• Pete Jonson

News&Views No 15, April 30 – May 5.

Updated: May 8


The Oz, April 30, P15, Tom Dusevic, ‘Skilled migrants and business investment for path to prosperity’.


‘We need an ambitious growth model to fix the budget and avoid stagnation’.


However, ‘The International Monetary Fund warns the task is especially tricky for countries with highly indebted households and large fiscal deficits’.


Mr Dusevic asks: ‘Sound like any place you know?’


The game is changed; inflation is here, broadly, deeply, and the RBA has been exposed behind the play. The central bank’s credibility on “forward guidance” has failed.


‘Naturally, with wages growth moving sideways, for a decade due to stagnant productivity, further confirmation of the inflation surge embeds rising living costs at the centre of the election’.


First principles: ‘One of the essential things you learn in economics is there are four factors of production needed to generate goods and services: Land, labour, capital and entrepreneurship.’


· We have enough of the first

· We can always get enough of the fourth.

· Right now, however, we have a national crisis involving the two middle factors.

· We need more workers.


This shortage is due to two years when immigrants stopped coming. Unemployment is at a low 4 per cent of the workforce and will fall further. Immigration is being reinstated, but will take time to reach historical levels.


Second, we need more capital. ‘Its cruellest failure in government has been the decline in our capital stock, the main cause of our woeful productivity performance, drift in living standards, and real wage erosion.


Read on Mr Dusevic’s fine article. It is the most thorough economic analysis I have read, and one wishes whoever is in government reads his article carefully, and tell his or her friend’s analysis of a truly rare article.


The regulars continue to provide excellent matters. Paul Kelly asserts that ‘both sides are unprepared for inflation challenges’.


Janet Albrechtsen explains how ‘Unregulated private cash is taking over public assets’.


Gideon Haigh writes about DG Lawrence in 100 days in Australia.


Dennis Shanahan says that Labor’s B team ‘stumbles over party policy’.


Nevertheless, the basic 53-47 results say Labor looks like winning the coming Federal election. If one of the big two players do not win the election it will be a very messy next election.


AFR, Weekend edition; 30 April – 1 May.'Looking upwards on the front page looking upwards, perhaps gazing to heaven, showing a picture of Philip Lowe'.


Ah well, he’s had a nice career with little to do and still seems likely to keep cash interest rates at 0.1 per cent. Even 0.5 would be a excellent starting result but might capture a criticism of whichever major political has won, or if not one both may complain about another ‘Glen Stevens’ event.


A wonderful ‘far too late, far too little’ experience’.


The Weekend AFR has a series of excellent articles.

· ‘RBA to signal multiple rises on the way’.

· ‘Big-spending Labor dials up fear campaign’.

· ‘Team Albo held the fort for a week, maybe too well’. (Or far too late).

· ‘Growing divide spells trouble for Coalition’.

· ‘Biden seeks $46b to keep backing Ukraine’.

· ‘Why interest rates will keep rising’.

· ‘The interest rate rises that Australia now has to have’ and

· ‘Net zero climate policy is not dead, its just pining for the fjords’.


The Oz, May 2, P1, Paul Kelly, ‘Albanese rhetoric-rich, policy-poor.’


‘There has never been a Labor launch like this. Powerful rhetoric and symbolism to conceal the most modest policy offering from federal Labor at any election for the past 50 years.’


Anthony Albanese its teaching Scott Morrison a lesson in the art of politics – picking the national mood to pick a change of government even when the public has no appetite for substantial change’.


Robert Gottliebsen, ‘World faces tough times, P 21.


‘World markets are entering an era that they have nor encountered for decades.’ …

‘It will be an era of much higher consumer price inflation: many estimate that in the US and globally it will rise to around the 10 per cent mark, with an accompanying big rise in interest rates.’


‘Areas of the Australian economy are set to be hit much harder than other parts of the developed world’.


Product and asset inflation, Henry Thornton.


Toward the end of his article, Gottliebsen mentions the effects of asset inflation. I have spent considerable time analysing US inflation with sets of product inflation and asset inflation.


