Oz manufacturing PMI signals full blown crisis

There are some days I get a little kick out schadenfreude but this in not one of them. Today’s AiG manufacturing PMI is a disaster:

Manufacturing activity contracted significantly in April as conditions weakened amid a strong Australian dollar, intense import competition, high energy costs and weak local confidence.

  • The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell 7.7 points to 36.7 on a seasonally adjusted basis. (Readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decrease.)
  • This is the lowest level the Australian PMI® has recorded since May 2009, with many of the key sub-indexes also dropping to levels not seen since 2009. The three-month moving average in April fell to 42.2 points from 43.4 points in March.

Here’s the headline chart:

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This is no surprise really. The ABS capex intentions reading earlier in the year made it plain. The pain is universal:

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Production and capacity utilisation both collapsed:

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New orders and exports both collapsed:

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Employment collapsed:

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Everything collapsed:

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This is not some bullshit productivity improving drive. It’s Australia’s industrial base going bankrupt at the same rate it did in the GFC, even as the mining boom it was supposed to help fuel runs into its own denouement.  I mean, for heaven’s sake, this is where we should be looking for green shoots not ashes.

Australia’s elite policy makers have blundered badly. The RBA should cut 50bps next week and install macroprudential policy immediately.

pmi final report april 2013.pdf by Raymond Nolan

Comments

  1. I’ll give you that, as long as it’s both!( The RBA should cut 50bps next week and install macroprudential policy immediately) but we both know, it won’t be….

  2. reusachtigeMEMBER

    Don’t worry, our economy will pick up when the RBAs plan of flipping more houses comes into effect.

  3. Sometimes I think this is all an intelligence test, those that fail continue in manufacturing business but they’re so stupid that they’re doomed anyway, so why worry about them. The manufactures that get the message, sold the land their facilities sat on to housing developers and laughed all the way to the bank.

    Lets see mining revenues likely to fall in 2014, import replacement industries all bankrupt, the only big growth statistic will be CAD, naturally fueled by more consumer debt.

    • “Sometimes I think this is all an intelligence test, those that fail continue in manufacturing business but they’re so stupid that they’re doomed anyway, so why worry about them.”

      Bob, I think that is a bit harsh. Alot of manufacturers are family businesses that have taken a generation to build and develop. It is hard to let a lifetime of work and purpose fall by the wayside. Also there is an emotional attachment to workers and families.

      These latest figues indicate to me that they have been trying to ride it out for as long they can but have finally capitulated. Its actually very sad.

      • Agreed sad day, but I dont write the script, I’m just calling it as I see it. Last year I had several manufacturing businesses try to sell me just the operations side of their business. They all wanted 6 month leases, and refused to enter longer term contracts or sell the land with the business. That’s when the penny dropped. Ahh ha!

      • Aaaah now I see where you are coming from. I was talking about the manufacturers that have cut costs as much as they can, retooled, exhausted their line of credit and still had demand stripped from them by overseas competitors. The one I know say they would sell more overseas if their product could be produced cheaper. And now they would have trouble giving away the business.

        Cheers CB

      • This is at epidemic proportions here in Perth.

        I’m watching people with 30 years manufacturing experience throw in the towel and close their business. No super but then sell their land for 3 or 4 mill and say “well that was lucky”.

  4. Agree with you CB.

    You forgot to mention more Govt debt spent on non productive investments and higher taxes for all.

  5. “I mean, for heaven’s sake, this is where we should be looking for green shoots not ashes”
    Indeed so, and soon there won’t even be a glimmer among the embers of what is left.
    All that I have seen with my own eyes and hear with my ears is “Down,Down,Down deeper and Down” I see it across western and southwestern Sydney as factories sit empty and locked up…5 years ago they were being snapped up for development now they are sitting rotting away with nobody interested in them…
    I heard yesterday that another of our fruit canneries is laying off more staff.
    I walked past the Parramatta mission at lunchtime yesterday and it was packed with “working families” getting a free lunch and it was a very somber place…then had a pip into Westfield’s…lots of shops with bored looking staff…I’d hate to be a small shop owner in one of those places.
    The startling thought for me is that we are in fact looking over the edge of the cliff.

  6. The 0.5% interest cuts are not out of the question for an RBA with a dovish outlook. The macroprudential tools would be great to have, but extremely unlikely. They’d somewhat cancel out the housing bubble reflating aspects of the interest rate cuts. We all know that’s not in the national interest (sarcasm).

