Politics is a dirty word

  The increase in the cash rate announced today by the Reserve Bank should be no surprise to anyone. The rate has been too low for far too long. Lifting it to 0.35% makes little difference. A rate of0.1% sent a message that money is worthless. With positive interest rates – even low levels such as 5 or 6% people are able to judge the value of money but at the miniscule rate it has been for years, governments have been able to maintain an illusion. Now we know that all is not well. Banks and other lenders don’t set their rates according to the Reserve Bank figure – they charge what they can after paying to attract cash and working out their costs plus their profit distribution requirements. Banks will raise rates whenever they feel like it. The world financial system has been in chaos ever since economists persuaded Governments to go off the gold standard as a means of backing currency and establishing exchange rates.

It's no wonder that economies around the world are in trouble – because how can they grow when money is worthless? Record low interest rates demonstrate the collapse in the value of cash. India and Venezuela are the latest countries to experience the pain but many more will follow. The problem can be traced back to 1931 when Britain abandoned the gold standard. Up to that point the pound sterling was backed by gold. In 1933 US President Franklin Rooseveldt nationalised privately held gold and finally President Richard Nixon totally abandoned the gold standard for the dollar in 1971. Since then currencies have basically been worthless – simply pieces of paper with no intrinsic value. While financial institutions paid reasonable levels of interest on money invested, problems were held at bay, but once official and unofficial interest rates dropped virtually to zero, the current turmoil was inevitable. Thank you politicians and economists! Economics has never really recovered from the...