By Joe Montero

The Reserve Bank finally cut the interest rate. Mortgage holders will be happy for a while at least. But the truth is that this is not the reason for the cut. The real reason is an Attempt to temporarily slow down the rise in prices. This is a political move coming when an undeclared election campaign is under way.

Australia Consumer Price Index (CPI)

Wages growth not only continuing to stall. It is going down. The graph below from ABS data shows that real wages have been shrinking since 2021, even more than the period after the financial meltdown in 2008-9, as shown in the year to 2012.

Although unemployment has officially been going down, this covers that most of the rise in jobs continues to be substandard and casualised ones. The news is not brilliant on this front either.

We are told that the rise in price increases. Inflation in other words, has slowed down. It has. But what is important is the reason for it. Perhaps it’s got something to do with the less than satisfactory performance of the economy. The Reserve Bank and other government related agencies predict a worsening of the economy’s performance in the near future. This is worth taking note of.

The official GDP growth expected for the next quarter is 2.3 percent. If you take out that which accounts for growth in credit, asset price rises, and speculative activities in general, the stated growth rate would be much less. This is important. The products that we consume is what is important. This is the measure of the real growth needed to pay our way in the future, and from this point of view, Australia is in negative territory.

An indicator of the truth of this is the bigger than expected fall in predicted household consumption growth. The Reserve Bank expects a mere 2.6 percent growth. Take out expected inflation of 2.7 percent, and the result is that this is less than nothing in rea terms.

In fact, both per capita and aggregate household spending continued to decline through 2024, and there has been little change in 2025.

The figures do show something unusual is happening for the first time since the 1970’s. It was known as stagflation then. This is where unemployment and inflation are moving in the same direction. This is so rare that that was the first time ever, and the pattern may now be setting in for a second time.

An unusual occurrence must have an unusual cause. Explaining this is not as hard as it might seem. Stagflation in the 1970’s came on the heels of a global and Australian economy riding on the American dollar and the creation of debt that could not be paid. They called this the debt crisis. This was mostly between the United States and the Global South, although countries like Australia did not escape some of the fallout.

The interest rate exploded upward past 18 percent at its peak. Inflation was on the same scale, and unemployment became a real problem for the first time since World War Two. Australia experienced the start of de-industrialisation as the economy shifted to an overriding dependence on finance and closer integration into the American economy.

Over dependence on finance and integration into the American economy has been critical to bringing Australia to where we are today. The American economy is saddled with a $US33 Trillion debt to the rest of the world. This is only the government debt. Total debt is about $133 Trillion, and this is never talked about. Nor is it admitted that this is the result of the over reliance on driving the economy by lending money and cresting debt, without a corresponding growth of the real economy. This contradiction between the real economy and the rise of finance is the root cause of the problem.

The United States has shifted from being an economy to which the world owes payment, to one where the United States economy owes to the rest of the world. The reason is that the rest of the world could no longer pay its accumulated debt, and debt has been financed by creating further debt. It creates the illusion of a rising GDP, but does so by mortgaging the future, and it is this future that is coming home to roost.

This impacts Australia because United States debt can be partially exported here through various means because of Australian integration into the United Sates economy. Currency, bond, share, and asset buyups, export inflation by creating more demand for the Australia dollar. Selling these works in the opposite direction. The Australian side of the exchange rate has been gradually falling for the last 5 years, to rise a little this year. If the demand for the Australian currency continues to rise expected inflation to go up in proportion.

This mechanism goes into overdrive when finance is the core of the economy. A mixture of economic forces and Washington’s economic policy are likely to see a boost to the inflow of American investment capitals intro Australia. This won’t be turned to investing on building economy’s foundations. Expect to see a rise in corporate takeovers, hoarding of Australian dollars, and of course, a new expansion of credit as the preferred sources of profit.

We can predict this because this is how the economy h structured when the financial institutions dominate. They chase a quick return though interest, dividends, coupons, and asset value gains through futures markets. Their main interest is not on building the real economy.

This is not the sole reason for Australia’s current situation. Even so, overcoming the excessive dependence on finance and integration with the American economy is crucial to putting the Australian economy on the right path.

The obstacle is the absence of political will form the political elite. They are subject to immense pressure from the corporate world, top tier investors and Washington. Plus, most of them are immersed in an ideology that favours the wealthy and is prepared to sacrifice the less wealthy to service this.

Change can only come through pressure from below, and this can only build is we all know what is going on and are aware of the solution.