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Little Johnny’s Fluffy Interest Rates Canard

Howard Lies on Interest RatesAdulators of our prime monster often pontificate about the proud, supposedly unequalled record of the object of their worship in keeping interest rates under control. Yet as it can easily be demonstrated, they are indulging in pompous magical thinking.

For example, from this 2006 7.30 Report:

MICHAEL BRISSENDEN: In the same interview Ian Macfarlane tested that bold claim about record high interest rates, whose rates were higher John Howard in 1982 as Treasurer or Paul Keating in 1989?

IAN MACFARLANE, FORMER RESERVE BANK GOVERNOR: The bill rate was higher in ’82 and it was higher I have to say in ’85 than ’89.

MAXINE McKEW: Perceptions are interesting, aren’t they?

Kim Beasley said last November of Johnny’s more recent deceptive record:

John Howard promised in the 2004 election to “keep interest rates at record lows”, but they have risen three times since then, and seven consecutive times in all. He has betrayed the families who put him in office, and is completely out of touch with the pain his rate rises inflict on Middle Australia. Mr Howard is so out of touch, he urged the Reserve Bank to raise rates and told us it is the interest rate rise we have to have.

Globally, despite the Prime Monster touting a supposedly healthy, booming economy, Whorestralia has very high interest rates:

According to the OECD, only Turkey, Iceland, Mexico and New Zealand have higher interest rates than Australia.

Depending on the April 24 CPI figures, it is on the cards that there will be at least one more interest rate rise this year. Little Johnny will be praying he won’t have to explain away prior to this year’s crucial federal election the fifth interest rates hike since he promised at the last election to keep interest rates low.

4 Replies to “Little Johnny’s Fluffy Interest Rates Canard”

  1. More on Howard’s stint as Treasurer:

    One could equally distort Howard’s record of economic management by just looking at his first experience at it. But Howard might not care to be reminded of this period. This year marks, however, the 13th anniversary of his promotion to treasurer during the 1977 federal election campaign when Philip Lynch was stood down because of alleged improprieties regarding land deals. There was some speculation that Lynch would get his post back after the election, but Howard was retained.

    Some will be surprised to discover that Howard proved something of a disappointment when it came to economic management.

    The 1982-83 recession, over which Howard presided, was the worst since the Great Depression, according to former Reserve Bank governor Ian Macfarlane. True, managing the economy in the stagflation-ridden ’70s was more difficult than now and, at times, Howard did not have full latitude of powers because prime minister Malcolm Fraser, more often than not, had his way on economic policy. At one stage Howard threatened to resign when Fraser wanted to spend his way out of the gathering recession.

    When Howard became treasurer, the budget deficit was

    $3.2 billion, inflation 8 per cent, the unemployment rate 6.3 per cent and the growth rate 1.6 per cent. When he surrendered the Treasury keys to Paul Keating in March 1983, the budget deficit was $4.3 billion, inflation was 11 per cent, unemployment was 10.2 per cent and growth was a negative 0.4 per cent. Not a beautiful set of numbers.

    The black hole of the budget deficit forecast quickly grew to $9 billion when Hawke and Keating examined the books. The economy, moreover, was in deep freeze, though Howard never publicly admitted to a recession, unlike Keating. It coincided with a drought, for which Howard could hardly be blamed. His period of office was the relatively unproductive era of “fighting inflation first” and intractable budget deficits.

    Howard notched up one record. The misery index � the rate of inflation and unemployment combined � was at its highest when he was treasurer. The scorecard on interest rates, which Howard used in the 2004 federal election to scare voters away from Labor, is not that good either. From 1977 to 1982 the mortgage rate was set at 13.5 per cent and the average rate was 10.5 per cent, business interest rates were 17.5 per cent and the average overdraft rate was 15.8 per cent. Moreover, there were two periods when mortgage defaults hit a peak � 1978-79 and again in 1982.

    There were some triumphs in Howard’s stint as treasurer, most notably the commissioning of the Campbell report on financial deregulation � although his then economic adviser, John Hewson, has claimed credit for this initiative.

