John Howard’s Government Shouldn’t Take Credit for Low Interest Rates

Why does the Howard government insist on taking credit for low interest rates? In case it hasn’t noticed, the entire world has enjoyed a period of low inflation and lower interest rates. Eventually this bizarre claim is going to come back and bite the men who make it, we reckon.

In any event, the Reserve Bank made a strong show of its independence yesterday by doing nothing in the face of statistically ambiguous inflation data. You can look at bananas, or health care, or petrol, or whatever you like. But most of us interest rate geeks are probably over-thinking the inflation case.

Inflation rises when the money supply increases faster than the demand for money. The Reserve Bank controls the money supply. You’d think, then, it would have a pretty good idea of what the inflation rate is based on how much money it’s been creating. And just how much money is being fuel-injected into Australia’s high-performance economy?

 “Over the year to May, total credit rose by 14.6 per cent. Over the month of May, M3 grew by 0.7 per cent and broad money by 0.7 per cent. Over the year to May, broad money rose by 12.4 per cent.” The Bank’s words, not ours. You want to control inflation? Quit printing money.

Foster’s is reducing the amount of alcohol in VB. That’s sad. People are going to need that cheap buzz when the thrill of easy credit is gone.

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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