    • There are no macroprudential tools that regulators can effectively use to curb speculative bubbles.

      All the experts at the Fed, with their MBAs and PhDs were all furiously denying the existence of a housing bubble, and regulators at the SEC as well as the government licensed credit rating cartel (moodys, S&P, Fitch) all continued to rate the junk as AAA+.

      It took a bunch of hedge funds and investors to smell a rat. Open markets always trump bureaucrats.

      • The federal reserve had rates at 1%. Adjustable Rate Mortgages (ARMs) had low teaser rates initially and reset at a higher rate.

        Fannie and Freddie also guaranteed trillions in mortgage debt after the government pushed for more access to credit for low-income and less creditworthy borrowers.

        The government was the source of the bubble.

      • “The government was the source of the bubble.”

        Correct.

        Govt, corrupted by Banksters. The US housing and Debt bubble has it’s genisis when Clinton repealed Glass- Steagal wiping out 60 odd years of safety. Influnced by head squid Rubin.

        From there it was all manner of game on with the derivatives casino and out of control lending by the Banks, Greenspan abiding with low rates. Voila, bubble materialises.

        HnH, yes the funds for the bubble were provided by keystrokes and very dodgy accounting. Funds were loaned into being as credit. But Govt pulled down the barriers that for 6 decades prevented it. Govt is responsible for the debacle.

      • OC,

        Get your facts right and look a little deeper.

        It was the derivatives on the mortgages that actually did the immense damage to the Banks balance sheets. How did all that come about?

        How was it that those mortgages were able to be made by Banks with such massive leverage? And how was it that those mortgages were made to people who had no business being indebted? You will see Govt hand in it everywhere.

      • You do know that Greenspan is patient zero of the Ayn Rand mental asylum fan club and was her close confidant.. don’tcha?

      • GunnamattaMEMBER

        all the experts at the Fed or the US Treasury were from the ‘open market’ or at least the Vampire Squid part of it.

        It was the Open Market that created all those CDOs and CDS that were based on bull.

        The open market is currently sucking on a bureaucratic teat to the tune of QE in the States, OMT in the EU, massive QE in Japan etc etc etc.

  7. We have probably missed the boat, but better late than never:

    Cut interest rates
    Devalue the dollar
    Reflate with the budget
    Re-write the tax scales and abolish the concessions

    This is all critically important.

    It has to be done before labour demand starts to go off the rails and we see pressure in housing and credit.

    There is just no time to lose.

      • Sure, that too.

        I am far more worried about a collapse in demand for credit and – as property values fall – aggressive moves by banks to protect their balance sheets than by any sudden burst in demand.

        Household incomes are falling. It is very unlikely they will boost demand for credit as housing prices unwind.

        The deceleration in the export sector is an echo of the GFC. We should respond to it in the same way as we responded to the GFC, and then go further: to the structural reforms that Rudd would not attempt.

        This is profoundly important in my opinion. Events are upon us, whether we can see it or not.

      • The Patrician

        Excessive mortgage debt is part of the problem.

        An orderly deleveraging is part of the solution.

      • We should focus on real rather than nominal debts and housing prices. If we procure a depreciation we can reduce real housing prices and real indebtedness without a nominal collapse.

        But because depreciation will reduce real wages, it will tend to depress demand too. So we have to use the budget to support demand and jobs while the domestic economy adjusts to changed relative prices. If we maintain relatively relaxed real interest rates, place the budget in a mildly reflationary setting and re-write the tax and investment systems – making them more progressive to support disposable incomes – we will escape with a stronger, more balanced economy, full employment and eventual fiscal balance.

        If we mess it up, there will be a collapse in jobs, incomes, housing, credit and the budget.

        This is all entirely within our own hands. We should focus on it and act without any further delay.

      • Are you suggesting big national FHOG boosts and cheques in the mail? That’s what we did in the GFC. Wouldn’t that just make an already bad situation much worse?

      • “…and then go further: to the structural reforms that Rudd would not attempt.”

        That bit is the key.

    • Your one and two don’t go together. Hasn’t Pavlov’s pet shown us that bad is good/good is bad? Cut interest rates..and the dollar will soar. Nothing will stop the debt funded consumption binge that Australians will embark on given an interest rate cut ( it certainly won’t help them be more productive, which is what this PMI is all about)..and that means a foreign funding flow of one direction.

