Monty stock markets don't necessarily reflect the real engine...

Monty stock markets don't necessarily reflect the real engine and thats the economy in any given time. At the moment Australia's economy is very healthy however Aussie markets are taking the lead from the US markets and not valuing it on local fundamental worth. Aussie markets are also spooked from the fact if the US goes into recession this in turn will create less demand from China and the flow on effect from that is a slowing Chinese economy, which would effect resource demand. Resources is what is driving our economy at the moment.

When interest rates are dropped money is cheaper and less of a risk which in turn creates a degree of confidence. It leaves more money in consumer pockets which also helps to stimulate the economy. Business's make more profit and in turn employ more people and invest more ect ect. The US dropped rates after the first sub-prime hit to save the equity markets from sliding dangerously which in turn would have serious repercussion down the road.

The US are dropping rates now primary to stimulate a slowing economy. However the US economy is in a state of Stagflation. Stagflation means a slowing economy with rising inflation. Inflation in simple terms is more demand then supply. When rates are dropped it creates more buying power which can effect inflation. Growing energy costs are also another reason inflation is rising around the world!

Australia needs to put rates up because inflation is starting to get out of control. Our healthy robust economy can handle a rates hike. Not good for the families who have over borrowed though!!