Hi all. My concerns are not about small time interest rate...

Hi all. My concerns are not about small time interest rate movements of negligible increments. The fact of the matter is a good economy should be able to withstand a wide variation of interest rates before needing emergency interception. Australia and the rest of the western world believe they are generally in control of the future and that they can control the economy by these pathetic small time adjustments of interest rates. Yes, they can put a limit on how much Australians can spend by increasing rates to slow down consumption and therefore inflation. But what if the cause of the inflation is not sourced from home? What if the cause of inflation is from sky-rocketing food, energy and imported everyday items such as socks, underwear and widgets?

Then what? Has it built enough of a reserve into our economy to withstand forces that are beyond our control? Many need to pull their heads out of the sand, because I'm not comfortable with the high debt levels that Australians are piling onto themselves just to get into a home and beyond. If we were self sufficient and solely relied upon our own resources and manufacturing then I would have no cause for concern. But as that is not the case then we need to be ready for scenarios that are not in our control!

Here's an extract form http://www.marketskeptics.com/2009/01/hyperinflation-will-begin-in-china-and.html

"Hyperinflation in China will be a monumental event.

If you have learned nothing else in the last year and a half, you should have learned that if something sounds too good to be true, that is because it IS too good to be true. The media overwhelmingly presents China's dollar peg as a win-win situation: Americans get cheap imports and low interest rates while China gets a strong manufacturing sector. While commentators do sometimes debate whether China will keep lending us money forever, they never talk about the REAL problem with the dollar peg.

If there is one development which could force China to drop its dollar peg, it is out of control inflation. Rampant inflation would result in millions of citizens starving and would create widespread social unrest. Keeping food prices low is a matter of political survival for Chinese authorities. So, facing the choice between losing their grip on power and losing the dollar peg, they will not hesitate for a second to sacrifice the dollar to save their own skin.

Because China makes most of the world's cheap consumer goods, it will export its hyperinflation around the world. This means that no fiat/paper currencies will survive this with its purchasing power intact. Some will lose all value (dollar) while others will survive while experiencing a loss of purchasing power (yuan, euro, yen, etc...). The only money that will retain its full value in the face of Chinese hyperinflation is gold.

China will sink the dollar to save the yuan

Once hyperinflation kicks into gear, Chinese authorities will find it impossible to bring it under control without sacrificing the dollar. Since hyperinflation would hurt Chinese exporters as much as losing their US exports, China will face a clear cut decision. By dumping the dollar peg and selling its USD holdings, China will help contain domestic inflation in many ways:

1) China will no longer be printing massive quantities of yuan to support the dollar.
2) By selling dollars in exchange for yuan, China will be able to take those yuan out of circulation, shrinking its monetary base.
3) Since the yuan will strengthen enormously against foreign currencies, Chinese exports will fall and that means there will be a lot more goods available for domestic consumption.
4) Since the yuan will be stronger against foreign currencies like the dollar, Chinese imports will rise. That means cheaper commodity prices across the board.
5) Dropping the dollar peg will make the yuan a major reserve currency. That means lower interests rates in China as foreign central banks build up yuan reserves.

Those expecting deflation are in for a surprise

Western nations who are lowering interest rate very sharply, without fearing inflation, are mainly concentrating on the domestic dynamics of their economies and the value of their currency. My bet is that no one is even considering the possibility that inflation could be imported from China, and, when cheap Chinese imports stop being cheap anymore, it will catch everybody completely by surprise".

If anyone has a counterpoint then feel free to make a comment, as I would appreciate someone alleviating me of my obvious anxiety disorder!