Last Updated Jan 3, 2010 7:28 PM EST
The argument goes that if there was a shortage of bananas we'd expect to pay more for a banana smoothie. So if there's a shortage of cash we should expect to pay more to borrow it, so there's a hike in interest rates.
There's a fundamental flaw in this argument, which we examine in today's BTalk. It calls on the most basic element of economics and pricing. To help illustrate the point we draw on an earlier interview with Ron Wood of Pricing Insight.
To hear more of the interview with Ron visit Success at What Price? | BTalk Australia
Here's the video in question on YouTube.
Shouldn't Westpac have known better? Add your views in the Talkback section at the end of this post.