You know it's bunkum
- because we told you -
Editor in Chief and syndicating columnist
F Stop Fitzgerald
July 1st 2008
Statement by Glenn Stevens, Governor Monetary Policy RBA
This is RBA-speak for 'ignore everything we've been saying over the last 12 months.' It's acknowledging for the first time that the market has the ability to dampen demand without putting up interest rates.
Which means that we didn't need to have the interest rate rises we had to have in the first place. They were based on a false premise. Heads should roll!
The drover's dog knows that unless there is a dramatic increase in the wages of mug salary earners that is not related to increases in productivity, as the prices of some goods and services go up, demand for a whole range of goods and services goes down. It's a natural economic phenomenon, the children's equivalent of which is found in every playground. (Tough luck if you produce the goods and services that people are cutting back on.)
Once the seesaw gets into motion, it seeks its own natural equilibrium. The RBA doesn't have to put up the price of money as well.
Of course the latest statement by the Guvner of the RBA introduces a new twist to the inflation-dampening saga. He can always get his fellow RBA Board Member and mate Roger Corbett to put the price of petrol up, saving us all from another interest rate rise. It looks better for Stevens, (though not for Swan and Rudd) if Woolworths put up the price of petrol rather than the RBA raising the price of money.
Heaven knows what will happen when Gerry Harvey and Trevor O'Hoy get on the Board.
Reserve Bank overkill, coupled with a global downturn is threatening to rip the heart out of the Australian economy. The effect of the rising dollar is sending more and more manufacturing jobs off to China.
Very soon the RBA will have to do what the Reserve Bank of America did earlier in the year and drop interest rates dramatically to prevent the collapse of the economy.
The Reserve Bank axe is indeed 'working to restrain demand', indiscriminately; it chops off more innocent heads than guilty. Interest rate manipulation is a blunt, limp and useless tool for managing an economy. You need a scalpel, not an axe.
PS Just wait a couple of weeks until people start spending the extra money that's in their pay packets courtesy the Rod Laver Government. It won't take long for it all to end up in the black hole outside 65 Martin Place.