|
economics is not an exact science but its not voodoo either.. a lot has been learnt and demonstrated particularly over the last century. economies are cyclical - peaks and troughs of growth.
the reserve bank is not a privately owned bank it is a statutory body - like the ABC - that exists to help smooth out the peaks and troughs by influencing the availability of money.
when there is too much money flowing around they need to cool the economy down by restricting the supply of money. the way to do that is raise interest rates - increase the cost of money, to reduce the demand. conversely when the money flow slows down they drop the cost of money to get it flowing again.
japans economy slowed down for a long time. they were lending money out at 0.1% interest to try to kickstart things.
one of the big reasons the great depression was so bad is because there were no things like pensions or the dole, so as people started losing their jobs, the supply of money dried up. the problem compounded as more people lost their jobs.
thats the sort of thing the reserve bank tries to prevent. its harsh that the result means peoples home loans cost them more. banks probably over-lend knowing they cant really lose with a house as security.
the reseve bank needs to be independent so it can make decisions without interference. the last election showed that.. with a rate rise a few weeks before the election.
im sure things would be a lot worse economically without them.
the argument ive seen lately is whether their target of 3-4% inflation is too conservative - that the couple of extra % inflation may be acceptable.
|