Albo’s catastrophic recession approaches

While the macro pet shop that runs Australia is in its usual poop-throwing uproar over the wrong thing, the economy is lining up for a catastrophic recession in 2023.

This will be no brief and happy pandemic affair that makes everybody richer. It will be a long and nasty balance sheet shakeout that crushes profits, threatens banks, wrings out living standards, and damages household psychology for a generation.

This is the path chosen for us by the Albanese Government. It did NOT need to be this way.

The Reserve Bank of Australia is on a charge. But, instead of helping it out, the Albanese Government is guaranteeing that interest rates will go much higher. This is the key to why things are going to get so bad.

Last week, the RBA warned that it sees a range of inflation measures getting out of control over the second half of this year:

Ahead of the release of the June quarter Consumer Price Index (CPI) at the end of July, members noted that domestic inflationary pressures, including those outside of the labour market, continued to build. Non-labour input cost pressures were evident across a range of industries. Adverse weather conditions had affected the prices of some fresh produce. Rents were expected to pick up in response to tightening rental market conditions across most of the country. Wholesale electricity and gas prices had also increased sharply in recent months, reflecting domestic supply disruptions during a period of increased demand. The effect of these increases on retail electricity and gas prices was expected to be evident later in the year, since state subsidies and hedging arrangements had limited the near-term pass-through. More generally, firms in the Bank’s liaison program had indicated a greater propensity to pass through cost increases to consumer prices. As a result of these price pressures, inflation was expected to increase in year-ended terms through the remainder of 2022.

How is the Albanese government responding to the RBA’s concern about rent, energy, food and profits inflation? It has two main undertakings.

First, it is opening the immigration floodgates:

Anthony Albanese has addressed the issues of migration and visa backlogs in relation to skills shortages, saying Australia needs to create better pathways for workers to have a permanent presence in the country.

The Labor government had inherited a “massive” backlog in visas, the prime minister told reporters on Monday.

“It is absurd at a time of skills shortages, there have people who have been waiting for such a long period of time,” he said.

“We do have some short-term skills shortages that will always need to be filled by temporary migration”.

Normally, higher immigration might help lower inflation by crushing wages. But, contrary to popular belief, Australia does not have a wages breakout so any resumption of immigration will only ensure that wage income remains weak while a rents breakout is made considerably worse.

Albo’s second undertaking has so far been to protect the war-profiteering of Australia’s gas and coal export cartels that are starving the economy of the fuels needed to produce energy at a reasonable price.

Gas and electricity are both up 600% at the wholesale level. Between them, and by themselves, they will add 3.5% to the CPI over the next year.

Worse, energy and food are bound together because gas and electricity are large cost inputs into food production. Energy will also horribly inflate building costs via locally produced materials like bricks, gyprock, paint, metals. You name it.

Food and housing costs are 40% of the CPI and Albanese Government policies are going to dramatically inflate all of it. This, before we even get to energy impacts on the other 60% of services.

In short, Albo’s policies are going to directly add 5-6% to the CPI over the next year as the RBA tries to reduce inflation. Within a few months, this will push Australian inflation to the highest in the developed world as everybody else deflates:

Late last week various major banks gave us a good idea of where Albo’s macro settings will lead:

  1. Westpac’s top economist has ramped up the second-largest home lender’s interest rate outlook to 3.35 per cent by February, warning property borrowers to brace for an “over tightening” by the RBA that will slow economic growth to almost a standstill and push up unemployment next year. Its previous forecast was for a maximum rate of 2.6 per cent.
  2. Current high inflation risks a material rise in inflation expectations which could feed into the wage-bargaining process given the very tight labour market,” NAB economists wrote in a report on Friday.
  3. “Our expectation is that the RBA will deliver this via four more successive 50 basis point rate hikes in August, September, October and November. This 200 basis points of additional tightening sees the cash rate target at 3.35 per cent by November”, said ANZ.

