By Joe Montero
The latest Essential Poll reveals that the majority of Australians, that is 53 percent, are struggling financially. Many of the respondents said that rising interest rates are the biggest burden. This has added to the cost of buying a home and imposed significant increases in mortgage payments. And the increasing price of homes pushes up rents.
Meanwhile, the banks continue their roll as the biggest corporate profit makers in the enation. Westpac has just announced a record. Their collective profit is expected to hit $33 billion by the end of the year. Most of this comes from charging interest. High interest rates are good for the banks.
The graph below shows the ongoing interest rises imposed since the last quarter of 22021, and the ever upward trajectory since March 2022.
Interest rate rises are good for the banks. But can there be any justification for allowing the scale of these profits when Australians are paying such a heavy price? The answer is no. Shareholders are profiteering from the misery of others. The priority should be to look after those who are hurting.
Rising interest rates don’t only affect the cost of housing. They push up the cost of everything we buy. Australians struggling financially are hit from two directions.
Like the banks, the supermarket monopolies have been posting their own profit records. Woolworths and Coles each posted a profit in excess of $1 billion in each of 2022 and 2023 to June.
The contradiction between rising interest rats and the cost of living on one hand and soaring profits of the banks and supermarkets mean that something terribly wrong is going on here. This means the use of monopoly power to take advantage of conditions to raise prices than they would be in a genuinely competitive market. There is considerable evidence to show this is true, and that price gouging should be outlawed. But this doesn’t tell the whole story.
Rising prices, otherwise known as inflation, are mostly the product of an economy out of kilter. There is too much money chasing the existing quantity of goods and services, and this pushes down the exchange value of money.
This contradicts the official line that the success in lowering unemployment has been so great that there are too many in work, getting too much money and creating more demand than the economy has been able to handle. Don’t believe it. In other words, everything is more expensive.
The question is what is rally causing the excess in the money supply? The simple answer is debt. Debt creation increase the quantity of money in circulation, and unless the quantity of goods and services available keeps up with this, there will be inflation. Once inflation is a reality, monopolies have an incentive to use this as a cover to raise prices by a higher margin.
June’s figures saw Australia’s private debt at 125.6 percent of Gross National Product (GDP). Ad government debt and this rises to 176.4 percent. This proves that the level of debt far exceeds what the economy produces. This is where inflation is coming from, and such a level of debt is harmful. The burden is now $250,000 per household.
Broadly defined, harmful debt is of two types. There is corporate debt raised for speculation and corporate takeovers instead of investment in new capacity, and there is debt incurred by households trying to maintain a standard of living, when the value of their income is declining.
Due to lack of accountability, government reluctance to publish, and creative accounting practices make it hard to work out the real level of corporate debt. but we do know that trade in shares at the stock exchange is more vigorous and on a larger scale than investment in manufacturing for instance. Corporate investment in property, currency and other futures markets is still doing well. The greater part of this is financed by debt.
It’s also hard to find official statistics showing the correlation between private household debt and inflation. The graph below showing relationship between household debt and household disposable income provides some insight.
This reveals Australia rising from the best off in a range of comparable nations to the worst of over half a century, till Covid kicked in. It hasn’t improved since ten. The story it tells is that much of this debt is devoted to paying older debt and not on new purchases. This hasn’t changed since. We know that spending on new purchases and savings are still down.
The same poll has 48 percent of Australia saying the government is on the “wrong track” overall. 68 percent say that the government is not doing enough to crate affordable rent, and 75 percent that too little is being done to tackle the rising cost of living. This poses an immense challenge to the Albanese government, the future of which depends on convincing its own base and the rest of Australia that it is delivering for them.
Rising antipathy for the government’s handling of the economy poses a serious challenge to the Albanese government. Its ongoing survival may depend on whether it ditches the neoliberal approach. This is the practice of pretending that the market must not be tampered with, while actively supporting and bankrolling the corporate world.
A solution requires tackling the debt problem and the ongoing stagnation of the incomes of the majority, alongside stimulatory measures that will push the economy to provide more goods and services.
Active policies raising wages and Centrelink payments are a good start. Couple this with controls to minimise investments not geared to producing more goods and services, through a mixture of regulation and taxation disincentives. These will help lower the debt burden and stimulate the economy at the same time.
It would be of significant help if the government were to invest in recure quality housing, to provide homes at well below market rents, and do so on a scale that it provides a viable alternative for many to taking out a mortgage.
These suggestions are reasonable. Without this sort of approach, the cost-of-living crisis is set to continue, and faith in government will continue to decline along with it. Since there is little enthusiasm for the Coalition as the alternative government, the prospect that the major parties will continue to bleed out their political bases, for as long as they continue to fail to listen.
Expect more political instability, so long as it leads to a change.