Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Australian wisdom?

By Chris Lewis - posted Wednesday, 12 November 2008


Recent comments indicate why we should be wary of policy makers, business leaders, and even journalists regarding the extent that they are willing to diagnose or expose new problems.

Take recent comments by the current chairman of the Future Fund and former head of the Commonwealth Bank (1992 to 2005), David Murray, on the ABC’s 7.30 Report when responding to the recent financial crisis (September 29, 2008). While Murray suggested that higher pay should be given in order to attract better public servants to advise the Parliament and to serve in important government departments such as the Reserve Bank, he said little about the immense importance of debt to Australian bank profits.

Although the promotion of sub-prime loans and inadequate regulation represents a low point within the recent history of liberal democracies, one cannot merely blame American banks for the current financial crisis.

Advertisement

Australian banks are also institutions anxious to maximise profits for shareholders with little regard to any long-term social consequences. Though interest rates have fallen in recent months to help many people with home loans, the banks have been reluctant to pass on any cut to Australians with credit cards. For those who do not pay off their purchase within 55 days, the rate has increased from 17.75 per cent in October 2007 to 20.74 per cent a year later.

The end result? Australia’s credit card debt alone reached $44 billion by October 2008 after being $21.5 billion during October 2002.

So, as the adverse effects of these difficult times play out, it will be lower-income earners that suffer most. As a recent Dun & Bradstreet Consumer Credit Expectations Survey revealed, one third of low income households (earning less than $30,000 a year) already anticipate higher debt levels by Christmas 2008, while the same number of high income households (earning more than $70,000 a year) expect to lower their debt levels in the coming three months.

While some will point to Australians living beyond their means, the gap between higher and lower income earners will widen as the latter is less able to purchase our modern era’s abundance of goods.

At the same time, our politicians will continue their promotion of spin. While Labor’s consumer affairs spokesman, Alan Griffin, warned in October 2002 that growing credit card debts were making consumers highly vulnerable because of high card interest rates (then averaging 16 per cent) after debt doubled from $9.8 billion to $21.5 billion in just four years, political leaders have done little since.

While Labor’s recent $10.4 billion assistance package was necessary to promote spending, including handouts for pensioners, and low-income and middle-income families and first home buyers, it is a bit misleading for Prime Minister Kevin Rudd (October 15) to attack the world’s big banks and the role they have played in the global financial crisis. He hit out at lending standards, risk management and corporate governance in major institutions around the world.

Advertisement

Rather than beating his chest as if he alone has the answers that can solve all the world’s problems, Rudd should recognise that Australia’s fortunate fiscal position and recent high value for shares, housing and currency owe much to the role played by debt in stimulating the production of cheaper consumer goods in China, and a growing demand for Australia’s raw materials.

If Australia had not enjoyed such a profitable trading relationship with China alone, who knows what government policies would have been adopted to boost the national interest; although the importance of Australia’s sound financial regulation cannot be overstated.

The likelihood of economic ramifications for Australia was known long ago. After all, even the then governor of the Reserve Bank, Ian Macfarlane, stated at the 2006 Boyer lectures that “any boom built on rising asset prices financed by increased borrowing, has to end” and that “the effect on the economy would be greater than in earlier years” if any financial shock was to occur.

  1. Pages:
  2. Page 1
  3. 2
  4. 3
  5. All


Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

7 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Chris Lewis, who completed a First Class Honours degree and PhD (Commonwealth scholarship) at Monash University, has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

Other articles by this Author

All articles by Chris Lewis

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 7 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy