RBA cuts base rate by 1%

In a shock move, the RBA has cut the base rate by 1%.

Will be interesting to see how the markets and the major banks react to this.

joni

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69 Responses

  1. All I can say is I’m in shock!

  2. Shock, and surprise. Need some time to chew it over.

  3. The consensus from people “in the know” is that the decision to slah rates by 1% is an indication of how f**ked things actually are.

    It seems we will be following the US into recession.

    The last time interest rates were cut by 1% was when they were about 13%.

    The Banks are still no saying whether they will pass on the rate decrease.

  4. 1% is simply staggering. None of the current turmoil is new. It was known about before Christmas. Why were rates being raised when they knew this was coming? You’d almost think the RBA were acting to save the skin of the new government.

  5. More news just in:

    The dollar and the euro jumped to session highs against the yen on Tuesday after Australia’s central bank slashed interest rates by a full percentage point, stirring talk of coordinated central bank action to stem the worsening credit crisis.

    The U.S. dollar rose as much as 0.8 percent from late U.S.
    trade to a high of 102.62 yen , up sharply from the
    six-month low of 100.22 yen hit the previous day. The euro
    climbed 0.8 percent to 138.60 yen , up from a
    three-year low hit on Monday.

    One trader at a European bank in Hong Kong said the RBA move “opens the discussion” of whether the Federal Reserve, European Central Bank and Bank of England cut could rates aggressively aswell.

  6. Interest rates will always be lower under the coalition 🙄

    Didn’t see the 1% cut coming. We already had a massive cash rate by world standards so a drop was probably necessary. Any guesses about how much the banks will pass on?

  7. James of North Melbourne:

    “You’d almost think the RBA were acting to save the skin of the new government.”

    Not so much the “new government” I’d suggest James, but the entire Australian economy. I think this is an a-political move. Regardless of who is in government, it is the ecomomic conditions that are driving this drastic action.

  8. James they had to keep raising rates to stop people spending and going into deeper debt because they knew this was coming. If they had not done that many more people would be worse off now than they are.

    Howard was warned by the RBA to stop his government’s profligate spending, massive middle class welfare handouts and encouraging people to go on spending as if there’s no tomorrow (they’ve never had it so good). Well there is a tomorrow and it’s arrived in a big way.

    The Howard government ignored every warning for the last seven to eight years on Australia’s love affair with personal debt, a personal debt he encouraged every step of the way despite those warnings, Costello even flagged it as a looming problem five to six years ago but then did absolutely nothing to stop Australians spending on credit nor on cutting back the handouts, except to criticise Howard for it.

  9. You’d almost think the RBA were acting to save the skin of the new government.

    I know you are one of the better ones, James, but this is a ridiculous line to be pushing. The Reserve Bank is independent of the government of the time – as evidenced by their rate increase during the last election.

    I’m thinking the reason for the vast rate decrease is due to two things:
    a) The global economy (no elaboration required)
    b) The banks reticence in passing along the full drop.

    The second one is the most interesting one, as we’re all well aware of the crap the American finance markets have caused globally. The reason for raising & lowering the interest rates are to encourage / discourage spending. If the banks don’t pass on the rise & fall of interest rates – the only effect is on their bottom line. My guess is that the rate drop is so drastic so as to allow banks to pass on the “real drop” desired by the Reserve Bank whilst also allowing them to recoup credit costs.

  10. Stock market has bounced 1% since the announcement, but Aussie dollar is predicted to slide towards 60 cents!

    Analysts tipping another reduction of .25% as early as next month.

  11. I blame it all on greedy right-wing capitalists and their operatives in the Republican and Liberal Parties. They’ll screw the whole world, I tell ya.

  12. Adrian,

    I don’t know if you read the piece by Michael West in the SMH today:
    http://business.smh.com.au/business/in-hock-to-the-world-20081007-4v8c.html?page=fullpage#contentSwap2

    He looks at the past Government’s repayment of Gov debt and explains how the $96Bn was ‘paid’ off. It seems that we were a little too quick to resile from our earlier comments that the debt wasn’t fully paid back. Around $30 was paid back, about 1/3 is offset by our own loans to other countries (mostly places like the Solomons, Fiji, etc who have buckley’s chance of paying it back) and another 1/3 was debt held by companies that have since been privatised (eg Telstra which had debts of around $10Bn). The whole article is an interesting read.