      • Sorry I’m possibly missing sth important here, but wouldn’t cutting interest rates also reduce demand for investments in aussie, like bonds etc? And wouldn’t that ease the upward pressure on our $?

      • Depends, I have been thinking about this with bonds cutting interest rates boosts capital gains on bonds. I suspect it will boost demand until the “zero bound” suggested as 2% OCR is reached at which point there is no hope of capital gain unless QE is undertaken by the RBA (unlikely)

      • SweeperMEMBER

        A lower cash rate means lower bond yields (in short run)

        Investors will only buy at the lower yields, if the expected depreciation of the AUD (over life of bond) also falls. So the currency falls to equalize the return on bonds. This is the uncovered interest parity rule. At some point it has to hold.

      • If baked beans are 80c a can at Wollies today, and tomorrow they go to 70c, would you buy more (maybe even stock up at a good price in case the price rises again) or less? Unless there is a restriction on the supply of baked beans ( H&H’s Macrotools) then I’d suggest you’d buy like crazy! Why wouldn’t you? And the foreign investors? Well they get to earn 0.5% less but on billions more, don’t they….?

      • yeah I’d buy more if I actually liked (or traded) baked beans, but almost everything in australia is imported anyway, so wouldnt that increase in demand for imports put a downward pressure on the aussie?

        Also re foreign investors, wouldnt a drop in yield make other alternative investments more attractive to them?

      • You assume their is a finite supply of debt. But if US dollars are produced as infinitum at say 0.25%, will you be worried if you only get 2.5% in Australia rather than 3%? That 0.25% US$ debt is borrowed and sold for A$ for be used here – that’s a higher A$ exchange rate as the funds flow in. Until there is no net demand from Australia for new debt, it will continue to flow in, regardless of the % rate and the A$ will move ever higher.

      • you are helping my thoughts, thanks.

        I have every faith in the FED’s talent to turn toilet paper into greenbucks, but surely there must be other competing investments out there, other than aussie debt at 2.5%?

      • <i.Nothing will stop the debt funded consumption binge that Australians will embark on

        Now there’s a problem higher taxes can fix.

      • Alex Heyworth

        Or a change in the tax mix, to tax income and saving less and consumption more.

    • GunnamattaMEMBER

      I agree. But reckon we are on course for something different.

      My suspicion being that what will do is cut rates and fuel RE speculation without stoking demand, and gaming any fiscal stimulus to feed through the usual vested interests (real estate first and foremost). The decline in AUD will be feeble (with the sheer volume of overseas money looking for an AAA rated home with a yield) until such point as there is either a downgrade (because demand cant be maintained sufficiently to fend off concerns about unemployment and debt, or because there is too much in the wrong areas etc) when it becomes a sudden one off collapse (reflecting economic fundamentals as we all seem to see them but the MSM has only just twigged) which is of such a magnitude as to necessitate the RBA having to lift rates to fend off an inflationary spike, at which point we get those speculating in property on the back of low rates dropping their strides. etc etc

      • gunna, I think worries about a new bubble in housing are an example of looking at the past and simply projecting forwards. The bubble was only ever possible while both credit and incomes were expanding. Neither of these conditions now apply. Incomes are declining and credit to households (though not to banks) is contained.

        The risk in this economy is not a bubble in housing. It is a collapse. On the basis of price:income, values are as high now as they were prior to the 1890 recession when we experienced the greatest collapse in housing we have ever seen.

        On the basis of household debt:income, ours is the second most-indebted among the industrial economies, behind the Irish who have given insolvency a whole new meaning.

        It is really very important that a crisis in jobs and household incomes be arrested. If a decline starts to take hold, there could be a collapse such as we have never seen.

        The Government has the power to procure cuts in rates and to effect a devaluation, even while preserving the float. We have the capacity to run fiscal policy to support labour demand while we pursue adjustment in real wages, productivity and investment.

        It is quite obvious that there is no time left. These measures cannot be postponed because the economy is already on the slide.

      • “… the history of Australian settlement has been one of growth financed by foreign capital, punctuated by depression caused by balance of payments crises after a collapse in property prices and exacerbated by the imprudent use of capital.” (Noel Butlin).
        And what is different this time? Nothing…..

