Among the considerable archive of my ignorance, is a childish grasp of economics. Now that interest rates are going up again, can a more enlightened soul please tell me wether the banks will meticulously follow suit on mortgage rates? Having a hefty mortgage, I was irritated that banks didn't pass on the new rate to mortgagees when rates were going down, pocketing the difference. I'm thinking banks will be more scrupulous in passing on "all" of the tax hikes. Is this inevitable? And is it justifiable?

* I was irritated that banks didn't pass on the new rate to mortgagees when rates were going down, pocketing the difference.*

It probably was not as unfair, as you might first think. Australian
banks obtain only about half of their funding from Australia,
where lowering of interest rates affect their cost of money. The rest
comes from overseas, commonly at substantially higher rates.

Last year I recall NAB paying around 6.5% for overseas money. Most
of this would go to more expensive business loans, where they
charge alot more then they charge you for a housing loan.

“I was irritated that banks didn't pass on the new rate to mortgagees when rates were going down, pocketing the difference. I'm thinking banks will be more scrupulous in passing on "all" of the tax hikes. Is this inevitable? And is it justifiable?”

I would, on the face of it, tend to agree but would consider, banks work on “lending margins” – the difference between what they borrow at and what the lend at and the difference funds their overheads and profit margins, like any commercial exercise and the commercial nature of lending would suggest competition for borrowers means “lending margins” are maintained at the narrow end of the range.

However, be warned, when governments enter the fray and decide to throw their weight around by pretending they know how to regulate “lending margins” and interest rates they just create a tangled mess which usually results in economic stagnation.

Well at least the Reserve Bank seems to have some grip of control theory.
Now just as some recovery appears is the time to start backing off on
the pushing of money into the economy.

It is just like you are following a car ahead and you see you are
getting closer, you start to back off on the accelerator, you don't jam on the brakes,
just like you don't floor the accelerator as he draws
slowly away. You just nudge it down a little.

This is the lesson that Rudd and Swanne need to learn.
Your brain works as a three term controller, proportional, integral and
derivative. Everything including the economy can have these three
mathematical functions applied to them.

It is a pity that politicians don't have to take some courses in
this sort of thing.

Yes Bazz, this time the reserve is speaking to Rudd & Swan, not the general population. Where as usually they shove the rates up to frighten the public into pulling their horns in, this time they are having to frighten our damn fool government. Pity it's the mortgage belt that will pay the price.

Obviously the reserve can see that the stimulus should be stopped, but our arrogant government thinks it knows best. They will have told KRudd/Swan this, privately, & been ignored. Now they have have to get serious, & threaten their electoral prospects.

What they have said is, keep up throwing money around like water, & we'll push interest rates up. If you don't listen to this one, rates will keep going up, & may go high enough to turn you into a bunch of one turn wonders. It will be interesting to see how our two twits will react. Will they find some way to save face, but cut their spendthrift ways, or brazen it out, & to hell with the mortgage belt.

It would be fun to watch this power struggle, if there weren't so many family & friends who will pay the price, at the bank each month.

If this is what you get from a fiscal conservative Labor PM, thank god he is not a big spender.

Yes, I agree Hasbeen, it is difficult to make the judgement without
using the three term formula, but surely, surely someone in the
Treasury understands this ? Surely ?

I suspect that run of the mill economists do not understand it.
They would have to decide on the set point, that is the desired level
of activity in the economy, the integration rate, ie
how to respond to the fast changes up and down and smooth them out.
Finally how to respond to rate of change.

If they can do that successfully they will bring us out of this mess
with no overshoot into inflation.