  13. B.Tolputt,

    Agreed, with investors leaving the market in droves and throwing billions into Cash and Fixed interest – this is effectively flooding the Banks coffers with funds!!

  14. This is simply stunning. I suspect that the reserve banks of the world are like a blind man in a dark room trying to find a door to escape. No one seems to know what to do as the usual remedies are not working.

    (I was trying to find a better metaphor – but the enormity of what the RBA has done has floored me).

  15. stuntreb,

    The AUD is actually up quite sharply since the announcement, around 2%. I think the predictions were based on a .5% cut but for some reason, the markets have reacted favourably to the announcement.

    If you bought at the bottom today on the stock market, you would probably have made around 5% in today’s trade alone.

  16. Dave55,

    Remember last week how I mentioned that Costello used the term “in net terms” to describe how the 96 Billion was paid off? I knew that he used that term as wiggle room for when someone worked out the truth.

    Now where is Briannie when you need his/her lucid interjections?

  17. joni,

    Like Adrian when we were over at the old hangout, I knew that I have seen the breakdown of the ‘in net terms’ pay off and I always had my doubts about the 96Bn because we simply didn’t have surpluses big enough, nor had funding been cut enough to have paid it all off that quickly. Now we have a paper to throw at Briannie if and when the phrase is thrown about with scant regard for the facts.

  18. Ta Dave, will read and digest.

  19. Peter Costello has never tired of pointing to the “budget black hole” presided over by the Keating government as evidence of Labor’s profligacy. Yet the deficits of the early ’90s were not the result of bad management, but rather of an appropriate economic policy in the aftermath of a recession.

    In a recession, the budget will automatically go into deficit because tax intakes fall (as profits go down) and government outlays go up (unemployment benefits, for example). Should the government slash unemployment benefits and other government programs for the sake of the budget balance? Most economists would say no, because reducing the deficit would compound the recession by further reducing demand in the economy.

    Far from being irresponsible, deficit spending in a recession is widely accepted to be sound economic policy.

    Andrew Charlton, ‘The Economic Myths of Peter Costello’, The Monthly, October 2007

    http://www.themonthly.com.au/tm/node/676?gclid=CPGt1pnwnJECFQQbegodmyvUuQ

    The entire article is worth a read as a matter of fact.

  20. I used the phrase in two contexts. The first was in relation to how far they went in raising rates last year, despite most of the inflationary factors being in areas of non-discretionary spending, a point I made at the time. The second context is the full 1%? No-one predicted that. It’s just a bit weird that it came about after the government backed away from taking on the banks for not passing on the full rate cuts, and were starting to feel heat for it. Adrian, give the term “profligate spending” a break will you? They ran massive surpluses FFS. That’s why people like me think you’re just a Labor stooge in here, you continually just belt out the ALP lines. 1% in one go is too much. It will only add to the volatility.

  21. True Dave 55.

    There’s a fare bit of trading goin on since the announcement.

  22. Putting on the tinfoil hat:

    With Rudd’s and Swan’s change of heart in siding with the banks against not passing on the full interest rate cut over the past week or two added to this 1% rate cut makes me wonder if there really IS something they are not telling us.

    Are they standing there with fingers crossed praying that ‘something’ is not going to happen?

    I’ve been a tad concerned since learning a couple of days ago that bank deposits are not guaranteed in Australia as I’ve always believed they were.

  23. WESTPAC HAS JUST CUT INTEREST RATES BY .8% !!!

  24. I banged my head against the wall time and again with Sherlock, chalks, etc. about this Caney and of course about Howard’s irresponsible spending and debt encouragement. It’s there for anybody to see, if you look at a graph from 1996 and about half way into Howard’s first term you will see what was a steady debt growth suddenly start to accelerate upwards until it bursts ahead to the highest levels of personal debt in the world on the back of Howard’s $50 billion first home owners grant.

    The sad thing is that Howard was actually instrumental in helping Keating implement the reforms Howard was later to benefit from, but then when gaining power threw good economic management out the door in pursuit of perpetual stewardship.

  25. Great to see you blokes (m&f) back in action. Thanks to scaper over on JTI’s blog. And yeh 1% was a wopper. Will be interesting to see the results.

  26. stuntreb @ 23

    Woo hoo – that means my home loan goes down below 8%.

  27. Dave55

    Bloody oaf! And if NAB doesn’t follow suit in the next 24 hours I’ll be having some serious words to my personal banker!!

