Lots of generalisations abound regarding the reasons Australians are getting further and further into debt. Probably plenty of it is people buying houses bigger than they need, spending on holidays and plasma TV's etc. Then there are those who are being forced into it by failures in our society.

The problem with using interest rates to try and control that is that interest rates don't know or care what caused the debt, they can make the situation worse for those without a reasonable capacity to cut back on their spending.

Consider the seperated person starting out again. If you try and stay in the area you were as a couple (your kids go to school there etc) you can't just move to a cheaper suburb (you might move to a cheaper part of the area). Your equity has halved if you are doing well. If you were not able to retain the family home there is no exemption from stamp duty on the purchase of your new home, you need to replace furniture, a car maybe. You may need to spend tens of thousands on legal bills because that is the only way you can still have a meaningful role in your kids lives. If your ex is not fond of working you are paying child support based on a difference in income, not on the decisions you both have made nor the actual cost of raising children. Debt might be one of the only tools available to help you keep your head above water until C$A is off your back.

You might buy one of the cheaper homes in the area but skimp to much anywhere and you risk not providing good enough circumstances for your kids and having that become a factor in a residency battle.

Now which part of that picture is optional spending which you can avoid without creating even bigger problems.

An interest-rate rise does not moderate inflation. It intensifies inflation or its risk.
Interest-rate rises reduce supply, while demand stays up. We got stagflation - unemployment with more inflation. As governments and central banks persisted with such policies, inflation shifted from domestic price increases to trade and payments deficits.
An increase in interest rates WILL moderate asset-price inflation. A hike in interest rates will hit and can kill such phenomena as a housing or stock-exchange bubble. How brutal will depend on how long the bubble has swelled and other action taken to moderate it.
However, a hike in general interest rates that applies across the whole credit spectrum - is a blunt instrument of economic and financial management.
Like a bushfire out of control, it can destroy everything in its path.
It can moderate a housing boom and burst the bubble to cause acute distress to big-time developers/speculators and small own-home-buyers.
The impact won't stop there. Manufacturers and miners, farmers and retailers, IT service providers and educators will see their costs go up. Those operating on small margins might find that their enterprises are no longer viable. They will go out of business, their factories close, their farms go up for auction, unemployment will grow and welfare payments will increase while tax revenues decline.
For Australia, the devastation of the currency - the Australian dollar - started way back in the early 1970s. In December 1972, the Whitlam Government APPRECIATED the Australian dollar by some 7%. Since then, the road has been almost constantly downhill. True, there has been fluctuation especially against the US dollar since the US Government and Fed have adopted much the same fundamental policies as the Austgov and RBA. In the last couple of years the $A rose from around 50 US cents to around 80 US cents. But that has not been characteristic. More generally, the $A has lost value against the US dollar and vis a vis major European and Asian currencies. Against European currencies in the last twenty years, IT HAS LOST BETWEEN TWO-THIRDS AND THREE-QUARTERS OF ITS VALUE.

James Cumes

Personally, I am sick and tired of both the reserve bank and the government letting inflation run rampid in this country. I simply cannot save fast enough to keep up; fantastic if you are already a rich baby boomer, but impossible if you are starting out. The inflation figures used by our reserve bank are an extremely narrow definition and do not reflect the true cost of living (or true inflation). For example, in the last 3 years I have had my rent go through the roof (in fact it is very nearly breaking me) while inflation has stood still. Now, inflation is hitting 4% they are blaming the cost of banana’s - what a load of toss. I believe this whole country is against younger people getting ahead, and has been set up for the baby boomers to cash-in before their retirement. Based on my analysis, the cost of real estate and the stock market are about 15-20 years ahead of where they should be. It has been accelerated for the boomers and politically no one is representing younger families who now have to go to auction, not to buy, but to bloody rent. Young people do not choose to be a consumer generation, they simply cannot do anything else with the little money they have. In my opinion, interest rates should be moved one whole percent next week.