In these tough economic times why do we hike our interest rates and the UK and USA lower theirs?

Question

Afterall - the whole world is going through tough economic times, why do these "Super Powers" think that lowering the rates will get us out of the slump - will that not be creating more debt?

I personally think that Tito might be doing the right thing, but unfortunately the US economy is so strong that whatever happens over there has a ripple effect over here.

Is the US to blame for our suffering?

Answer 1

By bringing down the interest rates and at the same time curb new debt through tougher screening processes, they make sure that the home owners and lower income groups don't loose everything in the proses. The middle and higher income people then also go and spend more of their money that are earning lower interest in the banks. This stimulate the growth of the economy because the products these wealthier people want to buy, needs to be manufactured. Also the banks are then forced to invest in the manufactoring economy and not rely on income from lending money to people that cannot afford it. This creates more jobs for the unemployed and poor. So these poor people have more money in their pockets and their houses don't get repossessed. Thus it is a way of spreading the wealth from the rich people to the poorer ones without every one getting upset. Tito's method will lead to the poor getting poorer and the rich getting richer. He should lower the interest rate, but at the same time curb all new debt by tougher screening processes. This is the blight of all third world economies and the reason why some get more rich and others more poor in these countries.

With Tito's method the government steps in to get the balance right between the rich and poor. The government tax the rich with the intension of giving services and government housing to the poor. The poor love them for this little handouts. The poor become their voting "drones" and the government spent the money on pet projects like new submarines or cars and jets for themselves. It is a system where they have rich cows to milk and poor "drones" to keep them in power. Remember, the rich are prevented to take their money out of the country.

In western countries like the USA and the UK, the markets and not the government sort out the balance between rich and the poor through their governmental policies.

Answer 2

The main concern is to bring inflation down .That can be effectively done by hiking interest rates to 16% .This in my oppinion is only a temporary solution to a permanent problem ! There is an up side and downside to everything . The lower and middleclass will suffer the most .

No the US is not to blame for our suffering . Economists warned us about this two years ago but we continued knowing that somewhere we will run into trouble .

Answer 3

Actually, I also think Tito is doing the right thing, but whether it will be enough to curb the inflation - I doubt.

(One has to bear in mind that a spiralling inflation rate will cannibalise pension funds and other investments.)

This article clears up some questions about the UK market:

http://news.google.com/news/url?sa=t&ct=...

The UK's policies have been far more sustainable i.e. following the market.

The US's economic policies have been comparable to La La land, with Bush's strategy on par for a 3yr old preschooler, in fact many believe that it has to be by design rather than incompitency. No points to anybody guessing why the dollar has devalued so drastically.

The American public have been slaves to credit while the Government has been borrowing like crazy to pay for the war, and Bush drops the repo rate?

The US government is to blame for high oil prices, but the inflation and weak Rand can only be blamed on internal policies.

Answer 4

Interest rates are hiked to keep inflation lower. It does not allow people to spend money so freely. This is also keeps the Rand artificially lower to the $.

The only thing we can hope for is that with the high interest rates here and lower ones in the USA/UK/ Europe is that these county's will see SA as a good place to put there money.

Answer 5

Tito is definitely doing the right thing. He has no other options available to him hence whether it is a short term solution or not hold no water at this stage.

However, rumour has it that when Tito's contract expires i think in September next year, he will not request a renewal of his contract as he will not work under Zuma.

When Tito leaves the probability is high that Zuma will employ a Governor who leans way too left and reduce the interest rates rapidly. Now where does that leave us in the long run....