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  • Writer's picturePete Jonson

Saturday Sanity Break, 11 February 2017 - Australia's Economic Recovery?

Malcolm Turnbull finally freed his inner mongrel. His question time tirade against billionaire's pal, Bill Shorten, made great viewing. It cheered his colleagues and supporters and left the Labor front bench like stranded whales. Even Henry, no great fan of Malcolm, was cheering. Can he keep it up? That is the question, dear readers, and who knows. Such activity came naturally to mongrel-in-chief, Paul Keating but whether Malcolm can keep producing such great invective every day must be doubted.

Such fun of course is no substitute for a coherent and convincing economic narrative. The previous mongrel-in-chief stumbled onto such a narrative when he warned us of the risks of Australia becoming a Banana Republic. The latest 'reform' provides more winners and losers and a few billions benefit to the budget bottom line. Despite the respite from unexpected commodity price increases, the budget outlook is so bad that even the International Monetary Fund economists are warning about the strong risks to the economy of continually growing debt.

See Henry's Editor's latest thoughts on the state of the gummint here.

And it's not just international debt or government debt we should be concerned about. The more immediate debt is household debt where Australia is the global silver medallist. Heard a financial expert discussing this problem on ABC radio whilst on a long drive. 'At present 20 % of households are just coping', said expert opined. 'I am discussing middle class folk who have borrowed a lot of money to buy their house. When interest rates go up, financial stress will rapidly increase, and Australia's banks will be in trouble'.

The latest monetary report by the mighty RBA predicts a welcome recovery in the economy. Here is the summary. * '... growth in global industrial production and merchandise trade have picked up'. * 'Global inflationary pressures are somewhat stronger than they have been for some time, because of accommodative policy settings, the recent increases in commodity prices and limited spare capacity in a number of advanced economies'. * 'The prices of bulk commodities increased significantly over the past year'. ... However 'These higher price levels are unlikely to be sustained'. * 'Overall conditions in the established housing market have strengthened further, although there is significant variation across the country'. * 'The current [slightly higher] rate of unemployment suggests that there is still a degree of spare capacity in the labour market, which has contributed to subdued wage pressures'.

* And, concluding the summary: 'Taking account of the available information, and having eased monetary policy in 2016, the Board judged that holding the stance of policy unchanged at recent meetings would be consistent with sustainable growth in the economy and achieving the inflation target over time'.

Read the full statement here, dear readers.

No dire warnings about the various risks he documented. GGov'nor Philip Lowe did hint we might be in some strife if President Trump cut company tax rate to his threatened 15 % while we cannot get Labor to agree to 25 % in ten years.

And he confessed that 'the level of household debt is relatively high and that the RBA is 'watching developments in the labor market.' Sadly in my view, the RBA and Treasury have never accepted Henry's view, frequently publicised by Gary Morgan, that the labor market is actually far worse than dud official statistics suggest.

Read Guv'nor Phil's full speech here.

With the RBA's regular monetary reports, necessarily with a cheery bias, these offerings are the nearest thing we have to a coherent economic narrative. But the cheery bias is the problem. Ideally, Her Majesty's Loyal Opposition would be counterbalancing the optimistic bias and offering policies to reduce the downside risks.

The various debt problems mentioned here are called 'headwinds in other places. Henry recommends a wonderful book by Robert Gordon of Northwestern U in the USA. The book is called The Rise and Fall of American Growth. A key point is that the great inventions that so boosted American productivity growth from 1920 to 1970 are unlikely to be repeated. 'Additional sources of slowing growth [are] a group of headwinds - inequality, education, demography and fiscal [related to high and rising debt levels] - that are in the process of reducing growth in median real disposable income well below the [lower] growth rate of productivity. (p xi.)

The optimists of the RBA need to ask whether Australia can do better in productivity growth that the USA and whether our headwinds are greater than or smaller than those facing the mighty USA.

I wish it were possible, but believe it is most unlikely. And if President Trump leads the world into another protectionist world, we shall do distinctly worse.


Fiona Prior sees the highly diverting film Perfect Strangers. A black comedy that will genuinely take you by surprise. More here.

The Sporting Life

AFLW (W=women) was launched last weekend with great success.

Soon AFLM will be underway for 2017 and as a fervent Caaaarlton! supporter Henry expects some improvement but nothing to write to one's rellies in the USA about.

The initial success of Caaarlton's! gals will provide a call if Caaarlton!'s men are doing badly. 'Give the gals a go, coach!

Image of the week.

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