June 7th 2008

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Articles from this issue:

EDITORIAL: Will money solve the problems of indigenous Australians?

COVER STORY: UK green light for creation of human-animal hybrids

CANBERRA OBSERVED: Rudd Labor Government wobbles for the first time

OVERSEAS TRADE: US farm bill buries talk of free trade in agriculture

TRADE PRACTICES ACT: Will Liberals back Labor or small business?

ECONOMIC AFFAIRS: Has financial deregulation finally been discredited?

VICTORIA: Vic. court hands gambling decision back to council

CENSORSHIP: Student union bans pro-life activities

REPRODUCTIVE HEALTH: Post-abortive women: from silence to lawsuits

CULTURE: Our topsy-turvy world: on kangaroo culls and child porn

CHILDHOOD: Are violent video games harmless entertainment?

HUMAN RIGHTS: The Olympics and China's organ-harvesting shame

OPINION: Democracy in disconnect: joining the dots

AS THE WORLD TURNS: Urban environments to human scale / War on the family / How we lost the Cold War

Chickens coming home to roost (letter)

Obligation to tackle global warming (letter)

Farmers and carbon tax (letter)

Railway opportunities beckon (letter)


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Chickens coming home to roost (letter)

by Alix Turner

News Weekly, June 7, 2008

Although rising fuel prices are not the main driver of inflation, Mr Chris Hilder is probably correct in asking what sort of economic wonderland the Federal Government, the Reserve Bank and, perhaps more particularly, the US Federal Reserve are inhabiting (Letters, News Weekly, May 24, 2008).

In an environment with a stable supply of money and credit, the scarcity and rise in price of a single commodity or group of commodities has to be offset either by a reduction in their consumption, a reduction in consumption of other goods and services, or a reduction in savings.

History reminds us that, in situations such as the 1930s Weimar Republic in Germany and in present-day Zimbabwe, inflation has its roots in expanding the supply of money and credit faster than the growth in the supply of goods and services. This phenomenon is exacerbated by a contemporary fashion of holding interest rates below the real level of inflation.

History also tells us that, where equilibrium in the supply of money and credit has been abandoned or assassinated, the manipulation of interest rates to "control" inflation is a blunt and ultimately futile instrument.

Among the oldest "jokes" in the world is the saying: "If you owe the bank $500,000 and you can't pay, you have a problem — but if you owe $50 million and you can't pay, the bank has a problem."

With the frenzy to lend now well past its zenith, the inflationary chickens are coming home to roost. As this trend progresses, the consequences are unlikely to be limited to the man in the street being cornered by stagflation. Almost inevitably, the entities responsible for the irresponsible expansion of money and credit will also be called to account by market forces.

In all probability, the perpetrators of this predictable economic disaster live in the hope that the chaos created by the implementation of the various emissions-trading schemes will become the scapegoat for the grossness of their misconduct.

Alix Turner,
Wayo, NSW

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