  28. Hockey is on Sky News. It’s all Rudd’s fault.

  29. I banged my head against the wall time and again with Sherlock, chalks, etc. about this

    I know you did, Adrian, and I quietly applauded you all the way. Of course those sort would never get anything into their heads that isn’t Liberal Party spin and lies. Going through life with a closed mind and one eye shut, what would you expect!

    However the good work you did was read by many, and as you said, is still there on news.com’s pages. Who knows what the proportion of readers : participants was in the old place, but I know it would be high.

    So though you never got through to chalkie or Briannie (no one would), you have made some influence on wider perceptions. Console yourself with that while I thank you for it.

  30. Reb

    I’m thinking the same thing

    “The consensus from people “in the know” is that the decision to slah rates by 1% is an indication of how f**ked things actually are.

    It seems we will be following the US into recession.”

    It also seems the head of the Bank of Scotland is in a spot of bother as well http://au.youtube.com/watch?v=3QRy-PEgbls

  31. Sans Blog wrote:

    Are they standing there with fingers crossed praying that ’something’ is not going to happen?

    That reminds me of this quote from Kenneth Davidson, The Age, 15 March 2007:

    […T]he Howard Government is operating on autopilot in the hope that something will turn up to save the “lucky country” from a major accident that could rival the events of the 1890s and 1930s.

    http://www.theage.com.au/news/opinion/its-about-time-the-economy-was-managed/2007/03/14/1173722553786.html?page=fullpage#contentSwap1

  32. Just an offhand observation, I love how the blogocrats are like a big accurate search engine. Things like how Caney found the quote from Kenneth Davidson in reference to what is happening now. I just love it!

  33. Methinks, the fun has only just begun, my friends…1% is not a number to rejoice over – it tells us that we are in serious trouble.

    It began in the USA it slithered across the Atlantic to Europe and is slowly munching its way to Asia (of which we are part – an unfortunate fact for Libs and National rednecks and long denied and who were convinced We are The Western World – BS).

    A Global Economy? Watch each country defend itself as the Global Economy descends into Global Anarchy (even further).

    Only DH’s like Bush, Howard & Blair fight wars with other people’s sons & daughters – the world IS about to change and our lives WILL be changed, economically – our great great grandchildren (unless they remember history) will just do the same again…

    The Pendulum of Business just keeps swinging (just as the Wheel of Life keeps turning – not always in the same direction!) – some of us have seen it turn two or three times…with any luck 2008 will be the catalyst to centre it again.

    Wouldn’t want to be a Telco right now – a lot of people are going to discover they don’t really need a 3G with Navigator, camera and built in massage parlour! Or cable TV or will make do with less broadband etcetc. Either that or they’ll just whinge and wonder why they can’t pay off their mortgage…who needs a house anyway LOL!

    Maybe they’ll go back to building homes without carpets and fences and driveways and gardens and all the other add-ons that we had to do ourselves in the ’60’s and ’70’s

    Oh! and I see Prince Harry wants to go back to war …

  34. Geez Joni

    You said “I think that one of the banks will blink and will drop the rates by the full percentage, and then the other banks will have no choice but to follow.”

    I said ” I suspect the RBA may continue cutting rates in order to try and avoid recession as well as an attempt pressure banks to lower their rates. More an emergency measure than anything else. Even if inflation continues to increase every effort will probably be made to try and ease the squeeze by banks.”

    It ‘game on’ alright!

  35. TB

    “Methinks, the fun has only just begun, my friends…1% is not a number to rejoice over – it tells us that we are in serious trouble.”

    “Game’s on’ ,’ the fun has only just begun’ my word it is.

    Interesting comment also came on another blog which I find to be absolutely credible, in fact I’ve been saying it for a long while now: Julie Bishop’s AGE Blog “Costello reforms help Australia weather financial storm”

    Ladder of Chilli writes:

    ” I have been working in the Aust Banking System as a credit auditor for the past 15 years. I can assure you that the banks in Australia have indeed been lending in the low doc loan arena, reverse mortgage arena and have been tripping over themselves to lend to anyone who can fog a mirror. Approval is by way of credit scoring which anybody having submitted 3 applications can easily pass. Brokers are well versed in getting a loan approved, bankers are no longer financial managers, simply sales people paid by their targets. Creditworthiness went out the window years ago. Banks have worked on the premise that they will never lose because the property securing the debt will always rise, hence the 100% or even 110% loan to value lending to people who can’t afford the loan so get an interest only housing loan (revolving credit or basically an overdraft.) As somebody has already pointed out we have not had the property crash others have but we will (remember 87-89) and then the sub prime or alt a loans will hit the fan. Then we will see just how profligate the banks have been.”

