Dear Crikey,

Generally, I’m a huge fan of the your publication, but the piece by your pseudonymous correspondent Bernie Shylock was very uninformed – unfortunately so, given the lacklustre state of economic debate in Australia generally. Can I suggest that you put out a call for a genuine economist to comment on the interest rate hike?

For instance, in the interests of trans-Tasman relations, you should make it clear that New Zealand’s cash rate of 6.50% is not the world’s highest. Amongst the OECD nations alone, Hungary and Mexico have higher rates, at 8.25% and roughly 9.00% respectively.

Perhaps more importantly, Mr Shylock’s claim that the 1998-2004 rise in housing prices was in line with earlier peaks – such as 1988-89 – should be corrected. In real terms, the most recent price rise was at least twice as large as that of 1988-89. This was an unprecedented phenomenon (albeit not an entirely surprising one, given the accompanying period of sustained growth and low interest rates).

CRIKEY: We beg to differ and actually rate this piece as one of the finest that has appeared on our website over the past five years. For instance, we just love this extract:

So how then will the RBA’s monetary policy of increasing interest rates contribute to debottlenecking the economy’s infrastructure, increasing the nations skills, increasing innovation and productivity and generally, increasing production? Well, it won’t actually, but it will make doing all those things more expensive. And it will transfer even more money to the financial sector which wasn’t struggling the last time your correspondent looked.

For example, the superannuation sector’s investible pool which will be nudging a trillion dollars next year is being force fed with about $50 billion of new money each year. What’s that you say? Yes, almost $1 billion a week!. And the financial services industry overall is ripping out about 3% of that almost 1 trillion each year in fees and expenses of one kind or another, that’s three percent of one thousand billion dollars, or $30 billion smackeroos a year in fees.

So what, you say? Well, if the industry was efficient, the fees would be around $10 billion a year, with the extra $20 billion going into new production and productivity increases of one sort or another. And we haven’t even got to the banking and credit card industry yet? You can safely add another $20 billion of lost production investment from that crew in inefficient and cartel-like practices. It’s the old story, a billion here, a billion there, after a while it adds up to real money that might otherwise have been directed to building a truly innovative and competitive business sector upon which Australia’s future standard of living depends.

And a final example is the deep-seated lassitude in the major Australian corporations that vast superannuation money flow and lack of real competition has engendered. The plain fact is that if the Australian All Ordinary index had kept pace with the Dow Jones since 1987, it would be in the neighbourhood of 8000 rather than 4000. Why hasn’t it? One word, inefficiency, bred by a deep seated cartel mentality and fostered by weak trade practices laws and enforcement and almost zero applied political will to fix the problem.

CRIKEY: The bank cartel and our burdensome tax system is choking Crikey just like any other productive enterprise in Australia. For instance, The Commonwealth Bank has been ripping out a 4 per cent margin on our manual credit card transaction for five years now. When we tried to set up a second merchant agreement, they charged us the $500 fee and then knocked us back. After some haggling, they gave us back the $500. With Crikey sold we’re looking at possibly terminating our merchant agreement, but only last month a lovely letter came through saying they’ve just introduced a $100 termination charge.Does it actually cost the bank anything to suddenly stop providing an over-priced service.

Mrs Crikey is also aggrieved that her CBA Visa card was hit for a $120 annual fee last week. The bank cartel are the true robber barrons of Australia and Peter Costello’s complicity, along with his record high tax rates, partly explains why more than 1 million Australians now live offshore.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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