the walnut and the sledgehammer
"The recession we had to have" - Paul Keating
Much play has been made of these famous words from ex PM Keating, will they now be echoed by our erstwhile PM in waiting, the bottleless Peter Costello. I heard on the radio this morning the representative of the australian business council imploring the Reserve Bank to consider all factors in deciding an interst rate rise, neglecting to mention that the Reserve has been stripped of such power or at the very least has, like the American reserve, refused to look beyond their very narrow scope for a very long time. If the reserve were to look at the thousand other factors that make up our economy, then surely the housing bubble of sydney and melbourne would have been factored in, the dot-com bubble would have been factored in, the much overlooked renovation bubble would have been factored in and a thousand other economy distorting influences would have forced the Reserve to act on raising interst rates.
The facts are that we have a timid, narrowly focused, central bank, and thats the way our government likes it in the good times, it wants the central bank to ignore bubbles, to ignore excessive consumer credit demand, poor lending practices, hyper inflation in the housing sector and unsustainable growth. Short term political considerations take precedence over long term planning. The reserve has only one instrument to curtail a thousand ills and the fact is that the blunt interest rate tool is used in response to such a narrow band of objects that go to make up the underlying inflation rate, that it will inevitably cause more pain to a wider market sector than it ever was meant to. Inflation is measured over such a ludicrisly small basket, it excludes volatile commodities, so the banana led rise is a myth, it excludes rents, housing prices, excessive health care rises and remains pegged to only those items the government deems fit in order to lower the cost of living raises that flow to social service payment recipients. Artificial means to an artificial end.
Now we are faced with complaints that flowed from the west during the sydney/melbourne booms being reversed, the west booms now flow through to the easts stagnation. The mining boom in the west feeds the need for a rate rise in the east, despite a near recession in sydney.
I know I am being cruel to house owners, but the reserve has been way to lienient, to driven by political demands to keep the ecomomy in check and truly balanced, like Alan Greenspan, it has overseen a debt bubble that will in the long term lead to many more problems, with some talking of depression, long term, not simply, a short term recession. Will the market simply eat itself to death with debt growing from 20% in the 1950's to over 140% today, and what will this do to our forced savings plan, superanuation, the stock market has been driven by compulsorily aquired funds, hardly a free market driven ecology.
In order for the australian business council to demand that the reserve take into acount the thousand factors it wants taken on board, it must demand the reserve serve the interests of the nation as a whole, not its narrow interests at a time of its choosing. The Plasma Boom we are currently living in, is being paid for by our nations lack of investment in infrastrusture, health and education and while the Reserve has certainly talked of this exact thing, it has only one way to force the government of the day to do anything, interest rates. This does lead to the problem of an un elected body setting and deciding policy, and in that regard it can only advise where it see's problems, however, where it see's obvious problems, it also needs to see obvious solutions within its domain, no matter how painful and unpopular, thats why its independent, to do these very things. Innvoation requires years to come to fruition, monetary policy can only ever work in monthly terms, we need a reserve with a broader scope, just as we need to press our political overlords to overcome the limitations of the political cycle and talk of the real future, not that which encompasses the next tax cut.
Much play has been made of these famous words from ex PM Keating, will they now be echoed by our erstwhile PM in waiting, the bottleless Peter Costello. I heard on the radio this morning the representative of the australian business council imploring the Reserve Bank to consider all factors in deciding an interst rate rise, neglecting to mention that the Reserve has been stripped of such power or at the very least has, like the American reserve, refused to look beyond their very narrow scope for a very long time. If the reserve were to look at the thousand other factors that make up our economy, then surely the housing bubble of sydney and melbourne would have been factored in, the dot-com bubble would have been factored in, the much overlooked renovation bubble would have been factored in and a thousand other economy distorting influences would have forced the Reserve to act on raising interst rates.
The facts are that we have a timid, narrowly focused, central bank, and thats the way our government likes it in the good times, it wants the central bank to ignore bubbles, to ignore excessive consumer credit demand, poor lending practices, hyper inflation in the housing sector and unsustainable growth. Short term political considerations take precedence over long term planning. The reserve has only one instrument to curtail a thousand ills and the fact is that the blunt interest rate tool is used in response to such a narrow band of objects that go to make up the underlying inflation rate, that it will inevitably cause more pain to a wider market sector than it ever was meant to. Inflation is measured over such a ludicrisly small basket, it excludes volatile commodities, so the banana led rise is a myth, it excludes rents, housing prices, excessive health care rises and remains pegged to only those items the government deems fit in order to lower the cost of living raises that flow to social service payment recipients. Artificial means to an artificial end.
Now we are faced with complaints that flowed from the west during the sydney/melbourne booms being reversed, the west booms now flow through to the easts stagnation. The mining boom in the west feeds the need for a rate rise in the east, despite a near recession in sydney.
I know I am being cruel to house owners, but the reserve has been way to lienient, to driven by political demands to keep the ecomomy in check and truly balanced, like Alan Greenspan, it has overseen a debt bubble that will in the long term lead to many more problems, with some talking of depression, long term, not simply, a short term recession. Will the market simply eat itself to death with debt growing from 20% in the 1950's to over 140% today, and what will this do to our forced savings plan, superanuation, the stock market has been driven by compulsorily aquired funds, hardly a free market driven ecology.
In order for the australian business council to demand that the reserve take into acount the thousand factors it wants taken on board, it must demand the reserve serve the interests of the nation as a whole, not its narrow interests at a time of its choosing. The Plasma Boom we are currently living in, is being paid for by our nations lack of investment in infrastrusture, health and education and while the Reserve has certainly talked of this exact thing, it has only one way to force the government of the day to do anything, interest rates. This does lead to the problem of an un elected body setting and deciding policy, and in that regard it can only advise where it see's problems, however, where it see's obvious problems, it also needs to see obvious solutions within its domain, no matter how painful and unpopular, thats why its independent, to do these very things. Innvoation requires years to come to fruition, monetary policy can only ever work in monthly terms, we need a reserve with a broader scope, just as we need to press our political overlords to overcome the limitations of the political cycle and talk of the real future, not that which encompasses the next tax cut.
posted by the bluhamster at 10:24 AM
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