Economists like to talk about the neutral interest rate. It is the rate at which growth can continue but inflation remains quiescent. Ceteris Paribus this rate was somewhere under 1% pre-COVID. Since then, Australian households and governments have added a lot more debt so it is even lower today under normal circumstances.

Sadly for all concerned, Albo is instead forcing the RBA to set the cash rate based upon a neutral interest rate artifically inflated by badly timed mass immigration and energy war-profiteering. The result of this is entirely predictable.

All recent and semi-recent borrowing that has transpired on the assumption of a sub-1% cash rate is going to be distressed and shaken out.

Given that Australian governments are showing no signs of taking this seriously and reining their borrowing, and have no need to given they issue their own currency, this pressure is all going to land on the private sector. Most especially in households.

In particular, those that took out mortgages on the RBA ill-fated 2% fixed rates are going to roll off onto variable rates at triple the price, beginning now and for the next three years.

House prices are already crashing as this begins. As the RBA chases Albo’s 6% inflation shocker, Australians’ largest asset is going to sink more than we have seen in a century.

It is an obvious observation that this distinctly risks becoming an unstoppable balance sheet reckoning for Australian households. A grinding and dreadful affair of wealth destruction to match the last decade of income degradation.

How Albo and his coterie have concluded that this is good policy or good politics is beyond my understanding.

Houses and Holes
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  1. The cost of auto insurance in NZ has skyrocketed – as I guess all insurance will. (our major companies are Aussie owned, and set the bar for what’s left) 14.8% increase this year on our cars and a lower agreed value? Look like a lot of Kiwis are going to ditch insurance if they can, and that will lead to a whole heap of unintended consequences down the literal road.

  2. Arthur's Poodle

    For over a decade MB has been banging on about Australias over-inflated, world beating, Aussie Aussie Aussie oi oi oi, Property Ponzi.

    Now it’s deflating at a predicable rate of a Ponzi, the deflation is suddenly a Disaster!™️.

    Gas pricing is an obscene dereliction of duty.

    House prices, are the Icarus of 25 years of poor policy.

    • John Howards Bowling Coach

      I thought the exact same thing Small Curly Pup. This current situation seems to be what they wanted and now it seems they are just ALP haters. On topic though, I wonder if in the current climate, there is actually going to be another flood of migrants, they might not be so mobile in the current world. Hopefully we don’t end up with even more poorly selected New Australian, with no intention at all to integrate into our culture and society, rather than be cheered on by the Woke to bring their own problems here.

  3. A) I have one week free. My wealth is a potential week of work.

    B) I work that week and am paid $1000. My wealth is $1000 – or more accurately what this $1000 will buy.

    C) I buy a $1000 vaccuum cleaner from Dyson.
    My wealth is one new vaccuum cleaner.

    D) Two years later the Dyson is “worth” $300. Someone else would offer $300.
    My wealth is one two-year old Dyson.

    E) Three years later the Dyson factory burns down and my Dyson is “worth” $600. Someone else would offer $600.
    My wealth is one five-year old Dyson.

    Question: Did my wealth increase or decrease between D and E?

      • Collect. Test. Quick tidy up. Nice photos. Straight to marketplace for a quick buck.

        I got lucky a fortnight ago with a very decent Yamaha home theater amp/speakers. It’s the next higher up model from the one I already have.

        • 3 men survived a plane crash in the jungle. After they escaped the wreckage they were set upon by an ancient tribe of warrior women. They quickly captured the men and took them back to their camp. Once there, the leader of the tribe ordered there genitals to be cut off in a way which aligned to their work.

          The 1st man was a tree feller. In one fell swoop with an axe, his jewels were removed.
          The 2nd man was a butcher. With a swift cut with a knife, he also lost his prized possessions.
          The 3rd man started laughing hysterically. The leader of the tribe getting irate yelled at the man “what’s so funny”? The man responded, “I work for Dyson”.

