Housing will lead economic upturn: RBA

David Uren, Economics correspondent   The Australian  February 21, 2009

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THE combined impact of rate cuts and the Rudd Government’s stimulus packages will create an economic recovery later this year, according to the Reserve Bank, starting with a revival in housing construction.

GOD FORBID OUR FIRST MARKET TO “REVIVE” WILL BE THE HOUSING MARKET, GLENN STEVENS!  LET THE LAND BUBBLE DEFLATE – OR ELSE!

The bank’s governor, Glenn Stevens, endorsed the Government’s economic strategy yesterday, saying its two economic stimulus packages would boost economic growth both this year and next.

BUT THIS WILL JUST DELAY THE NECESSARY CORRECTION, MR STEVENS. TRYING TO KEEP THE BUBBLE INFLATED WILL ENSURE A MORE-DAMAGING. BIGGER BURSTING WHEN IT DOES HAPPEN.  THE RBA MAY SUPPORT PEOPLE OR BANKS AT TIMES LIKE THESE – NOT BOTH.

He also said the Government’s actions to guarantee both bank deposits and wholesale funding had preserved confidence in the banking system.

YES INDEED! “CONFIDENCE” IN BANKS WHO WERE UNABLE TO MANAGE THEIR CREDIT EFFECTIVELY. THE PEOPLE WILL PAY FOR THIS ….. BIGTIME!

Appearing before the House of Representatives economics committee yesterday, Mr Stevens said the prompt actions of both the Reserve Bank and the Government would reduce the severity of the downturn.

“PROMPT ACTION” IN PRECISELY THE WRONG DIRECTION (WITH THE EXCEPTION OF THE $900 GIVEN TO PEOPLE.) PEOPLE MATTER MORE THAN BANKS RIGHT NOW.  NO?

“The path of the Australian economy is going to be considerably better than it would otherwise have been, and considerably better than a number of other countries around the world, whom we can see contracting at a very large pace,” Mr Stevens said.

HOW WRONG YOU’LL BE PROVEN, GOV!

He disagreed with new Opposition Treasury spokesman Joe Hockey that the Government should be saving some of its ammunition in case the downturn was protracted.

YES, THAT AND ABOLISHING TAXES ON LABOUR AND CAPITAL TO GET THE ECONOMY BACK INTO GEAR, JOE. THE TAX REGIME HAS BEEN FOSTERING PROPERTY RORTS AND FINING THE REAL ECONOMY! ISN’T THAT CRAZY?

“The longer you wait, the more ammunition you will end up having to use,” Mr Stevens said. “These things can get a sort of self-fulfilling momentum behind them.”

EXACTLY!  I PRESUME YOU’RE TALKING ABOUT THE PROPERTY BUBBLE THAT DELIVERED THIS GST?  OH, YOU’RE NOT!!

He raised the prospect that, having moved quickly to cut interest rates by 400 basis points since September to a 35-year low of 3.25 per cent, the Reserve Bank would stop cutting rates sooner than it had in other cycles.

UNLIKE MOST PEOPLE, I ACTUALLY AGREE WITH LOW INTEREST RATES AT ALL TIMES.  WE SHOULDN’T FALL FOR ‘LOW’ INTEREST RATES TO INVEIGLE US BACK INTO PROPERTY BUBBLES, THOUGH.

“That ought to be a good thing, because you hopefully will have got ahead of things,” Mr Stevens said.

WE WON’T GET “AHEAD OF THINGS” IF YOU DON’T LET THE LAND PRICE BUBBLE DEFLATE, BOYO!

He said the bank would be cutting rates further only to the extent that it received information that “tells us something genuinely new about the prospects for demand and prices over the medium term”.

WELL, THERE’S GOING TO BE PLENTY OF SUCH INFORMATION, GLENN!

Financial markets have cut their estimate of the board’s next rate cut from 75 to 50 basis points, however many private economists think it may pause for a month.

THE MARKETS DON’T HAVE MY OVERARCHING VIEWPOINT, GOVERNOR!

ANZ’s head of Australian economics Warren Hogan said: “The Reserve Bank feels they have got well ahead of the economic data and they can sit back and observe how things play out.”