Both categories tend to follow the growth of money either both categories are positive or pow or negativenegative.


The biggest divergence occurs with about four occasions (EG US inflation from 1924 to 1929) when money and product inflation follow similar low tracks and asset inflation booms. Then in war examples inflation product mostly follows money but when war looks like following ‘war win’ tracks for asset inflation.

There is a lot more work to be done, but already changing ‘real’ effects look systematically explicable. With the right data-base I’d love to generate systematic results. My current US data base is from 1867 to 1918. Great results await to be analysed.


A proven distinguished US professor said when the article was sent to be reviewed:


‘Friedman only was interested in product inflation, not asset inflation’. All I could do was groan softly.


AFR, May 2, Albo: ‘I won’t treat every crisis as a chance to blame someone else. I will bring people together’,


There is on P1 a nice picture of Albo and Paul Keating, with three other big players grinning cheerfully.


‘Low-cost housing, cheaper medicines, sovereign manufacturing and stronger care sector are at the core of Anthony Albanese’s official pitch to become just the fourth Labor leader in 70 years to take his party from opposition to government.’


Another front-page comment, by Phillip Coorey. ‘The Reserve Bank’s looming but overdue interest rate rise is a systematic signal that Australia’s contemporary political culture – notably its resource curse complacency and social media-tribalism – is unfit to the post-COVID-19 world’.


John Kehoe and Vesna Poljak, P3, ‘Rate rise ‘a must’ for RBA independence’.


‘Former RBA governor Glenn Stevens raised interest rates during the federal election campaign in November 2007, angering then-prime minister John Howard and Treasurer Peter Costello.’


Peter Tulip, P39, ‘Reserve Bank must be made accountable for inflation mistakes’.


Well said, Mr Tulip, and keep up the good work.


The Oz, May 2, P1, Paul Kelly, ‘Albanese rhetoric-rich, policy-poor.’


‘There has never been a Labor launch like this. Powerful rhetoric and symbolism to conceal the most modest policy offering from federal Labor at any election for the past 50 years.’


‘Anthony Albanese its teaching Scott Morrison a lesson in the art of politics – picking the national mood to pick a change of government even when the public has no appetite for substantial change’.


Robert Gottliebsen, ‘World faces tough times’, P 21.


‘World markets are entering an era that they have nor encountered for decades.’ …


‘It will be an era of much higher consumer price inflation: many estimate that in the US and globally it will rise to around the 10 per cent mark, with an accompanying big rise in interest rates.’


‘Areas of the Australian economy are set to be hit much harder than other parts of the developed world’.


Product and asset inflation, Henry Thornton.


Toward the end of his article, Gottliebsen mentions the effects of asset inflation. I have spent considerable time analysing US inflation with sets of product inflation and asset inflation.


Both categories tend to follow the growth of money either both categories are positive or pow or negativenegative.

The biggest divergence occurs with about four occasions (EG US inflation from 1924 to 1929) when money and product inflation follow similar low tracks and asset inflation booms. Then in war examples inflation product mostly follows money but when war looks like following ‘war win’ tracks for asset inflation.

There is a lot more work to be done, but already changing ‘real’ effects look systematically explicable. With the right data-base I’d love to generate systematic results. My current US data base is from 1867 to 1918. Great results await to be analysed;


A proven distinguished US professor said when the article was sent to be reviewed: ‘Friedman only was interested in product inflation, not asset inflation’. All I could do was groan softly.


AFR, May 2, Albo: I won’t treat every crisis as a chance to blame someone else. I will bring people together’,


There is on P1 a nice picture of Albo and Paul Keating, with three other big players grinning cheerfully.


‘Low-cost housing, cheaper medicines, sovereign manufacturing and stronger care sector are at the core of Anthony Albanese’s official pitch to become just the fourth Labor leader in 70 years to take his party from opposition to government.’


Another front-page comment, by Phillip Coorey. ‘The Reserve Bank’s looming but overdue interest rate rise is a systematic signal that Australia’s contemporary political culture – notably its resource curse complacency and social media-tribalism – is unfit to the post-COVID-19 world’.