  36. G’day JMc.

    The other group of incompetents has got be “financial advisors” what a bunch of self serving leeches they have always been.

    Now let’s see, incompetents so far (in Oz let alone overseas):

    Lawmakers (pollies)
    Regulators (ASIC, APRA, AUSTRAC, FRC, Treasury, RBA {sort of})
    Courts
    Banks
    Financial advisors
    Insurance companies
    Real estate organisations
    ASX (oops its a listed company all care no responsibility!)
    Superannuation Managers

    Must be more (difficult to “brainstorm” by yersel’)

    If they are not incompetent then they knew what they were doing, so, you choose – incompetent, incorrigible, or simply thieves on the take?

    No winners from my viewpoint!

  37. Adrain of Norwa yuo ralely tlak carp.You dno,t undrestand the phligt of the poro pisnonener.yuo froget aubot the 96cnet detb taht kaiteng hendad to harwod.And now poro retiere fleeing pcinh as irsteantes reats flal.What a gosoe!And waht aubot the unnios tiknag crotnol,You boglocarps ralley don,tkow waht its lkie to lvie in gosfrod!!!!!!!Yorr,ue all a joke.

  38. According to the ABC news all the banks dropped their rates by 0.8%. Reasonable methinks.

  39. Something else that is unheard of if the ABC news bulletin I just heard a moment ago is right, the banks started lowering their rates within hours of the RBA announcement. Surely that has to be a first, normally they don’t lower for weeks and raise immediately.

  40. Did anyone hear Turnbull on Radio National this morning? He is personally claiming credit for the the banks passing on as much of the interest rate cut as they did because of the ‘pressure’ he bought to bear on them to justify any reduction that was less than the official cut. 🙄 FFS, the man is an idiot – who (other than him) honestly believes that?

    Most people are happy they have extra money in their pockets due to the rate cut and also understand that we are in a very bad economic situation – there is even a sense of pride that our banks seem to be doing OK while all the US and European banks are failing – and I am pretty sure that most Aussies would prefer to see good strong profitable banks that keep employing people and returning profits to shareholders (and super funds) than failing and barely making ends meet. They are businesses after all – not charities.

  41. The Prime Minister’s piece this morning.

    http://www.news.com.au/dailytelegraph/story/0,22049,24462184-5001030,00.html

    Anyone watch Lateline and Wayne Swan last night?

    His best interview yet! Quite impressed…! By weathering this economic storm and implementing the infrastructure developments (as other jobs are lost) this government will be here for a long time I suspect.

    That will stir the Opposition Leader to select a new and more invigorated/competent Opposition front bench one would suspect and give us a real parliament…

    Wonder how much Malcolm and Kevin have lost on the market?

  42. “FFS, the man is an idiot – who (other than him) honestly believes that?”dave55

    What really gets stuck in my craw is that Turncoat takes the public to be bigger idiots than him in expecting us (with the exclusion of Bolt’s gargoyles) to swallow that shit.
    Not too perturbed about insulting our intelligence is he? Fwit.

  43. HD@42

    Shit – I forgot about the people over at Bolt’s and of course Ackerman’s blogs. Maybe I should have qualified my intended rhetorical question with ‘ what idiot honestly believes that?’

  44. Dave55

    I nearly wet my pants when I hear Talcum more or less say “look, I’m not taking credit for the rate decrease, but the reality is…”

    (And then went to explan that it was all thanks to him!!!)

    Best laugh I’ve had in ages!

    🙂

  45. Yep, Bolta’s back from hols & his remoras are as rabidly ignorant as ever.
    With the demise of blogocracy Bolt’s nest of vipers is one of the only blogs I can read at work…a double edged sword that. Eye opening to say the least.
    Among the arrogant, abusive & ignorant many over there are some truly brave & determined centre/left commenters. For the life of me I’m not sure why they put up with the swill that gets thrown their way.
    I’d love to stir up the regulars but Bolt’s Thought Gestapo are onto me & I was banned long ago for laughing at their circus.

