Tuesday, May 13, 2008

Help I Need an Economist

Can somebody explain to me how economics works. I am sure that everyone is aware that the cost of living is going up, particularly fuel and groceries as well as utilities. Now the Reserve Bank sees this as a bad thing, fair enough so do I. However their solution to the problem is to raise interest rates and therefore the cost of your mortgage. Now this is where I need the explanation, how does raising my mortgage rate reduce the cost of oil or groceries etc?
Another mystery, some banks have raised their interest rates higher than the Reserve base rate. Now interest rates in the US, Japan and other places are considerably lower than Australia, I think the US is around 2.75%. The banks move money around the world constantly and must have access to these low interest rates. So why are they saying that the cost of borrowing is going up for them?
As Pauline famously said 'Please Explain'.

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