John Kehoe and Vesna Poljak, P3, ‘Rate rise ‘a must’ for RBA independence’.


‘Former RBA governor Glenn Stevens raised interest rates during the federal election campaign in November 2007, angering then-prime minister John Howard and Treasurer Peter Costello.’


Peter Tulip, P39, ‘Reserve Bank must be made accountable for inflation mistakes.


Well said, Mr Tulip, and keep up the good work


Sitting on near zero for years and then ignoring the ideas of practically every interested watcher, is simply stupid. Adjusting a near zero basis for years is a nutty way to create a way to ruin in monetary policy.


TV news, May 3, 3 PM. RBA raises cash interest rates’.


Wow! From 0.1 % to 0.35 % when global rates come from Australia’s 5 % to US 8 %, with tiny bits and pieces ignored.


Mrs Thornton said something like ‘Those RBAers will be seeking a productivity bonus. First real, if weak, work they’ve done for 11 years’.


Sadly I had to agree. I guess there will be a few more 0.25 % hikes and the current RBA staff boldly go where they have never gone before.


The Oz will comment on the RBA tomorrow. Front page today was ‘Tech titan’s energy bombshell’ a way to get ahead of people trying to beat those who are trying to kill AGL’s ‘proposed break up’, throwing away perfectly good coal production and presumably other nasty ways to quickly get rid of oil and even gas.


Greg Sheridan graces the commentary page with ‘Teals play electoral system for a sucker.

‘The most destructive, harmful and dangerous vote anyone can make in the forthcoming election is for a teal independent or the Greens. They are both direct threats to our national security. The government and Labor, and most strategic analysts, tell us, correctly, that these are uniquely challenging times strategically and militarily. Yet the Green’s position on defence is nearly insane in the entire world, think China presents no strategic challenge and

they want to slash our already feeble military capability.


Hear, hear, Greg. Keep up the great effort.


The AFR, Kennoth Rogoff, P38, ‘Brace for global recession trifecta.


‘Is the global economy flying into a perfect storm, with Europe, China and the US all entering downturns at the same time next year. The risks of a global recession trifecta are rising by the day’.

· Risk for Europe is ‘almost evitable’ if the war in Ukraine escalates and Germany finally relents and pulls the plug on Russian oil and gas.

· China is finding it ‘increasingly difficult’ to maintain positive growth in the face of draconian COVID’19 lockdown.

· ‘A recession in the US, especially if triggered by a cycle of interest rate increases by the Federal Reserve, would curtail global income demand and trigger chaos in financial markets’.


Read on, gentle readers. Especially if inflation in the big countries gets worse, Mr Rogoff ‘is not sure politicians and policy makers are up to the task they may soon confront’.


Kenneth, please spare a few hours to check out the RBA. They have done little in the past 11 years and have just scraped the cash interest rate off the floor, as Aussie rates slowly chase USA’s 8 % and rising.


Warwick McKibbin tells us ‘Why the RBA should lift the cash rate to 0.5 per cent today’.


Nice try Warwick. Still the boys and girls at the top end of their exercise space made an effort – they achieved 0.35 per cent without breathing hard.


But can you tell me what Dr Lowe meant when he said inflation might reach 2.5 per cent, ‘the midpoint of our 2 to 3 % flag points’. Then with a ‘gotcha’ smile, ‘We might get to 2.5 %’.


Excuse me, Dr Lowe. At the LSE I never was told cash interest rates have to equal the midpoint of an arbitrary set of flags. What do you do if inflation is 10 %?


The Oz, May 4, P1, Ross Greenwood, ‘Latest in a long line of RBA stuff-ups.


Interestingly, at last a serious player tells it how it is. Yesterday showed the comments on monetary policy, with various experts offering differences, mostly of the ‘RBA is doing its best’ type of commentary.


Today the comments are far more bloody-minded, and even the overpaid governor of the mighty RBA admitting it is ‘End of the emergency rates era. But Mr Greewood tells it how it really is.


Here is the first paragraph.


‘Reserve Bank governor Philip Lowe’s term ends on September 17 next year. No matter who is Treasurer at that time, his tenure should not be continued.’