    It’s always a stark contrast to go from what generally constitutes polite, reasoned analysis here to the cacophony of ignorance & naked contempt at Uncle Andrew’s.

  46. http://blogs.news.com.au/couriermail/partygames/index.php/couriermail/comments/rudd_given_a_breather_by_the_reserve_bank#42345

    Yeah Dave55 it’s like that stupidity from Dennis Atkins. I left a comment there but so far he hasn’t allowed it to go through.

    Look at what he’s trying to say. First the RBA is helping Labor and by inference are deliberately trying to hurt the LNP. This is a common claim made by the wingnuts and they say this is the reason interest rates went up under Howard, the RBA was out to get him.

    Then Dennis does the usual wingnut Howard Cracked Crystal Ball (HCCB) thing and states if the RBA had dropped official interest rates by 0.5% instead of 1.0% then the banks would only have passed on half of the 0.5 in 0.25%. Where the hell does he get that from?

    Get his logic. The RBA dropped official rates by 1.0% to help Rudd because if they had dropped 0.5% it would not have been enough to help Rudd and the banks would have only passed on ½ instead of the ¾+ they did with the 1% drop.

    Just how screwed is that, but hey, as long as it puts craps on the Rudd government then it makes perfect sense to the wingnuts.

  47. “Just how screwed is that, but hey, as long as it puts craps on the Rudd government then it makes perfect sense to the wingnuts.”

    Precisely why they won’t post your reasoned (contrary) comment Adrian. RW logic can only exist in a vacuum.

  48. stuntreb

    He sorta said it last night on the 7.30 Report as well and Bannerman all but called him a goose. I loved the moment this morning when Fran asked him how much of the rate cut he was taking credit for and then pulled him up when he started to deny that he was taking any credit – to which he added the qualification that he wasn’t putting a percentage on how much he was taking credit for. I might start referring to him as “Humbull”

  49. Adrian,

    It’s a conspiracy I tell you , A CONSPIRACY 🙄

    One thing I was surprised at yesterday was how over at the news.com.au blog attached to the rate drop there was very little right wing complaint about the current Government (or at least early on). Maybe they hadn’t thought up a way to spin it that way by that point.

    We have to face reality, the drop, while a good thing for those of us with a mortgage, isn’t a sign that all is well. If the cash remains tight, I wouldn’t be surprised to see some more cash going out of the future fund as medium term loans to the banks to help the liquidity flow. While the returns may not be as good for the FF (say 6% or so), it would still be profitable and a pretty safe investment and would help the financial system at the same time – I understand that a couple of the big 4 have already taken out loans from the FF.

  50. How’s this for a wingnut comment:

    Over at the ABC News site

    http://www.abc.net.au/news/stories/2008/10/08/2384882.htm

    Pen Pal:
    08 Oct 2008 9:42:30am

    Well done Mr Stevens and your Board!

    It’s a pity though that the Government appears to have let the economic well-being of our country slip to such a level that this was the only way for people to get an interest rate cut.

    The government “let the economy slip”! No acknowledgement that economies all round the world are slipping. How blind are these right-wing wankers.

  51. “The government “let the economy slip”! No acknowledgement that economies all round the world are slipping. How blind are these right-wing wankers”

    Sure enough, they are mushrooms; kept in the dark & fed on shit.

  52. Caney, I wonder if Pen Pal knows that the Dow Jones dropped 508 points last night – that naughty Rudd Government .

    Mind you the FTSE was up 16 – probably due to Mal Turncoat having a few words with Lloyds and Barclays and the Royal Scottish Bank – all in deep sh!t, at the moment

    The world economic control the Rudd Government have must be greater than John Howard & The Private School Bullies ever dreamed of – speaking of which – where’s “the world’s greatest tresurer” now?

    Politics and power is certainly all in the timing, just ask Paul Keating – what a country we could have had – opportunities lost…

  53. I’ve seen that turkey Pen Pal commenting on the ABC site pretty often. Liberals like that are so malicious in their defeat that they will say anything, no matter how dazzlingly stupid and dishonest, to try and knock the new government. Go over and drop him a reply if you’ve got the chance.

