Wow, this is very old! I can't quite follow your top par, so...

Wow, this is very old!

I can't quite follow your top par, so apologies if I've missed your point. but:

- the RBA jacks up interest rates to fight inflation
- the way higher i rates fight inflation is to stymy demand
- the way higher i rates stymy demand is by squeezing (among other things) household budgets.
- the way higher i rates squeeze household budgets is to increase the cost of debt or (see below**).
- the way higher i rates squeeze businesses is to increase the cost of debt and reduce consumer demand by (see below**).
- squeeze on household budgets via debt servicing leads to reduction in other forms of consumption (usually from a business).
- combined squeeze on businesses via debt servicing and general drop off in demand forces **significant layoffs**.
- layoffs reduce demand significantly.
- prices stabilise.
- RBA win.

I haven't read the Treasurer's White Paper, though from your explanation alone it doesn't sound like it's creating jobs, just changing the nature of some that already exist. But if the Government goes on a jobs crusade then the RBA's attack plan falters at the point that I've highlighted above in bold.

I would also question any crusade by a Government - of either stripe but particularly Labor because a) Labor are the ones currently in power, and b) because it's typically what Labor does - to pursue a policy designed to create a squillion jobs when the unemployment rate is sitting at just 3.7%. That's almost full employment, meaning that almost nobody needs a job (caveat: there are issues contained within but excluding them for this).

The upshot is that the RBA really does need the unemployment rate to track higher, or it will be a very strong sign that inflation is going to persist. The only explanation I can give for this not being the case is if virtually the entire economy has engaged in price gauging as soon as the words 'inflation problem' escaped the mouth of the RBA or the Government and decide to stop hiking up prices when the time variable starts painting them into a corner

Excluding that, any push on jobs by the Government clashes fairly severely with the RBA's monetary policy objectives, extending higher interest rates for longer.

The only problem I see with the RBA's plan - if there is one - is that interest rates are now so high, and the level of wealth particularly of older Australians is now so high, that the increased cash (or equivalent) balances will have a counterproductive effect on the effectiveness of the higher i rates themselves. There's a ton of wealth in Australia, I mean a ton, that can now get up around 5% without even really investing it. That's an awful lot of cream being created at the top that fuels demand in an uncontrolled way. Who'd be the RBA chief?