Call us on 1300 794 893

Your Money

Water Torture

One of the most disturbing aspects of the interest rate rise on Tuesday was the tone of the delivery, which carried the warning - watch out there are more on the way. In the business we call this a hawkish statement.
In fact, Macquarie Bank’s interest rate expert, Rory Robertson, tipped this behaviour even before the rise. He delivered even then the scary prospect that the Big Bank would go again March.
Let me assure you that the Reserve Bank governor Glenn Stevens is not a hard and merciless man. He is looking at inflation heading towards 4 per cent and is desperately trying to nip it in the bud. Of course, after 11 rises it’s starting to look more like hacking rather than nipping.
Possibly we needed a shock half a per cent increase some months ago because this water torture of small and apparently ineffectual rate rises will send many households to the wall.
The trouble with interest rate rises to solve our current inflation problem is, on Robertson’s admission, that the inflation is caused by the likes of China and other economies’ insatiable demand for our resources. An accessory in this inflation crime was the Howard government’s tax cuts. Mining company profits built up the Treasury’s tax take and this booty funded the tax cuts. They were meant to help Australians and win over voters for the last election, but they have contributed to inflation.
Of course not all Australians are complaining, as I was surprised to learn this week that 46% of Aussies have no debt. And there are plenty of Aussies who are happy to see savings deposits interest rates go up every time the Reserve Bank makes a tough decision. The simple facts are that the Big Bank is not going to be happy about the prospects of inflation until some of us start losing jobs. Rising unemployment would be one reason for the RBA backing off.
Of course, a likely alternative would be that we mend our spending ways and forgo our infatuation with plasma TVs, new cars and eating out. Instead of being spenders we would become savers. This action also would cost jobs but not as much as would happen if rising interest rates cause personal bankruptcies and business foreclosures.
Believe it or not, what we need is a horror budget in May. We need a courageous Prime Minister who welches on tax cut promises.

This is the time for tough talk and Mr Stevens knows interest rate rises to beat inflation are an imprecise tool. If he can scare us into being controlled consumers, then the torture might ease. 

Published on: Friday, February 08, 2008

blog comments powered by Disqus
Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300