Bock, bock, bockark! Chicken Chalmers recession cometh

Deary, deary, me:

Dr Chalmers warned of a “confronting” update on the country’s economic and fiscal position, but his statement to the parliament painted a picture of a nation well-placed to transform challenges into opportunities.

And despite previously downplaying the prospect of improvements to the budget because of record high commodity prices, the Treasurer now expects “a dramatically better-than-expected outcome” in the 2021-22 books.

But the optimism came with a warning about structural challenges in the nation’s finances, which are expected to add $30 billion to payments in the next four years, and the perils of unchecked inflation.

“Left untreated, inflation which is too high for too long undermines living standards and jobs, and wrecks economies,” he said.

“But the medicine is also very tough to take – and millions of Australians with a mortgage are feeling that pain right now,” he said. “There’s no point pretending these rate rises don’t hurt – they do, and they will.”

Why doesn’t Dr Chalmers do something about it? Here’s what the RBA said in its minutes:

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.

Dr Chalmer’s answer to this is to lift immigration to sink benign wage pressures while driving rents higher. As well as to do nothing about energy prices which will add a staggering 6% to the CPI over the next year or more. This will smash real incomes to smithereens:

“The harsh truth is households won’t feel the benefits of higher wages while inflation eats up wage increases, and then some,” he said. “Based on current forecasts, real wages are expected to start growing again in 2023-24.”


The government on Thursday for a second day refused in question time to stand by its pre-election promise that Labor would cut power bills for Australian households by $275.

The inaction on energy is especially egregious when one considers the risks. What looms as we move into summer and Europe into winter is another shock so severe that it will make all of my forecasts look boring. John Kemp:

European Union policymakers have started to prepare the public for siege conditions this winter if gas supplies from Russia are completely cut, an effort to demonstrate diplomatic resolve as well as avoid panic later in the year.

In recent weeks, officials from Germany and other EU member states have begun to talk openly and urgently about the need for immediate reductions in consumption in advance of the peak winter heating season.

They have also started to plan publicly for compulsory allocation, including rationing and prioritization among industrial users, as well as sharing among member states in the event there is not enough gas to supply everyone.

The stated reason is to accelerate the accumulation of inventories over the remainder of the summer to ensure European countries enter the winter with the highest possible inventories.

In reality, inventories are rising relatively rapidly and are already above the long-term seasonal average in most member states and across the region as a whole.

The problem is that it will not be enough if pipeline supplies from Russia are cut completely.

EU storage is designed to cope with seasonal swings in consumption not to withstand a war-like strategic blockade…current storage is equivalent to just 18% of annual consumption for the European Union as a whole, including 16% in Germany, 18% in Italy and 21% in France.

Even if storage sites can be filled to 90% or more of their maximum, inventories cannot withstand semi-blockade conditions for more than a few months without being depleted to critically low levels or exhausted completely.  And if storage lasts through the winter of 2022/23 it would still need to be rebuilt before the winter of 2023/24, which would be extremely difficult under siege conditions.

…In the event one occurs anyway, it is intended to harden public opinion for the privations ahead, including some physical discomfort, significantly higher utility bills, and a severe economic contraction.

As things stand, if this happens in Europe, the same prices will be instantly transmitted to Australia. They already have been. To wit:

Millions of Australian households have been warned to brace for savage hikes to their power bills after prices in the country’s biggest electricity market rocketed to their highest levels on record.

Bruce Mountain, Victoria Energy Policy Centre (VEPC) director at Victoria University, said households and businesses had only just begun to feel the effects of spiralling wholesale costs, and much worse was coming.

Dr Mountain described it as a “very, very concerning situation” for consumers, whose power bills could increase by margins similar to those observed in other crisis-hit markets, such as the United Kingdom and Europe.

“It’s a nightmare for many customers,” he said.

“Small customers have been insulated from the worst effects so far, unless you were a customer with one of the smaller retailers that had an excellent deal.

“I was one and I’ve seen my bill double, but that’s just the start of it.

“For large customers whose contracts come to an end right now and are seeking to resecure power for two or three years in the future, they’re facing extraordinary increases.”

A “once-in-a-generation” inflationary challenge will not tip the Australian economy into a ­recession despite another year of slowing growth, falling real wages and an October budget that will offer no major cost-of-living relief to households.

All entirely avoidable with simple domestic reservation, export levies, or super profits taxes for the gas and coal export cartels.

