If he didn’t defend Highrise, Gotti would make sense

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From Gotti today:

At last a major economic statistic — the consumer price index — is reflecting what is really happening in Australia.

Its tough out there and it has become a lot tougher in the last few months since dwelling prices started to fall in Sydney and Melbourne. Those tough conditions, in addition to lower petrol prices, sent Australia into a state of deflation in the March quarter. They also made trading very difficult for many enterprises and that will be reflected in disappointing final quarter profits.

Those working in the private sector have not seen their incomes rise for a couple of years and they are struggling…Firstly, in a globalised world, many areas of Australian labour must compete with international labour…We have just been through a mining investment boom and as it winds down the adverse effects are spreading beyond the immediate mining operations.

We needed to get on with infrastructure spending but the morass in Canberra is delaying this.

…Had Australian productivity really lifted, we would have generated extra wealth to replace the mining investment but our productivity stagnated. And productivity is simply diabolic in areas like health and education where the Commonwealth and states compete with each other to duplicate services.

…The Reserve Bank will need to lower interest rates sharply, thus making it even tougher for retirees. Lower rates on their own will not stimulate the economy in this environment, but those lower rates will hopefully weaken the dollar.

And there you have it, the MB prescription. Though you needn’t worry so much about retirees. Once below a 2% cash rate, deposit rates get sticky.

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Just stop arguing that we should also slash lending standards to re-inflate the Sydney and Melbourne bubbles to bail out Highrise Harry and you’d actually make sense, Gotti.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.