      • Alex Heyworth

        If the 1890s can be relied on as a guide, it will only take about four years for the worst of the crisis to be behind us.

        Property prices, on the other hand, may take two generations or more to recover their current values.

      • I think you’re underestimating the deep ingrained belief in Australia that property is the only true path to wealth. That’s been encouraged by politicians, bankers, the real estate industry, spruikers, everyone practically, for generations. I think it’s been demonstrated that reducing interest rates will, if low enough for long enough, push house prices even higher. It’s part of the Australian culture. It took generations for this particular aspect of culture to develop and it will take generations to unwind. To do what you’re suggesting without setting off another boom is going to require active and consistent negative jawboning of house prices from both the RBA and government.

      • Alex Heyworth

        “I think you’re underestimating the deep ingrained belief in Australia that property is the only true path to wealth. ”

        The reason for this belief, and the reason it is going to be so hard to shift, is that during a property boom/bubble it is true.

        Probably the only things that will shift the perception are either the bursting of the bubble or flat prices for maybe a generation.

      • GunnamattaMEMBER

        Yeah I am with you on that Briefly – I just have a load of punters quite literally looking at a place over the road from me today (yes they are all older and they are fitting every caricature people here would conjure) and feel that the ‘cant you bastards stop speculating’ urge could be carried a tad more vigorously.

        Am with you 100% that it is vital to keep employment up, if it drops there will be a massacre of non performing loans, collapsing demand etc.

    • Briefly, these are all great points, except “reflate with the budget”.

      Any increased borrowing by the government will be funded by AUD bonds that foreign investors can’t get enough of, providing we keep the AAA credit rating.

      Therefore any increase in government debt may well cause the dollar to appreciate. How strong this force is, I dont know, I have seen correlation graphs before but I cant find them now.

  8. How much of the slump was statistical noise caused by the change in seasonal adjustment? The other issue with AIG’s PMI is sample size. I’m not saying mfg isn’t in deep strife but I just wonder how indicative this survey is. I guess we should also consider how much of any reading below 50 is due to the multi-decade secular decline in mfg. It’s still an important part of the economy but not like the ‘olden’ days.

    Energy costs in this country are a joke. You can’t control the currency but you can easily reduce energy costs.

    • On energy, big issue at the moment is privatisation of electricity businesses and regulation of networks. Any one have thoughts?

      The Australia Institute released an ‘interesting’ paper a couple of days ago, saying privatisation had failed…

      • He doesn’t really acknowledge a lot of the issues surrounding privatisation and electricity price rises. Rises would’ve occurred under government ownership.

        Prices have been going up due to govt mandated reliability standards, inadequate regulation (which the AEMC has hopefully now addressed), renewable energy policies, carbon price, changed demand and needed infrastructure upgrades, not to mention inflexible retail markets. Seems as though the problem isn’t privatisation but instead uneven deregulation and govt imposed requirements on the system.

      • True, a lot of the electricity price increases come as a result of changes in the reliability standards, BUT who pressed for those changes? I dont ever remember seeing a consumer revolt about the dreadful state of the electricity transmission infrastructure in Australia.

        Matter-of-fact by world standards our electricity availability statistics were always pretty damm impressive.

        IMHO: These days the best solution to reliability is local storage and local generation so this transmission build-out will all be for naught.

      • “BUT who pressed for those changes? I dont ever remember seeing a consumer revolt about the dreadful state of the electricity transmission infrastructure in Australia”

        Yep. I think the govt/executive are starting to realise that.

        I wonder – how does local storage work?

      • Short term (less than 1/4 hour) Local storage can be done with battery banks distributed within the grid. Longer term (hours) is best addressed with embedded local generation capacity (gas microturbines is my preferred solution)

        But what really needs to happen first is consumer demand side control. There is no need to make this complex because all that is really required is a way to remotely disable air-conditioners, heaters, water heaters, and maybe ovens) and possibly delay refrigerator turn-on. If this demand side control exists than there are only a few “corner cases” where local storage and low-cost microtubines cannot provide adequate consumer supply reliability.

        The necessary remote control system already exists for water heaters and could easily be modified to control a much wider assortment of appliances.

      • Several years back I did a presentation to a large Australian electricity consortium about technical control oriented solutions to the “Peak demand” problem. It was based on a system we were developing for use in China.

