Henry Thornton News&Views No 27
Updated: Aug 3, 2022
AFR Weekend, Longer COVID, 23 – 24 July, P 18, ‘The third pandemic wave is getting serious but to manage it we will need to overcome a deeply embedded apathy’.
This sounds interesting but pages 18 plus 19 do not seem to be all that important.
‘Instead I resort to P1, John Kehoe and George Moore. ‘Banks jack up interest rate outlook’.
‘Two big banks say the Reserve Bank of Australia will raise its peak interest rate significantly higher than previously thought, hitting borrowers hard as it tries to tame soaring inflation.
‘Westpac’s top economist has ramped up the second-largest home lender’s interest rate to 3.35 per cent by February.
‘It warns property borrowers to brace for an ‘overtightening’ by the RBA that will slow economic growth to almost standstill and push up unemployment next year.’
Jill Margo, P 9, ‘New variants forcing a shift in pandemic thinking: scientists’ .
‘The surge of omicrom BA.4 and BA.5 is producing levels of infection, reinfection, hospitalisation and deaths that would have terrified Australians two years ago.
‘The surge is a continuation of a wave-and-trough pattern, set off by the initial omicrom variant in late December, and will probably take another two weeks to peak’.
Patricia Zengerle and Richard Cowan, P 13, ‘Trump refused to intervene in January 6 riots’.
Well. Sound the bells, Mr Trump watches TV as his supporters rage.
‘Washington. Donald Trump sat for hours watching the January attack on the US Capital unfold on live TV, ignoring pleas by his children and other close advisors to urge his supporters to stop the violence', witnesses told a congressional Thursday (Friday, AEST).’
Phillip Coorey, ‘Labor’s big test’, P15.
‘Next week will be awful’. So said a member of the opposition front bench on Thursday as the realisation that for the first time in 9 years would be occupying the opposition benches’. …
Joe Hockey said, ‘Be calm, okay? I know you are excited on the first day. This is your best day in opposition, trust me’.
Mr Coorey outlined all the difficult things the government has to overcome. The new Treasurer said: ‘The trickiest set of economic conditions a new government has inherited in memory’.
And in the end: ‘For the new government, it has three short years to turn around a series of massive problems, many of them beyond its control. But, it still beats being in opposition’.
John Kehoe, ‘Under the microscope’, P 16 and P 17.
‘The independent review of the RBA comes at a time when the central bank faces the greatest political and public scrutiny since the 1990s’.
· CEO runs a tight ship – ‘I’m the boss’.
· ‘No increase in interest rates until 2024.’
· Too few non-executive members of the board with sufficient monetary policy experience.
· Staff and board members lacking monetary policy experience, and large mistakes have been made.
Mistakes and remedies:
· Cash rates in early 1990 far too high, creating the worst post-war recession. The Deputy-Governor Ian Macfarlane later apologised.
· Cash rates in recent years far too low, for some time 0.1 per cent – Governor Phillip Lowe failed to apologise. Home owners who followed this advice suffered.
· Business members of the RBA board may vote for their business interests. The Secretary of the Treasury is expected to be strongly engaged and other members, all trained macroeconomists. If available, macroeconomists also have RBA experience, such as Warwick McKibbin, that will be acceptable.
· An external chairman is desirable, especially someone with RBA experience.
· The desirable width to inflation should be 0 – 3 per cent, not 2-3 per cent, which is too narrow.
· Finally, voting should be made public, perhaps within a few weeks, to allow members of the public to be aware how the views are varying.
P 42, The AFR View, ‘Australians have now adjusted to pandemic normal.’
‘With another month of winter to go, and with the great vaccination drives now waning, new varieties of the mild but fast-spreading omicron variant are shaping daily life in Australia once again. …
‘As the virus has adjusted, so have the public. Australians are now readier to take their own precautions, and forcing them to do so is counterproductive. Where the government can act quickly, is encouraging the 5 million Australians who have not had a third jab to get one. The third or fourth vaccinations offer significant added protection. But there is no case – and no support – for a return to lockdowns. Even this omicrom resurgence simply does not warrant it.
