Unemployment, inflation and interest rates to rise:Rudd

“I have nothing to offer but blood, toil, tears and sweat.”

Kevin Rudd didn’t revive this famous phrase Winston Churchill famously borrowed from Theodore Rooosevelt, during World War II.

But the idea was there, right through the 6,100 word essay on the Australian economy that the Prime Minister  wrote for the Sydney Morning Herald on Saturday.

“Unemployment will continue to rise even after growth returns,” Mr Rudd said.

But that was not his only warning, of tough times ahead.

“Over the next 18 months, rising growth will inevitably cause interest rates to rise,” he added.

“Third, as the global economy improves, demand for commodities will pick up, causing prices to rise.”

It is often useful, when assessing what a politician says, to ask why is he – or she – is saying that.

Is Mr Rudd, for example, copying the old-time doctor, who exagerates the patient’s illness, knowing that he can’t be blamed, whatever happens.  If the patient dies, well he was very sick, wasn’t he? And if the patient recovers, the doctor must be a genius.

Possibly.

Mr Rudd is already past the half-way mark, in his present term in office.

The next scheduled election is  due late next year.

And every politician tries to work out what will happen, at that time.

At present, Mr Rudd is still riding high in the opinion polls.

The vigorous stimulus packages, that he ordered when the global economic crisis struck, have been popular.

It’s not hard, though, to see that changing, if unemployment keeps rising, inflation returns and interest rates start rising, uncomfortably, again.

And all that could happen.

As Chris Richardson, of Access Economics warns, markets change quickly, but economies move slowly.

Employers, faced with falling sales, won’t be eager to start hiring again.

The Reserve Bank has never really been comfortable, cutting interest rates.

It sees raising them as more virtuous.

Australia’s banks, too, have been eager to restore their profits, to protect their balance sheets against damage caused by rising levels of bad debt.

All this could well mean that economic recovery comes slowly.

Recovery will inevitably present the government, itself, with new problems, too.

The stimulus packages have been expensive.

The government will have to cut its spending, to repair its budgets, over the coming year or so.

That won’t be popular.

So it’s no wonder that Mr Rudd is  trying to get in early – to prepare voters for the times ahead.

His survival depends on his success, in all this.