Tuesday, October 02, 2007

'Aspirational' Voters Hurting

SYDNEY households most vulnerable to higher petrol prices and housing interest rates are concentrated in a large arc running through the city's greater western region, a study has found.

Griffith University researchers have concluded that financial stress in these areas will make it harder for the Liberal Party to retain the marginal seats of Lindsay and Macquarie.

The study also found that the Liberal Party's hold on safer seats like Hughes and Macarthur in the south-west may be jeopardised by the high levels of exposure of households in these areas to higher costs.

Conventional wisdom states rising property prices are good; low interest rates are good; Howard's government has successfully kept interest rates low, thus helping them to stay in office.

All this is questionable. It may be overstating it to say John Howard Has No Control Over Interest Rates in Australia but it is very true that Howard made that promise [Keeping Interest Rates Low] "foreseeing that citizens would focus all their attention on INTEREST RATES, rather than on PRICES. In a credit bubble, it’s a lot easier to keep interest rates low (which is partly what creates the bubble) than it is to lower bubble-prices."

It is doubtful how much control the federal government really has over the basic interest rate regime. It was Alan Greenspan's Federal Reserve that reduced interest rates to an extremely low 1% following the dot.com crash. And such a low interest rate only fuelled the US housing bubble, which is bursting now with even more damaging consequences. Although not as severe as in the US, the bubble burst in Australia is also likely to be quite harmful.

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