The Weekend Aussie, July 23 – 24, P 15 to P 18, Dennis Shanahan, ‘Gearing up for a world of trouble’.
‘The Albanese government faces grave challenges. Does it have the discipline needed to meet them?’
‘Anthony Albanese and Jim Chalmers face the greatest political and economic challenges of an incoming government in 50 years, more challenging than the circumstances facing Bob Hawke and Paul Keating in 1983, and graver tests than the new government of John and Peter Costello in 1996, after a recession.’ …
‘Well, next week in parliament, in September with regards to the fuel excise subsidy and then in October when he brings down his first budget, Chalmers is going to have to be ready to exceed all his predecessors – as is Albanese – to live up to their intensions to succeed with two-term economic and political reform.’
The Weekend Aussie, July 23 to 24, P15 – P24, Paul Kelly, ‘Bank’s battle to curb inflation will test government’s nerve’.
‘A new review increases pressure on the RBA to get its subscription right.’
‘The Reserve Bank, its credibility on the line and now subject to an external performance review, has intensified its warnings that substantial interest rate increases still lie ahead – with the fortunes of the Albanese government now firmly hostage to the bank’s judgment. …
‘Inflation has returned as the global menace, running at 10 per cent in many nations. Its most damaging impact falls on the poor and the fixed-income recipience. While it lasts, it mocks Albanese’s pledge to confront cost-of living pressures. The optics are tricky – the decision- making agent is the bank, not the government. The government has the political responsibility but not the executive power.’
‘The path ahead is a narrow one and it is clouded in uncertainty.’ (Phillip Lowe, Reserve Bank of Australia, Governor.)
And in conclusion: ‘Albanese needs in his statements to offer support for Lowe’s anti-inflation project. That’s because it’s the right policy, it deserves support, it’s essential for the economy and because the people most damaged by high inflation are for people Albanese most cares about.’
The Weekend Aussie, July 23 to 24, P22, Greg Sheridan, ‘Lost in the secular desert’.
‘Christianity is under siege by a culture hostile to and uninterested in its ideas’.
‘We are on the way to becoming, for the first time, an avowedly anti-Christian. Not just non-Christian, but anti-Christian. The census tells us. The culture tells us. The law tells us’.
And in conclusion: ‘Edward Gibbon, in his classic and intensely anti-Christian Decline and Fall of the Roman Empire, lists five reasons for Christianity’s triumph; the zeal of Christian belief; the promise of internal life; the miracles, though the age of miracles was brief; the virtues of Christians; and finally, the unity of the Christians, with people, priests and bishops working to a common vision.
‘Today’s Christians, like anyone else, would find these qualities hard to emulate. But history shows Christianity’s ability, metaphorical, and literal, to rise from the dead. It’s done it before. In our society, will it happen again?
The AFR, Editorial&Opinion, Monday 25 July, P 38, ‘Labor should do whatever it takes to fight inflation’.
‘Tomorrow’s first sitting of the new parliament marks the formal start of the Albanese government. But it is Wednesday’s June quarter consumer price inflation figure that will set the stage for Treasurer Jim Chalmers’ critical set piece economic statement to parliament on Thursday.
‘This will be followed by next Tuesday’s meeting of the board of the Reserve Bank, which is expected to again lift its cash rate by 0.5 per cent for a third consecutive month, in keeping with governor Phillip Lowe’s ‘whatever it takes’, credibility-restoring commitment to promptly return inflation to the central bank’s 2 per cent to 3 per cent target band.’
The AFR, Monday 25 July, P 38, Allegra Spender, ‘It’s time to pull the migration lever’.
‘The jobs summit must turn talk into swift action to alleviate the pressing skills and staff shortages facing Australian businesses.’
The AFR, Monday 25 July, P 39, James Curran,’ ‘Marles’ alliance rapture discards Australia’s self-reliance’.
‘The defence minister’s rhetoric about operating ‘seamlessly’ goes to the heart of the debate we should be having about autonomy in the age of AUKUS’.
In conclusion: ‘But while Marles is eager to make his mark, hopefully Foreign Minister Penny Wong will remain the fulcrum of the government’s efforts to present a renovated Australian image to the wider world’.
