Paul Howes - somebody IS benefiting from the higher dollar

Today Paul Howes has come out criticising the Reserve Bank's charter, and claiming that "One of the real issues that our country has to come to terms with is that a high Australian dollar is good for nobody."

Sorry, but that's just plain wrong.  Here is some proof that the Australian dollar is good for somebody.

Overseas travellers have benefited

Since the appreciation of the Australian dollar, overseas travel has boomed.  There are nearly an extra 200,000 people a month travelling overseas now compared to 2008.

ABS: Short term resident departures

People buying televisions and computers have benefited

According to the latest ABS data, Audio, visual and computing equipment is down 18.8% in the last year (to Dec 2011).  That means major savings for anyone who wants to purchase these products.  It means that equipment that may have been too expensive for some people, has fallen into an affordable range.  It means that the rise in the Australian dollar has been good for somebody.

Australians buying property overseas

With the higher Australian dollar, that means that Australians can buy property overseas at a much lower price than previously.  It is now in the realm of the middle class income earner, with properties in Europe now attainable for $100,000. Property buyers lured to foreign affairs

Whether it is a lifestyle choice, or an investment, this means that Australians are owning real assets in other countries.  This means that the higher dollar is benefiting those buyers.  Those people are somebody.

Paul Howes - are the Unions as economically inept as Katter

The calls from Paul Howes to review the charter of the Reserve Bank are echoes of Bob Katter's crazy claims to sack the RBA board.  The well managed Australian economy through the Hawke/Keating, Howard/Costello and Rudd/Gillard/Swan years has been nothing short of stellar.  And the independence of the Reserve Bank with its charter and formal agreement with the Treasurer to maintain underlying inflation in a target range of 2-3% PLUS achieve full employment has been a critically stable influence throughout.

Whenever radical statements are made by any side of politics, people listen and get confused between the nonsense and the sensible.  We must remain economically rational.

Let me know what you think

Mark S

Why does Bill Evans want Australia to have a recession?

Bill Evans, Westpac

Glenn Stevens, RBA

Back in July, Westpac's chief economist Bill Evans forecast the European economic problems would slow growth and result in a decrease in official interest rates by 100 basis points.  Nobody else was predicting that, and yes, he got it right when the Reserve Bank dropped rates by 25 basis points in November. But why does he insist on interpreting every statistic through the lens of their own prediction?

By sticking to the prediction that rates will decrease by a further 75bps, Bill Evans is forecasting the cash rate to fall to 3.75%.  That is well below a neutral level, so the only reason we will get a rate that low is if Australia falls into recession. The Reserve Bank is forecasting Australia's growth to continue at trend rate of 3-3.5%, so why does Westpac continue to talk up their prediction and talk down the economy?

Stick to your guns, but be fair

I respect Bill Evans for having a view, but recent economic data is indicating that the Australian economy is turning upwards.  As new data has arrived, it seems that Westpac are only looking for evidence to support their "rates down by 75bps" view, rather than taking an objective look at the figures.

Sure, if they believe that Europe is going to hell in a handbasket, then there is a case that Australia will fall into recession.  But you can't just dismiss positive data because it doesn't fit your theory.

My call is for stable rates

For what it's worth, I think rates will stay where they are now for some time. I don't see any change in December, and the green shoots of growth give me cause to think that by February our consumer economy will be looking OK.  Combined with the very strong mining sector, and my thought that the next inflation numbers won't be quite as low as the October figures, I'm tipping no change in February as well.

Of course, if Europe really does disintegrate, then that's a different story, but unlike Bill Evans, I'd be prepared to change my view if the data do change. (Oh, and I am putting my money where my mouth is!)

Whatever your view might be, you still have a responsibility to interpret new data objectively.  I don't believe that Westpac are doing that at the moment 

Let me know what you think

Mark S

Greek crisis reminds us to keep a steady ship

The crisis confronting Greece at present is a salient reminder that our country's central bank and government must do whatever is necessary to keep the economy on an even keel, over each economic cycle.

Last week, the governor of the Reserve Bank, Glenn Stevens, gave a speech to the Economic Society of Australia in Brisbane.  He made the important point that - although some parts of the economy had some slack, overall, the Australian economy is very strong.  As a result, monetary policy will be set to meet the needs of the whole economy.

Strong economic decisions allow us to succeed

This will always mean that there are some winners and some losers.  The alternative is to satisfy only the needs of a few small groups within the economy.  This failure to take appropriate decisions when they need to be taken is what leads to economic disasters such as those in Greece, Ireland, Iceland, and to some extent even in the United States.