Why won’t Dr Chalmers use these policies to turn the energy shock into a budget river of gold instead? The answer may lie in his CV:

From 1999 to 2001, Chalmers worked under Queensland premier Peter Beattie as a research officer in the Department of Premier and Cabinet. He was the ALP’s national research manager from 2002 to 2004, media adviser to Shadow Treasurer Wayne Swan from 2005 to 2006, deputy chief of staff to Opposition Leader Kim Beazley in 2006, and a senior adviser to New South Wales premier Morris Iemma from 2006 to 2007. After Labor won the 2007 federal election, Chalmers returned to work for Wayne Swan in the Department of the Treasury, as deputy chief of staff and principal adviser (2007–2010) and then as chief of staff (2010–2013).[2] He briefly served as the executive director of the Chifley Research Centre in 2013.[7] In the same year he published Glory Daze, a book about the disconnect between Australia’s strong economic performance and popular discontent with government.

Dr Charmers was a close advisor to Treasurer Wayne Swan as the Rudd Government was destroyed by attempting to lift mining taxes. Dr Chalmers had a front-row seat, in fact.

What did he learn from it, one wonders.  Fear of miners? Fear for his job? Fear for his government?

Anyways, that is academic. What matters is Chicken Chalmers is crashing real incomes and house prices simultaneously, devastating both households’ purchasing power and wealth together.

This is about as bad an outcome as is imaginable for households that make up the majority of GDP. Business investment will collapse shortly after the household retrenchment begins, and the terms of trade will add pressure as well as the global economy stalls.

The Chicken Chalmers recession cometh, probably before year-end.

Albo’s polls to follow into the pit.

Houses and Holes
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  1. I breath easy knowing that whilst he is the treasurer of Australia, the great state of WA has its own treasurer to counter the stupidity of those east of the border.
    Come have a look and you won’t go back.

  2. The chicken & Labor have the weapons they need to prevent this disaster, here in the lucky country, other countries would literally die to have our options to fight inflation, we do not have to follow the questionable old policies (used to fight a different type of inflation) of energy poor countries. But Lab have chosen to keep all their weapons against inflation holstered while taking off the flack jacket & helmet (of no/low immigration). When Albo’s poll numbers fall into Putin’s bomb crater it’ll be what they deserve for the hardship they will impose needlessly on some Aussies & the economic destruction of part of our economy.

  3. Atom Heart MotherMEMBER

    The issue in Europe vis gas is in fact far worse than John Kemp’s charts show.

    The only country in Europe that has its existing gas storages full is Poland. With full storages Poland can sail through until mid December……

    Elsewhere, Ukraine is on the verge of a humanitarian crisis – presumably leading to another refugee flood. Its storages are only 20% full as of Mid July and that level of storage is consistent with enough gas to get Ukraiine though until late October – assuming gas reserves are drawn down from about the start of October. Kiev can expect snow on the ground from Mid December (though it can come as early as late November and can come later). Simply getting gas into Ukraine is likely to be difficult given it is only likely to come through LNG terminals (assuming the US will supply the LNG, and there are questions about that) in Western Europe and have to travel to Ukraine through pipeline systems essentially designed to send the gas the other way, through countries which will be short of gas themselves.

    If that isnt enough the State controlled Ukraine gas company, Naftogaz, has asked bondholders to defer payment on circa 1.5 billion USD fixed income, and every large State backed firm in the country has asked foreign bondholders to do likewise – after the Ukraine government has devalued the currency (which it has been proppping up too support refugees in other countries reliant on government payments). The US and EU have already committed circa 16 billion USD but there arre mounting questions about the ability of Ukraiine to handle the funds, amid concerns about corruption.

    On the other side of the Eurasian landmass South Korea annd Japan are also heavily reliant on Russian gas, annd Russia has told them they will need to pay in Roubles, which they are currently saying they wont do.

    Then look at the capacity of the US to get meaningful supply to either.

    So my take from that is that Europe and North Asia will be buying every last skerrick of gas available within about 10-12 weeks (and there will be a massive humanitarian disaster in Ukraine). Putin is a prick, but there are a generation of mainly EU politicians with their fingers baked into the blame for this.

    And Australian gas prices will be going up (and electricity bills)

  4. DouglasMEMBER

    A question one has to ask -is Chalmer’s pessimism in his punterspeak that he has been briefed by Kennedy (Treasury), Lowe (RBA) and his own advisers that marked to market the RBA has lost to counterparties of the order of $30-40 billion of taxpayers’ money due to their idiotic position on interest rates and inflation. Frydenberg and Morrison must take some responsibility for this debacle as they did not pull Lowe into line. And what about the board including high profile people like Harper and Broadbent-why were they out to lunch?

