Systems has strong commercial ties with US military industrial complexes as noted by BAE Promotions:
BAE Systems, Inc. is a Delaware corporation that has mitigated our foreign ownership through a Special Security Agreement between the U.S. Government, BAE Systems, Inc. and BAE Systems plc. That agreement calls for the appointment of outside directors who, in conjunction with other U.S. based board members, comprise a Government Security Committee. The Government Security Committee has the responsibility for overseeing the company’s compliance with U.S. Government Security and Export regulations, and meets regularly with U.S. Government oversight agencies to provide feedback on that compliance. Our long history of successful compliance with the SSA allows BAE Systems to supply products and services to the Department of Defense, Intelligence Community and Homeland Security on some of the Nation’s most sensitive programs.
Both the Bank of England (BoE) and the US Fed Reserve keep their interest rates a notch higher than Australia. The onset of recession in the Anglo-American financial markets is deflected by the vacuuming of capital flows. Corporate tax exceptions are also available through charging up revenues to tax havens.
This plasters over the real cracks in the Anglo-American economies as identified by the McKinsey Global Institute in New York which is always committed to pragmatic interpretations of neoliberal values (15 November 2022).
Corporate, media and government sites like DFAT, Treasury and Finance would have access to more up to date data and projections for economic trendlines which are far-beyond the resources available to AIM Network commentators like myself.
More openness on sharing this material with the general public is an absolute imperative as apologists for the federal LNP are blaming the interest rate increases on the Albanese government and not their own failures over generations in proactive diversification of the Australian financial sector and their insistence on the need for generous tax breaks for small time investors. The tax exemptions extend to major multinational corporations like Cubic Transport and Cubic Defense Holdings which paid no company tax during the decade of federal LNP rule after 2013.
Expect further increases in British interest rates on 11 May 2023 when the BoE meets to review current rates and places new pressures on global increases in interest rates to protect local currencies in the middle-sized economies like Australia with their weakly developed and somewhat colonial financial sectors. Too much conventional wisdom is prevailing again with an over-reliance on monetary policy corrections to inflationary pressures as in the 1980s.
The bright spots on the world scene are no longer in London or New York. The diversion of trade and investment away from the thriving Asian-Pacific Region on security grounds is probably our greatest strategic risk which purchases of AUKUS submarines will not address.
The new generation of pet galahs may now live in ivory towers as they while away the hours producing responsible press releases for an adoring mainstream media. Our youth should stay fit, get involved in political issues and avoid the diversions so popular with the Woodstock generation of the 1970s. Ironically the markets for these psychedelic diversions were strengthened here by the arrival of GIs on R&R leave in Sydney for relief from the war in South Vietnam.
Surely, it’s time for a movie on the antics of the Nugan Hand Bank which was covered in this SMH article by Damian Murphy (9 November 2015).
So enjoy the lyrics from the appropriately named Inner Circle as young and old maintain their rage against new variants of neoliberalism and interest rate pain in the Whitlamesque traditions:
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