“Mad” Adam Carr launches another of his diatribes today and makes good sense on one very important point:
Yesterday’s GDP numbers confirm that the Australian economy is in excellent shape. Indeed the figures show that once again, the nation’s economy is growing comfortably above trend — as it has done consistently for these past three years.
…Recession is coming though, this I don’t doubt. But if it’s not going to be caused by debt, then what? The slump in the terms of trade is often thrown up as another candidate, but this too is not probable.
That really only leaves two main domestic candidates for the next recession, baring some external shock.
1. Financial instability or;
2. Inflation.
The choice that policy makers have made to keep rates at ultra-low levels — on a permanent basis — virtually ensures one or the other or both. It will exacerbate the hunt for yield and increase appetite for risky investments.
The madness of the reasoning here is obvious:
- growth is above trend even though it isn’t
- income is rising even though it’s falling
- overly low interest rates are going to cause a recession but are playing no role in the wonderful growth
- we’re going to have financial instability but it’s not because of debt, etc…
However, the one point in the mess that is absolutely spot on is that we are mis-allocating capital at a spectacular rate and, yes, if it isn’t stopped pronto, or it is stopped pronto, we’ll fall into recession.