        Well…needless to say they all looked at me like I was some sort of simpleton. Here I was wanting to reduce their costs, you see I didn’t realize, at the time, that their expenses were directly correlated to their profits. So they only wanted to here of ways to spend even more than they presently did.

        I must admit, i also suspect that there was a lot of collusion in the issuance of contacts, so maybe they even personally benefited from over building of electricity infrastructure. (this all happened on Sir Lunch-a-lot’s watch, so frankly nothing would surprise me.

      • China-Bob, are you across recent developments, ie do you think the AEMC’s rule change will be effective in changing those incentives? Seems as though network efficiency really depends on it working…

      • Personally I believe that “average demand” for electricity and “absolute peak” demand have decoupled and will never again be similar. In NSW The absolute peaks that are driving much of the infrastructure costs, only occur for 2 or 3 hours per year. Yet we are locking at enormous cost increases to guarantee this capacity. To my mind this is stupidity.

        I believe the matter could be resolved If residential consumers were simply asked to vote for a yearly cost to be associated with the electricity reliability.
        Something like
        $3000 pa = All you can eat
        $2000 pa = 1 hour brown out / year
        $1000 pa = 3 hours brown out / year

        Demand moderation tools have never even been talked about. This is silly because nobody expects Freeways to be infinitely wide just in case one more car wants to drive. Yet this seems to be our current electricity policy, unfortunately it is not just the residential consumer that pays for this stupidity business pay and pay big, even though their demand is usually far more constant.

        I don’t believe that many manufacturing businesses are closing down because of electricity costs alone, it is just one more nail in the coffin. It annoys me because in Australia, it is a completely unnecessary nail, we have abundant cheap sources of energy and should be enjoying a competitive advantage in this area.

        rant/

      • Privitisation is only half of the problem, the resulting obfuscation of electricity system aims and profit flows is the other.

        But it’s simple really: The generators get paid for producing more energy, while the transmission and distribution companies get paid for new capital to meet forecast demand, primarily peak demand (plus a bit for maintenance).

        Since, in some states, the State Govt owns the transmission and distribution companies, the Govt can extract more from consumers by leaning on the regulator to forecast higher peak demand and requiring higher reliability standards.

        The T&D companies then have a reason to make greater-than-required capital investments. The regulator then has a reason to approve greater-than-required network charge (about half of your tariff) rises, which flow back to the T&D Cos and, ultimately, their shareholders, which are the State Govts.

        This is how the electricity T&D capital “market” works — a cynic would call taxation by stealth.

        Regarding “local storage”: this can just be “smarter” electric hot water storage. Huge potential, HUGE.

        Regarding DSR, there’s some problems with perverse incentives for excess power consumption in the lead up to peak load events which need to be sorted, and some tricky network effects around voltage and frequency stabilisation from dist gen, but the switching-control part is completely feasible and in use for large energy consumers right now.

      • Alex Heyworth

        China-Bob, I’d just like to respond to a couple of points you have made above.

        You say you can’t recall a consumer revolt about the state of electricity infrastructure. I can. Queensland in around the late 70s/early 80s had a fairly dire reliability record, and it was a significant election issue. South Australia currently has rolling brownouts during peak summer consumption periods. Although I am not aware of it being an election issue, I know some people are not happy about it.

        On the issue of who should pay for peak demand, you have canvassed the possibility of consumers paying more for more reliable service. Another poster suggested remote control of people’s refrigerators and air conditioners.

        I don’t see any mention of the burden being shared by business or the government sector. Why should households carry the entire burden?

        Just my 2c worth.

      • Alex,
        I have no knowledge of Qld electricity problems in the 70’s so I cant comment.

        As for SA problems today, I have not looked specifically at SA electricity but I’m not surprised to hear that they have rolling brown-outs just due to the nature of the Aussie grid.

        That said I think SA supply problems will resolve themselves because their excess wind resources will drive greater grid connectivity which is useful for supply in both directions.

        On demand side control I have only focused on consumer demand controls because for large businesses / governments the hourly/spot electricity price is an effective demand regulation tool. Unfortunately spot price is an ineffective tool in regulating consumer demand so we need other mechanisms. Pre-commitments to supply reliability is a form of insurance if you like. But more importantly it puts the option to be disconnected back into the consumers hands. And the option for how they deal with that brown-out is also in their hands.

        For $3000 pa (say $30K investment over 10 years) I can buy a heck of a house wide battery backup system, as matter of fact for that much you could just about develop a full off-grid capability.

