Reserve Bank governor Michele Bullock has now told us that the latest iteration of inflation is being driven by demand, reflecting in increased demand for services such as dentistry and haircuts which are driving up prices and interest rates will have to follow.
So, showing my ignorance, which some would say borders on wokeism, I tentatively put my hand up and ask ‘why is it so ?’
Well, as economists roll their eyes at my naivety they patiently explain that interest rates need to increase for a number of reasons :
1. It will put more money in the pockets of bankers and their shareholders and that must be a win win, surely ?
2. Mortgage interest rates will increase – including on existing home loans because the banks don’t like to give fixed interest loans in this country – these increases will immediately flow through to aspiring homeowners and landlords who, in the latter case, will pass it on to renters. So, again it’s win win – it fits into the economist’s mantra articulated by W C Fields that you should ‘never give a sucker an even break’ more commonly, in banking circles, ‘always kick a man when he’s down’.
3. The stated objective of the Reserve Bank is to take money out of the economy to dampen demand ; clearly if people have no money to lavish on haircuts and dentists this is a good thing for the economy.
So my next hesitant question has to be, what about the stage three tax cuts, won’t that pump more money into the economy as the wealthy splurge on their mullets, quiffs and root-canal ?
Again the economists roll their collective eyes and explain that these tax cuts, passed by the Morrison government in mid-2019, begin in July 2024 will cost the economy around $254 billion over the next decade. The Parliamentary Budget Office [The PBO] has found that the tax cuts will cost $20.4bn in their first year, 2024-25, rising every year to $42.9bn in 2033-34. That evidently is a good thing as it directs large amounts of money into the pockets of the generally well-heeled who won’t fritter this windfall on things like dental care and perms but will wisely buy shares in banks because, as bank robber Willie Sutton once noted when asked why he robbed banks : “Because that’s where the money is.”
So the Governor of the Reserve Bank is clearly pointing at you lot for your lavish expectations of living in houses and driving cars and then, to add insult to economic injury, you insist on enriching dentists and barbers – shame on you !
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Clearly I’m not pulling my weight since I cancelled my last visit to the dentist – too expensive- and only get my greying tonsure trimmed every three months. I am though, thinking about re mortgaging my debt-free home so I can buy bank shares which seems to have a nice synchronicity about it, I pay increased interest but I get it back in dividends. Now that’s win win. I think.
And, surprise, surprise, Rupert is blaming it all on Labor.
RC, I usually remember to get my haircut around the 12 month mark or when a friend I Iive with drops very unsubtle hints.
Nice work Terence.
“There is no crisis of capitalism that capitalists cannot overcome, as long as workers are prepared to pay the price.”
No, Dance of the cuckoos, it wont put money into the economy because the winners don’t need to spend it. Their number is too small to inflict inflation pain by petrol, coffee and a pie ala the off the cuff new lnp banker and they invest in vultures et al. So it will be a cunning plan ie an inflation lowering measure which stops labor spending it.
ps
Wow, Bowen cheered me up by slashing at the loonies. If the qld labor don’t get moving they will lose state and federal seats to the loonies.
Very true statement Steve Davis.
Even mother nature knows one can’t construct something without deconstructing something else – as we hurtle through space, we only theorize about nothingness before and nothingness after, but we do know even thin air came from somewhere.
However, economists, being the mad contrarians they are, know that things exist without tax, but even though things are tangible, tax isn’t, but it has to be. Because, if tax didn’t exist, mother nature would just take her course in making and remaking things, and we couldn’t have that could we?
Of course we couldn’t, because as we trample around as needs must, it seems that mother nature takes too long to remake the things we have consumed and trampled on along the way. So we must bend her to our will. And such bending will require a special class of us, and that bending class being busy bending will require observers, theorizers, calibrators and servants to facilitate proper bending. And of course, because they don’t deal in things, yet have to trample and consume, they have to render an (abstract) living tax upon everyone whether they deal in things or not.
The race emerged. Mother nature having been bent, she just couldn’t keep up, so to be able to afford the tax, some began inventing bling things and things to make us go faster. Sophistication to hold. And the benders too became more sophisticated, deciding that those that invented or liberated more things faster might be helping the now second-fiddle mother nature, so their goodness deserved a break from tax.
The rush for goodness took hold, and with it, the burgeoning of benders, observers, theorizers, calibrators and servants. Others and bent mother nature would soon be rendered less than relevant in the minds of the benders. There became an inflation of goodness, and that became a worry, so best to put the brakes on the less relevant others.
Such is the theory. We’re told its inflation, when really, I suspect its conflation, just to keep the benders pleased and goodness afloat.
@ Terence Mills: Thank you for the erudite explanation of economic theory that somehow the new governor of the Reserve Bank has overlooked in her latest expose of wealth creation for banks and their international proprietors.
.
Perhaps you might now explain in your best ”words of few syllables” how inflation created by price gouging is caused by workers on fixed incomes?
Perhaps the Australian Tax Office has too many exemptions, rebates, concessions & other tax payment relief for corporations thus requiring the Reserve Bank to tell porky pies so that Board Members retain their exalted status as promulgators of economic gobbledygook at an enormous cost to Taxpayers.
These monies would be better invested in public infrastructure projects like hospital facilities in small regional hospitals, railway line renovation & re-opening after a freight tax of $0.01 per tonne/km is imposed on heavy transport highway movements to pay for the high cost of maintaining highways in a fit state to be used.
Oh dear, Der Spuds picks for Payne’s seat, Constance and Seselja, got the chop and Sharma nabbed it instead (not that he’s any better than the other pair). Poor ickle Spud.
GL
Sharma,Constance and Seselja were all rejected or ejected by respective electorates yet the Liberal Party thumbs its nose at the electorate and puts forward these dopes to take up a casual senate vacancy.
There is something fundamentally wrong with our democracy when this happens : why can we not, in the case of a casual senate vacancy have the candidate next in line from the last federal election take up that seat ?
I grant you that Sharma is the best of a bad lot !
Constance, Seselja, Sharma, recycled shit.., but then, Bunnngs have it, refined and bagged, for the garden…however, Australia’s public life needs rejects like it needs a Morrison, just a reffo from a bedpan’s overflow.
Technicolour yawn inspiring Brandis strikes again…bloody wanker!
https://www.smh.com.au/politics/federal/a-worried-nation-needs-a-tough-cop-not-a-handsome-boy-20231124-p5emlh.html
So we need a knuckle dragging thuggish racist and near brainless spud with all the charisma of a dead tapeworm in charge?
Governments have outsourced economic policy to the Reserve Bank.
Inflation is restrained by limiting aggregate demand. Increasing interest rates is the bluntest if economic instruments and the effects are applied inequitably.
A more equitable and rational policy is the use of targetted fiscal policy.
I tend to think an increase in the GST of 2.5% would be equitable**, it would reduce government debt and would reduce aggregate demand/inflation.
(** make it 3.5% if you wish to raise enough to offset the effects on pensioners & unemployed)