Why are we stuck with the level of interest rates being the 'blunt instrument' which is used in an effort to adjust consumer spending? Surely, if the agenda is to curbe inflationary pressures, a more effective approach would be to target those consumer spending habits which Governments regard as undesirable. I doubt that many Governments think that buying a house is undesirable, but maybe buying a new model car every year is, or the latest plasma TV - or the host of new gadgets which are available every few weeks.
Shouldn't interest rates be targeted - or should GST be applied selectively to dampen spending which the Government considers to be inappropriate.

Wow, I thought John Howard was the economic driver in this country, We should just make him dictator for life and be done with it. Well with the state of democracy in the western world we are not far from that ridiculous situation. Over the last ten years we've been told the federal liberal party have been doing such a great job with the economy, well I beg to differ. More than ever Australians are in debt, there are record amounts of bankruptcy, now theres been more interest rate rises under this government. Over the last ten years we have spent more money on war, bribes of evil dictatorships, government propaganda. wake up australia we have to fight for our rights more than ever all the hard work of generations of Australians is being brushed aside by these right wing thugs. This next election will hopefully be the end of this government and even the end of the liberal party in australia and there will never be another Liberal PM. Now this may sound far fetched but with some of the issues facing the globe like climate change and world poverty there won't be room or tolerance of economic rationalist right wing political parties. Now this would maybe be the case if the truth triumphs and the media harass these scoundrels underground. THE HONEYMOON IS OVER!

Maybe the government should crack down on some of the blatent profiteering on groceries, petrol, etc. instead of handing huge profits to the banks in the form of increased interest rates at the expense of struggling families trying to pay off homes.

The only thing that will stop world poverty "TheHoneyMoonisover"
is if the male leaders of these countries ask the West to spend some of the billions of dollars the West gives in world aid to build family planning and womens health clinics in all of these poor countries, so the women can choose to limit their children to three or four and they should be able to obtain all the medical aid and food they need at these clinics to ensure the survival of their babies to adulthood. What happens is the male leaders use the aid money for their own benefit.
The religous leaders that rule a lot of these countries want the women to have more and more children to produce followers for their mosques or whatever and then they have the nerve to blame the West for their poverty.
George Bush also shut down a family planning clinic in one of these countries because he got the idea that the contraceptive pill sometimes causes miscarriages because of the morning after pill containing similiar hormones. It goes agaainst his religion.

I have never heard any of these male leaders in the United Nations when calling for world peace,asking for the setting up of womens clinics all over the world to end the poverty that drives wars and conflict.

It's the question of why interest rates are seen as the main weapon in the fiscal arsenal of economic managers that mainly interests me. I believe that history has shown that manipulating interest rates in the way our politicians always have just perpetuates the boom and bust cycle.
I somehow doubt we will see any changes in voting patterns until the economy hits the wall, and that's probably two or three years away (after the next election)

I agree that interest rates are often not effective at smoothing economic peaks and troughs. They are most effective in curbing classical demand-pull inflation. What we’ve had is more oil induced inflation, coupled with drought: usually one-off effects (assuming the drought ends and oil prices keep falling). Even so, inflation feeds itself when there are recurring rounds of price rises. Higher interest rates tend to curb consumption by reducing the pool of disposable income, because most people hold debt. Although higher rates benefit savers, they don’t spend anyway. In effect then, interest rates are a crude form of income tax.

The good thing about the current system is the Reserve Bank’s independence. It prevents governments manipulating home loan rates to their political advantage, as we had in the 70’s and early 80’s. Also, interest rates are set by the market (like house prices, shares and many commodities). If, for example, traders in interest rates believe Australia’s economy is nearing the end of its peak, they will buy bonds, reflecting an expectation that rates will fall in the future. Though the Reserve makes its own decisions, the market usually prices in their decision beforehand using the myriad of available economic data. Using GST as an economic tool will also work, but at the expense of creating inflation when GST is raised. GST is also has a narrow base: in the end it is the consumer that pays. Interest rates have a broader impact as they also affect business decisions to invest. These are some reasons why interest rates are the preferred tool. A completely hands off approach apparently makes the boom-bust undulations much bigger. I guess until some economic boffin comes up with something better, we just have to bear it. The conclusion is: don’t borrow more than you can afford in the worst case. :)