The Aussie, Monday 25 July, P1 and P2, PaigeTalor, ‘Voice blueprint ‘by Christmas’.
‘Labor will present Australians with an ‘exposure document’ setting out the key elements of its proposed model for the indigenous voice as it prepares to take the nation to a referendum as early as next year.’
Marcie Langton, P1, ‘I support a referendum with a simple yes or no to a voice. I also support the democratic notion that voters have a right to be accurately informed about what they are voting for’.
On page 2. It is unclear who is speaking and who has a different view. Sorry readers, clearly there will be serious debate on this issue.
P 11, Marcia Langton pops up again.
‘I write to correct the assumptions of Mark Leibler in his article ‘Want a voice? It should be yes or no’.
This matter is going to take time and with many people offering different points of view. Too much difference of key people will make agreement very hard.
Good luck all who are involved.
The Aussie, P 10., ‘Odesa strike jeopardises grain.
‘Even by the standards of gross inhumanity the world has come to expect from Vladimir Putin, Saturday’s Russian cruise missile strike on the Ukrainian grain-exporting port of Odesa was an act of depravity almost impossible to comprehend.’ …
‘The world has witnessed countless times, the Russian President’s shameless dishonesty, including when the ‘Humanitarian corridors’ he promised for Syrian civilians seeking to flee Aleppo and other cities frequently become shooting galleries for Russian troops and their Assad regime allies.’ …
In conclusion: ‘The only response is for democracies to double down on assistance to Ukraine’.
AFR, P4, John Kehoe, Discussing views of former RBNZ chief, Graeme Wheeler, ‘In a scathing assessment of his former peers, Mr Wheeler said extremely stimulatory monetary policy during the Covid-19 pandemic had contributed materially to the inflation surge around much of the world’.
‘The research argues that central banks were too confident about their monetary policy framework, models and their ability to maintain low inflation’, said the relevant economist, presumably helping Graeme Wheeler.
‘They also believed they could’, operate with ‘policy interest rates close to zero (or negative) while also operating massive programs of quantitative easing’
‘This assumption also proved to be wildly incorrect’.
‘The research note was endorsed by William White, a former Bank of Canada deputy governor and a former economic advisor at the Bank for International Settlements in Switzerland’.
‘Mr Wheeler said central banks had lost their focus on price stability and took on too many objectives, such as the RBA’s joint desire to hit full employment and to push up wages’.
In a second article, by Adrian Blundell-Wignall, on P 39, showing ups and downs of various money supply numbers since 2007 along with USA’s orange (numbers of US rates) lines. The correlations are far from linked, yet for once the Covid orange line rocketed from 2020 near zero to near 10 %, while inflation effects went very low. Enough to support from major central banks in the world to satisfy by Mr Wheeler, and Henry Thornton.
Now we go to P 19, where the US economics Chief, Jerome Powell.
The title is; ‘Now to inflict more pain on US economy as it readies a big rise in interest rates’.’
‘‘With inflation proving persistent at a four-decade high, a growing number of analysts say it will take a recession – and markedly highly joblessness – to ease price pressures significantly’.
In my view, someone (Mr Blundell-Wignall?) needs to ask Mr Powell what is the role of inflation almost at 10 per cent and other indicators going South.
The Aussie, Tuesday, 26 July, PI and P4. Geoff Chambers, ‘Labor open to deeper cuts’.’
‘Labor and the Greens are inching closer to a deal on a 43 per cent emissions reduction target by 2030, with Energy Minister Chris Bowen open too, and considering the bench market andmore amb itious outcomes. …
‘But Mr Bowen has resisted demands from Mr Bandt to ban coal and gas projects, introduce a climate change trigger for projects and adopt a ratchet mechanism, which would allow the minister to increase targets without being forced to take legislation to parliament.
The Aussie, Tuesday, 26 July, P4, Simon Benson, ‘Grim double dilemma haunts Labor.’
‘All the issues facing the Albanese government in its first parliament sitting week since election, one that will overshadow all else by Wednesday.’ …
‘It will be defined by two events. The official inflation rate to be released on Wednesday, which is tipped to reach an annual growth figure of up to 8 per cent, and Jim Chalmers’ economic statement on Thursday.
