More interest rates gubbish in the media

With an interest rate cut all but announced for tomorrow, I have been bemused to observe the public debate on interest rates once again focus on a red herring. Treasurer Wayne Swan has taken the brave and perhaps politically unusual step of declining to demand that Australia’s banks pass on the hypothetical interest rate cut to consumers. Shadow Treasurer Julie Bishop has taken precisely the opposite tack, criticising the government for not demanding that the banks pass on the cuts:

Reserve Bank governor Glenn Stevens has reportedly told Prime Minister Kevin Rudd that squeezing the banks too hard could make it unprofitable for them to lend and push the Australian economy into recession.However, opposition treasury spokeswoman Julie Bishop said passing on the full RBA cut would help keep people in jobs and the Australian banking sector stay strong.

“One of the most important ways to keep our financial sector strong is to ensure that Australians keep their jobs so that they can pay off their mortgages … their bank loans,” she told reporters in Perth.”

And that is why if there is an interest rate cut tomorrow it should be passed on in full so that people can keep their jobs and keep paying off their financial obligations.”

This debate raises some interesting questions about what Commonwealth Treasurers should and shouldn’t do, or perhaps more interestingly, what they realistically have the influence to do. Should Wayne Swan really be getting on the blower, as Julie Bishop seems to be suggesting, to the chiefs of the big five tomorrow and demanding that they immediately pass on the hypothetical cut to consumers? Does Julie Bishop, a so-called economic rationalist, have so little faith in the market that she feels the Treasurer needs to instruct individual private organisations on how they run their business? Put simply, it is an absurdity.

There are three points worth making here in rebuttal to Bishop’s foolishly populist demands:

1) It is not the Commonwealth Treasurer’s role to attempt to run the business of Australia’s big five banks by demanding that certain monetary policy actions be taken;

2) The Treasurer’s views are probably the least of the concerns of Australia’s big five. They are businesses answering to their customers and shareholders, not the fiefdoms of the Treasurer. here Any views that Treasurer Swan attempted to impose upon them would almost certainly be ignored;

3) It is almost a certainty that one of the big five will elect (if not immediately, than in the relatively short-term) to cut rates and seek to make their offerings more attractive to consumers. When this happens, there is a pretty good likelihood that the others will follow suit in due course.

This is not a good start from Bishop. One wonders whether the Turnbull Opposition is going to suffer for not having someone who can reliably score the odd point (e.g. the Opposition Leader!) against Swan opposing him in the Shadow Treasury.

Picking fights with Glenn Stevens

The Coalition are still in search for a strong position to take to the media and the electorate when it comes to matters of inflation and interest rates. To be honest they have it bloody difficult; the Rudd Government has all the running on this issue, given that the Howard Government can in some respects be judged politically culpable for the current situation. We have not quite reached the point from which the Coalition can implicate the government in the blame for future potential interest rate rises, and any attempts to do so would no doubt draw an immediate and likely quite convincing rebuttal from Messrs Rudd and Swan.

Opposition Leader Brendan Nelson’s latest approach seems to be to beat up on the RBA. He does not seem to be ready to question the economics of the bank’s recent decisions to raise interest rates, but rather to question whether the RBA is taking into consideration the stress being placed on those with home loans:

In an unprecedented swipe at the bank chief, Dr Nelson said he supported the independence of the Reserve, but added: “I don’t believe that independence should be incompatible with sensitivity to and caring for the people that are affected by (monetary) policies.”

I am not particularly convinced this is a wise line of argument to run with, although one can see it starting to resonate with the electorate should the interest rate hikes continue to come thick and fast over the next year or two. If it does resonate, of course, it will only be for somewhat dubious reasons. The reality of course is that the Reserve Bank board does not invite mortgagees with their tales of woe into meetings, and base their decisions on their lamentations. The board bases its decisions in relation to interest rates on what it thinks is most suitable for the national economy, given the prevailing conditions. The measures at the board’s disposal are simplistic and really quite blunt; it does not really have the instruments at hand to treat any wounds it may be inflicting on the faceless thousands with mortgages across the country. If such “treatment” is indeed deemed necessary, it can only be realistically be meted out by the elected government of the nation, not the unelected board of the national bank.

In short, if Nelson wants to speak out on behalf of those Australians who are suffering financial stress as a result of the state of the national economy, he should be encouraging the Rudd Government to do something about it, and not pestering Glenn Stevens.

The truth about Doctor Nelson and the polls

There was of course another interest rate rise today, which is bad news for a lot of ordinary, hard-working Australians. The rate increase also curiously, as a product of our current position in the electoral cycle, helps the Rudd Government in political terms and inflicts just that little bit more pain upon the Coalition. The Opposition, of course, has been collectively left smarting in the knowledge that this latest rate rise represents just another refutation of their economic credentials and legacy. I am sure that senior members of the Coalition sleep well knowing that just as the Coalition terrorised Federal Labor for a decade in relation to their economic legacy during the Keating era, it appears that the Rudd Labor Government will have the pleasure of returning the favour ad nauseum with respect to the Howard years.

It is quite clear from Opposition Leader Brendan Nelson’s comments that he does not know quite how to tackle the twin peril of his own poll ratings, already deep in relegation territory, and this latest rate rise:

The Coalition has also lost further ground on a two-party preferred basis, down 6 points to 37 per cent, while the Government has a 63 per cent share of the vote.

Dr Nelson downplayed the poll as he arrived to chair a shadow cabinet meeting in Sydney this morning.

“I’m firmly locked in the underdog status, but the most important thing today is that the Reserve Bank of Australia will be delivering the report card, for the next 30 days and beyond,” he said.

The underdog reference is of course an understatement, if the polls are anything to go by, and Nelson’s reference to the Reserve Bank delivering a “report card for the next 30 days” does not really make a great deal of sense. If the Reserve Bank really has delivered a “report card” on government policy, which I don’t think anybody sensible believes it has, the report card would certainly provide an F grade to the previous Howard Government, and at minimum, a C grade to the government for the minimal tangible impact it has had on the national economy since assuming office. After the seemingly unstoppable barrage of interest rises over the last six months, I think most Australians with an interest in the matter would recognise that the country has a systemic problem on its hands with regards to inflation; one that is going to take a sustained and concerted effort from the government over a reasonable duration, if any relief is to be provided at all.

But let’s consider Doctor Nelson’s position as Opposition Leader for just a moment. To be honest, he seriously does have a severe case of the “Simon Creans”; in fact even worse than the current Minister for Trade had it five years or so back. Although he is not doing a particularly good job, I don’t personally believe that the job he is doing warrants the abysmal poll ratings he is receiving. Nelson’s leadership ratings are no doubt being impacted by the policy inertia that the Coalition has exhibited of late, and also the extended honeymoon that the Rudd Government has enjoyed since the election. Let’s be frank; the Rudd Government has, in political terms, been kicking arse and chewing bubble-gum since November 2007. Not many beats have been skipped – at least not any of enough significance to slow the government’s momentum.

So while, just to re-iterate, I think a transition of the leadership to Malcolm Turnbull is inevitable and the right solution for the Coalition, the situation is a bit more complicated than that politically. If Doctor Nelson feels that he has not yet been given a fair roll of the dice in the leadership, I think he has every reason to feel vindicated on that point. Of course, Simon Crean had every right to feel the same way, and yet the right decision for his party was definitely for him to step aside in 2003, if not even earlier. Like Labor back then, it seems that the Coalition’s political fortunes may be forced into decline for an extended period, substantially but not entirely as a result of a poor collective choice made regarding the party leadership.