Shane Oliver at AMP recently tweeted:
Why rate cuts help household spending: 1/ Aust hholds have approx $750bn in deposits but $1700bn in debt….
…so a 1% rate cuts makes depositors $7.5bn worse off, but borrowers $17bn better off. The net gain for households is $9.5b !
Reason #2 as to why rate cuts help. Depositors r less likely to change spending on rate changes than borrowers (families with mortgage)
He is right that rate cuts stimulate household spending, but that is not the only consideration. Rate cuts also stimulate borrowing and expansion of the money supply — leading to asset bubbles and inflation. They further force savers/investors to take greater risks in the scramble for yield, leaving them exposed if the bubble collapses. If only we could let market forces of credit supply and demand determine the rate — and resist the urge to tinker.
Yes but its 10 years too late for that logical approach. And anyway he is just a finance industry marketeer claiming to have applied his skill and experience to draw such conclusions but as you have pointed out its in the interest of the many until the exits are sought as they will be in due course.