Variable compulsory superannuation is a far better solution to controlling an inflationary economy than raising interest rates. Peter Burgess of Safety Beach wrote to the Age for their 2020 ideas for the future this exact idea, and its one of the simplest and best I have heard.

The governement raises and lowers company and individuals compulsory superannuation contribtions, dragging money out of the consumer economy and forcing savings, this doesn't have all the drastic side effects of raising and lowering interest rates, such as people loosing their homes, putting pressure on those on fixed incomes with debt, and putting fear and doubt into lenders and borrowers. It can actually do the opposite in an economy like ours (Australia) which is having trouble finding re-finance for lenders, it creates a large pool of superannuation fund cash that can be used to finance lenders who are in dyer straights at the moment trying to re-finance mortgage books through the US wholesale market.

Macquarie bank has pulled out of mortgages because it is having trouble re-financing its book of loans, and at least 3 credit unions are no-longer taking new loans and are trying to sell their book of loans. To whom? When there is no cash out there. There is even pressure to finance the on going brokerage fees on loans that have already been written, where will all this new money come from in a market which has dried up.

Super funds should be moving away from the share market due to its current volatility so should be holding more in cash assets supported by property, give them more funds and solve the problem internally withpout using foreign funds. If the government acts quickly they may be able to avert a crises and create a precedent that removes the sledge hammer RBA (Resever Bank of Australia ) tactics of interest rate rises to solve a problem of confidence.

DJ Campbell