Ludvig

"And still the link isn’t active. Now I’m completely befuddled |;~{"

Seems that https links are not recognised as URLs, only http links.

Perhaps something to draw to the attention of OLO admin.

I believe there is a fundamental error in raising interest rates to
reduce demand.
The increase takes money out of the people who have borrowed.
It puts it into the banks, who take a percentage off and then pass
an increase in interest rates to their depositors.

These depositors then have more money to spend.
The banks shareholders then also have more money to spend.

Does that not cancel out the original purpose ?

Or is it me that is stupid or is the economists ?

If you believe in infinite growth in a finite world then
you are either a madman or an economist.

"But I fail to see how PBS is impacting on the overall economy. Without it, people would simply not afford life saving medication. My mother is on oxygen now, but she still contributes to our nation by caring for my niece and nephew - saving on child care and freeing my sister and her husband to go to work."

Yes indeed that was all simply the Abbott & Costello show under Howard, and I hope my UTube did its little bit to rid us of that scum

http://au.youtube.com/watch?v=7gLcmbhII-o

Bazz

People who have money on deposit, or own shares, can probably be assumed to have more money than they current feel the need to spend. Consequently, transferring money to them will not generally increase their expenditure and the demand that they represent. Note the "generally" - there are some exceptions.

By contrast, those with a mortgage can be assumed to be spending some portion of their income, and using the rest to make repayments. Now, some will be repaying more than they're required to, and the effect of an increase in interest rate on them will be that more of their monthly repayment will be for interest and less for capital. That is, it will have no effect on their expenditure. But those who are in any case only paying the minimum they're required to will have to cut their expenditure when interest rates rise.

So as a way of controlling demand, and thereby inflation, interest rates can be expected to work.

It's unfortunate that the required reduction in demand is forced on a particular subset of the population, but short of limiting demand by rationing, it's hard to avoid.

the mix of wages, interest rate, CPI and house prices MUST always equalise itself

but as I see it there is a greater feeling of "right" to the ozzie dream now, without a need to "Build up"

back when I started it was $30,000 to get that dream home in St Ives, but even as 2 professionals we needed to start with the 100 year old terrace, put in blood sweat and tears and finally USE that to get to the dream home [which Buttercup then of course took for her own in Fam Court]

seems to me present Droogs want to have it all up front, and settle back to watch Big Brother

Sylvia Else;
I think there is a fault in your logic.
If the depositors and shareholders decide to leave the funds in the bank
the amount of money available for lending increases by the same amount
as the extra the mortgage payers have to pay out.

The bank won't just put the money in a safe and look at it, they will
takes steps to get it lent out. Thats what they do.
So where is the reduction in liquidity ?

Liquidity could only be reduced if the extra money was given, not
lent, to the Reserve Bank and burnt !