DOWN, AND DOWN WE GO

Well the RBA has done it again, we are now at the lowest interest rate levels since the establishment of the RBA, and with the (predicted) change I am yet to hear a cry of, “Great news this will work, just watch everything change.”

We are continually being advised by learned experts that we are in new territory when it comes to the economy. There are things happening now that have not occurred in the past. So why is it that we insist on forcing old fashioned fixes onto problems when they are clearly not producing the desired outcome? Interest rates have been at zero or below in many countries for some time, Japan being a clear example where they have been in this space for the better part of 20 years and it is yet to have any significant impact on that economy.

I know I’ve said it before but I am confident that there is a valuable lesson to be learnt from those early pioneers that sought to break the sound barrier. In a dive it is apparently normal to pull back on the stick to pull the aircraft out of the dive. In the process of attempting to reach the speed of sound in a near vertical dive, a number of test pilots died attempting to do just that. It was not until a pilot, who followed an intuition and actually pushed the stick forward that he was able to recover from the otherwise terminal dive. He did not follow convention.

As we cut back interest rates we push up land prices and increase fear in those trying to live off savings ie those in retirement. In turn more is borrowed to buy houses and less is spent on the economy. It is a slow process of grinding to a halt.

It’s time to have a serious rethink about what we are doing, because the only confident statement that I heard this time round was “This isn’t going to work and it will be necessary for the RBA to do at least one more rate reduction, if not two.” If that’s the answer then why was it not done now?; simply because they are pretty confident that it’s not the answer, but are unwilling to think of anything new.

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