  4. BabundaMEMBER

    First, it is opening the immigration floodgates

    The floodgates were opened last year and the inflows have been underwhelming to say the least. Departures are currently increasing faster than arrivals.

  5. Atom Heart MotherMEMBER

    All this has me wondering where we, as a nation, go from here.

    This government, representing a party which has done 9 years in opposition, seemingly has its eye on being a one term dive into the economic merde, for no real benefit to Australians present or future.

    Plenty would argue, and I am one, that the country quite likely has no alternative but to take that dive. It needs to call time on the population Ponzi and an economic model which revolves around uneconomic investment (start with housing) and tax avoidance (almost every business in Australia is about tax avoidance, and the tax avoidance angle of policies such as Negative Gearing and Superannuation, is the dominant narrative distorting house prices and bringing about questions of just how much benefit will flow through to future Australians from their Super). Beyond that it needs to overtly address energy, carbon emissions, immigration, labour costs, Free Trade Agreements, incomes growth, casualization of employment, public sector labour hire, and the implication of Covid for everything from working from home to retaining some form of manufacturing base, and national ‘self sufficiency’ in crisis for a range of items.

    The ALP is essentially terrified of almost all of the above. Their positioning for a term of government (and it might be the only one they will get for a generation if they fluff it from here) seems anchored to a mindset of tinker around the edges of the previous government’s policy settings.

    That anchoring has a brand spanking new government turning a deaf ear to the public on key issues grounded in the lived experience. Why on earth would a brand new government, observing the outright hostility surrounding energy prices, effectively tell people they will have to live with it, when an easy out such as gas reservation will have minimal effect on exporters and an outsized impact on electricity bills? Why on earth would a government ostensibly representing working people be so desperate to open immigration floodgates again when the public has experienced their first meaningful income rises in a decade without the population Ponzi? Why would a Party which made such an epic effort to craft a globally competitive economy a generation ago be so hesitant to address the debt fuelled uncompetitive economic bubble we have become?

    It is only 2 and a half months in but already there is a sense these guys may be only here for a short time.

    The new government replaced the most widely reviled government in Australian history. They too heard no screams about house prices, about energy bills, about anaemic incomes growth, and an entire economic policy menu which was designed to provide wealth to the few and play the many off against one another – then there was the other incendiary issues. It defies credulity to think that these abhorrent people can clean themselves off and restore credibility with only one term in opposition.

    Like, just who does someone wanting meaningful economic reform pitched at ensuring my kids have a decent chance at a decent quality of life – not being debt serfs for real estate, being able to access decent educations and decent jobs on the other side, and being able to aspire to a decent quality of life without becoming property speculators or getting on a sociopathic management ladder – vote for?

    And if one thinks that neither side is ever going to meaningfully address the economic substance of the country, and is going to continue to run us as a thought bubble off a resources play, then what can one do?

    • drsmithyMEMBER

      Like, just who does someone wanting meaningful economic reform pitched at ensuring my kids have a decent chance at a decent quality of life – not being debt serfs for real estate, being able to access decent educations and decent jobs on the other side, and being able to aspire to a decent quality of life without becoming property speculators or getting on a sociopathic management ladder – vote for?

      But you’ll need to get over your identity politics obsession.
      (If it helps any, your kids probably don’t share it.)

        • drsmithyMEMBER

          Indeed. Bands of Greens voters are renowned for rampaging through inner-city Sydney and Melbourne, leaving white men swinging from lamposts in their wake. 🙄

          Hard to decide if this or the weekend’s ‘white men are like Jews in Hitler’s Germany’ is more hysterically grotesque.

        • drsmithyMEMBER

          You seem to think you’ve got a point referencing this latest episode of the conservative reboot of ‘Homosexuals will destroy society: Chicks with dicks!’ but it’s lost on me.

          • I don’t care if chicks have dicks, it just means they’re men not chicks:)
            My point is I’d like to see some leadership from the greens regarding environmental issues, not identity politics. And devoting media time to devisive nonsense is not good leadership

          • drsmithyMEMBER

            That’s a pretty small fig leaf you’ve got there.

