• Pete Jonson

News and Views #1 (Australia Day 2022)

Updated: Jan 27

Once I wrote a Blog each day except Sundays. Gradually that foolishness declined until there was only an occasional contribution. Today is Australia Day and I thought of an idea that may be of interest to readers of newspapers who, like me, prefer to merely skim the press. This will be my contribution with occasional comments – the ‘views’ of the title. Here goes.


'WA border backflip to hurt nation’, the Oz, front page January 22-23. No doubt. Does the relevant Premier know two things. Eventually almost everyone will get the Covid and all he is doing is staving off the day. Of course, he may ‘win’ by having his people mainly getting Omicron rather than Delta but surely he would not think like that? And all his people are waiting with uncertainty and presumably some dread for their turn.


Another front-page article in that edition of the Oz, ‘God will heal’ girl. An eight-year-old girl with undiagnosed something let to die. Why is this allowed?


Markets savaged as rate fears rise’, Weekend AFR, front page 22-23 January. US and UK have strongly rising inflation and later this week even Australia will have an inflationary ‘surprise’. Anyone who follows the news knows lots of products are sharply rising in price and ‘surprises’ are inevitable. Interest rates are too slowly being thought about raising and inflation will almost certainly keep being


Productivity needs ‘creative destruction’ ‘, the Oz, P2, January 25. ‘Australia’s productivity growth can be reignited by promoting spirited competition between innovating companies and allowing “zombie” firms to fail …’


An OECD chap, former Treasury and RBA man, said ‘Productivity growth is the only mechanism to deliver sustained improvements in living standards over time’. Apparently it has been the worst decade for 60 years, and therefore the worst for living standards.


Wow! Am I allowed to point out which side of politics was in charge for almost that decade? Or, a lagged result of Rudd/Gillard/Rudd?


Correction looms as cash rate rises. AFR, p 38, Tuesday 25 January. 'Yesterday’s fall in the ASX200 to an eight-month low suggests that equity markets are bracing themselves for the inevitable, and overdue, correction of over inflated assets … that have been pumped up by excess central bank printing of dirt cheap money’.


The Editorial column speculates several theories ‘to explain the ultra-easy monetary policies maintained by central banks since the 2008 global financial crisis’.


‘Fundamentally, there is something unnatural about pricing money at zero or negative rates. Interest rates should reward those who delay gratification now to enjoy more in the future. Frothy equity markets made bubbly by ultra-low interest rates are colliding with the 7 per cent annual increase in US consumer prices and the Federal Reserve’s imminent tightening of monetary policy to control inflation’.


In my view, Australia’s monetary policies have been disgraceful. Near zero cash interest rates, RBA comments on no rate hikes until 2024, great increases of asset values. One theory is that this has been a wonderful way to make rich people – including RBA'ers – even wealthier, while wage rates are less than ordinary inflation.


At last asset markets have cracked but the fall so far as less than 20 per cent. Bring on a decent reduction cuts to asset values, establish a decent cash interest rate (3 % might be more suitable) and help create a decent further set of macroeconomic policies. The big problem will be cutting government debt, but it will also be vital to find viable policies to boost productivity.


US message, Thursday 27 January.


Fed Reserve Chief Powell popped up on Australian TV to say that the ‘US economy is showing great resilience and strength’.’ He strongly implied that there would be a rate hike in March. Well done Mr Powell.


China envoy’s olive branch’. The Oz, front page, January 27.’China’s new ambassador to Australia, Xiao Qian, has extended an olive branch months out from the federal election and described his ambassadorship as a ‘noble mission.’ …


‘I look forward to working with the Australian government and friends in all sectors to increase engagement and communication, enhance mutual understanding and trust, eliminate misunderstanding and suspicion, promote mutually beneficial exchanges and cooperation in all areas between the two sides’.


Let’s hope this is for real and our team will take this affirmation seriously. Well done Xiao Qian. (Apparently, Peter Dutton has already rubbished the ambassador's attempted reset.)


AFR benefits from holiday yesterday, 28 January.

Several excellent articles today that really in quantity and quality hit a high level. I shall point to some of the best of them, with apologies for any I have missed.

AFR, back page, January 27,‘Pros and cons of another Fed put’ with much input by Macquarie’s Victor Shvets from New York.

Central banks have developed a ‘Fed put’ which I see as an attempt to keep the lolly rolling. Shvets says the primary mandate of central banks is not employment or inflation; it is maintaining the stability of the ‘cloud of finance’, which is five to 10 larger than underlying economies. times underlying economies.’

“The Fed is not an arbiter but rather a ‘market mirror’, with investors watching the Fed and the Fed watching the investors, understanding that modern economies require rolling asset bubbles to sustain what the ‘cloud of finance’ demands and societies view as appropriate growth rates.’

A good friend, Ben Cohen, called me to help sort out what this paragraph means. I said ‘it looks like the central banks mainly look after their rich mates, indeed their personal wealth’ My wife Libby said; ‘No-one wants to spoil a party’.

We agreed near zero interest rates did not help the top 60 or seventy battlers, including pensioners, the unemployed and ordinary workers. The top 5 % were well looked after with regular ‘puts’ and the rest of well paid senior workers cope.

Two previous RBA chiefs (Macfarlane and Stevens) separately told me (or someone else told me) on asking how they accounted for asset inflation. Both said ‘There is no framework’. Keeping the wealthy happy seems a rather weak framework, and let’s hope someone can create a framework. ‘A fair go for all’ would be my starting point.

Other interesting issues include: + AFR view: Resilient farms bounce back, p 38 + Nir Kaisser, Stocks don’t rise or fall because of interest rates, p 37 + Steven Miller, Time for an RBA rethink on inflation, p 27 + Martin Wolf, the winding road to global recovery is through a thicket of risks, p25

AFR, January 28, ‘Is the lucrative ‘Fed Put’ dead or just resting?’ (p 27) and ‘The US Federal reserve is still playing with fire on interest rates’ (p 35).

Jonathon Shapiro says; ‘Now living costs are rising, at a faster pace than wage increases, and the subject of inflation, not inequality is entering the political discourse’. And ‘however, there are still some reasons to believe in the Fed put’.

Mr Shapiro has a lovely graph that google will not allow me to copy. It starts in 1970 with sharp tightness in financial markets, ending in 1984. Then, apart from a brief burst of tightness in the late 2010s monetary policy has been easy'.


How can that be, colleagues?

The second article is far more certain. Its author, Steven Roach, is a member of Yale university after a distinguished chairmanship of Morgan Stanley Asia, and the author of a book on the codependency of America and China.

‘With the nominal federal funds rate effectively zero that translates into a real funds rate (the preferred metric for assessing the efficacy of monetary policy) of minus 7 per cent’

‘That is a record low. Only twice before in modern history , in early 1975 and again in mid-1980 did the Fed allow the real funds rate to plunge to minus 5 per cent’.

‘No one has a clue, including the Fed and the financial markets. But one thing is certain: with a minus 7 per cent real fputting the Fed in a real hole, even a swift deceleration in inflation does not rule out an aggressive monetary tightening to reposition the real funds rate such that it is well-aligned with the Fed’s price stability mandate.’


Whew, I must leave readers to take up a most interesting article

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My email address is peterdjonson@gmail.com

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