The RBA follows the financial gospel from on high

It's crazy.

Raising interest rates never did "fight inflation". It has a three-way impact to INCREASE inflation: it reduces real investment, it increases production costs and it cuts back on supply. Fewer people work for fewer hours producing fewer goods or services at higher cost.

The evidence is incontrovertible. We have nearly 40 years of experience. Never mind the theories; just look at the facts. Australia is not the only economy to suffer in this way. The prime, big, single superpower or hyper-power sufferer of all time is the United States of America.

One of the great heroes of financial management in the last 40 years - at least for many Americans - is Paul Volcker. Remember he was the Chairman of the Fed who raised rates to - if I remember correctly - about 18 per cent. He killed inflation stone dead, didn't he?

Actually he killed just about everything stone dead: real investment, productivity, production, employment, any semblance of equality whether of income or opportunity and, of course, the American dream.

The one thing he did not kill stone dead was inflation - except, as it appeared, in the very short term.

The US dollar buys only a fraction of what it did in the 1980s. Except for the blessing of a technological boom in the 1990s, real investment has slipped to ever newer and newer lows, savings have disappeared, American manufacturing industry has been gutted, the external trade and current-account deficit has risen to what we would once have thought of as unbelievable heights, the American external debt - and government and household debt - is unprecedented in anyone's history at any time or in any place; and the great superpower in whom so many believed a few decades ago is sliding - or plunging - into history.

Yes, for Australia, the higher interest rate will help to keep up the value of the Australian dollar - and reduce further the competitiveness of our non-mine, non-farm exports. It will help to keep down the prices of all those imports from China, India and the Tigers which have helped make the inflation rate look good for so long and to such an extent - while at the same time they gutted Australian industry in much the same way as they gutted American industry.

We're now leaning heavily on exports of mine and farm - as we did when we were a British colony and before we started to grow up in the great years after World War II - in the quarter century from 1945 to 1969.

And yes, we've got all the “blessings” of the carry trade. That's one of the elements in the great speculative mania that has swept over the world economy in recent decades and whose denouement we are now beginning to acknowledge with the collapse of the housing market with its ATMs, the torment of the "credit crunch" and the imminent and comprehensive collapse of the whole house of cards which banks, non-banking finance houses, hedge funds, private equity and the rest have constructed with such meticulous “regardlessness” over recent years.

Ever the stakes on the gambling tables have been raised higher: ever the cost of the collapse when, inevitably, it hits us with the real force of which it is capable, grows more overwhelming and intimidating.

To have reached a stage at which the only comfort we can draw from the current situation is to welcome the hiking of  interest rates to crippling levels and the keeping of our heads above water with the help of the carry trade, is to admit that we're slipping remorselessly into the abyss.