post election and short cover rally monday, page-17

most likely outcome is rates up - regardless of party - Interest rates were at an all time low and there was only one way for them to go.

The big issue is infrastructure spend - the idea behind interest rates is to take some of the cash out of the economy - cool things off to beat inflation.

I don't understand how spending up on infrastructure which will pump money into the economy will lower inflation.

According to Keynesian theory last I heard was that infrastructure spend is what you do during a recession to pump money into the economy - deficit spending. You don't dare do this when the economy is already hot - fuel to a fire.

Both parties were guilty of promises to spend big during a period of high economic activity which will result in higher interests rates than would occur if they held off spend until say 2011.

I think the difference is interest groups that parties have to keep happy. The liberals mainly throw money at churches and associated charities - labor at various left leaning groups.

I think labor will have a problem here - to keep the zillion interest groups they now try to represent happy now they have moved away from the primarily union support base they will be forced to spend. If Rudd doesn't the factions will move their support to someone in party who will support them.

The argument that education will take some of the pressure off wages may hold - ie more people competing for the same job so employers don't have to pay a premium. But I don't think lower wages and having to compete for their own jobs is what labor voters had in mind.

BTW 2011 according to me is when the boomers hit 65 - start drawing down superannuation rather than topping it up - are no longer part of the income tax system and instead are making demands on health and pensions will create big changes to both the economy and the market. Next election is 2010.......