Yesterday’s set of RBA speeches were very disappointing. They confirmed that Australia will plod down the same weary path of financial repression that the rest of the Western world is so enjoying.
But they were disappointing for a second reason. The major speech of the day was delivered by Deputy Governor Philip Lowe, heir apparent to Glenn Stevens, who is considered a smart operator and capable of thinking outside of the box. Yet his speech more than any other I can remember entrenched the orthodox thinking and denial of Australia’s current elite that our economic model is balanced and without risks. This was very disappointing indeed. From the speech:
I would like to begin this morning by briefly summarising the broad economic outcomes in Australia since I first spoke at this Forum in March 2010.
Since that time, output in the Australian economy has increased by 9 per cent. The number of people with jobs has risen by over half a million. The unemployment rate today, at 5.4 per cent, is exactly the same as it was three years ago. And underlying inflation has averaged 2½ per cent over this period, which is the midpoint of the medium-term inflation target.
So over these three years we have seen growth close to trend, a stable and relatively low unemployment rate and inflation at target.
By the standards of most other countries, this represents a very good outcome and a high degree of internal balance. Remarkably, we have achieved this balance despite experiencing the biggest boom in business investment and the largest rise in the terms of trade for over a hundred years (Graph 1). In the past, much smaller investment and terms of trade booms caused outbreaks of inflation and the emergence of other imbalances in the economy. On this occasion this has not happened. The investment boom has not led to a large increase in the current account deficit. There has not been an explosion in credit. Increases in asset prices have generally been contained. And the average level of interest rates has been below the long-term average, despite the very significant additional demand generated by the record levels of investment and the terms of trade.
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.