Comments on: Inflation hits 5% — do we need a recession to control it? http://www.crikey.com.au/2008/10/22/inflation-hits-5-do-we-need-a-recession-to-control-it/ now with extra source Sun, 12 Feb 2012 06:22:59 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Andrew http://www.crikey.com.au/2008/10/22/inflation-hits-5-do-we-need-a-recession-to-control-it/#comment-23470 Andrew Thu, 01 Jan 1970 10:00:00 +0000 #comment-23470 Is it possible to maintain debt without access to lines of credit? If not, then is it possible to pay off debt without reducing spending? If not, then is it possible to reduce spending withouth having a recession? If not, then you have the recession you have to have. <br /><br />It seems to me that the debate is about whether we have a collapse in spending and price deflation soon or whether we continue to hand out money until interest rates are 2%, the dollar is worth 20 cents US, and everything that is not made of iron ore is unaffordable. Then spending will also collapse, and we go back to the first option. The only difference I can see between the two options is that the first case advantages savers, and the second advantages those with piles of debt. I can see which one is more immediately palatable to the government, because the majority are in hock to their plasma dazzled eyeballs, but I personally think people should take the downside of their own risk behaviour. Is it possible to maintain debt without access to lines of credit? If not, then is it possible to pay off debt without reducing spending? If not, then is it possible to reduce spending withouth having a recession? If not, then you have the recession you have to have.

It seems to me that the debate is about whether we have a collapse in spending and price deflation soon or whether we continue to hand out money until interest rates are 2%, the dollar is worth 20 cents US, and everything that is not made of iron ore is unaffordable. Then spending will also collapse, and we go back to the first option. The only difference I can see between the two options is that the first case advantages savers, and the second advantages those with piles of debt. I can see which one is more immediately palatable to the government, because the majority are in hock to their plasma dazzled eyeballs, but I personally think people should take the downside of their own risk behaviour.

]]> By: Dave Smartt http://www.crikey.com.au/2008/10/22/inflation-hits-5-do-we-need-a-recession-to-control-it/#comment-23471 Dave Smartt Thu, 01 Jan 1970 10:00:00 +0000 #comment-23471 If history is anything to go by, a recession will be necessary to control inflation. The last two recessions Australia had were in 1982-83 & 1990-91. Before & during the 1982-83 recession, inflation was running at about 12%. In 1983-84, inflation was running at 4%. Before the 1990-91 recession, inflation was running at about 8%. During the recession, inflation was at about 5%. After the recession (1991-92), inflation had dropped to just over 1%. If history is anything to go by, a recession will be necessary to control inflation. The last two recessions Australia had were in 1982-83 & 1990-91. Before & during the 1982-83 recession, inflation was running at about 12%. In 1983-84, inflation was running at 4%. Before the 1990-91 recession, inflation was running at about 8%. During the recession, inflation was at about 5%. After the recession (1991-92), inflation had dropped to just over 1%.

]]>