INFORMED PEOPLE CAN SEE THEY WILL “PLAY OUT” VERY BADLY!

Mr Stevens said the fact that banks had passed on rate cuts to borrowers, albeit not in full, meant the Reserve Bank would not need to follow its peers in the US, Japan and England in cutting rates close to zero.

NOT YET!

He said the rate cuts and the stimulus packages would not prevent the world downturn causing weakness over coming months, but they would result in stronger growth towards the end of the year with a turn in housing construction.

HMMMM …. “GREAT EXPECTATIONS”?

The bank’s deputy governor, Ric Battelino, said Australia’s credit rating was in no danger, and the Government’s debt position was “among the very best in the world”.

YOU’VE LEARNT CREDIT RATINGS ARE UNFORTUNATELY RARELY IN DANGER IF YOU DO THE BIDDING OF BANKS INSTEAD OF THE PEOPLE, RIC?

Mr Stevens said the strength of the financial sector would help the recovery. The Government’s guarantee of bank wholesale funding had enabled Australia’s banks to tap world markets, coming second only to those of the US in raising funds since last November.

NO IT WAS THE MISGUIDED “STRENGTH” OF THE FIRE SECTOR GOT US INTO THE GFC, MR STEVENS! LEARN THIS: RAMPANT FIRE SECTOR BAD, REAL ECONOMY GOOD!

He also endorsed the Government’s strategy in offering unlimited guarantees to bank deposits.

BAD, BAD MOVE!  FALSE GENEROSITY TO BANKS! WHY NOT TO PRODUCTIVE SECTORS OF THE ECONOMY WITH TAX BREAKS?

“We had people starting to ring up talk radio and TV shows and querying whether they should take their money out of Australian banks,” Mr Stevens said. “You do not want to let that run. You will have to act, and the sooner you act to stop that, the better.”

WHY PROP BANKS UP AFTER THEY’VE FOULED THEIR OWN NESTS? WHAT OTHER PART OF THE BUSINESS COMMUNITY IS SO COSSETTED?

While China’s economy had weakened by more than expected, with industrial production falling for five months, he said there were tentative signs that the decline had been halted.

CHINA WILL SIMILARLY REAP THE WHIRLWIND OF ITS OWN REAL ESTATE EXCESSES.

I DON’T BELIEVE I AGREED WITH ONE STATEMENT IN THAT LOT?

At the Big Four audit firm KPMG in 1994, a senior audit partner in banking, John Buttle, sponsored and co-authored a paper with Boughton called ”Real Estate, Banking & Business Cycles” in 1994, to see how general theory might look with real estate and finance at front and centre.

This was well received at the time by Westpac, which had neared collapse in the last property crisis of the early 1990s, and Macquarie Bank called in KPMG to help forecast short-term movements in their new property-based securities, which behaved “differently” to other securities, a near-impossible task at that stage. KPMG asked about their portfolio in Asia, which was growing, and gave the same advice as at the KPMG Industry Week Forum, which it was to exit within three years.

(Excerpt from “A new economic theory is needed“)

“Did you catch the Catalyst program criticising chiropractors?” my chiro asked me today.

“No, but my wife told me about it. It sounded typical: the mainstream medical profession latching onto something to find fault with the profession as a whole, so I didn’t bother”, I replied. “And of course doctors never make a mistake.”

He laughed. “No, you should take a peep at it, just for interest.”

“You don’t have to convince me of the efficacy of chiropractic”, I said. “After limping about on a bad knee for more than twelve months after an arthroscopy and a number of sessions of physiotherapy failed to help me, chiropractic fixed it up quicksmart.”

“Chiropractors have had to push against the accepted wisdom, just like those of us who criticise mainstream economists for not factoring the property market into their considerations”, I ventured.

As we began to chat about the GFC and the Australian real estate bubble, I was briefly reminded of a talk I delivered to a receptive audience at Melbourne Town Hall with Michael Hudson and Steve Keen.

It’s always pleasant to be in the company of like-minded individuals who challenge the status quo.

