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The Forum > Article Comments > Decisive action needed in recovery, as well as slump > Comments

Decisive action needed in recovery, as well as slump : Comments

By Henry Thornton, published 6/10/2009

The Reserve Bank should probably wait another month and then hike interest rates more boldly by 50 basis points.

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Same old same old.

While most of us would use a flyswat to swat a fly, the RBA would use a grenade launcher.

I think the RBA has jumped the gun today. Business investment remains weak, job ads are up 4.5% but still FAR below their level this time last year and despite Stevens assertion that unemployment has not risen for some time, he neglects to mention that UNDERemployment is continuing to rise - total labour underutilization now stands at around 14.5%.

Monetary policy is like a battle axe and the RBA are not shy of hacking to pieces those who are not greatly contibuting to inflation in order to inflict a few cuts and bruises on those who are. Fiscal policy can be a far more discriminate and precise tool, effective without causing the same undue distress. Unfortunately, "taxation" - of any kind, for any purpose - has become such a filthy word in the minds of the electorate that it will be very difficult to implement this much superior tool.

I can't see how this is going to assist any recovery at this point in time.
Posted by Fozz, Tuesday, 6 October 2009 9:48:37 PM
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we must abandon the neoclassical religion which focus only on the price signal. Asset bubbles need to be controlled but not by raising interest rates for the whole economy. We end up slugging the productive sectors of the economy to deal with the speculators.
We need to reform negative gearing, utilise quantitative monetary policy and fiscal policies to combat asset bubbles.
we need to democraticise the investment cycle and ensure proper balance between capital and labour. it really is simple once you eliminate the false gods of the chicago school.
Posted by slasher, Wednesday, 7 October 2009 7:04:38 AM
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I hear you there slasher.

The biggest problem is that 30+ years of almost total neo-liberal dominance has conditioned the possibility of something better out of the minds of the public. When the GFC struck, Mark Bahnisch (spelling?) of Larvatus Prodeo expressed doubts that any paradigm shift would occur, mainly because the public at large are simply unable to imagine anything different to the current framework.

There has been some progress - while extremists such as Sinclair Davidson dribble on about the stimulus having had no effect, the mainstream and the public at large are beginning to wake up to the power of fiscal activism at mitigating the worst effects of a downturn (actually, it can do much more than this) so this is a significant victory.

The next thing to watch out for is national governments feeling political pressure to run surpluses (drain currency from the system and effectively burn it) while the private sector engages in a newly re-discovered desire to net save, thus pulling out currency from the other end.

Interesting times.
Posted by Fozz, Wednesday, 7 October 2009 9:12:31 PM
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