From the AFR, economic heavyweight, Bob Gregory, has responded to this morning’s RBA board member’s attack on surplus politics:
Respected former Reserve Bank of Australia board member Bob Gregory has said the central bank is becoming more focused on adjusting monetary policy “month on month”, leaving it vulnerable to “political mucking around”.
Professor Gregory said this was a “major change” in the way the RBA operated – given its long-standing goal of guiding the economy one to two years ahead – and could lead to more policy makers speaking openly outside the normally private forum of the board.
Is that an attack or not? Perhaps a gentlemanly reminder. Then again, perhaps not:
Professor Gregory said calls for spending on infrastructure should be taken seriously, and rejected the view that this was akin to loading up the national credit card.
But he went on:
“For example it used to be believed, not that long ago, that it was important that monetary policy be reasonably slow moving and focused on one objective,” he said. “The objective was clearly on what the inflation rate was going to be in one or two years ahead, and one did not react month-to-month.”
“Unless there was crisis [such as] in 2008 – and they didn’t come along very often – it was steady as she goes.
“Our central bank is now prepared to react much quicker, much faster and more often. They are moving to this one month reaction business.”
Hmmm, that may be the case in volatile times when the world has several huge structural adjustments underway at the same time.
But it isn’t true of today’s discussion, which is about fiscal spending rising to offset an obvious and rather nasty forthcoming blow to growth mid-year as mining investment begins to fall. There’s nothing month-to-month about that.
Bernie Fraser also kicked in that he is in favour of appropriate infrastructure spending.
But what sort of infrastructure spending?
By 2030, we will definitely be on the decline slope of peak oil. We need to prepare for that now (solar energy projects, for example).
By 2030, we will be looking at tremendous damage from climate change, more-so if we do not act now to mitigate the effects (build resilience into society now — water tanks on every house, bike lanes, localised food productions, renewable energy projects, etc).
More highways? Effing NO!
+1 agree with u, R2M.
Now watch 3d1k and co attempt trash Bob Gregory’s reputation in 3,2,1…
I like Bob.
Actually Mav you obviously don’t bother to actually read anything 3d1k says…otherwise you would have noticed Bob is one of those 3d1k quotes quite a lot.
And if you print, rather than borrow-at-usury, then these aspirations become far more practicable.
Op8..If you print you have to finance it. We can print A$ but we can’t print say USD to buy the Caterpillar tractors or the NBN cabling, nor the Yen for the Toyota 4WD’s, or for the specialist steel, nor the Euros to pay for all the BMW’s and Mercedes Benz, nor the RMB for every damned thing else.
If Govt wants to stimulate construction activity that would actually be funded by the private sector, it could promise to increase funding of Aged Care places for the next 30 years beyond what has already been mooted, thereby making investment in that sector more attractive to existing and new operators who have been shy of new capex for decades. The increased care payments to providers will increase the Govt deficit over a much longer period of time, and given that Govt controls the licenses for new Aged Care beds, it can in theory mitigage risk of oversupply.
Given the almost uniform shortfall in Aged Care places that will develop across the country over the next 30 years, and ongoing pressures on hospitals, it would also has the added benefit of freeing up hospital beds, new capacity in which is far more expensive to build and maintain than High Care aged care places which could provide care for many existing hospital patients over 80.
There’s some useful social infrastructure spending that needn’t be wasted money.
Unfortunately even high level Aged care facilities aren’t a substitute for a hospital, and a nursing home is no place for a sick individual requiring hospital treatment.
Having consulted at a number of these facilities, I am sad to say that the majority of these are severely understaffed (staff:patient ratios of 1:30-40, often with only 1 medication accredited nurse per shift). As such, there is a high reliance on public health and mental services to assist with problems like dementia.
Aged care facilities can be extremely quick to transfer patients deemed “too difficult,” and having more facilties (although needed) will increase the strain on the public system.
