Enlighten you? This whole idea of the government stimulating the economy is a scam cos the government doesn't exist "outside of the equation", all it does is take from one part of the economy and give to another. There is no 'stimulation' if you take $5 out of your left pocket and put it in your right pocket.
- Savings is the way out of this mess, not consumption. Savings actually allows for capital accumulation and investment.
- All the talk of "consumer confidence" and "business confidence" is misguided, a better term would be regime uncertainty. Put simply, people are tentative with their investment decisions because of an uncertain climate with regards to regulation and potential nationalising or bailouts etc. eg If you were thinking of investing in a 25 year project, you might want more certainty than what the government is currently providing because you never know if they'll just switch the rules after you've made the investment. See here for a better explanation.
- What the government is doing now, such as bail outs, "stimulation spending" and regulation such as the bank deposit guarantee is actually harming us, not helping us. It is mostly having the effect of attempting to either reinflate the bubble or sustain industries that are not sustainable. We actually need certain industries to go bankrupt to allow other industries that are sustainable to come up in their place. This may create some short term unemployment, but it is necessary to fix the economy, or otherwise more resources will be wasted in unproductive ventures.
- The government acting as a central planner of interest rates via its monopoly over the currency is actually changing our incentives in a bad way. The government is dropping the interest rates, meaning we are more inclined to consume goods now than later. We should be leaving the determination of the interest rate up to the market. In this situation, it's much more likely the market set rate for funds (the interest rate) would be higher, because savings is required for investment in the future
Things are only going to get worse because of what the government is doing. Things may temporarily and artificially spike up because of government actions, but the end result will be worse than if there was zero intervention. Expect to see high inflation in the future and loss of purchasing power of your dollar, if you can, buy physical gold or precious metals because these preserve their value much better.
Ok sdent40, first. The govt DOES NOT CONTROLL INTEREST RATES! they removed themselves from that power many many moons ago. Who'd vote for a government which increases interest rates. The power to control interest rates (through the CASH RATE) is done through the Reserve Bank, a board within. These are a few crusty old blokes who have successed in business and so think they know it all.
Next, the govt is NOT taking money from one pocket and putting it in another, it's called FISCAL STIMULAS, the money is that money that the previous fiscal year, DID NOT SPEND (the surplus) and the other bits are loans. They are putting money in the economy, not moving it around. It's basic economics, recession, put money in the economy (through monetary policy - interest rates -- through the RBA NOT Govt -- - and fiscal stimulas - the stimulas package(s))
Also, the govt DOES NOT control exchange rates, they couldn't even if they wanted to. The RBA keeps a few billion aside to starve off a currency collapse, but otherwise it's controlled through basic supply and demand of money! Called a floating exchange rate. If you really want to know how it all works, look up "hot-money" - that's the money that passes through internation exchange rates daily, trillions and trillions of dollars looking for minute increases in rates, money that comes from HUGE corporations, who can't invest in banks (they have too much to invest) so put it in other countries, some times only for seconds..... investment bankers deal with this stuff.
Ummm what else, Ah, you're missing out the whole political side. Industries going bankrupt looks very bad for a PM, so they have to throw money in, even if the industry is inefficient, corrupt and whatever else, so they have to attempt to get em on track. Next, short-term unemployment comes from cyclical unemployment, what's happening now, crashing industries creates structural unemployment, where people CAN'T get a job, because their industry (car industry perhaps?) no longer exists and they don't have the required skills to get another job, the whole story - I don't know anything else, i've worked there for 40 years...
Ok now onto savings. I agree, we need to save, however Australians are HORRID savers! my first year macro-economcs teacher, preeched it forever! Save money, don't spend etc etc. Savings is investment, growth! However, not controlling the interest rate (laise fair) would be a disaster. it results in monopolise, which create unemployment, and inflation etc etc.
Hawk
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