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The Forum > Article Comments > Reserve Bank must slow down with the changes > Comments

Reserve Bank must slow down with the changes : Comments

By Henry Thornton, published 3/3/2009

Australia's recent economic statistics are surprisingly on the upside.

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“Our second point is that fiscal stimulus so far has focused on boosting demand. A safer course would be to provide additional spending or tax cuts to stimulate the supply side, making Australia more productive and competitive.”

Right on! They are working on the nonsensical theory that a lack of demand causes recession when wrong business decisions and taxation have made business less productive and less competitive, even with our shrunken dollar. Back to Keynes!

Supply side needs fixing so that the market can do what it is meant to do in free enterprise, democratic society. That’s how we will get out of the recession.

But, while people who are totally ignorant of economic management keep telling pollsters what a good bloke Kevin Rudd is, we are going to sink deeper into the mire.
Posted by Leigh, Tuesday, 3 March 2009 9:57:15 AM
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Leigh,

Unfunded demand in the form of acquisitions which cannot be paid-for ultimately act to bring the system down. In the Great Depression, investors where acuiring shares by paying only a 10% on the face value. Okay when the market goes up. When faced with 90% margin calls, it is another story.

When Bank boards override the advice of their Credit Policy Department (Westpac did 1990-92, I know) and lend to highly geared entreprenuers, whom buy company after company, to keep ahead of the Grim Reaper, finally loose external funding and the ability control the play, we have corporate failures.

US sub-prime lending not only created a high risk caste, it also happened that more borrowers were in the market creating higher demand and on the supply-side higher prices. When demand for housing fell, prices were stuck up in the air: With the extinction of high demand prices have fallen to meet the new circumstances (new equilibriun).

Demand is important, of course. Moreso, capacity to fund demand is essential. Else, the feigned dream becomes a real nightmare.

Sincerely,

Olive
Posted by Oliver, Wednesday, 4 March 2009 9:05:27 AM
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