When good economic decisions are taken such as movements in interest rates, careful government spending, or introduction of sensible policies like a carbon tax or mineral rent tax, these create an environment in which businesses and workers can be confident.

Ironically, the failure of the Greek economy may slow down Australia's enough to avoid an increase in interest rates until later this year.

Sensible decisions from the Reserve Bank, sensible taxes such as carbon tax and mineral resources rent tax, all assist in making Australia the world's leading western economy. 

Let me know what you think

Mark S

Bob Katternomics - you make me rofl

Bob Katter - in power???

Bob, Bob, Bob. You really are hilarious. Your suggestion yesterday to reduce our interest rates to the same level as the US! Hahahahahahaha. Sorry, that's the best belly laugh I've had all year.

OK, let's have some fun with this idea, shall we?

Bob Katter, hero of the rural man, and the old economy manufacturer, miraculously wins power. So then he claims a mandate to implement his policy of "simply lowering the interest rates to that of Europe or the United States.". What happens next? (After the markets stop rolling around on the floor of course)

Bob fires the Reserve Bank Governor and Board

Pauline on the RBA!! lol

First of all, there's no way an independent Reserve Bank Governor will implement Katternomics.  Oh no, Bob's first task is to reissue a new "Statement on the Conduct of Monetary Policy" overriding 18 years of stability.  There's no way a sensible Governor like Glenn Stevens will serve under the new principles of Katternomics, so he'll need to find a new guy to rubber stamp the brave new world.  But there's still the thorny matter of those other Board members.  No problem - Bob has a hand picked bunch of pro-tariff experts including Pauline Hanson.

The new Governor cuts the cash rate from 4.75% to 0.5%

What a great media story?

Average mortgage falls by $750 per month.

Well, the reality doesn't quite work that way.  Rather than slashing rates by 4.25%, the banks only cut by 3.5%.  Outrage! Why are the banks profiteering - Bob, you have to do something about it.

Borrow, borrow, bubble, bubble

After two years of consumers relearning how to save money, the Katternomics inspired new super-low home loan rates cause a frenzy.  The banks try as hard as they can to stop people borrowing money, what with their recent credit downgrades, but they can't help themselves and the new sport on the street is lending money for houses to people who may or may not be able to afford it.  But there aren't enough houses to buy, so house prices skyrocket.

The developers try their best, but they just can't build the houses fast enough.  Capital city house prices increase by 20% in a year.  Housing affordability is a thing of the past, and the natives are getting restless.  Fights break out at auctions, and by the end of the year, desperate wanna-be home owners are protesting in the streets.

Nobody wants to be a miner

With so much money to be made in building houses, the developers increase wages to keep workers in the building trade.  And so do the suppliers, and before you know it, Australia's inflation rate hits 7%.  It's the highest rate since 1990.

And now the mining companies can't get workers because they are all back in the east building houses.  So, the miners go to Bob and ask for an increase in migration.  But Bob wants jobs for Australians, so he knocks them back.  The miners can't deliver on their contracts to China, and now there's an international incident brewing.  What's more, Australia's mining revenue is below budget because of the wages issue, and the budget deficit is spiralling out of control.

Sure, the dollar is falling - because the economy is disintegrating

International investors aren't too keen on Katternomics, so money starts to flow out rather than in, and the dollar falls to 80c.  Bob's mates are thrilled - they are selling their wares overseas and making a killing.  The manufacturers don't do quite so well.  Even though they can compete a bit better on price, they haven't kept up with their competitors and can't break back into the overseas markets.

Now consumers all over the country are screaming.  Everything imported is going up in price, and unless you are a builder you aren't getting paid more than what you were before.  The budget surplus means that Bob has to reduce government spending so public servant numbers are being reduced.  The economy is starting to slow down as a result, and so we've got rising unemployment and inflation. You can't afford your housing and all you see on the TV is a big hat and a few happy farmers.

A Grimm Fairy Tale

Thankfully, the chance of Bob Katter ever having control of Australia's monetary policy is about the same chance of Pauline Hanson being elected Prime Minister.  And frankly, who knows what would actually happen under such a bizarre scenario - the picture I've painted might actually be an understatement of the debacle.  The only thing it really shows is how insane it would be to revert to a pre-1993 economic policy, or worse.

Thank you Bob Katter for giving me a great laugh.  For that is what you are - truly a laughing stock!

Let me know what you think (reaction buttons below)

Mark S