            My point is I’d like to see some leadership from the greens regarding environmental issues, not identity politics.

            Like they’ve been calling on Labor to step up with some real climate policy for the last six months ?

            Like they want to stop any new fossil fuel extraction (probably the single biggest – only meaningful – thing Australia can do about climate change) ?

            Like they want to levy high taxes on fossil fuel exports ?

            FKN please. You just want to have a whinge about identity politics and are using faux environmental concern as an excuse.

            And devoting media time to devisive nonsense is not good leadership

            It’s not the Greens making it divisive. Nor deciding what “media time” gets devoted to.

          • You don’t get it do you? The majority of people, at least the younger generations, aren’t scared of trans people (or chicks with dicks as you put it). And most genuinely care about environmental issues. Despite your personal attacks and strawmen, I’m one of them.
            It’s the far left and the far right who want to fight the culture wars. Seeing the leader of our third largest political party soaking up media oxygen on such a small minded, petty issue just makes me disillusioned with the greens and I know I’m not the only one. Like why is he even weighing into this? It’s the sort of topic most people would just have a laugh about and roll their eyes about the APS. We have much larger issues that need to be focused on.
            I pointed it out to you because you were telling someone above that they are too focussed on identity politics. Can’t you see the irony here? It turns people off the greens because they are too focussed on fringe identity politics. Like sure, have a social agenda but that shouldn’t be the main focus that we always seem to see in the media.
            You are right that it’s not a divisive issue – when every single comment in the SMH (hardly a right wing paper) is in disagreement with Bandt you know he’s pretty out there on his own.
            Anyway, you obviously can’t handle any criticism of your footy team so I’ll leave you to it.

          • drsmithyMEMBER

            Yeah, nah.

            The Greens are a centre-left, social democratic party, with probably the broadest policy base and most favourable towards “the younger generations” in Australian politics. They are not a single-issue environmental party, and if indeed they ever were, that time passed 20+ years ago. I don’t believe for a red hot second that anyone in the “younger generations” genuinely thinks their sole focus is or should be environmental issues.

            That is why they are “weighing in on this”. Because they have and represent a constituency of people, who vote for them to “weigh in on this”.

            So when someone complains that the Greens are talking about something – anything – except a particular interpretation of what counts as “environmental policy”, it’s a gigantic, bright-red-text, surrounded-by-lights, accompanied-by-sirens sign that they’re plonking a facade in front of what is usually an opinion they don’t way to say out loud. So they pretend to be annoyed that the Greens are talking about whatever else it might be rather than the environment, even though one of the primary reasons they’ve been elected is to do exactly that.

            Don’t know if that’s what happening here, and don’t really care. Because ultimately what you are doing is not “criticism”, it is simply presenting a false dilemma.

            The third biggest political party in the country is capable of walking and chewing gum at the same time. Having an opinion on one thing, one day, does not mean every other thing is abandoned. About the only thing the Greens have been talking about for months and months and months is trying to negotiate with Labor to get genuinely useful climate change policy enacted in the upcoming parliament, and here you are trying to argue that five minutes (I’m assuming, I haven’t seen exactly what it is you’re referring to) spent responding to something politically relevant that happened a few days ago somehow makes it all disappear.

            You are personifying my original point perfectly. Despite claiming to agree generally with their policies, including the ones relevant to this, you are actively manufacturing angst on this “small minded, petty issue” to the point where you are now describing yourself as “disillusioned” (presumably a precursor to “they’ve lost a voter”) with the entire party simply because they’ve engaged on it at all. It’s just fvcking absurd. There’s not an eyeroll emoji big enough.

        • drsmithyMEMBER

          You’re the one asking “who do I vote for that supports all these issues I care about”.

          The Greens are over there waving their hands going “here are are our policies that align with all the stuff you say you care about”.

