Premier Investments Chairman Solomon Lew – and ex-RBA board member – possibly after seeing the large hands of Holden held out yesterday – has effectively called for a bailout of his own sector – retailing.
From the AFR, via his conference call after the HY profit results, which fell 2.4%:
Mr Lew… called on the RBA to immediately cut interest rates by 50 to 75 basis points to stimulate consumer demand and prevent further job losses.
“I really believe the Reserve Bank has mishandled the mining boom to the great detriment of the non- mining sector and particularly retail which is one of the key drivers of economic activity. With great respect, the Reserve Bank needs to both drop interest rates immediately – I’m not talking just 25 basis points – to stimulate confidence at a time when all Australia should be booming,” he said.
“I’d be calling on the Reserve Bank to cut 50 to 75 basis points at the next meeting. The Australian economy is in trouble, but as far as were concerned we have loads of opportunities and we’re going to invest in Asia.”
In case you missed it, the real reason behind the lack of spending is not the mining boom, but a private sector ladened with debt:
That is now saving like in did before the bubble in credit:
Which is having an effect on retail spending, which is flat in per capita terms (but not nominally, where its still rising…yet not being translated into profits):
And whilst real interest rates are near historic lows, the banks aren’t passing it on, not just mortgages, but small business (the real deliverer of job creation) as well:
Any significant lowering (say to GFC levels) of rates, and subsequent re-inflation of household debt will mean structurally low interest rates like the developed nations in Europe, the US and Japan all facing the deflationary dilemmas of debt deleveraging.
It seems Mr Lew is channelling US monetary policy history by calling for lower rates, “a bit of inflation” alongside more representation on the board for retailers and other representative of the debt-laden sectors.
“A bit of inflation can’t hurt and at this point in time market confidence needs to be rebuilt … the eastern seaboard as far as I’m concerned is completely frozen and the only jobs being created are in the west and that’s in the mining sector.”
Maybe temporarily this action may have the desired effect on retailers half year results (and subsequent executive bonuses), and indeed stock prices like the cyclical bull markets in the US, but you can’t stop a debt disleveraging in six months.
Policy makers, economists and vested interests have effectively got it in reverse. If the RBA Board can be accused of “mismanagement” it is in allowing the accumulation of credit to have gotten out of hand in the first place. They might also look to our respective parliamentarians, who hold and held the fiscal policy keys that might address mining boom stresses.