Read on, dear readers, you will I assume agree on the governor’s tenure. And there are many other contributions that will ask you how the mighty RBA could stuff-up so thoroughly.


The daily commentary (P 12) makes a relatively positive comment. ‘Rates rise will focus voters on serious economic issues’.


Cop the final comments. ‘While Jim Chalmers flaps about the “triple whammy” of rising inflation, living costs and interest rates, Scott Morrison is underlying the resilience of the economy. The side that shows it is best equipped to deal with the new conditions will gain momentum.’


P 13 has a nice commentary by Paul Kelly. His final comment is as follows: ‘Sure, Morrison and Albanese must accept a large share of blame for a dispiriting election. But the single worst thing about this election is the total absence of public and media awareness that the problem that the problem is about us, it’s about what we are, what our debased tribal culture has begun.’


I must congratulate John Spooner’s for his lovely cartoon today. How can I get a copy Mr Spooner? (0403 048 105)


The AFR, has too many articles about our problem. but here goes our additional examples. Ronald Mizen on the front page begins as follows: ‘The Reserve Bank of Australia is set for a string of interest rate rises over the next year, potentially taking the cash rate to 2.5 per cent, as the bank indicated the inflation will not be brought under control until mid 2024.’


I gently ask, as I did yesterday, what if inflation is substantially higher than the 2.5 mid- point of the RBA’s 2 to 3 % flags?


The Oz, May 5, P1, Ewin Hannan, Big pay rises ‘to drive up prices’.


‘Employers have warned the pursuit by unions of “excessive” wage increases in response to rising inflation and interest rates will spark more rate rises and higher prices as businesses pass on increased labor costs to customers.’


This is an old game resurrected now, and by the look of the news this will become steadily widespread.


Putin’s missteps unify the west,’ says the Aussie’s third editorial message on P 10.


Mr Putin is apparently furious about the application of Sweden and Finland to join NATO. Time to accept those two countries, so far neutral, and to get on with harder issues, including cancelling Russian oil and gas for all nations on ‘the west’ that needs them. Putin’s threats to drop nuclear weapons needs to be ready to go for immediate retaliation if Russia decides to go for nuclear bullying.


The first editorial message is ‘Economic credentials key to securing voters’ trust’.


Mr Frydenberg beat Mr Chalmers on points, the Oz asserted. My view was that the Labor man was covering up a large amount of spending while asserting that the Coalition man was being accused of ‘great negativity: ‘drift, dysfunction, rorts, waste, buck-passing, pain, Australians being punished by the cost-of-living crisis, and the “most wasteful government since federation - was overblown.


Still it looks as if Labor still has a winning lead, unless the 25 % of uncommitted voters.

AFR, May 5, P1, John Kehoe says: ‘Budget blowout driving up rates’,


‘Cash handouts and election outlays will fuel more inflation and interest rates rises, so that the Coalition and Labor must cut spending or raise taxes to help the Reserve Bank of Australia cool price pressures, former senior government economists say.’


On P2, Jennifer Hewett asserts ‘Both [Frydenberg and Chalmers] fail to convince on economy’. Surely every senior economist not tied to either of the two current or hopeful treasurers believes the P1 comments.


Well done Ms Hewett, keep up the good work.


As you concluded. ‘The sullen mood of the electorate and rising costs means voters are looking for more than a recitation of past successes.


‘Hello? Hello?


Anybody there?


P 46. ‘Budget fix must join inflation fight


‘The Reserve Bank’s overdue 0.25 % cash rate increase should signal to both Labor and the Coalition that whoever wins the May 21 election needs to make budget repair part of the fight against the cost of living “crisis”.


‘As economics John Kehoe reports today [P 47], formal Treasury and finance officials [and former Central bank officials] back the Australian Financial Review’s analysis and call for tighter fiscal policy to take the pressure off monetary policy, …


[Despite the need for substantially stronger monetary policy PLUS less government budgetary excess.]


KULTURE

Fiona Prior takes in a little derring-do espionage in the true tale of an unbelievable WW2 Secret Service operative ‘Operation Mincemeat’. More here.


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