Recessionberg versus the global economy

Via Domain:

Treasurer Josh Frydenberg has vowed the government will take “the necessary actions” to protect the Australian economy amid fresh signs of a global slowdown and fears the United States could be on the cusp of a recession.

In an intervention designed to calm nerves after $60 billion was wiped from the value of Australia’s top-200 listed companies in a day, Mr Frydenberg said the nation was well placed to absorb any impending global shock but he was “certainly not complacent”.

…”We will continue to closely monitor global economic events and will take the necessary actions to ensure our economy continues to grow to the benefit of all Australians,” Mr Frydenberg said.

“But with strong foundations, our economy is positioned as well as any nation to withstand these challenges.”

One of the architects of Labor’s response to the 2008 global financial crisis, Andrew Charlton, said the government needed to be ready “to use both fiscal and monetary firepower” to support the economy.

…”There should be no prizes for delivering a surplus in a weakening economy.”

It depends. We could award the golden turd prize.

Recessionberg is not especially interested in the economy. His plan is for house prices to rise, first, second and third by:

  • delivering tax cuts;
  • debauching the Hayne Royal Commission;
  • keeping the mass immigration taps wide open;
  • delivering property demand incentives, and
  • running tight fiscal policy to force the RBA to cut interest rate as low as they can go.

That’s the beginning, middle and end of the Recessionberg plan. Will it work as the global economy enters recession? I have my doubts:

  • consumers are bunkering in precisely the same manner that they did in 2007 and tax cuts will not be spent;
  • the HRC has still left a legacy of much better lending standards;
  • mass immigration has slayed wages growth;
  • the impact of demand side property incentives has been declining for years, and
  • the RBA only has 50bps left and the banks will have to keep 10bps of that.

So, if we see a decent external economic shock with a 30% or more draw down in stocks, and a terms of trade crash to 2015 levels, which destroys the surplus overnight, and eviscerates household incomes, stopping the consumer in her tracks, the Recessionberg plan will be a recipe for deep recession.

When this shoe drops, our horrified Treasurer will discover that he is unable to stimulate like Rudd did for both political and practical reasons just as the RBA is fresh out of bullets.

There is every chance he will earn his moniker.

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