Wednesday, May 8, 2013

The public interest

If your idea of a 'housing recovery' is seeing house prices settling back down from their insane, fevered state, while you save your deposit and patiently watch the interest grow, you might not be quite so thrilled about yesterday's interest rate cut as some other stakeholders in the housing market.

You also may not be very impressed on being told it's a cut that you 'thoroughly deserve'. Just like you were probably a little miffed on being told that the cut in interest rates in December last year was 'an early Christmas present'.

Of course, changes by the Reserve Bank to the cash rate are neither presents nor rewards for Australians being good. In this particular instance, the cut has been made in the context of a highly overvalued Australian dollar, which has been a crushing weight on non-mining exporters, and a looming contraction in investment by the mining sector, on which the national income has come to increasingly – dangerously – rely. It is also made in the context of what remains an over-priced, unaffordable housing market, which may respond by simply sucking up more of Australia's now slightly cheaper money, at the expense of those sectors of the economy where investment is needed to properly adjust to the rapidly changing circumstances of the nation's trade.

These are big challenges and, as well as needing a response in policy, they need some frank explanation in public discourse. That's what the Australian people really 'deserve'.

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