  5. ErmingtonPlumbingMEMBER

    Having just finished reading Upton Sinclair’s “The Jungle” I’m feeling all bolshie and extra disappointed in my party’s movement away from Chifley’s light on the hill sentiments.
    I’m hopeful that the ALP do have a secret plan that they will unleash after first letting the correction come hard and fast so everyone knows that what ever Labor finally does do,…needed doing to turn the situation around.
    I have no doubt The PR types and the Party Economists and apparatchiks know the economy is farked no matter what they do or change over the next 18 mths.
    So I reckon we are not going to see any economic reforms until half way through their term allowing them to use the narrative that ALP changes and policies brought us out of a recession (that is not yet here) rather than having the conservative media say it was ALP policy that put us in this recession,…a narrative that is already being embraced.
    Their plan (ALP) is in my view to maintain LNP policy positions until the bottom of the crash and then act decisively.
    If that Takes more than 2 or 3 years they are gunna get kicked out of office regardless of whatever policies they embrace.

    Then again like in 1905 Chicago ALL of our politicians AND institutions seem hopelessly corrupted.

      • ErmingtonPlumbingMEMBER

        If all our institutions are corrupted then a parliament of “independents” will be just as easily corrupted as a parliament half full by a fake Conservatives party and a fake Progressive/leftists party.
        I would argue they (Independence) are more corruptible As they seem to have no party rank-and-file that they have to answer to at all.

        • Curtain’s Timber Yard

          There needs to be enough Independents to reform political donations.

          People being people, the independents will coalesce into a party or number of parties in due course.

          Both the LNP and Labor have dysfunctional cultures, and the only way to change that is to displace them with other parties.

          Unfortunately, these cultures have infected the Public Service.
          It will be messy, and an improvement.

        • Jumping jack flash

          It has to be done on nationalistic values. I know that it is the new “n-word” but it is actually the only way.

          None of these floppy celery sticks we have leading us at the moment can possibly know how to do the job they need to do.

          The dominant paradigm is self-doubt and self-loathing. Nobody ever achieved anything with that mentality and we have it on a global scale.

    • You reckon Albo will last that long as gas spirals out of control? 18 months (TM). That is a lot of negative negative sideways movement in gas prices and super dooper negative movement in sentiment toward

      • ErmingtonPlumbingMEMBER

        Most punters haven’t received their super Massive gas bills yet but they are about to land with or without Albo announcing a Gas reservation policy.
        From a purely strategic political considerations it would be stupid of Albo to fix a problem that hasn’t quite yet smashed and horrified people,…yet.
        It Disgust That PR management and spin doctoring plays such a big role in our politics and policy formation.
        But if you don’t play the game you will be crushed by our pro plutocracy media setting a pro plutocracy narrative every time. IMHO Public opinion has more power over corporate plutocracy than our elected representatives do.
        Just look at Joe Biden, Donald Trump and Scott Morrison they prove who is president or prime minister is almost completely irrelevant.
        Unfortunately the same goes for Albo or anyone else currently in parliament.

        • PalimpsestMEMBER

          I understand. What Rudd showed clearly is that preventing a problem (the GFC crash) means that the threat was never real in [most] people’s minds. It really helped our economy, but no one noticed, and it was weaponised instead. I was yarning last night with another old-timer about the effort put into preventing the Y2K crash. Those of us on the front line saw how many systems were going to fail. It was a huge effort and a huge spend. Y2K came and went without much problem. Now I hear people talking about how it was a false alarm because there were never any of the expected disasters. Yet disasters were prevented. Anyone moving on Gas today would be an ‘evil Government’ intervening in our valuable exports. They would be the pits. Almost everyone in this forum can see the coming disaster, and understands the need. Almost no one outside the forum can make the basic deductions from a mix of ignorance or stupidity – it’s just not covered. I’m sorry to sound cynical, but the Government HAS to wait for the pain to become obvious to all before moving or they will be strung up … for doing the right thing.

    • I hope you are right but that they don’t take too long, though I’m leaning to the idea they are too scared to act due to past scares caused by public enemy number 1, Rupert

  6. Is he a Charmer or Chalmer?
    Whatever the case, either Jim is doing the whole Dim Jim Sgt Schultz schtick, or, he has had someone in his ear about how things are done around here, or, he is waiting for ACCC cover for domgasres and/or/ornot super profits war time cartel tax.

