Interest Rates and the Healthy Economy – Bryan Kavanagh

Letter to the Age

Dear Sir,

So let me get this right. Messrs Howard and Costello say the economy has been going so well that the RBA intervened by increasing interest rates to slow it down again? But why should anyone want slow down a healthy economy? Did the government have it going too well? Can Mr Costello explain where the line is between going well and going too well?

I had thought that the RBA may be increasing interest rates in a somewhat vain effort to curb the inflationary outfall from the residential property bubble that we have been experiencing since 1999. But wouldn’t that have more to do with the tax breaks given to real estate investment, which encourage the accumulation of more and more properties (and make housing unaffordable for many young Australians)? Couldn’t the greatest residential bubble in our history explain the $1 trillion we owe the banks? And couldn’t we have kept the lid on the property bubble by gradually shifting taxes off doing good things, such as earning incomes, and onto doing bad things, like inflating unsustainable property bubbles?

No, I was wrong apparently. We’ve got to keep sending mortgage holders to the wall because the economy is so healthy.

Bryan Kavanagh
Director
Land Values Research Group

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https://prosper.org.au/2007/08/10/interest-rates-and-the-healthy-economy-bryan-kavanagh/