The American and Australian Economies - Case Study Example

The American central bank wants to keep its interest rates low (to almost zero) to spur the economy but Mr Hoenig thinks otherwise. In contrast, the Australian economy has not suffered as greatly as the US during the recent financial crisis because its economy is a bit insulated from the global economy. In fact, its big four banks are trying to hide their profits because the economy did relatively well last year. In addition, the big four banks are suspected of using accounting tricks to manage their earnings and show smaller profits than what they actually were (Potts, 2009, p. 1) because of possible political and social backlash.

Moreover, the Australian authorities at its Reserve Bank are not planning to reduce its interest rates because the economy is doing better than expected. To put it another way, the need to reduce rates is not urgent because the recession was not as deep as it had originally feared. The Australian economy has recovered well enough their banks raise interest rates they pay on client deposits (Potts, 2010, p. 1). Its economy is forecast to grow by 3.5% next year and its currency has appreciated 20% against the US dollar since the middle of the year (Rogow & Glynn, 2010, p. 1). Both economies are fully plugged to a global economy but Australia did not suffer from a housing crisis and demand for its resource exports is strong.