  7. So…… time to fill the MB comment section with “yeah yeah but what about the LNP”

    As EmingtonP points out, I hope it’s a case of waiting for the pain and using that as the battering ram to force your policies through the barriers of corporate scum. But I fear that is simply clutching at straws as by the time that pain is felt, the blame for it will already lie at the ALPs feet for letting it get to this. They could be running a scare camping right now on what’s going to happen and then act, but they are choosing to do literally noting while looking like bumbling fools. There cannot be legitimate strategy in that can there?

    At the end of the day, we are dealing with red ties captured by the same system as the blue ties and no amount of rainbow flags or gender quotas is going to fundamentally change that.

    On the plus side, the well priced solar system going on my roof in the next few weeks will have a lot shorter payback period than my cals originally suggested.

    • I hate the LNP, but I’m all for seeing this laid at the feet of Albanese & Co regardless of the cause; they can do something, but they won’t. Too chickensh!t.

      • I feel they are still very much in an “opposition mindset”. Politically I get the desire to spend time blaming the other team and to start ticking off all the ‘nice’ policy ideas they committed to in opposition BUT the huge economic issues cannot be parked without consequence.

        • Well said, so much so that they are still acting like ‘small target’ opposition, just say next to nothing on next to everything.
          It’s one thing to lay the blame at a prior party (not that your own party nor state based ALP’s govts didn’t actively support the same said policies) but it’s quite another to watch the train coming and do nothing about it….. deliberately!

        • TailorTrashMEMBER

          Spot on …there comes.a time when you need to shoulder the heavy responsibility……..I’m looking forward to how Albo does that …..make or break time …soon ..,,

  8. Labor’s vicelike embrace of the gas cartel and mass immigration will kill the workers and crash the economy. It ought to be a big story.

    But there is just no one out there to bear witness. Every think tank, media outlet, and uni academic, is also completely loyal to the big end of town.

  9. Finance MessiahMEMBER

    In amongst all of this chatter of rising inflation and global energy prices, Australia still has no domestic reservation policy for gas. It’s one of the most simple things the government could do to try and fix things, but so far has not. It goes to show whether you’re LNP or Labor, both parties are more beholden to corporate interests than the public.

    Can we bet on who Captain Philip of the RBA Titanic will blame in his next statement about the looming 50 basis point increase coming in August? Because the data we have seen shows that inflation is mostly caused by global factors, not Australians going out and buying flat screen TVs (despite what people quoting JB HiFi sales figures will argue). Will households still get a warning from Captain Lowe as he steers the Australian economy into a giant iceberg? Or will the RBA finally admit corporate creed is at an all-time high and point to the insane profits companies are making while inflation continues to climb?

  10. For gods sake, get your priorities straight. The press gallery have decided the only things that matter are diversity, voices to parliament and more females in parliament!. Yes, we’re a collapsing plutocracy run by a price gouging gas/mining cartel, but that’s too boring to report about! /sarcasm

  11. “The government on Thursday for a second day refused in question time to stand by its pre-election promise that Labor would cut power bills for Australian households by $275.”

    Any normal business that blatantly lied in its advertising in order to drum up trade would be before the courts chop chop. But political parties can blow smoke up every Australian ar$e until the cows come home, and that’s just fine, apparently.

    Fvcking vermin, the lot of them. They should all be sprayed with mortein, so we could watch them buzzing and spinning on the floor.

    • The Traveling Wilbur

      Any normal business that blatantly lied in its advertising in order to drum up trade would be before the courts chop chop.


      “normal business” – like a bank, insurance company, aged-care provider or immigration agent you mean? Pshaaaaaaaaaaaaaaaaaaw…

  12. Jumping jack flash

    “As things stand, if this happens in Europe, the same prices will be instantly transmitted to Australia”

    Oh yes, the glorious spot price, so the ones selling the gas only need to look up one price.

    For this resson, unless the government buys their own gas from the companies extracting it, [then puts it into storage,] then sells it for a loss back to the ones distributing the gas, we aren’t getting cheap gas.

    And can you imagine the political fallout?

  13. TailorTrashMEMBER

    I’ve read here that the good doctor owes his grand title to PJK as subject matter to get the great title …….now what would PJK do in these times ….
    ….perhaps he can come forth and make a spray ….as he is wont to do on the big picture issues of our times

    The gas is sitting below the ground of Australia so
    why are the citizens being charged world prices for such a national asset and advantage ?

    Yes I know markets and all that ……but seriously …..

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