The financial crisis the Government wants us to have

09 February 2015

The Reserve Bank’s decision to lower interest rates last Tuesday – which surprised many – shows that the Australian economy is by no means fully recovered from the Global Financial Crisis (GFC). Indeed new pressures are beginning to take their toll, not least the downturn in commodity prices and decline in Chinese growth rates.

The Treasurer Joe Hockey suggests that if his government continues on its path of ‘fixing Labor’s mess’, this will give the Reserve Bank space to continue adjusting interest rates, to the benefit of borrowers and the economy.

There are four points need to be made in response.

First, the Reserve Bank is cutting rates because the economy is slowing, not because the government has been adequately dealing with the ‘debt and deficit crisis’.

Second, it seems that cutting interest rates all the economic policy elites believe they have available in their armoury to assist them to manage the macro-economy.

Third, as a result of this focus on the financial system and the supply of credit, the Reserve Bank is helping to fuel an asset price bubble, particularly in real estate. Ever since the GFC, government and Reserve Bank policy has been the equivalent of trying to help a drunk alcoholic by picking him up off the floor, propping him against the bar and giving him another drink.

The fourth point is that the Treasurer’s ‘debt and deficit’ mantra is simply not true.

According to Mr Hockey, we need to deal with the debt and deficit crisis by undergoing a process of austerity through cuts to public spending, and further erosion of the welfare state through measures such as Medicare co-payments.

This is false. Australia has largely avoided the worst symptoms of the economic crisis that almost brought the global economic system to its knees in 2008. This is actually a source of disappointment to the free market fundamentalists in the government. Their colleagues in other parts of the world used the crisis to regain the upper hand in a debate that, by all reason, they should have lost, and to reassert their control over economic policy making.

Most Australians of a certain age will remember Paul Keating’s ‘recession we had to have’. Hockey is now creating the crisis the Liberals want to have so that the Coalition Government can implement a radical free market agenda that has no broad support in the Australian community, as the Queensland election result and the parlous state of the

AUSTRALIA

The financial crisis the Government wants us to have

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