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Interest rates are one lever that can be pulled to try and produce an effect to control inflation/unemployment/economic growth. Ignore any advocation for removing it.
Imo tho, we have relied far too much on it to get us out of economic crisis (i.e. covid, where interest rates were 0.1% and then looots of inflation afterwards). A good budget goes a much further way to solve it and its effects are long term.
Also promoting local manufacturing.
Nothing is manufactured in Australia any more. Everything is imported from China.
The housing industry has been propping up the economy with Taxpayer funded corporate welfare, and Superannuation funded public welfare and a giant Ponzi scheme of suppliers and it has finally failed over.
The main thing I know about this is that the Weimar Republic used inflation to pay off their debts to other countries.
It is a very simple formula, that doesn’t take into consideration other factors.
When individuals have institutionalised debt, (IE no disposable income because they have such high repayments), any increase in interest rates only increases their debt; they need to borrow to make ends meet.
This also means that the economy suffers because people are unable to purchase any luxury items, which also affects inflation.
Economics is not rational, there are lots of different factors that may seam negligible under certain conditions that are actually significant under other conditions.
It is a very simple formula, that doesn’t take into consideration other factors.
It's always struck me as ham-fisted and over-simplified to try and use changing a single variable in the economy to fix things. But then, I'm no economist.
Even scientific formulae are simplifications. The difference between using Ohms Law or Boyles Law in engineering vs the plethora of formulae used by economists is that engineers are aware of the simplifications. The materials that engineers use have inherent resistance, capacitance, flex and impurities that affect the outcome, so they reduce or account for them in their calculations.
Economics is not an exact science; the laws are not immutable, and some of the assumed constants are not constant at all.
Also, except for Quantum mechanics and Heisenbergs Uncertainty Principle, engineers are changing the output by observing.
As soon an economist publishes their predictions, people react to their predictions and change the outcome. It isn’t a closed system.
Well, I'm super rational, and your post sounded kinda rational, so let's make the basis of our theory that everyone is a rational actor!
Don't get me started on 'expectations' !
Economics is not an exact science;
I would argue that it isn't a science at all. It's more of a religion than anything.
Otherwise, good post.
Ok and now explain the relationship of them to unemployment.
Hint: iinterest rates low, inflation go up, unemployment go down. Interest rates go up, inflation go down, unemployment go up.
Usually. Most is theory. See also stagflation.
Feels like they're saying we should be grateful for having our heads held under water because they're actually washing our hair. Very Machavellian of them to only consider the desired achievement and not impact on people along the way.