Thursday, 27 October 2005

Democrats Describe OCR Increase As Dumb Move

The Democrats today attacked the move by the Reserve Bank to bump interest rates to reduce inflationary expectations and suggested the government should consider renaming it the Reverse Bank.

The increase in the OCR will simply add cost onto an existing inflationary spiral, being caused partly by the spike in oil prices, partly by the growing current account deficit but mainly by respective governments using interest bearing debt as the foundation of economic activity.

It was amazing to hear an economist on Morning Report today saying there is a real need to reduce the amount of discretionary spending available to individuals in order to increase the ability of the economy to create jobs and increase prosperity in the future. In other words he is saying the economy has to be killed in order to save it.

The real need is actually for people to be aware the increase in interest rates will not only NOT get rid of inflation but will actually add to the cost of virtually everything that they purchase.

There is a growing awareness that the orthodox wisdom in regard to the debt based foundation of economic activity is actually a pretty dumb way to run the show. Every time there is any sign of growth in the economy leading to an ability to build wealth, orthodox wisdom dictates that prosperity will be bad for us and it is snuffed out, along with jobs and incomes.

What is needed is a real reform process which will enable growth in the economy, based on backing the debt driver of inflation out of the economy and thereby giving the productive sector the wings it needs to fly.

That can only be achieved by recognising conventional economic theory is outdated and therefore largely irrelevant when the monetary base on which economic activity is dependent consists almost entirely of interest bearing debt and increasing the interest rate will add cost to every aspect of that activity.

The Treasury/Reserve Bank single lever solution of fiddling with the OCR will lead directly to a reduction in economic activity and simply reinforce the declining confidence that is currently showing up in the performance of the economy.

ENDS

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