Another issues is that many facilities are “Aging in place,” meaning they have increased funds to provide for higher levels of staffing, but as private operator have decided against it.
“…this one month reaction business” A gentle rebuke from Gregory. “…political mucking around” A less gentle rebuke to Ridout and Edwards.
Bernie Fraser!!! Good grief, as I said, an election year.
Anyway, is there an Australian economist anywhere that defers from infrastructure spend? Right or wrong it is the mantra.
Truth is in our mining regions in the north-west infrastructure spend is sorely needed, as it is in transport hubs of cities and the interconnection of both.
Truth is in our mining regions in the north-west infrastructure spend is sorely needed, as it is in transport hubs of cities and the interconnection of both.
Such as developing places like Hedland?
But the local council inhibit everything, for reasons we know why.
But you’re ok with that, after all… vested interests are the economy.
And you ranted on about someone diverting a thread?
Where did I make that rant?
I find it remarkable how lukewarm posters here are to the proposition that defecit spending on infrastructure is both neccessary (or will be soon) and desireable.
Have you not being paying attention to the damage wrought by “expansionay austerity” in Europe?
The argument for counter cyclical state spending has been won 3 sets to love.
Lets be thankful that the Feds are in a great position to borrow to fund it.
Here’s why we have expansionary austerity in Europe, Barry – because there hasn’t been a time in the last 40 years that countercyclical spending has been recouped! 4 or 5 time Keynesian stimuli have been applied, but never repaid for use the next time. Expansionary austerity is all that is left to them.
Janet…absolutely…but you won’t get anyone to adress that issue or even admit to it here.
In the case of both Spain and Ireland (as just two examples), it had *nothing* to do with countercyclical spending, and everything to do with protecting banks from losses. Please, don’t attempt to rewrite history because you don’t like Keynesians.
At any rate, you should *never* fully repay the government debts, because you’d be left without a functioning economy. Just ask Peter Costello how that attempt ended for him when he could have paid off all of the Federal debt. Taken out to the backroom by the fellas in treasury and told what for…
The beatings shall continue until moral improves?
the point is simple states must make up the spending shortafall while the private sector deleverages. Otherwise, recession/depression is the inevitable result.
Just like now.
Still keen on the expansionary austerity theory?
whats wrong if it is just recession?
Depression is a different beast though…
How will behaviour adjust if individuals are shielded from the pain of poor decisions?
How will excess economic rents in terms of rentiers and overpriced segments of the labour market be clawed back? They won’t do it voluntarily.
Excesses in economic activity, if not clawed back by government as counter cyclical movements as Janet suggested, will find themselves as entrenched, viewed as just entitlements.
Ultimately this imbalance is the cause of malaise like we find ourselves in now.
lightweight
We need to have a severe and painful recession and get it over and done with. Instead we have idiots in charge trying to kick the can.
Won’t happen, because the Bernank whispered in Milton “Uncle Milt” Friedman’s ear: “You’re right. We did it (caused the Great Depression in 1929 by not printing enough money). We’re very sorry. But thanks to you, we won’t do it again.”
From 1913-1920, the Fed (I think the third incarnation of the Fed), increase money supply by 240%. This caused the “Forgotten Depression” inearly 20′s. The U.S overcame that little but severe depression quickly, despite leaving the money supply where it was. They neither expanded nor contracted it.
Well it didn’t take them long to zip-start the printing presses, and from that little depression to (I think before just before 1928), expand the money supply by 61%. They kept the interest rates low too for that decade. Guess what that caused…
From 1928-1931, the Fed lifted interest rates, and money supply dropped a little over 30%. This is what Bernanke blames the Fed. Stating it caused the depression.
But it was mass printing that brought the US economy to that point. Inconjunction with low interest rates, and more debts than customers at a casino, you don’t think it was coming to this anyway R2M?
