We have a very diverse economy both from a socio/economic perspective and also on a state basis.NSW for example was just beginning to grow last yr particularly in the building industry.Now with 11 consecutive interest rate rises,it will again decline.The mismanagement of NSW is just mind boggling.

We have a two speed economy whereby an upper middle class have so much wealth that rates will not affect them and the masses who are struggling to pay the mortage on often over inflated house prices.

If rates continue to rise,then we in NSW are looking at recession and the rest of the country may follow.

Kevin Rudd is stepping up to the plate by reducing Govt spending,however much of this inflation is driven by fuel/food price increases by the food/fuel oligopolies such as Caltex/Woollies and not by consumer demand.

Rather than across the board sledge hammer reactions,both Kevin and the RBA need to target the source of the inflation.

Arjay, it is fairly pointless trying to shoot the messenger.

Fact is that there is something like 1.5 trillion globally, being
shifted from energy consumers to energy producers. Russia, the
Middle East, Venezuela, etc, etc. are all making a fortune.

Producing food consumes lots of energy, in the end somebody has
to pay. If not the consumer, who do you think should pay?

The point of interest rates rises is to stop those who don't
have it, to slow down their spending. Credit card debts, Christmas
shopping etc, have all been at record levels.

Yes yabby has it right no excuses we are in trouble Rudd is trying but it may be out of his hands.
Two cases that highlight our problem in my view both true.
A mate earns $60.000 owns 80% of a home worth $280.000 it can earn him $300 a week rent.
He paid $125.000 for a block of land is paying $240.000 to build on it.
Has two new cars is considering a pool, is committed to pay 67% of his total income including the rental if he rents.
But what if he lost his job? or the house failed to rent? or he buys something else? he is thinking of it!
Another bloke borrowed $150.000, to invest in shares! he has lost $40.000 so far!
It is not all in Rudd's hands.

Perhaps banks need to take responsibility too and make the lending criteria more realistic and in line with ability to pay. Too often you hear stories of banks offering more credit to those who cannot really afford to take this on. I am all for personal responsibility but as a society surely we need to provide a mechanism that would protect those most at risk especially in a rising housing market.

Someone once told me that banks don't acutally use their own money for loans but produce a line of credit on paper. I would like some more information on this if anyone can direct me to a good source. I imagine that the bank must be able to balance up their credit/loans with the amount of money stored otherwise wouldn't this be like printing money which is illegal.

It is a shame that for one sector to do well ie. superannuation returns that another sector has to take on the burden ie. large mortgages, rents and the threat of interest rate rises. Tis a funny system to be sure.

Yes Pelican,
The banks don't really have any money at all.
They get it from credit with the Reserve Bank and depositors and by
borrowing on the money market.

It all points up something that seems silly to me.
The Reserve Bank raises interest rates, the banks raise their rates
and the mortgage payer has to put in more money.
The bank puts up the rate to depositors, but creams off some of it as it goes past.

The depositors then have more money to spend on whatever;
Errrr wasn't that what the interest rate increase was supposed to stop ?

Or is that too clever for the treasurer ?

I think we all agree that money is just too easy via credit cards and retailers offering 3yrs free interest.This is an area that could do with some regulation with the exception of business loans.

Perhaps we should look at a more flexible tariff system whereby certain luxury goods such as plasma TVs have a variable tarrif according to economic conditions,then interst rates will have the edge taken off them.I think we need an international agreement whereby any country is allowed to raise tarrifs in accordance with their balance of payments,much the same as households do.We should not be importing more than we export.Our balance of payments deficit is now $540 billion,or $50,000.00 for every working person.This is why we always have higher interest rates than any of the other western countries.

It is time for the RBA and our Kevin 07 to think outside of the conventional parameters of economic dogma.