Cuts are not the answer
Cuts are not the answerTHE Reserve Bank should learn from the experiences of other developed economies that dropping interest rates to zero will not kick-start the economy. Rather, it will exacerbate Australia's current account deficit and the Australian banks' dangerous reliance on international wholesale funding markets for liquidity. This is because consumers will respond by saving less and borrowing more without any sustainable positive impact on the economy. Furthermore, as a tax-paying saver who will now earn 1.5 per cent after tax on my savings, I am appalled that I have to bail out struggling retailers and borrowers. The RBA's main mandates are to control inflation and maintain full employment. Australia's inflation is near the upper limit of the target band, while unemployment at less than 6 per cent is comfortably low.I fear that Glenn Stevens is responding to pressure from the government and business groups rather than keeping to this mandate. The result is a transfer of wealth to businesses and people that borrowed too much, at the expense of savers.David Feldman, CaulfieldLower expectationsIT'S time for banks to share the pain ("Banks pressed on cuts", The Age, 5/12). Expectations of bank management and shareholders for record profits year after year can no longer be sustained while the rest of society continues to pay an increasing price. While many businesses suffer, and employees and families with them, can we allow banks to continue to buffer their profit margins when they have benefited significantly from government guarantees and enough market clout to protect their own profits, against the broader economic interest? It's time expectations were adjusted all round, and lower profits for banks understood as part of the economic downturn.Gary Heard, West MelbourneWe've worked hard, tooACCORDING to our Treasurer, Wayne Swan, the only "hard-working Aussies" are those with mortgages. Clearly, he has no regard for the dwindling incomes of self-funded retirees or investors, and those planning retirement won't be happy either. These people will hardly be rushing out to increase spending, and may even find little left to donate this Christmas. Many may now need to apply for the pension and healthcare cards.Breda Hertaeg, BeaumarisWrong on timingTHERE'S "room" for an interest rate cut, Mr Swan, because economic conditions are starting to worsen ("'Just plain dumb': Swan rejects fiscal 'stupidity' warning", theage.com.au, 5/12). Labor got it right, better than any other Western country, before the global financial crisis, but it isn't right now. The Rudd government wasn't advocating a surplus before the GFC when interests rates where being cut to avoid a recession. The Gillard government should not be pursuing one now as economic conditions worsen. We are vulnerable to any repeat GFC because two key players in our GFC escape, Kevin Rudd and Lindsay Tanner, are no longer influencing economic policy. And don't look for a sensible surplus policy from the Coalition. Theirs will be far more dangerous.George Finlay, Balaclava
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