Borrowing money – Condenetint Tue, 28 Jun 2022 02:38:00 +0000 en-US hourly 1 Borrowing money – Condenetint 32 32 RBA’s inflation policy is a case of deliberate misdiagnosis, worse than a useless ‘cure’ Tue, 28 Jun 2022 02:38:00 +0000

When it comes to inflation, the Reserve Bank of Australia (RBA) has made it clear that it would rather make life much harder for workers – even if it means crashing the economy – than hit record profits for businesses.

RBA chief Philip Lowe has been at pains to point out that a trio of interest rate hikes, wage restraints and government spending cuts are needed to rein in soaring prices.

It is true that government spending has increased during the pandemic – a necessity to keep the economy afloat during lockdowns. But Lowe offered no evidence to show why low interest rates are to blame and wages can hardly be the cause given that they have fallen in real terms.

In reality, none of these three factors explains the current inflationary wave; they are simply the RBA’s preferred anti-working class methods of dealing with a crisis caused by capitalism itself.

The fundamental causes of the current rise in prices are twofold and go back to the policies implemented during the last period of high inflation (1973-1990).

The first was the concerted desire to outsource manufacturing in search of cheaper labor. Entire production chains were globalized during this period, with the sole aim of locating factories in countries that offered the best profit opportunities.

The other major policy decision was to replace the high-wage, usually unionized manufacturing industries that had been outsourced with low-wage, largely unorganized service industries. Rather than investing in new technologies as a way to generate profits, capitalists have sought to make quick money by reducing wages and conditions for workers through the rapid expansion of precarious jobs.

These policies have played a role in reducing inflation, but at a huge cost to workers’ livelihoods.

Globalized production has made the production of certain goods cheaper. But the fragility of international distribution chains has been exposed by the pandemic and Russia’s war on Ukraine. The disruptions caused supply shocks that largely explain the price hike.

And while falling wages helped support profits, the lack of investment meant companies had to look for other ways to boost their bottom line. One of the ways they’ve done this lately – especially companies with pricing power, like energy companies and supermarkets – is to simply charge more.

The move largely explains how, amid prolonged shutdowns and an economic downturn, companies were able to increase profits by 25.3% between March 2021 and March 2022, reaping a record share of national income.

Despite this, the RBA insists hitting workers with interest rate hikes, wage restraint and government austerity is the only way to deal with inflation caused by global supply shocks. and soaring business prices.

Just as it did during the last inflationary period, the RBA says workers must pay the price for lower inflation.

He is so committed to his pro-business vision that he is willing to push his policies even if the likely outcome is the economy going into recession – just as he did last time around, with the “recession we must have had” from 1991 –1992.

The logic behind raising interest rates (and keeping wage increases low) is that by forcing workers to spend more of their wages on interest payments, they will have less money to buy goods. The supply shock is therefore resolved not by an increase in supply but by a compression of demand.

The price workers pay for a policy that forces them to choose between paying off their mortgage or paying their grocery bills is obvious. Experts expect as many as 300,000 mortgage borrowers will have no choice but to default on their homes.

The banks, of course, will make money from all of this. But they will not be alone.

Workers are not the only ones borrowing from banks; businesses too. In fact, many small businesses need loans, whether to get started or to stay afloat during tough times.

While larger companies may raise prices to offset the additional costs, smaller companies generally don’t have that luxury. Interest rate hikes will mean more economic hardship for them and, potentially, bankruptcy. The end result is an even greater concentration of market power in the hands of big business.

Add to that the fact that higher interest rates mean that even big corporations are going to think twice about borrowing money to invest in production, then the picture you are left with is of a downward pressure on consumption, a reduction in investment, an economic slowdown and – almost certainly – recession.

One of the ways to counter all this is to invest heavily in the state to promote production. This would require raising corporate taxes and regaining public ownership of key branches of the economy – especially the booming mining sector – to redirect profits and better coordinate production.

But there is no way that will happen under a business-friendly Labor government that has already pledged to follow the RBA’s absurd advice to cut public spending. The RBA, of course, knows all this. But it is institutionally tied to the impoverishment of workers rather than the undermining of corporate profits.

This is because despite all the RBA talk of ‘independence’, it has never been independent of the interests of the capitalist class.

Youthful money lessons to learn this summer Sun, 26 Jun 2022 09:25:08 +0000

When should we start teaching young people about money? I’m talking about more than identifying quarters, nickels and dimes. Would you be surprised to learn that there are things you can do with preschoolers that can help them learn skills to make wise decisions later in life?

There are key financial milestones that children can achieve throughout their childhood if we as parents and caregivers take the time to teach the lessons. Here are some milestones that young people can reach at different stages of development.

Young preschoolers (3-5 years old) can begin to develop skills to help them with future financial decisions, although we can’t connect these dots right away. A skill is the perseverance to keep going even if it’s not easy. It can be tempting for parents to step in and facilitate tasks or circumstances for our children. Enabling them to persevere in the face of adversity is essential to their development. Another skill is the ability to recognize trade-offs when it comes to things close to their hearts like time, money, treats, or belongings.