The blame game is well and truly under way with respect to the recent rise in interest rates. One perspective on all the stories of struggling households is that if a 25 basis point hike causes real pain you must have been over stretched as there were plenty of warnings. Henry Thornton today looks at other aspects of the blame game.

Ross Gittins asks how the business economists could get it so wrong. (The lemming effect Ross, plus their bosses’ desire to stay friends with the great and the good.)

Steve Lewis in The Australian points out that the government’s treatment of the “independent” Reserve Bank is beginning to seem like the Keelty affair. Hang in there Ian Macfarlane – they have to prove you’re mad before they can fire you. Naturally you’ll be blamed if things go pearshaped from here, but then you could have tightened when the economy was really booming.

Rate hike spooks property market says another report. The tragedy of the current situation is that interest rates are the least desired way to deal with an economy with Sydney and the rest, wealthy folk and poor folk, booming regions and over stretched Sydney, etc, etc.

But it is still necessary to contain aggregate demand to within a reasonable measure of aggregate supply, or the economy will be in real trouble. We fear it is very late to be trying to do this without considerable pain.

Read more from the mysterious Henry Thornton here: https://www.henrythornton.com/article.asp?article_id=3136

Labor bangs the interest rate drum

Labor went hammer and tongs on interest rates during Question Time today and are making some progress in establishing in the public’s mind that Australian interest rates are close to the highest in the developed world and John Howard has broken an implicit election promise with last week’s increase.

Similarly, the split in government ranks is quite clear with Finance Minister Nick Minchin again defending last week’s rate rise whilst the position of Treasurer Peter “glass jaw” Costello and the PM remains that it was not necessary. Who would have thought such a tiny and long overdue increase would cause such heat?

Finally, has anyone considered the blatant stacking of the Reserve Bank board in the context of Costello’s bullying record. The next RBA governor will be appointed when Ian Macfarlane retires in September next year and it is a seven year appointment so Labor would have to wait two full terms to get their own “independent” man in the chair.

Will Peter Costello still be Treasurer when the next RBA governor is appointed? Interesting question. Check out the transcript of last year’s Costello press conference announcing the Macfarlane reappointment here.