Another round of interest rate raise yesterday which triggered lots of news yesterday. I found Ross Gittins's simplified view on economies very interesting:
The key to understanding economies is to realise that keeping them on an even keel involves a balancing act.
Managing the economy is like walking a tightrope. It's possible for skilled performers to keep their balance and walk a long way, but only by making gentle corrections when they find they're starting to lean too far in one direction.
Later on he used driving as analogy of the role of Reserve Bank.
They've (Reserve Bank) done all this by gently touching the brakes or the throttle whenever they thought the economy was travelling too fast or too slow. And they've achieved this by the simple expedient of pushing interest rates up a bit or down a bit.
I guess, if driving is as easy as observing the speedo metre and gently operating two paddles to speed up and slow down, we don't need driving schools, driver's licenses or RTA. Too bad there's also a steering wheel. There are multiple mirrors and blank spots to check. A third paddle and a stick if you are driving manual. Traffic condition that you need to be aware of. Moreover, the goal is not keeping the car moving at the right speed -- it is to reach the destination.
Likewise, if economy is simply driven by the up and down of interest rates, which reserve bank has control over, the whole matter will be nice and simple. Too bad that there many factors correlating to the raise and fall of inflation and unemployment rate (more than just banana, btw). Somethings that are out of our government's control, like cyclone and oil price. Somethings that they do have control over, like the recent tax cut, which gives me and many other middle-class workers a few hundred dollars extra a year to buy "widgets". No wonder the widget price went up -- but at least everyone "felt good" about it.
That again is a very simplistic view. Somehow my mathematics no longer works when the dollar sign is prefixing the numbers...
(Oh. Congratulation to those who went fixed loan 2 years ago...)