On October 6, the Reserve Bank of Australia lifted the official interest rate by a quarter of a percentage point to 3.25%. Explaining the bank's decision, RBA governor Glenn Stevens said "the risk of serious economic contraction in Australia" had now "passed".
"Overall, growth through 2010 looks likely to be close to trend", Stevens continued. "Unemployment has not risen as far as had been expected", and so the time has come, the RBA concluded, to begin to make working people pay for the costs of dealing with the crisis.
Has unemployment peaked?
The impact of the recession has already been unevenly felt by working people.
Unemployment fell slightly in September to 5.7% (from 5.8%) showed Australian Bureau of Statistics (ABS) figures released on October 8. Unemployment fell by 3800, on the back of 40,600 new jobs. Since employment peaked in March 2008, however, unemployment has increased by more than 205,000. More than 658,000 people were unemployed in September.
Unemployment among young people has risen sharply. The 2009 How Young People are Faring, released on October 8, showed unemployment for teenagers has risen to 18.5% from 12.2% in 2008.
Despite the rise in employment in September, it is unlikely that unemployment has peaked.
Bill Mitchell, economics professor at the University of Newcastle, told Green Left Weekly that unemployment would continue to rise. "With the labour force growing at 1.8-2%, and labour productivity at more than 1%, economic growth has to grow as fast for unemployment even to remain constant."
A return to growth of about 3.2% by some time in 2010 would not be enough to decrease unemployment, Mitchell said. "GDP growth was 0.6% in the June quarter, so that means that there are not enough hours of work being generated now, so next year it will still be below what is required."
Part of the increase in unemployment could be made up by further falls in hours worked, Mitchell said. He predicted "a slight rise in unemployment but a significant fall in working hours, and that's because output growth isn't strong enough".
Heather Ridout, CEO of the Australian Industry Group, told ABC radio's AM on October 7 the situation facing manufacturing and other industries remains very tenuous. "I've spoken to a number of companies and all of them think the bank have got ahead of themselves in relation to this, in fact, even though our surveys are showing improving conditions, the general view is that conditions remain soft and uncertain", she said.
When the RBA raised the interest rate to its peak of 7.25% in March 2008, its excuse was the threat of inflation. Stevens' October 6 statement, however, said "inflation has been declining". So why has the RBA increased interest rates now?
Housing bubble threat
Steve Keene, associate professor of economics and finance at the University of Western Sydney, said the RBA's decision to increase interest rates related to a fear of a growing housing price bubble. In an October 6 posting on his Debtwatch blog, Keene said the bubble had been fuelled by the federal government's boost to the first home buyers' grant, which has allowed buyers to bid-up prices, particularly at the lower end of the market.
So what the government has given, the Reserve Bank takes away.
Not that the government's decision to increase the grant increased housing affordability much. It largely led to higher prices, as evidence presented by Mark Richards, the head of the RBA's economic analysis department, on September 29 showed.
However, the increased grant, along with lower interest rates, did encourage a huge increase in borrowing, which did stimulate at least some increase in building.
When the grants were issued in December 2008, housing finance issued was worth $17.4 billion. It increased to $23.3 billion in June 2009, ABS figures said. It tapered off to $22.8 billion in August, but the impact of the housing boom on the economy, and most particularly on the profitability of the big banks, was significant.
An extra 15,500 homes were sold to owner-occupiers in August 2009 as compared with the low of August 2008, according to the ABS, but only about one in eight were new homes and actually provided building workers with jobs.
Working people pay
In a July 25 article for Fairfax newspapers, Prime Minister Kevin Rudd warned the recovery would be harder for working people than the recession. The RBA's interest rate rise is just the first step in a process that will mean more pain.
More rate rises are expected over the next few months, which will put further pressure on people with a mortgage. "We have record household debt at the moment and the only thing that stops a whole lot more people from going bankrupt is lower rates", Mitchell told GLW.
In addition, the government warned it would begin to make cuts to spending to repay the deficit. Working people will lose doubly.
The Rudd government's false generosity to working people is fast running thin. Without an increase in organised resistance to the government's austerity plans, working people risk experiencing the "recovery" in a worse state than they weathered the downturn.