        For $1000 pa ($10K over 10 years) I can definitely afford battery storage to cope with a 3 hour brown out.

      • drsmithyMEMBER

        I believe the matter could be resolved If residential consumers were simply asked to vote for a yearly cost to be associated with the electricity reliability.
        Something like
        $3000 pa = All you can eat
        $2000 pa = 1 hour brown out / year
        $1000 pa = 3 hours brown out / year

        How much say would customers get about when the lights went out ?

        There is a vast gulf of difference between “your power will be off no more than X hours per year” and “your power will be off between A and B o’clock on date C.

      • Drsmithy,

        “I believe the matter could be resolved If residential consumers were simply asked to vote for a yearly cost to be associated with the electricity reliability.
        Something like
        $3000 pa = All you can eat
        $2000 pa = 1 hour brown out / year
        $1000 pa = 3 hours brown out / year

        How much say would customers get about when the lights went out ?”

        We are not talking about the reliability of a tree falls on the wires during a storm, rather the very predictable Absolute peaks in electricity demand that occur on the 3 or 4 hottest days of the year.

        These peaks will occur in the afternoon and last till the early evening. They can typically be forecast, with reasonable accuracy about 7 days in advance. So the consumer will know the 2 or 3 days that are likely to be problematic about a week in advance and further more they will know the times of day to expect problems.

        One day in advance the suburb by suburb electricity demand can be predicted with amazing accuracy (certainty).

        The problem with supplying these peaks is that any consumer can easily purchase a new AC for $1k however the additional peak demand that extra AC unit produces can easily drive $10K investment in T&D infrastructure. Today this $10K T&D MUST be spent every time a customer buys another $1K AC, that’s simply stupid. It’s akin to adding an additional lane to the freeway every time a new car is sold.

        Experience tells us exactly which appliances drive these absolute peaks in demand. and it is 90% AC units. So the obvious solution is to require peak demand disable for AC units.

        My point is this puts the electricity reliability choice back with the customer rather than some self interested body adjusting network reliability rules to achieve stealth taxation.
        Customers have the following viable choices:
        – Pay for a higher level of service
        – Build your own battery backup
        – Build supplemental cold water storage systems (store cold water to be used to cool the house during the disabled peaks)
        – Plan to going shopping for the 3 hours and enjoy spending the $1000 you saved.

  9. mine-otour in a china shop

    Don’t worry the government spin shows that the fall in the index was just 0.0107 points per hour in the month – there is no crisis or spiral downward!

    With Wayne and Captain Glenn at the controls we are truly are the envy of the world.

      • SweeperMEMBER

        It would be fascinating to see how the punditry and markets reacted, because nobodies expecting it.

    • The lower interest rates go, the lower you are expecting all things to be priced in the future. The interest rate on debt is basically an expression of the value of future money and its purchasing power. If the RBA does drop rates, its recognition of a deflationary environment coming up, as pretty much about here, the return on investment becomes a negative real. So you might get your lower mortgage payments today, but you’ll get lower asset prices tomorrow. Not a good future to be leveraged into with debt.

      • “The interest rate on debt is basically an expression of the value of future money and its purchasing power.”

        Thankyou.

        An under-appreciated concept!

      • “The interest rate on debt is basically an expression of the value of future money and its purchasing power”

        With sincere respect Janet (I love your observations), I would suggest that this is little more than a textbook philosophical rationale justification for not banning usury (and thus the key to power of moneylenders), as it was for about 1,500 years in the West.

  10. General Disarray

    Those numbers are terrible. I’ve got to head to the US in a couple of months so should probably buy some USD now. Does anyone know the best place to buy USD at the moment?

  11. HnH, you don’t mention the higher unit labour costs or energy costs that the report highlights.

    Yet cutting 50bps in the cash rate and macroprudential tools will fix the problems in the manufacturing sector?

    • Code breaking;

      “the higher unit labour costs (Union over regulated workplace) or energy costs (Carbon and Green taxes/spending) that the report highlights.”

      • Lorax,

        Why is it that you give Govt policy a free pass, when with some very simple and fast action it can all be rectified.

        AUD is NOT within Govt’s purview, workplace regs and taxes (along with the spending it is pissed away on) are immediately under Govt control.

