Impact of Interest rates on Wages

By: AlanK (Registered ) on 07-11-2007 22:59

http://www.abc.net.au/7.30/ content/2007/s2084263.htm 
This is the internet site for the full transcript of last night’s interview on the 7.30 Report, for those who may be interested. 
 
Transcript 
KERRY O'BRIEN: So how will this latest interest rate rise impact on mainstream Australia? The Housing Industry Association says today's rise will "see more than 650,000 Australian households caught in the grip of mortgage stress". Dr Steve Keen is an academic economist at the University of Western Sydney who has done substantial research on Australia's debt levels, both household and business debt, with a monthly report called Debtwatch. He joins me now. 
 
Steve Keen, how will this rate rise impact on various mortgage belt households around Australia? 
 
STEVE KEEN, ECONOMICS, UWS: Well, it is going to make what might look like a fairly minor increase in the amount of money that has to come out of the household budget that has to pay the new level of average mortgage payments just in term of the interest payments that are made on the mortgages. It's going to go from 11.4 cents in the household dollar just to pay the interest on mortgages to 11.7. Now that doesn't look like very much but if you go back and history and take a longer view and, say, what was it like 30 years ago in 1977, it was two cents in the dollar, so we're talking virtually six times as much. You go back to 1990 which is when we had those of course, astronomically high nominal interest rates was 4.5 cents in the dollar. So even though we've go a substantially lower rate of interest now, it's almost three times as much coming out of the household budget to cover interest payments, and just since the 2004 election, we've gone from eight cents in the dollar to now about 11.7. So almost 50 per cent higher again than during the 2004 election. 
 
And on it goes. Who said that history lessons can not be informative and instructive!

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