In a Q&A after Tuesday’s address to ACOSS, assistant RBA Governor, Guy Debelle, admitted point blank that lifting Newstart would provide the economy with stimulus: Guy Debelle: “Newstart has been constant in real terms for the past five or six years. Sorry, 25 years… If those people got higher income, would they spend it? Probably
The “miracle” Australian economy (with its famous run of 24 years without a recession) is an amalgam of pre-modern and post-modern industries with very little in between.
Most economies run at least partially upon the productivity gains produced out of manufacturing and ‘making things’ but in Australia productive investment is supplanted with commodity exports (which make up half of exports) and the recycling of the resultant income is deployed as cash flow for borrowings offshore to pump house prices.
The former step is basically the selling of dirt, a pre-modern activity. The second step is managed via the sophisticated use of derivative markets and is essentially a post-modern activity.
Not that GDP cares given it is only the mindless measure of whirring widgets.
However, both of these activities systematically reduce economic competitiveness by inflating both input costs and the currency. “Dutch disease” by another name. This continuous “hollowing out” of productive activity means the broader economy relies heavily upon the non-stop import of capital, either in the form of debt or in the form of assets sold to foreigners, to generate ongoing income growth.
So long as the underlying income from dirt keeps flowing then the leveraging into house prices that supports consumption can continue, supported by both tax distortions and government spending.
If, however, the dirt income flow halts the hollowing out of modern industry will leave the Australian economy very exposed to a current account adjustment. We saw this in the global financial crisis but the flow of dirt income was restored sufficiently quickly to prevent any deep adjustment.
A second risk is that the debt accumulation simply becomes overly onerous for the underlying economy to service, also resulting in a current account adjustment. Well north of $1trillion of the debt is owned externally and household debt is a world-beating 186% of GDP so this is a real risk.
It is offset by a relatively clean public balance sheet that deploys fiscal stimulus in times of economic stress. However, in recent years, as both of the two above risks have increased, the public balance sheet has deteriorated as well, setting Australia up for a famous adjustment to end its famous bull run.
MacroBusiness covers all apposite data and wider analysis of these issues daily.
Via JSE Woolworths on David Jones: WHL: WOOLWORTHS HOLDINGS LIMITED – Trading update: 20 weeks ended 17 November 2019 Trading update: 20 weeks ended 17 November 2019 Woolworths Holdings Limited (Incorporated in the Republic of South Africa) Registration number 1929/001986/06 Share code: WHL Share ISIN: ZAE000063863 Bond code: WHLI (`the Group´) TRADING UPDATE: 20 WEEKS
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From the Lunatic RBA: Employment and Wages Guy Debelle Over much of the past three years, employment has grown at a healthy annual pace of 2½ per cent. This has been faster than we had expected, particularly so, given economic growth was slower than we had expected. Employment growth has also been faster than the working-age population
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Tomorrow, I will be flying up to Sydney to launch a new research paper, entitled Population growth and infrastructure in Australia: the catch-up illusion, commissioned by Sustainable Population Australia (SPA): Former NSW Premier and SPA Patron, Bob Carr, will also be presenting at the conference. The event is free and can be booked at the
MB has frequently ridiculed the push by the Morrison Government towards decentralisation, noting that this is a pipe dream based on the settlement pattern of new migrants, which have overwhelmingly chosen to flood the major cities: Well, the situation is even worse than presented above with new ANU research of settlement patterns showing that around
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