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Ross Gittins tears J-Ho a new one (or as much as he can without being accused of bias) over the weird eco­nomic claim/counter-claim/riposte! that every­body is sick to death of hear­ing about.

Though he is ver­ily a God among men

, Gittins does have a tend­ency to be rather paro­chial and overly eco­no­met­rical. He’s under the impres­sion that a 0.25 point increase will have a logical and rational fin­an­cial effect on people’s spend­ing habits, but its more likely that it is the psy­cho­lo­gical effect that inhib­its con­sump­tion. Argu­ably, the Reserve Bank’s strongest weapon is its abil­ity to affect infla­tion­ary expect­a­tions, and the threat of an interest rate rise is more power­ful than an actual rise.

Moreover, his view of the forces at play seems lim­ited to those within Aus­tralia. Whereas the truth is over the past 5 – 10 years there has been a global sav­ings glut which has con­trib­uted to record low levels of interest rates around the world. At the nadir, Aus­tralia in fact had one of the highest rates among the OECD (a sign of its resi­li­ent domestic eco­nomy). That sav­ings glut has con­trib­uted to large cur­rent account defi­cits in the U.S., Aus­tralia, New Zea­l­and, East­ern Europe and other areas of invest­ment opportunity.

Though that sav­ings glut is draw­ing to a close, its after effects will be felt for years to come. Even now the U.S. Dol­lar is tak­ing a bat­ter­ing, with the U.S. Fed­eral Reserve wedged between com­pet­ing desires to con­tain infla­tion and ease the fall­ing dol­lar, and lower­ing rates to kick­start the fal­ter­ing domestic eco­nomy. If even the mighty engine of the world eco­nomy is a slave to global trends, how can Gittins really claim that the RBA is in any par­tic­u­lar control?

Aus­tralia is a small, open eco­nomy, and it has benefited greatly from reforms to take advant­age of that. Neces­sar­ily, that has meant it is no longer in sub­stan­tial con­trol of its des­tiny, but in the long run that may be no bad thing.

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Incid­ent­ally, “Rates” is one of the best com­bin­a­tions of let­ters to demon­strate the stark visual dif­fer­ences between Hel­vetica and Arial

.Phant­asm III: Lord of the Dead move

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