High risk with a limited return

He’s trying to tell you something but with economics in the low state it is in, hardly a soul is even capable of understanding his point. And what he is saying is that lowering interest rates is not only not an answer to our economic problems, but will, in fact, likely make them worse.

Reserve Bank governor Glenn Stevens remains open to lowering interest rates further as the outlook for economic growth remains soft, but warned that the benefits of doing so may be limited and that it could even be risky.

“We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth,” he told a meeting of economists in Brisbane.

Mr Stevens said the areas of the economy that low interest rates could support were already performing solidly, adding that more stimulus had to come from government and business to lift economic growth.

Governments should commit to a sustained increase in infrastructure spending, even if they had to borrow to do so, he said.

“The bigger point is that monetary policy alone can’t deliver everything we need and expecting too much from it can lead, in time, to much bigger problems,” Mr Stevens said.

On the other hand, borrowing for the kinds of infrastructure governments typically choose may also not be much of an idea either.

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8 Responses to High risk with a limited return

  1. Bruce of Newcastle

    Well I can’t blame him. Consumer sentiment is back in the cellar today. The RB has nothing they can do – since the people who must do stuff are politicians. The stuff they must do is called in oldespeak (circa Hawke/Keating era) microeconomic reform.

    Red and green tape is drowning small businesses. Until it is removed there won’t be an economic jump. Why bother working 80 hrs a week running a shop when all it means is to fill out endless forms to for Canberra and pay taxes for Greens to live on the DSP? Its easier to concoct an excuse to live on the DSP yourself.

  2. maurie

    With Australia suffering subsequent governments far too gutless to close down the juicy dune rat’s food blackmailing & the century old animal cruelty enforced by them more as entertainment, as well as the live baiting of greyhounds only being addressed under protest, & yet you seem to feel managing the economy should be well within their abilities. The current regime is wavering over selfish ALP scapegoating pressure revealing their jealousy regarding the only sure means of ensuring a constant supply of new housing which helps cap real estate prices, so is there any hope of our witnessing any common sense? Recently they even proposed assistance to the ALP/Green lifetime welfare dependent future lifetime ALP voters, those inbred medieval dune rats to build their terrorist training premises.

  3. H B Bear

    Stevens is about to join the rest of the world in the “pushing on a string” phase, if we haven’t already been there for a year or two anyway. The main game now is using cheap or free money to speculate on inflated equities and houses with the hope you beat the herd out the door when the bubble bursts.

    I doubt Sloppy Joe or any of the Howard 2nd XI in Cabinet even know what micro-economics is. Abbott was content to rule out any IR reform for 3 years and maintain Goose-like levels expenditure to win an unlosable election. Based on Australian real wage rates and productivity it is hard to think of a less attractive place to invest than Australia.

  4. dalai lama

    Like all other central bankers, Stevens is entirely clueless. All that these clowns know is to print more money and blow ever bigger bubbles. In other words, let’s do more of what hasn’t worked anywhere else; maybe it will work eventually!
    The whole lot of them should be sacked.
    Yet again, why oh why, in an era where it is generally accepted that central planning does not work, we continue to persist with the delusion that somehow it’s different when it comes to the price of money itself.

  5. struth

    How easy it actually would be to get Australia moving again.
    Our problems are basically caused because the public sector now control the private sector and tell business how they can operate to such a staggering degree that any socialist should be content .
    Abbott and hockey must know this.
    They are removed from the real world but they know this.
    They are indeed political excrement.
    If someone mentions industrial relations around Abbott he squeals and runs away hiding behind a security issue.

  6. Lem

    Governments of any stripe cannot respond unless there is a crisis (O how they love a crisis!), and their best response – against all their instincts- would be to do nothing.

    When, in 1923-24 German economic conditions had deteriorated so badly that NOBODY would accept the currency as a mean of exchange, to the point where farmers were hoarding their goods, and cities were starving/rioting. The thing that turned Germany around was that the government STOPPED printing money, and cut back expenditure.

    How many times has history shown this works? Yes, it was difficult, and yes all the rent seekers had to adjust, but very quickly the economy adjusts. Because people, if forced to, will get off their arses and do something about their personal situations.

    The answer is to remove government as much as possible from the economy of the nation. History shows it again and again and again.

    Sadly, with the state of the understanding of the populace who live in a symbiotic state with politicians, it will not happen, and those who truly understand and wish to survive have to find a way to navigate the waters.

  7. Squirrel

    Those comments will be lucky to last beyond one 24 hour news cycle – which is particularly sad, because the very fact that they have been made in such unusually clear terms is an indication of just how bad things are.

  8. Diogenes

    If you are a Kensyian the answer is simple -cut the fuel excise – despite 3 interest rate cuts since I started where I did, and purchasing my current house, neither I or anybody I know has reduced their mortgage repayments(actually most increased amount of repayments) buuut anecdotally when fuel was around $1 a litre local businesses saw a jump in income, as it slowly rose again the amount started reducing again

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