  54. PS: There are plenty more like him on that page. The Lieberal cheersquad.

  55. Given the actions of the RBA over the last couple of years, it’s not unreasonable for LNP supporters to conclude that there may be an element of political partisanship in there somewhere. Rates were raised too far (and I said it at the time) last year, and they have been dropped too much in one go in this instance. Uncertainty begets uncertainty. Investments in the share market should be long term but such large movements encourage short term punting, and that’s what sends people broke. Further, I won’t hold my breath waiting for the banks to drop margins when this crisis passes, which it eventually will, despite Swan’s “assurances”.
    Turnbull has shown himself to be a populist lightweight, and the sooner the LNP offload him for someone with a touch more genuine cred the better. He seems as manically power hungry as Rudd.
    TB, don’t blame the Financial Advisers, blame the institutions. I left an institution over the “million dollar super opportunity”. They were encouraging advisers to advise clients to borrow up to the million dollars and I led a group of advisers to oppose the policy. Needless to say, it soon became time I left. Then I went for a job managing advisers at another major institution. Got to the end of the interview process and was asked how I would have “encouraged” advisers to “take advantage” of the “$1 million dollar super opportunity”. My answer was that it was appropriate in only a very limited set of circumstances, and I would have influenced advisers thus. This was at 3rd interview stage, and I never heard from them again, despite a number of calls from me to find out how I’d gone. Make no mistake, the large institutions are after “funds under management” and that’s it. I still use them as vehicles in my practice, but I know well that they’re beholden to their shareholders and their own bonuses, not the wellbeing of their clients.

  56. “Further, I won’t hold my breath waiting for the banks to drop margins when this crisis passes, which it eventually will, despite Swan’s “assurances”.”james

    Amen to that!

  57. Fair call, James, for you personally, but you just highlighted the need to control the management of managed funds of any or all types – the average punter has little idea – that’s why they seek assistance from financial advisor organisations – who feed the advisors BS to feed to clients to make more money (the individual advisors are mere mouthpieces as you point out)

    When I refer to banks I don’t mean the tellers (who are also expected to sell, sell, sell – my daughter in law works for NAB!)

    Its the strategy controllers (Directors, Senior Mangers) that need to be controlled by regulators with real power given by tough lawmakers in Federal Statute linked to the Trade Practices Act (which needs a thorough overhaul anyway) – to protect the innocent and gullible.

    Our superannuation manager has a team of advisors on salary that do not have trailers and I can call for free…I can ask get options and make the decision…easy.

    However…

    …our “best” option is our local advisor at Centrelink – free and no encumbrances like commercial advisors…I run all my long term plans past him before I make a move…and anyone can use these advisors…eg I’m not due for a pension for another 41/2 years. (Self funded retiree)

  58. Given the actions of the RBA over the last couple of years, it’s not unreasonable for LNP supporters to conclude that there may be an element of political partisanship in there somewhere. Rates were raised too far (and I said it at the time) last year, and they have been dropped too much in one go in this instance.

    Can’t wear that one James.

    First. It is entirely unreasonable for the LNP supporters to think that way as it’s just plain dumb and unrealistically conspiratorial. But then again we are talking about LNP supporters.

    Second. Howard was warned by the RBA and other economic institutions that his profligate spending and stimulation of personal spending engendering large amounts of personal debt will entail interest rate rises. Warnings he as usual ignored until things became disastrous, when he then laid blame on everyone and everything else but his government, also a SOP for him. The interest rate rises were not over the top under the circumstances of the time and Howard’s insistence that everyone keep spending and pumping debits into the domestic economy whilst he doled out massive electoral bribes could only ever lead to increased interest rates. So the RBA’s responses at the time to his stimulus and economic policy was the correct one. It was not as though Howard wasn’t told over five years that what he was doing was wrong James, even Costello made a statement on Howard’s over the top spending and the unsustainable levels of personal debt he was stimulating.

  59. When the RBA makes, in my professional opinion, wrong decisions both ways in relation to interest rates, and said decisions favour politically one side of politics, it’s reasonable to wonder. Adrian, you can talk profligate spending and electoral bribes until the cows come home but at the end of the day, they ran a massive surplus. Personally, I would have liked to have seen them do more on infrastructure spending, such as shifting water, but most of these issues were manged at state level and they were up against hostile states (and it turns out, increasingly incompetent). Electoral bribes are hardly the domain of one side of politics, just look at Northern NSW. To what extent did you want him to regulate spending? How would the electorate have viewed more taxes and less spending? I agree that there are economic ideals, I’d love them to legislate for many things, but there is also the issue of personal freedom and the political reality that goes with that. The handouts you’re speaking of didn’t exactly go to millionaires, they went to people who were battling.

