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Joe Hockey yesterday threatened that the Parliament/government has certain policy measures like legislative action to damage banks who raise interest rates above the RBA cash rate rises. He didn’t (and refused to) list any particular measures, but Liberal questioners in the Senate Estimates Committe quizzed RBA and Treasury officials about s 50, Banking Act. THis allows the Treasurer to force banks to set a particular interest rate.

I think this is fascinating from several points of view:

(1) Is this the first hint of the Liberal Opposition intending to govern from opposition, from the floor of a Hung Parliament as I’ve said before

(2) Is this the first hint of the Liberal Opposition deciding to oppose policies for well-considered policy reasonings (as opposed to dumb sloganistic opposition)?

(3) What are the philosophical consequences of a Liberal Opposition baracking for very heavy-handed government?

(4) Is this good economic policy? Effectively, the Liberals are setting a price ceiling on interest rates for consumers. This means, the banks will either voluntarily take a profit cut (which, is always so likely) or raise rates on small businesses. We’ve already seen that small business is being unfairly treated by the banks and this could worsen this problem. And of course price caps create over-supply of funds – which means that there is too much money in the economy, worsening the housing affordability problem -> and potentially creating an Alan Greenspan bubble. Too much money in the economy, flooding into the housing market, creating an asset bubble that cannot easily be burst. That, in my opinion, is an exaggeration of the consequences (after all, the RBA was the one who set those interest rates and this is just enforcing what the RBA originally intended. But it is a fascinating issue from all these points of view.

Source: ABC2 morning news. Sometimes, you get these little insights not on other news sources. I’m especially a big fan of Melissa Clarke for at least two reasons.

 

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