“Mad” Adam Carr of Business Spectator is out today with a fire hose full of napalm:
The budget debate and recent Senate theatrics gloss over what is in truth a much broader malaise. No one should be under any false pretense: the Senate could pass the budget in its entirety and it would make no difference to the underlying fiscal strategy.
…the RBA board itself is complicit in Australia’s precarious policy position. Monetary policy is spent! Policy purists may giggle with delight over the 2.5 per cent buffer the board can play with.
…Seeing this, it would be very difficult to argue with the proposition that a more trend-like rate of growth over the last few years would have been a small price to pay for less extreme policy settings now. Settings that would place Australia on a much better footing for long-term stable growth.
The great irony is that it has been fear of a downturn that has put us into this very position. Fear has kept policymakers from making any genuine attempt at fiscal repair — something met with a considerable chorus of approval from the economic community… Similarly, monetary policy ammunition was whittled away on an exchange rate obsession — a fear that a strong dollar would somehow derail growth.
…Australia’s Great Recession will come though, and it will likely be one of our worst.
I don’t entirely disagree with Mr Carr, the RBA an government are certainly stuffing it up. Sydney housing is in raging bubble on low rates and the Government is putting politics above real budget and economic reform, which is killing confidence.
But Mr Carr’s alternative appears to be higher interest rates, an astronomic dollar, as well as greater fiscal austerity. I’m pretty sure that wouldn’t take us anywhere but straight down the crapper.
The much better solution is the one proposed here for over two years and counting: cut rates until the dollar tumbles and temporarily control credit with macroprudential tools; invest in infrastructure and use taxation and broader reform to boost productivity. That repairs competitiveness as quickly as possible while supporting growth.
It’s not a rocket science though it’s sure being turned into one.