‘These will be compounded next Tuesday in a statement with another horror rate rise.’
Simon Benson says the government may cause some people to panic, but time will tell.
Beneath this grim tale is a cheery photo of a smiling John Howard and another smiling Coalition leader, Peter Dutton.
Perhaps they both are totally aware of just how much the Labor team is about to take serious hits from owing a trillion of fresh unpleasant dollars to banks and other nasty organisations.
The Aussie, Tuesday 26, P 11, Greg Sheridan, ‘Marles’ force review brings welcome urgency to defence’.
‘Defence Minister Richard Marles has announced a much more difficult ambition than acquiring nuclear submarines. He is committed to significant new funds to increase Australia’s defence capability.
‘Before the election, Anthony Albanese made an important speech at the Lowe Institute. He specifically nominated four operations: putting Tomahawk missiles in our subs; reviewing the Hunter frigates program; examining upgraded weapons for offshore patrol vehicles; and possibly building more air warfare destroyers.’
Mr Marles said: ‘We want the most capable force that can place the greatest question mark in any adversary’s mind.
‘We want a defence force that is taken seriously as a nation and therefore creates the greatest strategic space for Australia. We need to be looking at sovereign capability. We need to protect the country, and defend our key interest. We are a trading nation, and our maritime approaches and our sea lanes are critical.
Marles plans for the separate submarine report by next March – the same time as the force structure review.
‘By March we hope to know what submarine we are getting, the year we get it, how we fix the capability gap, what the cost will be and how we satisfy our nuclear non-proliferation obligations.
And in conclusion: ‘I get the impression that Marles is seized by the urgency of this task. He needs to be. No cabinet minister has a more important job’.
The AFR, Wednesday, 27 July, P 1 and P 2, Ronald Mizen, ‘IMF sounds new global alert.’
The International Monetary Fund has significantly downgraded its outlook for the global economy for the second time in just 3 months as inflation and rapidly rising interest rates stymie activity’.
The IMF forecast of just 3.2 per cent this year and 2.9 per cent next year, downgrades of 0.4 and 0.7 per centage from April. This largely represented slowdowns in the United States, China and eurozone.
‘Rising food and energy prices also prompted an upward revision to the global inflation outlook, with price growth expected to reach 6.6 per cent in advanced economies, up almost a full percentage point.
The AFR, Wednesday 27 July, P 38, Editorial&Opinion, ‘Global gloom adds to Chalmers’ task’.
‘The International Monetary Fund’s gloomy downgrade of its forecast for the global economy rams home how quickly war, pandemic and inflation have upended things in four months.
‘The risks that are already swirling in Ukraine, in Covid-hit China, and in the struggles of central banks to master inflation could quite plausibly mean a US recession by 2023 and among the world’s worst economic growth performance since 1970 says the IMF.’
‘The rapidly changing outlook means Dr Chalmers cannot dwell on the tough hand he was dealt at the May federal election. Alongside the deteriorating indicators, the government also has inherited an unprecedented jobs boom and the lowest unemployment rate for nearly half a century. It’s a combination like no other in modern times.’
‘Amid the uncertainty of how this will play out, Dr Chalmers needs to clearly set out how the government intends to deal with Australia’s economic constraints and opportunities, strong demand, and to reduce the upward pressure on prices.
‘The US Federal Reserve, wrestling with annual inflation that soared to 9.1 per cent in June – the highest in four decades – is now poised to announce a further 75 basis point rise.’
There will almost certainly be more trouble.
The Aussie, Wednesday, 27 July, P 1 and P 6, Simon Benson, ‘Reserve Bank review ‘not an attack’.’
‘Jim Chalmers will on Wednesday unveil wide reaching terms of reference for a formal review of the central bank, led by three leading economists, opening the door to a revision of the current inflation target as its key objective.
‘It will be the first review of the RBA in 30 years as the country deals with soaring inflation and interest rate rises. The terms of reference will examine the governance of the board and focus specifically on the central bank’s performance.’