          Your response is “yeah, but, some-conservative-culture-war-talking-point”.

          You are captured in a prison of your own making; lamenting the consequences of a captured two-party system while embracing that same system’s denial of alternatives.

          • The leader of the greens is in the media today demanding mothers should be called ‘Birth Parents’ on government forms. In other news: Australia suffering ecological disaster. Wake up my friend.

          • drsmithyMEMBER

            You seem to struggle with having multiple unrelated thoughts in your head at the same time.

            I don’t think Adam Bandt has the same problem.

          • ErmingtonPlumbingMEMBER

            “There are many people who feel the word ‘mother’ is special and worthy and there are others who feel their identity is not included – each has a legitimate point of view”

            When does “Many people” become Most people?
            I’m guessing over 99% of “Birthing parents” identify as Mothers so why is their only option on the proposed form Birthing Parent?
            What ideology and who drove this unwanted change without any democratic consultation?
            Certainly not the “conservative forces” you seem to want to blame for the culture wars.

          • “There are many people who feel the word ‘mother’ is special and worthy and there are others who feel their identity is not included – each has a legitimate point of view. ….What ideology and who drove this unwanted change without any democratic consultation?”
            What does democracy without a heart and brain look like? Answer: A mob. As an uncle who has a nephew being raised in a loving same sex family – fvck your prejudice.

          • drsmithyMEMBER

            What does democracy without a heart and brain look like?

            From a “democracy” perspective, apparently 1000+ people have used that form as part of the pilot programme, and a notorious transphobe is the only one who complained.

      • Nonsense. So long as the Greens are a Big Australia party, this will more than wipe out any benefit from their other policies. On greenhouse warming, for example, Australia’s per capita carbon emissions were the same in 2019 (before Covid) as in 1989, but our total emissions were 49% higher. This is almost entirely due to mass migration. Our own fertility rate has been slightly below replacement level since 1976. With zero net immigration (~70.000 a year), we would have had a small increase due to demographic momentum, but it would have been trivial compared to what we have now.

        The average migrant quadruples his or her carbon emissions on coming to Australia.

        This doesn’t even consider other effects on the environment or on the average quality of life from more and more people: more scarce coastal habitat chewed up by housing developments, more impact from mining and agriculture, more species endangered or driven to extinction (with Australia already world champion for mammal extinctions), hot, overcrowded, congested cities with overstretched infrastructure and exorbitant housing costs, etc., etc.

        All Big Australia parties should be put last, without exception, regardless of whatever they have to say about anything else. It is interesting that the Victorian Greens have been pushing for the government to ban gas connections to new houses. They are straining at the gnat of your gas cooktop or barbecue and swallowing the camel of mass migration.

        • I think Smithy has said he doesn’t agree with the Greens “Big Australia” stance before. He is simply pointing out much of their platform mirrors what MB generally champions and that identify politics hysteria is merely a useful distraction conjured by those that benefit most from the status quo.

    • As you point out, Albos failure to listen to the people is incomprehensible, until you realise that the ALP/LNP coalition consists of puppets who are owned and controlled by the big end of town. When Albo says anything more serious than “nice weather today” he is just reciting words put in his gob by his owners. And right now his owners are making big bank off high gas prices, mass immigration etc, so those things will continue regardless of what the people want.

      Voting for independents may or may not be a solution, but as long as government is controlled by the totally captured and corrupted major parties we will just keep being presented with the same sh1t sandwich.

      • Arthur's Poodle

        It helps if you think of the Parlimentarians as Agents, in the Legal sense. They represent nothing other than their donors interests, with little or no responsibility for the final outcome.

        Like upper management representing shareholders, rather than a company Founder wanting to build something new and valuable.

        The most important thing for a Legal Agent, (Lawyer, Accountant, Architect, Politician) is to keep their client list. The compelling drive is to be kept on the payroll.

        So, it is of no surprise that the majority of our politicians are Lawyers Ie professional ‘Legal Agents’. All care (for themselves) and no responsibility.