        So why not have a go at fixing the “10%” and saving some businesses and jobs? Too hard to advocate? Too difficult tfor you to critique your beloved Left and admit- they have it all completely wrong? You have a deplorable set of numbers here (Thanks HnH for posting this article) outlining the horror future for thousands of jobs and Businesses, yet you cannot bring yourself to advocate real and effective action? Because it would mean admitting Left/Green is wrong?

        Hypocricy.

      • AUD is NOT within Govt’s purview

        Why? The government can do whatever the hell it likes. It could peg the AUD to the USD tomorrow if it wanted to. The RBA’s independence could be abolished, and the Treasurer could print AUDs faster than Helicopter Ben.

        Its only because both sides of politics have a slavish devotion to the purity of the FX markets that we do nothing, and as we all know, the FX markets have been horribly distorted by CB money printing.

        So why not have a go at fixing the “10%”

        Because it will achieve next to nothing, at a terrible cost.

        We all agree that we need a >50% improvement in our competitiveness. Yes we could do that by slashing labour costs by 50%, but we live in a society where the percentage of national income paid to labour has already declined massively. Does it really make sense to crush wages and salaries further? What consequences does that have for income equality and social cohesion?

        A weaker dollar is a vastly superior solution, a solution that is entirely feasible if only we had the political will.

      • Lorax,

        Thanks for your Centally Planned solutions. Thankfully for us they wont get over the line.

        “The RBA’s independence could be abolished, and the Treasurer could print AUDs faster than Helicopter Ben.”

        Soviet Ukraine, here we come. What then, you will be crying about the $25 morning latte?

        Some people will never learn.

      • AUD is NOT within Govt’s purview

        Erhh, it should be when the rest of the world’s currencies are part of their respective government’s purview.

      • Alex Heyworth

        Lorax, you still seem to be incapable of understanding that the reason for the fall of the wages share of GDP is the high levels of capital investment over recent years in the mining industry. If more capital is invested, it is obvious that the profit share will increase (unless more labour is invested in the form of more hours worked, and the increase in hours worked matches the increase in capital employed).

        As it happens, when you look at the $ amounts, both the return to wages and the return to profits have risen. The profit return has risen faster, reflecting a faster rate of capital growth.

        Wages have grown even if you look at per capita real returns per hour worked. They have grown a lot more in foreign currency terms, because of the rise in the $A. Workers who don’t have debt are far better off as a result. The reason some workers are worse off is the property bubble, which is making mortgage servicing costs well nigh unaffordable for many. Nothing to do with them being robbed by capitalists.

      • drsmithyMEMBER

        Lorax, you still seem to be incapable of understanding that the reason for the fall of the wages share of GDP is the high levels of capital investment over recent years in the mining industry.
        As I look at the graph here it seems that profit share has been on a solid upward trend since the early ’80s. It seems a stretch to attributed it to a recent few years of capital investment in mining.

      • Alex Heyworth

        Indeed, profit share has been rising since the 1980s. Due to larger capital investment. Accelerated in recent years, as the graph shows.

        I noticed also that the graph was accompanied by the following comment “Profit share of total factor income should not be interpreted as a direct measure of ‘profitability’ for which it is necessary to relate profits to the level of capital assets employed.”

        Perhaps you missed that bit.

      • drsmithyMEMBER

        Perhaps you missed that bit.

        I did not.

        I am merely questioning the argument that a thirty-year trend – which is, I believe, also common across most of the western world – can be attributed to maybe a decade’s worth of mining investment in Australia.

      • Unless the RBA begins QE, the AUD is unlikely to come down.

        So what can be done? Cut regulations that increase costs including labour regulations and green tape.

      • Alex Heyworth

        So instead of allowing foreigners to buy $A which they then use to buy our assets, why doesn’t the RBA print more $A and buy the assets themselves? Thereby both bringing the $ down and keeping the assets in Australian hands.

      • If the RBA prints money, prices will rise.

        I don’t see why assets have to be owned by Australians.

        One reason the AUD is high is because foreign investors are buying government debt. Thus if we reduce the debt, there will be less demand for AUD.

      • Spot on, Capitalist! “…if we reduce the debt, there will be less demand for AUD.” That’s the answer in a nutshell. Without demand for debt then interest rates can be 0% or 50%, it make no difference. Becasue without a borrower the lender earns…nothing.

      • “One reason the AUD is high is because foreign investors are buying government debt. Thus if we reduce the debt, there will be less demand for AUD.”