Ambrose Evans: Central bankers should be brought to heel by elected parliaments.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9819701/Central-bankers-should-be-brought-to-heel-by-elected-parliaments.html
via
http://www.henrythornton.com/blog.asp?blog_id=2498
“should” the operative word.
“won’t” the inevitable word.
I know you like Bob. But why do have to wilfully ignore Bob’s message and resort to desperate hand waving to draw others attention away as well?
And you having a go at Bernie Fraser instead!! ROFL. HnH, you gave the SlipperyBot an easy out there by putting that last line.
I have not wilfully ignored Bob’s message, I have elucidated it.
Spot on about the Bernie Fraser line, that was a gift!
Did Bob appoint you as his spokesbot?
yawn
If the RBA and Gov want a boom they’ll get a boom. They can slash rates and stimulate like no tomorrow. Housing will be the main beneficiary, but other sectors will do well too.
I disagree. Banks, or to be more precise, bankers will be the main beneficiary. Little landlords may get some crumbs to keep them above the waterline.
Landlords are getting rising rents and rising house prices at the moment. Should keep them happy enough.
Where?
Perth
Martin Place, you wouldnt happen to be French would you?
The last year of rate cuts haven’t helped anything. Stimulus won’t help because folks are nervous.
May as well just hand out lollipops on the main street corner.
It takes up to 18 months for rate cuts to be felt. House prices have already stopped falling, turned around and started rising again. And the speed of those house price rises has accelerated in 2013 so far.
Make up your mind – Does the RBA want a boom or is it booming already?
You might want to take a look at http://www.macrobusiness.com.au/2013/01/housing-ignores-swan-rba/ to see how the effect of the current series of rate cuts compares to previous ones. Hint – not well.
A further increase in housing prices won’t deliver a boom.
A reduction in housing prices will deliver a boom however.
Yes, it worked in so many other countries.
Martin Place…what other sectors? Retail? Sure! Imported cars? Sure! Banks? Sure! What else in the current anti-business environment?
Professor Gregory said calls for spending on infrastructure should be taken seriously, and rejected the view that this was akin to loading up the national credit card.
Why does it have to be built with credit?
Remove the FHOG and immediately increase the retirement age to 67 and we’ll have upfront funding with no austere impact.
Why does infrastructure have to be built within a single year’s budget?
Why not borrow money (at a cheaper rate than the private sector) given that the benefits of the infrastructure will be felt over 10/20/50 years?
I didn’t say it had to be built within a year.
Increasing the retirement age will be an enduring saving.
But why would a government borrow money when it doesn’t need to? The ongoing interestpayments are just a form of corprate welfare, and the projects aren’t comlpeted instantly.
“But why would a government borrow money when it doesn’t need to? The ongoing interestpayments are just a form of corprate welfare, and the projects aren’t comlpeted instantly.”
Fair enough, but personally I think that Victoria urgently needs more new infrastructure than can/will be financed within existing budgest.
“offset an obvious and rather nasty forthcoming blow to growth mid-year as mining investment begins to fall.”
Given the size of the pipeline and 2012 Engineering & Construction spend I estimate 4 years of work at current levels, say 3 at a reduced pipeline after deferrals and cancellations (recent MB posts on the size of the pipeline and ABS stats re Engineering & construction).
What are the sources you are using to justify your claims quoted above?
Half a dozen different analyses by banks plus my own assessment and that of the RBA. The timing is hazy and could be out by a quarter. We’ll know more with the next ABS capex report.
So if Abbott wins he gets creamed by the fall in Mining/processing capex and presumably fall in employment and rising unemployment and the budget deficit goes up the following year because of the amount of timing differences involved in the quest for a 2012/3 surplus.
Personally I am thinking that while growth might stall, capital spending and employment might stable for a year or two.
How do you see the transition from construction to production playing out in terms of the major indicators:
Employment and unemployment
Exports by value
GDP growth rates
State Product in QLD and WA
State Revenue from royalties
Commonwealth tax receipts
or whatever you think are the ones most likely to be effected?