The Aussie, 27 July, P13, Paul Kelly, ‘PM must bring centre-left to a new realism’.
‘The task facing Anthony Albanese is to entrench his governing authority and leave the centre-left to policy solutions in the areas of economy, wages, inflation and the jobs and skill summit.’
‘The conflict the Prime Minister faces is that the agenda on which he won the election – a future where no one is held back and no one is left behind’ – conflicts with reality, where Jim Chalmers foreshadows an economic outlook ‘in many ways confronting’ where the inflation spike means even worse news for real wage losses.
‘Albanese took office on a compassion agenda. His mission was to increase wages, get cost-of-living pressures under control, revive growth and prosperity, and run an economy ‘that works for people. Yet his inheritance is largely ugly.’
In conclusion: ‘Albanese and Chalmers now face their true test, putting together an economic framework that meets Australia’s needs and constitutes a new governing position for the centre-left.’
The AFR, 28 July, P1 and P6, Ronald Mizen and Phillip Coorey, ‘Economy slows as inflation bites’.
‘Treasurer Jim Calmers will downgrade for this financial year and the next in a statement to Parliament today that will show inflation predicting above the Reserve Bank of Australia’s 7 per cent forecast.
The outcome may be worse. Both ‘real’ output is likely to be smaller and productivity growth may be 1.2 per cent rather than 1.5 per cent.
The AFR, 28 July, P 27, Karen Maley, ‘Synchronised boom may transition into a bust.’
‘Central banks face a dilemma.
‘There’s no doubt they are under pressure to lift interest rates to tackle rampant inflation and convince businesses and households that these rapid price rises won’t persist.
‘We’re witnessing a synchronised rate-rising cycle by central banks in developed countries, which are raising official interest rates ...’.
The AFR, 28 July, P 46, Bryce Wilkinson, a senior fellow at the New Zealand Initiative, director of Capital enterprises and co-author of the report ’How central bank mistakes after 2019 led to inflation with Graeme Wheeler, a former Reserve Bank of New Zealand governor’.
I must start with advice offered by PP (Paddy) McGuinness, a great man of Australian journalism.
‘Australia and New Zealand. These nations should merge. Every activity should by converged and with one exception by managed from Australia. The exception is the Australian/New Zealand joint activity – it should be run from New Zealand.
Mr Wilkinson contributes ‘Central banks’ six inflation errors.’
‘Since 2019, central banks have presided over perhaps the largest monetary stimulus the world has seen.’
‘Central banks have made no less than six mistakes since 2019.
First, central banks were too confident about their credibility for preserving low inflation.
Second, central banks put too much faith in models that assumed that the public’s inflation expectations were anchored.
Three, central banks were too confident that output and employment would respond in a predictable way to cheap money.
Four, central banks were flexing there muscles on non-core issues. (EG climate change, economic inequality, indigenous people issues.)
Five, government-imposed conflicting objectives undermined their commitments to price stability.
Six, the role of political pressures on central banks cannot be overlooked.
(EG politicians do not want a recession close to an election; governments can end or weaken banks operating independence.)
The future: the days of ultra-cheap money and ultra-high liquidity are over.
‘Central banks can reduce the pain by taking effective measures to restore confidence in their determination to achieve price stability. Frank diagnosis of what went wrong would be a good start.’
The Aussie, Thursday 28, P 1 to P6, Patrick Commins, ‘Dour forecast: a $30bn wipe out’.
Jim Chalmers will warn of the worst inflation figures in two decades, combined with stalling global growth and climbing interest rates, that will slash $30bn from the economy. Australians will need to brace for ‘confronting’ times.
‘...with the latest inflation figures showing that the Consumer Price Index jumped 1 percentage point to 6.1 in the year to June, the Treasurer the warned rising inflation and interest rates would hit jobs, growth and real wages.’
Simon Benson comments ‘Chalmers must be careful with the language of doom.’
Peter Jennings, ‘We need a national security agency for critical years ahead.’
‘Creativity on the fly gets governments only so far. The challenge China, in particular, presents to Australian security demands a much more systemic approach to strengthen all our national capabilities as fast as possible’.
with thanks to Mr Rowe