        Yep, but you wouldn’t think people get that. Much better to spend and have Debt pay for it all. How stupid are we to sell people the rope they use to hang us with?

        Now we will get whole gaggle of comments telling how our Debt is at the low end of the OECD, we can handle MUCH more Debt…. you know the drill.

      • Alex Heyworth

        If the RBA prints money prices may rise. Depends on the extent of the printing, the state of the economy and what effect the printing has on the exchange rate and terms of trade. Some prices may rise while others fall or stay the same.

        The reason it is better to have assets in Australian hands is that we, rather than foreigners, get the profits made from using those assets.

      • “If the RBA prints money, prices will rise.”

        Show us evidence of where this is happening in the USA, UK, and/or (espec.) Japan. They’ve been “printing” (typing up) Trillions.

      • In the US prices are rising slightly but quality is decreasing which effectively means you are paying more for less.

        Take Budweiser in the US changing the shape of their can so there’s less beer in it. From the same article is this quote:

        “The “shrink ray,” as the advocacy site Consumerist.com calls it, has been applied to all sorts of products over the years. Cereal boxes, bags of chips, orange juice containers, plastic soda bottles, ice cream cartons—these and countless other goods have been carefully redesigned so that manufacturers can create the illusion consumers are getting the same amount of product, even as the packages hold less than the previous models. It’s a way for manufacturers to boost revenues without appearing — to the average consumer, at least — to raise prices.”

        http://business.time.com/2013/04/21/budweisers-new-bowtie-can-design-more-aluminum-less-beer/#ixzz2S1armoXf

        MacDonalds in Japan will be increasing their hamburger prices by 20%!

        http://www.ibtimes.co.uk/articles/458579/20130418/mcdonalds-big-mac-yen-bank-japan-hamburger.htm

        I could give more examples but I think I’ve made my point.

      • drsmithyMEMBER

        Cut regulations that increase costs including labour regulations and green tape.
        What regulations, with what objective ?

      • drsmithyMEMBER

        In the US prices are rising slightly but quality is decreasing which effectively means you are paying more for less.
        I lived in the states for ~2 years (Scottsdale, AZ) and just came back from a visit.

        The only thing I noticed being more expensive since my last visit (~12 months ago) was food (and my friends there said they’d noticed the same thing over the last year). Everything else (and we usually do a lot of shopping while we’re there) seemed about the same.

        Quality of goods has been decreasing in the USA (as in Australia and most other countries) for decades, it’s hardly a recent phenomenon.

  12. The RBA should cut 50bps next week…

    Why? Didn’t the RBA tell us just a few weeks ago that manufacturing was adjusting to the strong dollar.

  13. Shocking! Julia should announce a 50B stimulus plan to help battling manufacturers. Lets give them more tax dollars. :]

    • If she abolished the RBA and ordered Treasury to just “print” up the $50bn, rather than sell government bonds to foreigners at usury, I’d have no problem with that.

      Actually, I’d even think about voting Labor.

      • Alex Heyworth

        Trouble is, they’d just piss it all against the wall on their favoured lost causes. At the end of it all, we’d be back where we started.

        Come to think of it, the other lot would probably do much the same, except with different lost causes. Better not to put the idea into their heads.

  14. lochnessmonster

    RBA does Open Market Ops to control a rising AUD according to their website…either permanent or repurchase type. AUDUSD will still go to 1.20 plus imo after shaking the trade out with some rate cut or economic shock type reason.

  15. You are kidding right

    “Australia’s elite policy makers have blundered badly. The RBA should cut 50bps next week and install macroprudential policy immediately.”

    And what blow more hot air into housing and move even more money away from the real economy.

    Seriously that is total BS and you know it.

  16. After current financial speculations end, there is not much left in Australia. People won’t pay for your junk bonds or social welfare system or politically corrected government. If you cannot produce something then, you are doomed. Manufacturing is destroyed, hopefully, they won’t destroy agriculture.

    It is sad that Australia is not only losing low end cost sensitive manufacturing businesses, extremely few high tech high valued added manufacturing businesses are developed even with such a high level of financial speculation.

    I worked in manufacturing industry before. It is more important for government not to intervene than “help”. Now, under current policy, it is crazy for someone to setup a manufacturing business in Australia, especially if you target worldwide market. It is better for you pick your idea and setup your operations overseas.