Yabby,

Not all the journalists do have it wrong. Some acknowledge that Australia will never default on its debt, but there seems to be a reluctance to properly consider the implications.

I suspect some of the politicians have a better idea of how things really work, but choose to maintain the illusion for political reasons (because they think it makes them look more responsible than their opponents). But it's difficult to determine who (if anyone) is in that situation.

The markets did not respond in the predicted way to credit downgrades of other countries, which suggests not all of the bankers and overseas lenders have it wrong. But for those who do understand, it might be more profitable to keep their competitors in ignorance.

Though there were parts of Australia where mining affected everything, but in most of the country it didn't, and the unemployment rate didn't get anywhere near its pre-GFC low.

"Why should the RBA do that, when there is plenty of money to be borrowed on international money markets"
Because borrowing money on international money markets raises our dollar's short term value and depresses its long term value. The dollar was already unsustainably high; there was no need to exacerbate that.

"Why should they subsidise interest rates which are below the inflation rate?"
Making it cheaper is a separate issue from making it easier. But there are very good reasons to set the interest rate lower: it makes business investment more profitable and it reduces the amount of short term bias in business decisions.

I'd rather the benefits of productive work go to those who do the work rather than those who merely supply the money. Super funds are free to chase the best returns they can, anywhere in the world (except where sanctions have been imposed). But we should not distort public policy just to make private investments more profitable. Gambling isn't the only alternative to saving. Why not invest in rooftop solar panels? It helps the environment and, as long as interest rates remain low, it's more profitable than leaving your money in the bank.

Aidan, I think that somehow you are missing the point. Yes everybody knows that Australia could in theory print endless amounts of money. The point is that when evaluating the Australian economy, if it needs to do that, then clearly the economy is in a bad way and Govt spending out of control, so the Australian Dollar is at risk of crashing in value. That increases the risk for foreigners to hold Australian Dollars, as at some stage they will want to convert that back to their own currencies. Now both the Americans and Europeans have done that, to bail out banks that were at risk of crashing, leading to a potential collapse of the whole money market. Their currencies however are large enough to be seen as global reserve currencies. The same does not apply to a small player with 24 million people.

Hedge funds take everything into account, when deciding if they should buy one currency or sell another. IIRC, it was Stanley Druckenmiller who turned up in Sydney, only to be shocked for being charged 25$ for a burger in his hotel room. He mentioned it on Bloomberg and felt that clearly with these sorts of prices, the A$ was overpriced and he was going to short it. I kind of followed the story and lo and behold, within a few weeks the A Dollar was reducing in value. So these huge speculators, who control trillons of $, are really the ones who determine the value of our currency.

*but in most of the country it didn't, and the unemployment rate didn't get anywhere near its pre-GFC low.*

Most areas were still under 6%, so hardly a huge problem when 5% is considered to be close to full employment. Any lower that and we land up with wages induced inflation, which we don't want. People could have moved to where the jobs were, but most chose not to.

*But we should not distort public policy just to make private investments more profitable.*

Yet you want the RBA to interfere in the money markets, to make business investment more profitable. If the Govt really wanted, instead of robbing mums and dads, they could make the inflation component of interest received, tax free, to compensate savers for inflation. People are well aware that they are losing money having bank deposits, so they invest in real estate instead, leading to a housing bubble.

*I'd rather the benefits of productive work go to those who do the work rather than those who merely supply the money.*

So what will you do, when you are retired and too old to work?

*Why not invest in rooftop solar panels?*

Savers already do that, but 5000$ invested in solar, does not pay their bills when retired.

"Most areas were still under 6%, so hardly a huge problem when 5% is considered to be close to full employment."
The trouble is 5% is nowhere near full employment; it's just that when the overall unemployment rate is 5%, there are likely to be some areas with full employment.

"Any lower that and we land up with wages induced inflation, which we don't want"
But there were no signs of wages induced inflation, and anyway the claim that it's necessary to keep unemployment high to prevent that is dubious, as the underemployment rate is quite high.

> But we should not distort public policy just to make private investments more profitable.
"Yet you want the RBA to interfere in the money markets, to make business investment more profitable."
I want businesses to succeed. Enabling them to profitably invest in the things that make them more productive is an important part of this. But I don't see it as the government's role to ensure those who are already rich can effortlessly get richer!

"People are well aware that they are losing money having bank deposits, so they invest in real estate instead, leading to a housing bubble."
Restricting negative gearing on real estate investments is quite a good response to that, as is taxing land more.

"So what will you do, when you are retired and too old to work?"
That's what the pension's for, and there's also superannuation despite it not being as profitable as you might hope.

> Why not invest in rooftop solar panels?
"Savers already do that, but 5000$ invested in solar, does not pay their bills when retired."
It cuts the bills when required, which is effectively the same.

*But there were no signs of wages induced inflation, and anyway the claim that it's necessary to keep unemployment high to prevent that is dubious, as the underemployment rate is quite high.*

There certainly were in places like WA. All those increased wage costs, were passed on to consumers. A certain % of people are frankly unemployable as people have to pass a drugs test for many jobs. If somebody really wants extra work, its not hard to become self employed as a cleaner, a landscape gardener or similar service industry jobs.
Many people are also between jobs, so 5% unemployment IMO is quite acceptable.

*I want businesses to succeed.*

If a business is going to succeed, only if subsidised by artificially low interest rate deposits held on behalf of our old aged mums and dads who put away some money for a rainy day, as they believe on standing on their own two feet, then frankly it will probably fail anyway as a bad business investment. The notion that only rich people provide our banks with retail deposits, is a foolish one.

*as is taxing land more.*

You certainly can do that and it will have to be reclaimed through higher rents, which not everybody thinks is a good thing.

*That's what the pension's for,*

Err, the Govt can't afford to have everyone on the Govt teat, if you remember. As people live longer, this will only get worse, so those who provide for themselves as much as possible, are a blessing to society as a whole. You should thank them.

*It cuts the bills when required, which is effectively the same.*

It deals with maybe 2 or 3% of expenses, not the other 97-98%