I was intrigued by a comment made over the weekend by Tony Bellamy of Roadstar Industries, describing his business as catering to the custom built caravan market, I was surprised to hear him say that interest rates were good for business. Supplying the baby boomer market of 45+, he finds that retirees and near retirees have a little extra to spend when the rates rise.
Clive Hamilton of The Australia Institute also offered some interesting comments over the weekend. He suggested that interest rates have a much smaller affect on our economy and therefore inflation than we are lead to believe. Only one third of households actually have a mortgage, the other two thirds are made up of renters and outright owners. Of this third, one quarter are on fixed interest rate loans. Therefore it is likely only 25 per cent of the population will be affected by an interest rate rise. There is also speculation that a good proportion of these mortgages are financing multiple properties.
‘Mortgage stress’, the oft quoted statistic of loan pressure, has been defined as a percentage of household income. Because of this even high income earners who could be paying off loans for multiple properties, could be classed as being in ‘mortgage stress.’ These figures could easily be skewed by this demographic, who may be paying off debt with a large portion of their income, but have enough to live a more than comfortable lifestyle.
I am not suggesting that there are NO households out there struggling. But that the truth has been overstated by some politicians and the mass media looking for a hard luck story to boost circulation.
From this evidence it can be suggested that the baby boomers are having an easy time of it while new and young home owners struggle to get a foot in the door. This fact is obviously translating into pain for that 25 per cent, while the rest continue to spend, increasing interest rates.
Hamilton suggests that the only real way to affect inflation is to increase taxes and create larger surpluses, therefore distributing the ‘pain’ over the whole of the population. Obviously this is a very unpopular move for any government to make especially one that got into a tit-for-tat battle with a party that was tax cut ‘happy’. Especially when they can just shift the blame to the independent Reserve Bank.
The previous government’s downfall was attributed to rising interest rates caused by reckless spending. So the question is, how much pain is the Rudd government prepared to take?
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