Food for thought
Matusik Missive 16th Feb
Rates must fall
It is so bloody obvious that even Wayne Swan knows about it, warning recently of a first quarter slump and a shrinking economy.
Putting egos aside, when the big boys in retail battle, it’s usually tough all around. Budget-conscious shoppers cut spending on food for the first time in 30 years in the lead up to Christmas. Widespread discounting on durables is largely failing to attract consumers as well.
Now we are facing the impact of floods, cyclones, a persistently high Australian dollar, and November’s unnecessary interest rate rise; along with tighter lending criteria, escalating utility charges, higher petrol prices and food bills, the flood tax, tough new employment rules and more industry regulations. The list just goes on and on.
But according to Henry Thornton, among others, inflation is set to rise and we must prepare for higher interest rates. The RBA looks like it is set to pause for a period of time, but quite frankly that is not good enough. Who made fighting inflation the priority anyway? I don’t recall ever being asked my opinion about it; let alone being encouraged to debate the merits of “fighting inflation first” at almost all other costs.
It is often forgotten that the ultimate purpose of economics (and an economy) is to increase living standards. Sadly, this aim is ignored in the pursuit of other less noble causes, such as a stable level of inflation, higher gross domestic product or a government surplus.
I am concerned that politicians, and the “experts” who advise them, are out of touch with the cumulative impact of the many pressures weighing down business (and especially small operators) across the country right now. On top of the list above, and not surprisingly so, there is hardly a residential property buyer in sight.
Economists, too, often quote things like deficits and surpluses as if they mean something to us mere mortals. Earlier this month our trade surplus came in at close to $2 billion, contributing to a $19 billion surplus over the last nine months. Yippee! Meanwhile, our biggest employment sector – services – continues to contract with close to 860,000 Australians underemployed – meaning they are working; are registered as employed in the official statistics; but cannot get enough work. Many cannot make ends meet. Oh, and 185,000 of the underemployed are in Queensland, with one in seven Queensland workers not getting as much work as they would like.
I am not saying that we are going to hell in a hand basket, but we are not going gangbusters either and I don’t give a fig about the price of bananas and its impact on inflation – interest rates need to fall and stay down for a considerable time to come.
Man up, Glenn and your gang – at least reverse the poor decision to raise interest rates on Melbourne Cup day last year. Being “ahead of the game” is no damn use to us right now…we don’t need you showered, changed and heading for home, but on the paddock, giving it your all. If you haven’t noticed, let me remind you, we are well into the second half but still way behind on the score board.
Michael Matusik
I’ll disagree, the only way is up & that’ll help pull the AUD down creating upward pressure on inflation as the cost of imports rockets upwards.
It appears to me that the interest rates were increased merely in an attempt to control the rise of property prices, and they did this under the cover of trying to control inflation. If they keep raising the interest rates higher and the AUD continues to strengthen, we could very well see a recession. When the money stops moving, Australia will slow to a crawl.
I keep fish as my only pets and I'm glad to have 'cheap' pets in times like these. But on that note, the fish shop that I used to frequent used to be bustling with people, and now it's dead quiet on each of my visits. The owner used to buy little fry (baby fish) from me to on sell to the public but he's stopped this practice because of difficulty clearing his own stock!
Indeed, discretionary spending cutbacks have been the cause of great distress to local retailers, who in turn are blaming international retailers and websites (eg. ebay) for their loss of income. The truth is that with the increase of interest rates, people are simply spooked and less willing to spend. Those who can still fork over the money for luxury items would rather buy from overseas, considering the strength of the AUD.
People from overseas on the other hand are less inclined to buy from us or even take a vacation here because the exchange rate has become exorbitant. Tourism suffers, and so does education with less students willing to study here. It's probably only the banks and the miners that are making money in these times, because like it or not, people still have to pay their mortgage, and developing nations still need Australia's resources even if it's costing them a fortune.
The only piece of good news I've been told is that petrol prices would apparently be a lot higher if not for the strong AUD. IMHO that's the biggest crock <moderator: delete language> I've ever been forced to stomach. Back in the days when oil prices went down, we never saw cheaper petrol, and now they're trying to convince us that petrol ain't getting more expensive because our AUD is strong! What utter nonsense! Last week I remember seeing petrol at $1.41+ a liter. That seems more expensive than what we experienced in the past.
Scott No Mates wrote:I'll disagree, the only way is up & that'll help pull the AUD down creating upward pressure on inflation as the cost of imports rockets upwards.Hi Scott,
Increasing interest rates will make AUD stronger, not weaker and the cost of imports would drop as a result.
Here's a silly story.
Consider we have oafey slow thinking do gooder ideologues in the RBA and Fed Govt who finally realize affordability might be an issue.
So the RBA decides it will now consider asset price inflation in setting the cash rate.
Hmmmm……ok, so house prices too high -> raise rates, even if conventional inflation is within the target band.
Hmmmm again…..that decreases the amount buyers can borrow, and increases the cost of building new stock.
Population growing at 1.5-2%pa.
Housing supply drops below 30,000 per qtr. Hmmmm indeed.From The Story Teller (WW)
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