NAB being first past the post to raise its interest rates yesterday made me think about how economics has been described as the dismal science that often looks at good things like economic growth and falling unemployment but then makes economists and central banks worry about inflation. This then makes them prescribe good-time killers such as higher interest rates, more taxes and less government spending.

In fact, this history of the term dismal science goes back to someone who many thought was a “mad monk”. This from Investopedia explains why: “Dismal science is a term coined by Scottish essayist and historian Thomas Carlyle to describe the discipline of economics. “Dismal science is said to have been inspired by T. R. Malthus' gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty and hardship.”

Like a lot of economists, he was not totally right. Sure, there’s a lot of poverty and hardship in the world but a hell of a lot of people in the world avoid poverty nowadays.

Right now, the RBA is playing with the dismal threat of relative poverty as it raises interest rates, that especially hits those Aussies with big mortgages. But it will eventually get through to those with fixed rate mortgages who will roll off, say, 3% rates of interest to 5% or even higher!

And then there’ll be businesses and those with credit cards and other debts linked to loans and interest rates who’ll feel the pain of what Dr Phil Lowe and his RBA board are doing right now to kill inflation.

The cash rate is now 2.85% after seven rate rises in a row. They’re doing this to avoid the 1980s experience of persistent inflation that breeds a wage-price spiral, which creates more inflation, which ends in a real recession that pushes up unemployment to over 10%!

The lucky Aussies are those with no debt, owning their own homes or live with mum and dad, and those who are savers and love higher term deposit rates. But like all of us, they’ll be hurt by higher costs of living, especially if they’re retirees not receiving pay hikes.

As you can see, Dr Phil has to raise rates but the pressure is on him to get it right. He has to do a Goldilocks and find the “just right” balance to slow up demand to tame the inflation dragon, without putting out the fires that keep the economy chugging along with economic growth that defies a recession.

So when the banks rush to hit us with rate rises, they’re “doing us a favour” of sorts, because it speeds up the hard-to-stomach medicine that will cure us of inflation.

RateCity.com.au says repayments on a $750,000 mortgage are now up a total of $1140 a month since May and that’s taking $13,680 of households with mortgages. But these people are the ones who’ll do most to kill off inflation because the dismalness of rates rising mainly falls on them.

NAB was first out of the blocks with a 0.25% rise, which kicks in on November 11.  No other bank has joined in yet, maybe because it was Cup Day and bank staff were off to the races!

The bottom line is all banks will raise rates soon because the RBA wants them to spread dismalness. The lucky thing for them is that it will help their bottom lines and their share prices.

On Monday’s Switzer Investing TV program, S.T.Wong explained why he likes banks right now, even though their share prices are high. You can check it out here:

And to the final question: will it create a recession?

Economists think no but if it takes too long to kill inflation and rates keep on rising, a recession becomes a real possibility.

The pressure is on Dr Phil Lowe and even though getting the rate rise program right is not an easy one, if he gets it wrong, he will be blamed.

I went to a Business Sydney function yesterday where Treasurer Jim Chalmers spoke. While his party has business worried about their new industrial relation bill, the feeling in the room was that he produced a pretty good budget for the times.

So as Jim has charmed us, it means Dr Phil is the bogeyman, who will cop it if rates go too high and a recession shows up. And he will cop it if inflation persists.

Lucky Dr Phil is paid over $1 million a year to do this tough job!