Times are tough all over

[tw]

Originally Posted by Aliantha

... you surely must realize that as interest rates go up, more people are locked into higher mortgage repayments for the same thing their neighbor has at a lower price. And of course with an inflated economy which Australia has had for many years now, housing prices are inflated which of course means that people have been paying even more on the capital aside from the interest at whatever rate it's at.

In the 1970s, the same reasoning is why interest rates were kept low. Therefore the economy only got worse. Of course. A mismanaged economy that throws money at problems (ie tax cuts without spending cuts, tax rebate checks, excessively low interest rates, etc) only gets worse years later.

How did America finally fix the housing market and all other problems? Housing interest rates were jacked up to 20% because central bank interest rates rose well above 10%. Only then was the American economy fixed in the early 1980s.

High interest rates do not create the problem. High rates and the resulting hardships may be necessary to fix the problem now. Otherwise economic forces take further revenge later.