Oi! – what about the economy?

In all the shenanigans over Utegate, we tend to forget that the economy is on life support and actually needs the attention of all of the people who can help (or are supposed to help). Yep- those in Canberra.

Interest Rates

Some think the next movement will be up, some think that the next movement will be down. But even if the next movement is down – will the banks pass the cut on? We saw what CommBank did a few weeks ago. But in their defence, all they did was make a change to move their margin back into a range similar to the other three.

Credit Cards

As news that credit card balances are finally falling, we have stories that the interest rates are now higher than they were two years ago.

Stamp Duty

And finally, there are reports that stamp duty for housing loans could be abolished under the Henry review.

So while the bozos are going on and on about Utegate – who is looking after the steering wheel for the economy?

China will save us again.

Recently the mainstream media (MSM) has been whipping itself into a frenzy over Prime Minister Kevin Rudd’s apparantly “too cozy” relationship with the Chinese Government.

Firstly, we had Rudd’s conversations in fluent Mandarin with Chinese leaders much to the chagrin of his Liberal Party counterparts who, by comparison, would struggle to order Yum Cha in Haymarket.

Mr Rudd’s familiarity with Chinese culture and in particular his fluency in Manadrin should not be underestimated. Such things are greatly appreciated by the Chinese and will prove a tremendously powerful ingredient in building and strengthening our future ties with this emerging superpower.

Mutual respect, maintaining “face,” diplomacy and the way in which China “does business” are things that Rudd understands.

In contrast, the gobsmacked and floundering Liberals, sought to pick holes in Rudd’s familiarity with the Chinese “Modus Operandi.”

We had reports of the “mysterious Chinese Businesswoman” funding overseas trips – which soon disappeared from the headlines, and more recently fearmongering over China’s military build-up – while Australia prepares to do exactly the same thing.

As America’s economy goes down the toilet, there is little wonder that China is readying itself against any external threat.

Arguably, China will soon emerge as the world’s major economy. Personally, I believe the collapse of the financial sector and the US economy has been the tipping point in this respect.

Reserve Bank Governer Glenn Stevens has also signalled the important role that China will play in rescuing Australia from our economic doldrums.

According to The Australian, the Mr Stevens has refreshed the prospect that traditional safeguards of China and commodity prices will lead Australia’s recovery from recession in the next year.

The bank met the expectations of the financial markets yesterday by leaving interest rates on hold at 3 per cent despite some economists expecting a 25-basis-point cut.

The RBA has cut 425 basis points from the official cash rate since September last year, taking rates from a peak of 7.25 per cent to the current rate, which is a 50-year low.

The majority of economists expect rates to be pared back to 2 per cent before the end of the year, but the RBA indicated future reductions would not necessarily be automatic.

In a statement, RBA governor Glenn Stevens said the Australian economy and the world economy as a whole were front-loaded with stimulus through the co-ordinated rescue package led by the G20.

“The global economy contracted further during the first few months of this year. While the near-term outlook remains weak, there are further signs of stabilisation in several countries,” Mr Stevens said.

“The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little.

“The considerable economic policy stimulus in train in most countries should help contain the downturn and support an eventual recovery.”

The Australian dollar strengthened on the rates decision, given that the move to stay on hold maintains the differential between Australia and US, where the official interest rates are virtually zero.

The currency moved from US73.80c up to US74.20c before it was sold off slightly. At the local close it was at US73.96c.

The interbank futures market is now tipping that rates could stay on hold for the rest of the year.

UBS economist George Tharenou said the RBA’s emphasis on China showed the central bank thought the return of the world economic superpower could propel Australia’s prospects in the next few years.

“We think the RBA is seeing some signs of the outlook improving globally and stability in several places,” he said. “They are placing more weight on China given our trade experience and they are seeing improvement in commodity prices.

“There are signs China is picking up and if there is the same pick-up in commodity prices then that would give a direct boost to the income side of the Australian economy.”

So it seems, that Australia’s future prosperity will once again depend on our relationship with China, and its future growth and development.

End of Recession in Sight!

I hate to say I told you so…

BUT, according to Wayne Swan the economic recovery will be much faster than previously expected with the turnaround anticipated by the end of 2010.

So all you doomsayers were wrong, and me and Shane were right.

Of course, that is if you believe Wayne Swan.

Mr Swan says Australia’s recovery will be faster than international forecasts predict.

He’s rejected suggestions by the International Monetary Fund (IMF) that recovery will be slow.

“No, absolutely not,” he told ABC Radio.

“We are in extraordinary times. We are in the middle of global recession. The forecasts do need to reflect that.”

Mr Swan reportedly has told state treasurers his recovery scenario in the budget would have the economy bouncing back to above-average growth rates, close to four per cent, at the end of the recession.

The turnaround should be visible around the end of 2010, followed by good growth.

That’s in line with what occurred after the 1990-92 and 1981-82 recessions, although the IMF predicts this recovery will be much slower.

The government will provide detailed forecasts for both 2009-10 and 2010-11 when the budget is delivered on May 12.

The forecast for 2010-11 would normally be based on trend growth, Mr Swan said.

A new report pointing to a $40 billion reduction in revenues, due to the fall in commodities prices, demonstrated the brutal impact of the global financial crisis on government revenues.

“The consequence of that is a higher temporary deficit,” he said.

You don’t say. I wonder if Wayne is softening us up with this long term vision of good news in the lead up to the short term bad news budget. No doubt the World’s Greatest Treasurer will surface from the pit to provide his remarkable analysis of the budget in a couple of week’s time.

Tis the season full of worry – Economy XXIII

The fallout from the GFC continues.

To deficit or not deficit – is that a question?

In the turmoil of the GFC – countries around the world have gone into recession, and so far, Australia is not one of them. We cannot deny that the economy left by the former government was in a better state than a lot of others – with a large surplus. We can (and probably will) quibble about how the surpluses came about – whether it was through increased tax intake due to the resource boom, through a lack of investment in large infrastructure programs etc. etc.

But we are where we are, and applying hindsight will not be of much benefit to the future.

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Economy XX

As we reach our twentieth thread on the economy, it seems that the good money (?) is on the RBA reducing the interest rates by 1%. Now what was it that Howard kept saying about interest rates?

In a local paper here I read an interesting comment on the fact that the GFC seems not to be affecting the average person as much as the rich. It is because they (the rich) have lost so much on-paper money which is affecting them, whereas the most of us do not have that much in investments – all of our money is debt.

Is that why Malcolm is so upset with the governments bank guarantee? Because it is not helping his asset base?

So, blogocrats, what are your thoughts on what is happening?


Economy XVIII

It has been a while since I put up a thread on the economy, and after the G20 summit on the weekend I thought that we should have a catchup.

Over the past week the following developments have occurred:

  • Pakistan has obtained $7.6 billion loan from the IMF (which is short of the $15 billion they wanted)
  • Seven Goldman Sachs executives have decided not to accept their normal bonuses. For example, the chief executive Lloyd Blankfein will revert to his $600,000 base salary. Last year he took home $68.5 million – so I think he will be OK
  • And it does not look like the US car manufactures will be getting their bailout money any time soon.

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