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Never believe stories you hear about rates

I’m thinking of starting an occasional series entitled “Things About Which You Should Never Believe Anything That Anyone Ever Tells You”.
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Actually, I think I just started it, because episode one follows below. It’s called “Interest Rates”.

Over the last week, the Reserve Bank of Australia cut the cash rate to an all-time low of 1.5 per cent.Once upon a time, this would have been the cause of great jubilation.

Not only for borrowers,seizing the opportunity to fill their boots with ludicrously overpriced two-bedroom apartments offering snug in-kitchen dining and sun-drenched court-gardens(real estate terms meaning, respectively: “You have to sit in the sink to eat. Your actual bum will be in the sink” and “A balcony of panic-inducing proportions across which, once a day, a shaft of sunlight briefly flashes”).

It would also have been a moment of triumph, in times past, for the Prime Minister. After all, whole election campaigns have been fought on the assumption that governments have something to do with interest rates.

Think of 2004, when John Howard – sitting on a cash rate of 5.25 per cent – based his entire re-election campaign around the proposition that electing Mark Latham would cause the RBA to hoist rates and ruin decent householders.

(Howard, at the time, was going through a philosophical phase common to political leaders whose terms in office coincide with low interest rates, which is to believe it’s all their own work. Howard was – it should be noted – not in that phase in the early 1980s, when he was Treasurer and housing interest rates maxed out at 13 per cent.)

Mr Latham, at the time, was sufficiently spooked by the argument to sign a giant bit of cardboard proclaiming “Labor’s Low Interest Rate Guarantee”, an act of strategic buffoonery unrivalled until May 3 last year, when BritishLabour leader Ed Miliband​ had his own pledges carved into an actual stone tablet.

Naturally, Mr Howard was re-elected in 2004 and the cash rate promptly went up, rising to 6.5 per cent by the time he was defeated by Kevin Rudd three years later.

Never believe anything anyone tells you about interest rates.

In the 2007 electionwe argued about whether electing historically profligate Labor would cause public debt to soar and thus drive interest rates up.

What actually happened, of course, was that we electedKevinRudd and gross debt indeed blew out from $58 billion to $148 billion, but interest rates fell faster than the face of apensioner who’s just been told that Granny’s unusual Toby mug is Woolworths circa 1982.

I’m telling you:Never believe anything anyone tells you about interest rates.

To opposition leaders, of course, low interest rates are not a sign of wellbeing and the firm hand-clasp of competent national leadership.To oppositions, theyare a sign that the Reserve Bank board is in a state of raw, open-pored panic and is preparing to sell its gold fillingsto avert disaster.

This was Joe Hockey’s refrain back when he was the Coalition’s shadow treasurer. Smoothly, upon the handover of government in 2013, it became the refrain of the new shadow treasurer, Labor’s Chris Bowen. Seriously, they just swapped talking points.Never believe anything.

But even outside the notoriously risible world of politics, opinions on interest rates are hopelessly bent and twisted by personal experience and as such should never be listened to.

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