Crikey

Prime Minister John Howard will be pleased the Newspoll dice rolled in his favour this morning with the two party preferred vote for Labor returning to the 55% level it had been fluctuating around for months before the jump a fortnight ago to 59%. While it is hardly a good result to be 10 percentage points behind at the start of an election campaign it is good enough to put an end to the speculation about a change in the leadership.

Mr Howard should also be happy enough that the run on the Northern Rock bank in the United Kingdom will help concentrate the minds of Australians on the truth that economic good times cannot be taken for granted. The Liberal-National theme of experienced economic managers being needed by a country makes more sense if there is a modicum of uncertainty around.

Not that the Government will want to see a crash in the housing market here as the Four Corners report last night so clearly exposed as being underway in the United States. Higher mortgage rates for home buyers are bad electoral news but a sudden fall in property values would be disastrous for the Coalition because borrowers and owners alike would suffer.

It is a difficult balance to achieve but so far things are moving in the Government’s favour with another interest rate rise unlikely while uncertainty continues to prevail in the world money markets.

David Murray, the former CEO of the Commonwealth Bank and chairman of the Future Fund, left little doubt this morning that his patrons, Messrs Howard and Treasurer Peter Costello, have the requisite abilities to handle such conditions.

“For now,” he wrote on the business pages of The Australian this morning, “we must endure a difficult period in which the Reserve’s orderly consideration of monetary policy in the long-term interest of economic growth and stability has been put at risk by the thorny old issue of moral hazard.”

Mr Murray continued:

Fortunately, Australia’s financial institutions don’t appear to have a problem as big as that in the US. However, the funding pressure we now see is a result of our traditional over-reliance on the savings of foreigners.

At times like this our monetary policy stance can be hijacked by events elsewhere. For this reason we must boost domestic savings.

At the public level the federal Government’s progress in eliminating debt and establishing the Future Fund is entirely appropriate. Rising state government indebtedness will, however, offset federal savings and, with the economy close to full capacity, lead to higher inflation.

While we rely on foreign savings we must limit debt and raise productivity, especially in the public sector, so as not to crowd out the private sector.

Meanwhile, we will need good minds, in good institutions, and steady economic management because this situation will take some time to unravel. Whoever holds the reins of economic management had better know what to do.