  60. Oh so it’s the States fault, why am I in no way surprised this red herring was bought up. Nothing is Howard’s fault as usual.

    What has the electoral bribes and profligate spending got to do with the large surpluses? Having a large surpluse is not an excuse to throw fiscal responsibility out the door.

    No the handouts didn’t mostly go to battlers James, they almost entirely went to middle and upper class welfare, which was quite deliberate. Under any measure Howard was extremely generous to the wealthy and very generous to middle class Australia, with the lower end of the economic spectrum getting by far the smallest cut of the pie to be double whammied as Howard’s largesse to those above them caused interest rates to rise and hit them harder.

    As to the RBA conspiratorial guff, it’s exactly that guff. Sorry James it is extremely unreasonable for anybody to have even the slightest thought the RBA would deliberately manipulate interest rates for political purposes. Even the most economically illiterate people in Australia can work out that interest rates are manipulated by the RBA in direct respsonse to world economic conditions and Australian government fiscal policy. If ideologues want to tie that to a political bias then that’s their worry, but it has absolutely nothing to do with reality and is not an excuse they can trot out in an attempt to cover up for their hero or party’s economic stuff ups.

  61. Adrian, there are plenty of worthy criticisms of Howard, even the direction of some of his spending habits. But you would appear to sheet home to him the blame for everything from the housing difficulties, the plight of aboriginals, the overspending of consumers, the racism of small town Australians…….I’m surprised you don’t blame him for the Holocaust. You are smart enough to know that it is electorally suicide to continue to reign in spending and raise taxes in times of economic prosperity. All they could reasonably do was to regulate as far as possible the financial institutions. This they did, despite the opposition of the ALP. Interestingly, at about the same time, the Democrat Government in the US was relaxing lending criteria for Fannie Mae. See the NY Times of 30 September 1999. To have pulled off all of the infrastructure stuff that you wanted, then infrastructure development would need to have been nationalised, as they tried, and failed, to do with water. As they tried, and succeeded only after a big fight, with the ports. If your criticisms were also of the State Labor Govts over the period, who have all been abject failures, then you might have more cred.

    As to the RBA, for whatever reason, they are oversteering. That is adding to the uncertainty. It is also politically helpful to the ALP. I doubt that they ARE playing partisan politics, but as I said, I’m not surprised that LNP supporters have drawn that conclusion.
    So what do you think of Swan’s comments about banks “eventually” passing on the full rate cuts, you know, when the crisis passes?

  62. James

    To have pulled off all of the infrastructure stuff that you wanted, then infrastructure development would need to have been nationalised, as they tried, and failed, to do with water.

    The Commonwealth could have handed out tied grants to State Governments at any time. The Cth did this with the funding for the Pacific Hwy which wasn’t part of the National Hwy, nor does it fall within the s.51 constitutional powers. The Cth also has power to make laws regarding the construction and extension of railways within states with their consent. If the States wanted the infrastructure, they Cth could have funded it. As for the ports, I can’t think of anything that would fall within the ambit of “trade and Commerce with other Countries and among the States” as much as port infrastructure – so the Cth had the power to intervene with Port infrastructure since 1901.

    As they tried, and succeeded only after a big fight, with the ports.

    That was in relation to IR, not infrastructure. The big problem with ports is that the infrastructure is largely owned and operated by private companies, often owned by the mining companies themselves. The bottlenecks were largely caused by these companies failing to invest in the expansion rather than a failure of either the States or the Cth.

    My biggest criticism of Howard (and Costello) was his demonising of government debt. It makes very good financial and social equity sense for infrastructure spending to be funded out of debt which is paid off by future generations who use it rather than previous generations who get no use out of it. However State Governments, at least up until the last couple of years, refused to do so because they risked the wrath of the voters because they feared being seen as poor economic managers by running up debt. The reality is that many of these infrastructure projects can pay for themselves over a along period of time and are assets and should be treated as such – most voters recognise the need for this infrastructure and can understand that they will have to pay for it over time – they would generally prefer to pay a toll to a Government than they would to a private operator. By Howard brainwashed the populace into believing that Government debt was bad and as a consequence, the States didn’t deliver the infrastructure that was needed or ran down the existing infrastructure and hospitals, schools etc to fund necessary expansions. It is for this reason alone that I cringe every time someone tries to tell me that Howard and Costello were great economic managers because the reality is, they knew SFA and did more damage than good. At least Rudd has the sense to start talking about funding some infrastructure through debt.

