Monday, January 28, 2008

Wild horses and economists

In the US they are having economic troubles (presumably unrelated to the billion dollar wars they are currently waging because stopping the killing hasn't been considered as a measure to fix their economy). People in the US can't afford to pay their mortgages and are defaulting on them which is resulting in various lending institutions suffering considerable losses. The response in the US is to slash interest rates in order to stimulate the economy.

Here in Australia our share market has dumped a heap of value because companies here are exposed to losses in the US but otherwise we are told our economy is strong. In fact it is too strong because inflation is rising "driven by petrol prices, banking costs rising rents and domestic holidays" ie the cost of living is going up, making it harder for the average Aussie to pay the bills. In response to that the Reserve Bank will most likely raise interest rates again, making it still harder for the average Aussie- even in our supposedly booming economy eviction rates in NSW were up 67% last year as an example.

I remember a John Clarke and Bryan Dawe skit about Paul Keating where they said "he appears not to manage the economy so much as ride it like a bucking horse". It's still a pretty good analogy but the economy has real world impacts so what is this "bucking horse' that our economics managers are riding? What gets the spurs as they do their best to hang on? We do. Fiscal management seems to be a matter of reacting by squeezing as hard as you possibly can and hoping it's not so hard that people "burst" en masse. And if they do burst then you release the squeezing until they start breathing again then get back to squeezing. The Australian government is looking for the bursting point and the US found it. Yeeha!