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Issue #1431      14 October 2009

Editorial

Up they go again!

Interest rates, up they go again. The big banks and finance sector have been clamouring for a hike in interest rates and last week the Reserve Bank of Australia delivered the first instalment. The banks had already factored in the higher interest rates into new home loans. The RBA raised the official cash rate from 3 percent to 3.25 percent and foreshadowed further increases in coming months. If market forecasts are any indication, they could hit five percent by the end of next year, adding around $300 per month to the repayments on a typical $300,000 home loan in the major capital cities.

Of course, all of this is based on the premise that the economic crisis is over and recession has passed – and no one can guarantee that. This conclusion is based on housing prices which have been sustained; fears of inflation taking off; and resurgence in the stock market index. The official unemployment figures are better than expected, another statistic being used to justify the rate rise.

It is true that housing prices have been sustained, despite the crisis. There is a massive shortfall in housing, and those on lowest incomes have been squeezed out. They cannot be used as a gauge of recovery. Australia has a rapidly growing population, up by 2.1 percent in the 12 months to March. More than half of this is due to an intake of 278,000 new migrants.

The increase in the first-home owners grant in the government’s stimulus package also contributed to demand. With the withdrawal of this assistance, it will become even more difficult for those on lower and middle incomes to purchase a home and it will drive up the cost of rental accommodation.

The unemployment figures hide the reality of the impact of the crisis on jobs. In contrast to recent recessions many employers have shortened hours or work and reduced wages rather than sack workers. In some instances this was through the initiative of trade unions, in other cases it was forced on workers. The government’s definition of employment is so broad that it ropes in thousands of unemployed who might have picked up an hour or two of paid work in the past few weeks.

The latest employment figures, while showing a small increase in the number, confirm the prevalence of under-employment, another indicator that the recession is not over for many ordinary working people. Job creation is not keeping up with the influx of immigrants.

On the ground, in the workplace and family homes, the recession is not over, and both the RBA and government expect unemployment to continue to rise. Industry is still operating at well below capacity and exports declined further in the last quarter. As interest rates rise, mortgage repayments, credit card debt and the cost of investment for business will continue to rise. Pushing up interest rates threatens economic recovery or at best slows. It is an extremely regressive move.

For the banks, the big finance houses and insurance companies that brought it all on, the recovery is here and it is business as usual. Personal and business bankruptcies are still on the rise, exports are still falling and industry operating well below capacity. That means nothing to the financial institutions. They have consolidated their position, benefited from government (taxpayer) guarantees and favourable treatment.

As for the threat of inflation, it does not arise from supply being unable to match demand which would drive up prices. It has more to do with monopoly pricing. The biggest monopolies of all are the four major banks. They have come out of the crisis more powerful than ever. Never mind the businesses they sent to the wall, the workers who were sacked and robbed of their entitlements as a result of their credit squeeze. Westpac, NAB, ANZ and the Commonwealth Bank have routed their competitors. They now hold 73.8 percent of outstanding mortgages, up from 56.8 percent in 2007. They are picking up an even larger percentage of new mortgages and have a similar monopoly over savings accounts and fixed term deposits on the retail market.

What is needed is a public bank, a People’s Bank, with a social charter that serves society: a bank which provides a banking service, which lends and holds savings at responsible interest rates. A bank whose aim is to serve the people and business, where profit is not the one and only driving motive or reason for being. 

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