  63. Wrong, Adrian, Howard brainwashed the populace into believing FEDERAL Government debt was bad, which, to a degree, it is. It (federal govt debt) puts pressure on interest rates. (Don’t bother sending me “The Monthly” link, such blatant ALP propoganda I’ve never seen, I’ll just reply with something from Quadrant). It was ALP state governments, specifically in Victoria, whose economic mismanagement sent the state so broke that State Govt deficits became such a bad word. Are you advocating running deficits whilst simultaneously blaming the current economic situation on Howard’s “profligate spending”? But see here you are blaming Howard for the States failing to deliver infrastructure, at least in this you are acknowledging that it was the responsibility of the states. I have said time and time again, that it is not the job of the states to run up huge budget surpluses. Yet they have, whilst refusing to cooperate with the Fed Govt on any proposed infrastructure initiative. Be it water, roads (Eastlink in Vic), health, education. I don’t think Howard was a great economic manager, I think Costello was and is. I think Rudd’s worse than both, and I think Turnbull is worse than them all.
    But you’ve said it, Adrian, it was Howard’s fault that the states could not, despite their massive surpluses, deliver infrastructure reform, because he “brainwashed” the electorate. Those poor state govts, instead of articulating good reasons for spending on infrastructure, instead fell victim to that evil Howard. Give me a break.

  64. James,

    Actually, it was me, not Adrian who you are responding to.

    Commonwealth debt only puts pressure on inflation if the extra expenditure fuels inflation. The reasons surpluses take the pressure off inflation is that they remove expenditure from the economy – it isn’t much (the current surplus is only around 2% of GDP) but this is enough to reduce inflationary pressure when this extra expenditure will place increased demand on scarce resources.

    Paying off Government Debt is what should happen when times are good and budget surpluses can be delivered – I don’t knock Howard and Costello for paying off the debt. What I do object to is how they flogged off good public assets (which were generating revenue) to do this – while this is a cash surplus, it is a negative for the balance sheet because net assets are reduced by a corresponding amount.

    Fair enough comment that the States should have countered the argument from Costello and Howard (or at least tried to) but do you seriously believe this would have worked. You admit it yourself that you think Costello was a great economic manager and yet he was the one criticising States for not running surpluses (even though they had AAA ratings), you can’t have it both ways. Either he was a great manager but got this one wrong, or I’m right and enough people swallowed the great economic manager crap that Costello and Howard peddled and States got caught up in the trap.

    Another point, why even try and keep a AAA credit rating for a Government is you can’t borrow – after all, that is all a credit rating is for – working out whether you are worth lending to.

  65. But you would appear to sheet home to him the blame for everything from the housing difficulties, the plight of aboriginals, the overspending of consumers, the racism of small town Australians……

    The retort with the exaggeration to throw in a red herring. Again how unsurprising. I criticise the Howard government on something and now it’s turned into I blame him for everything and anything including racism in small town Australia. My god the Howard supporters never cease to amaze me in the blind devotion to this failure of a man and the lengths they go to stick up for him.

    If you bother to go back through my Blogocracy posts and taking my word for many other blogs and forums I have been more than vociferous in criticising the States, especially Labor ones. Where I differ from the rabid is that I also have criticised Liberal led States, something the rabid would never do.

    Yes the States have a lot to answer for but that in no way abrogates or makes excuses for the neglect and stuff ups made by the Commonwealth government under Howard.

  66. Sorry, Adrian and Dave. Got a bit mixed up. I don’t recall Costello ever saying that deficits were bad as such, or criticising the States for not running surpluses, absent any circumstantial explanation. I do recall who sold the Commonwealth Bank.

    Now, Adrian and Dave, I’ll step back and let you two argue the pros and cons of govt spending and conclude what the previous and current govt should have done. Adrian says spend less, Dave says spend more. Duke it out, gents, and stay nice.

  67. James,

    I think we’re both saying – spend wisely.

    I’ll try and find a quote from Costello, I know he said it because I can remember yelling at the television over it.

  68. Dave 55:

    “Humbull”

    LOL! It has a nice ‘ring’ to it.

    “Talcum Humbull”

  69. Neil,

    Article from Ross Gittens for you. I’m still looking for a direct quote from Costello but it’s difficult to google.

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