    Howard did have cabinet approval to act on his proposals for tax reform, including a consumption tax, though he did tackle “bottom of the harbour” tax evasion. Nor for all his dry economic inclinations was Australia’s archaic industrial relations and tariff protection ever tackled. With regards to the Campbell report recommendations, Howard sat on the idea of floating the dollar.

  2. Lifted from seals at HC:

    Home loan rates peaked at 13.5% in 1982 for John Howard versus 17% in 1989 for Paul Keating.

    See RBA spreadsheet below:
    http://www.rba.gov.au/Statistics/OP8ExcelFiles/3-21b.xls

    The key difference between the two though was that Howard was Treasurer under the protection of a regulated finance industry with caps on home loan interest rates. These caps were removed by the Hawke/Keating government in their bold reforms in deregulating our Banking industry – reforms which have been critical to Australia’s modern financial strength after initial birthing and growth pains.

    Given this massive reform, what then is a proper tool for comparison? The answer lies in that the key measure of interest rates is the 90 day bill rate.

    In 1982 the 90 day bill rate reached: 22% vs 18.5% in 1989.

    If you had residentially secured lending other than capped home loans you were paying 22% in 1982 and in fact, as mentioned, I have clients who did pay those rates then and slightly higher meaning they were at the 90 day bill rate and above. There can be little doubt that had Howard not benefitted from regulation uncapped home loan rates would have been at that 22% and higher level.

    This makes Paul Keating’s 17% home loan rates against a 90 day bill rate of 18.5% actually an impressive achievement by comparison – not that any of us want to see those sorts of rates at any time.

    RBA bill rates: http://www.rba.gov.au/Statistics/OP8ExcelFiles/3-22b.xls

    You would be interested to know that the 90 day bill rate is currently 6.55% meaning that the standard home loan rate is 1.52% above that rate. This represents bank margins of course but the inference is that yet again Howard is responsible for expensive borrowing when compared with proper benchmarks. This is confirmed when looking at Australian rates in comparison to other western economies. We have been consistently more expensive than other appropriately comparable nations.

    Funny how the facts seem to consistently undermine the Coalition’s myths isn’t it? Let’s not get started on the fact we are headed for 1.5% productivity gain for the decade – the worst since the 1950’s.

    Conclusion; Howard is one tinny b.astard who has benefited from a his own persistence and a series of fortunate events. How Costello must regret his own inexperience and naivety in delivering him leadership after Downer.

  3. More interesting data from Honest John Howard’s murky past as treasurer:

    Perhaps Mr Howard has trouble recalling the time when he was treasurer under Malcolm Fraser. A visit to the Reserve Bank’s historical interest rates page on its website reveals that the highest 90-day bank bill interest rate of 21.39 per cent occurred in April 1982 during the Fraser government with Mr Howard as treasurer.

    The highest during the Hawke government was 19.56 per cent in December 1985. The highest under Paul Keating was 7.95 per cent in December 1994, which is only marginally higher than the highest under the Howard Government of 7.57 per cent in April 1996.

    And more:

    Mr Howard said that while he copped flak over higher interest rates, there was little he could do about it. “If I reduced interest rates tomorrow we would have a flow of capital out of Australia the like of which we haven’t seen for a long time.”

    People who thought Australia could reduce rates were crazy, Mr Howard said, because this would wreck Australia’s balance of payments and cause an economic crisis. He said that Australia could not have interest rates out of line with those in the United States because the world was economically interdependent and capital could flow from one country to another in a matter of minutes.

    Given that in the last 4 years foreign investment has increased 35%, could it be that we are about to be in for another recession we have to have, primed by higher and higher interest rates? Perhaps those who say we should vote Lib this election to force them to wear the responsibility of their fiscal irresponsibility are right.

  4. Don’t forget, Fringe, the all time record 90-day bank bill interest rate of 21.39% occurred in April 1982 when Howard was treasurer in the Fraser government.

    Makes a mockery of the constant liberal accusations about high interest rates under Labor as the highest interest rates were during Howard’s economic management.

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