Interesting article in that it discusses what should "theoretically" happen. The reality is very different. The RBA has ben reducing interest rates consistently for some time now expecting things to change. It hasn't. Based on this continuing experiment one has to wonder whether the RBA board is in fact showing signs of insanity.

Regardless of how low rates go, consumers are focussing on reducing debt and nothing seems able to change that. One reason is because regardless of what the official rate is, the lenders have not kept pace with the falling rates. In addition to this, wages have stagnated but living costs continue to rise. Name a single utility, food, state or local government charge that has gone down during this period that affects all consumers equally? As a result of increasing living costs in a stagnant wage environment with low interest rates, the best earning potential for consumers is in their offset account.

Australia has a cost problem, it stifles the economy, makes our producers uncompetitive relative to trade rivals and will not be resolved until those at the top of the tree on both the government and corporate sides recognise this.

We, as a nation, cannot afford to continue to fund an ever increasing public service wage bill where PS wages are guaranteed to increase each year when private sector wages don't. That's just one aspect but shows how the unproductive part of the economy is insulated from the issues being faced by the rest. The policy makers don't see the problem because they're not facing them.

Our economy is screwed up and I feel it is because we have in fact lost sight of the fundamentals that make it work. Consumers won't sped unless they know they will have surplus income after meeting their essential living costs. Right now that isn't happening unless you're a public servant who doesn't actually contribute to national GDP in any meaningful way.

What does economic theory have to say about that?