David Bassanese has a whinge about the RBA:
…so far at least, lower official interest rates have gone down like a lead balloon with households and business. Key measures of both business and consumer confidence are now lower than before the first RBA rate cut. Retail sales are still barely growing, and anecdotes from retailers remain relatively downbeat.
These results are even more disappointing when one considers the federal government has also showered middle-income Australia with an extra $1000 in their tax returns.
It seems many appear to have concluded that if the RBA is cutting rates to below what were once described as “emergency” levels, the economy must be experiencing an emergency. It’s time to tighten the purse strings.
In other words, rate cuts are having a perverse expectations effect on the economy.
Really? The RBA only controls financial conditions not the economy, which is much more directly controlled by government spending, as we have seen over the past year with fiscal adding all GDP and jobs growth.
If we look at consumer surveys, financial conditions are booming but faith in the economy has completely diverged in an unprecedented manner:
In short, consumers can get debt, they just don’t want it. I’m yet to meet an Aussie that doesn’t love a rate cut. But they sense economic trouble is here or coming. This raises questions not for the RBA but for rictus treasurer, Josh Recessionberg:
- consumers demonstrably have no faith his cut fiscal spending, household borrowing economic strategy;
- probably because rates are already at effective zero and they are already so indebted;
- they can see and feel international trouble brewing;
- they haven’t had a pay rise in seven long years and one is not coming;
- house prices remain a long way down in most areas;
- and they have a Government so focused upon its own internal mythos that it is blind to their suffering.
Tax cuts are very predictably doing squat in this environment, other than aiding deleveraging.
The consumer needs a draught of positive, nation building, fiscal spending that at least reassures her that the Government has her back. Something like, say, the NBN. Only good.
Doesn’t anyone in the Government remember the lesson from Tony Abbott’s disastrous 2014 Budget? Small government tight-fistedness only makes things worse in a deleveraging period.
It would do well to remember the political chaos that followed.
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.
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