It was just over 12 mths ago that the stimulus packages began.Labor was pannicked by it's advisors and the RBA into borrowing $ billions from China.Rather than creating our own credit ie get the printing presses going here,we decided to borrow from someone else's printing press.

The result is worse in this case,since we created more inflation on borrowed money and have the the additional burden of paying back the debt on a depreciated currency.The RBA is taking the money out at one end to the big end of town that futher inflates financial aggragates,and Kevin is giving us debt and devaluation of our currency via excess borrowing.It would have been better to just keep interest rates low for a while and let the economy recover with no additional debt.

So now increased rates will see people lose their houses,consumer demand will fall and a loss of jobs/businesses will ensue.

We need an increase in production,not an increase in money supply.We are too busy paying off debt to build the infrastructure needed to make our economy more efficient.

Arjay this time I agree with you.

We could create our own credit at much less cost than borrowing. It is insane.

People panic when printing money is mentioned suddenly their thoughts turn to Africa or others where the money invested was not then returned to the coffers. They think inflation when either options mean putting money into the economy and then taking it out in repayments.

Madness for sure.

pelican.It would be boring world if we agreed on everything.

The RBA and the mint used to generate more of our currency when there was more cash in our economy.Most of our money is created as debt when people take out loans.So some is supplied by the RBA but most comes from foreign banks.Now with an increase in pop of say 3% and GDP of 3.5% there need to be an increase in the money supply of 6.5%.We also have an average inflation rate of 3.4%.So our money supply increases by approx 10% pa.Who generates most of this new money?

The RBA should be creating this new money since the wealth was generated here.If we are borrowing to pay for an increase in national wealth,then this means we are letting foreign banks loan our wealth back to us at interest.

Now it is very difficult to find out the actual amounts generated by the RBA p.a.We borrow most of our capital from OS.This is why we are so much debt.So if anyone knows how much money the RBA generates each yr,that would be a good starting point for analysis.

Ah Pelican, you are such a charming lady, with so many talents,
but numbers is not one of them :)

Fair enough, none of us are perfect. Arjay OTOH is once again
his deluded self.

So your thoughts are all very sweet, but totally unrealistic.

Our currency is valued every day and every hour, by the marketplace.
That involves thousands of people of means, from all over the world,
making judgements and putting their money where their mouth is.

Now let's say that Arjay ran our RBA and started printing dollars.
The market is not silly and would know what he was up to. The more
Arjay printed, the lower they would value the Australian $.

So when it came to Australians buying petroleum and all the other
things that we import, in A$ terms they would cost substantially
more. Inflation would set in, as unions screamed for higher wages,
to compensate for higher prices of everything. Interest rates would
rise, as investors abandoned the A$, due to higher inflation and
all that money printing.

Pelican, with her huge heart but no sense of numbers, would be
crying out on OLO about the unfairness of it all, as people lost
their homes to ever higher interest rates, to compensate for
higher inflation.

The story goes on if you wish :)

So perhaps we are better off with Arjay continuing with his
conspiracy theories on OLO to keep him off the streets and we'll
let slightly more talented people run our RBA.

Yabby ,you don't have to be good at numbers to have commmon sense.Kevin's borrowing has caused inflation.This coupled with an increase in energy prices and other Govts charges has deacreased the purchasing power of our money.The price of houses have shot up due the increase money supply ,overseas money allowed by Kevin into domestic market and the continued restriction of land by our state Govts so they can profit.

The result is that the RBA has decided to remove this excess money(stimulus), that they advised Rudd to borrow,by way of interest rates rises.A comment the other day was the RBA was doing the heavy lifting and Kevin needs to do more with stimulus.So we can go into more debt while the banks makes more profits.

Show me the logic in this reasoning? The big end of town is screwing the worker and Rudd needs to take control of monetary policy.

Arjay, I've said all along that the stimulus was not required in
the first place and as we've seen, it was not spent wisely, but
largely wasted. A bit of a recession is in fact not bad for an
economy, it teaches people to once again become prudent and restores
values.

The point however is this. If Kevin borrowed, which arrording to
you caused inflation, then Kevin will have to tax to repay it,
which will dampen inflation at some point. If Kevin had cranked
up the printing presses as you suggest, Govt could porkbarrel with
impunity, which would lead to massive inflation breakouts.

Yes, the RBA does use interest rates as a blunt instrument, but its
the best one that they have. The good thing about it is that it
puts the brakes on the largest risk takers, who have the least
equity and live closest to the edge of risk.

The RBA is yet to figure out why house prices increased so much,
as since the first home owners grant was dropped, bank lending for
housing has actually decreased. Its not houses at the poor end of
town that have risen, but in wealthier suburbs. A third of houses
sold and bought, have no mortgage at all involved.

So either a lot of DINKS are uptrading houses and using personal
savings to do it, or alot of foreigners with cash in their pockets
have bid up houses, or more likely a combination of the two.

That could be why Sherry has now put the brakes on foreigners buying
houses locally, for it seems that many were left to stand empty and
not rented out, putting and even larger squeeze on a housing market
that is already short of homes, due to migration.