    • 1 – you vote non LaborOrLiberal knowing they have no chance of being elected.

      2 – you vote non LaborOrLiberal knowing they have little chance of being elected.

      3 – you vote non LaborOrLiberal knowing a several will be elected

      ***** WE ARE HERE *****

      4 – you point out the good work the non LaborOrLiberal people are doing and you tell all your friends never to vote LaborOrLiberal again.

      • Dude, I’d wager that with the current power imbalances in our system a parliament full of “independents” and no major parties is more likely to be a parliament that does nothing.

    • Arthur's Poodle

      What can one do?

      Be Independent. Organize an Independent!

      Your local State and Federal Electorates need you!

      Edit: It’s happening all over Australia. Get involved. The country will be better for it! 👍🥳

    • being able to access decent educations and decent jobs on the other side
      From my perspective it all kinda depends on just how you define “Decent jobs”
      Unfortunately as a result of the economic settings we’ve seen for the last 20 odd years Australia has a huge deficit in globally marketable skills. Just look at the jobs on offer for HS graduates or better still look at the skills our Uni graduates have. For the most part the skills of our Tertiary graduates are less globally in demand than the skills of our High School graduates.
      The world just doesn’t have a shortage of BS, there’s plenty of it but it’s not anything that you can market or sell to another country.
      In truth there’s a fairly narrow range of skills (and products derived from this skills base) which are globally valued sufficiently high to attract Australian businesses, deploying Australian labour.
      Australian’s can’t get jobs internationally by displacing Filipino aged care workers.
      Australian’s won’t displace Indian software call center workers
      Australian’s won’t be designing (or building) the next amazing robot
      Thing about it, Australian’s didn’t produce a Covid19 vaccine, despite having one of the best Vaccine development teams in the world and a Company (CSR) that’s a global leader in Vaccines. Like WTF

      This is the new Australia, get used to it. We imagine that we have millions of workers with highly valued globally marketable skills but in truth this idea just lives in our imagination. It’s a comforting thought but not well supported by facts and definitely not supported by many globally competitive industries.
      So what do we think all of these Aussies are going to do when the RE ponzi game stops?

      Take Sydney for instance. over 9% of Sydney’s workforce is somehow employed in Finance (or Credit intermediaries of some form) globally this occupation typically employees less than 1% of the workforce.

  6. Quantitative FleecingMEMBER

    So these policy failures will add 6% to inflation above its current rate? So are you saying inflation mightn’t peak until 12-13%?

    Is this finally gonna be The Big One™️?

  7. pfh007.comMEMBER

    “.. But, contrary to popular belief, Australia does not have a wages breakout so any resumption of immigration will only ensure that wage income remains weak while a rents breakout is made considerably worse….”

    So much chortle.

    Maccas in Chatswood is offering $1,000 sign on bonuses.

    Stop staring at the screen and old data.

    The workers are cottoning on to 2 points.

    1. There is inflation

    2. Unemployment is 3.5%

    If they want a raise they are getting raises and if an employer hasn’t worked that out yet they soon will.

    Full employment means tight monetary and tight fiscal.

    Economics 101.

    Smashing ponzi property bubbles when we are at full employment just means workers can shift to jobs that are not flim flam,

  8. rob barrattMEMBER

    I believe Labor have been very appreciative of the money from Setka’s Victoria CFMEU. I heard yet another cloud of smoke from a Labor minister on the ABC this morning saying it ws “unfair” to target violence on building sites. (Obviously the ABCC has to go). He also went on to describe the LNP as “the government responsible for all that debt”. Don’t mention the pandemic Minister, or a tiny little war… True to form the ABC interviewer never questioned any of these pearls of wisdom.

    It’s all going swimmingly. You get the politicians you deserve. You’ve had the frying pan now welcome to the fire: ALPLNPALPLNPALPLNP now ALP all with a hint of Green Tea(l).
    What more could we want?..

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