Reserve Bank intervention

Press, 2 May 1981, Page 14

Reserve Bank intervention

Sir, — The editorial comment of April 24 on the recently announced Reserve Bank intervention in the! shortterm money market is an excellent example of vague economic jargon, plus contradictory assertions typical of many professional economists. It is time these so-called experts admitted that the finance industry indulges in nothing more nor less than a game of chess, with the economic lifeblood of the productive and consumer sectors, money, being used as a plaything to be manipulated for the satisfaction of a few. As an example of confused thinking the editorial states: “Should the inflation rate get higher, instead of saving, people may spend on consumer goods. Banks, then short of deposits, would push up their interest rates to attract deposits.” Excepting spending on imports, money flowing from A to B does not evaporate, but simply moves from one deposit account to another. — Yours, etc., . P. NORMAN DAVEY, a April 28, 1981. \ F [Our correspondent is cor- ' rect about the shifting of deposits, but he should remember that an upsurge of consumer

spending, at the expense of investment money, means that more money is directed, perhaps borrowed, to finance stocks as well as imports. Money for investment (possibly to produce the extra consumer goods) is sought. Higher interest rates and inflation tend to go hand in hand unless, of course, the rates are controlled by a credit authority — in which event the deposits are not likely to be forthcoming. — Editor]