AUSTRALIAN FINANCIAL REVIEW Thursday 25 July 2013

Don’t follow G20 tax call

Australia is silly to support the G20 on corporate tax. Some years ago Australia bitterly opposed California’s unitary tax, a similar “tax initiative” against international companies. If Google should pay tax to Australia because it trades with Australia, when will China demand that BHP and Rio Tinto should pay tax to Beijing, not to Canberra? Rather than slavishly following the G20, Australia should cut the company tax to 15 per cent. After the offsetting reduction in imputation credits, the net cost could be recovered by a federal land value tax, including on mineral lands. Land values are visible and immobile and can’t be shifted to tax havens.

Terry Dwyer
Dwyer Lawyers
Canberra, ACT

….says Randall Wray.

There’s hope and then there’s stupidity, Robert Gottliebsen.

On the Longwaves List Thursday 4 September 1997 19:58:01 +1000  Bryan Kavanagh wrote:

I was taken by a chart published on page 18 the Australian Financial Review today. The article accompanying it explained how traditional methods of analysing business cycles were developed at the National Bureau of Economic Research in the US in the 1930s and 1940s.

“Classical cycles”, it said, “are fluctuations in the level of economic activity, while ‘growth cycles’ are fluctuations around the trend in economic activity.” So, you’re actually looking for quarters of negative growth to define a classical recession. However, when ACTUAL growth dips below the TREND growth line, you’re in a growth recession, even if growth itself is positive.

I noted from the chart that Australia has dipped below the trend line since December 1995, and we have been in a ‘growth recession’ since. But the thing that really struck a chord with this particular K-wave enthusiast was that the trend line, which had trended UP since WWII to the beginning of the ’70s, had trended DOWN ever since. Is this not the very Kondratieff Wave that has gathered us all at this place?

The trend of the trend did not rate a comment in the article entitled “Faster growth on the way”. In Oz we’ve been told ‘faster growth on the way’ since the 1991 recession, so I’ll believe that when I see the TREND turn up sharply, NOT just the ACTUAL growth line. And I would have thought that we can’t get that until we have the resolution of unsustainable debtloads which have classically defined the K-wave trough?

I think that George Ure put this extremely well. He just posted:-

” I (and others like me) believe that we haven’t had the necessary depression yet. By necessary, I mean one that will wring the excesses out of the credit system. One of the functions of a classic long wave unraveling into a depression is that it unravels the debt monster. This is characterized by people losing things purchased on credit. The minimal amounts of home repo’s, car repo’s, and bankruptcies is, in my view, not what is necessary to
wipe off the debt slate and start over.”

We bears may be wrong. It could be that people and governments around the world may have got together to do something really clever to curtail the necessity of having to go through such a depressionary trough – ever again. If so, I am very keen to learn just what that something really clever was.

Unless I’ve missed something, seems to me we’re still wallowing in our ignorance and making the same old mistakes. We have expertise in a many areas, but not in understanding the K-wave, nor in ameliorating its peaks and troughs.

– Bryan Kavanagh

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Rent

You may tinker with the tariff and make some simple gains,
You may put on tolls or take ’em off, inducing party pains;
You may monkey with the money, but the lack of it remains,
For the Mother of monopoly is laughing as she reigns.

“Rent! rent! who is it pays the rent? ”
A dozen days in every month the worker’s back is bent;
Figure it in dollar bills or work it by percent,
But with his dozen days he pays just rent, rent, rent.

You may “minimum” the wages, you may let the women vote,
You may regulate the railroads with a legal antidote,
You may jail some Rockefeller, or may get a Morgan’s goat,
But the Mother of Monopoly is laughing in her throat.

“Rent! rent! who is it pays the rent? ”
A hundred days in every year a business profit’s spent;
Figure it in “overhead,” or state it by percent,
But all your hundred days are gone for rent, rent, rent.

You may institute foundations, you may educate the dubs,
You may libralize the bread line, and establish Slumy Clubs;
You may ostracize the Demon-Rum and eugenize the cubs,
But the Mother of Monopoly is smiling at your snubs.

“Rent! rent! who is it pays the rent?”
A score of years in life you spent to get one document;
From your cradle to your coffin you must bow to its assent,
And that’s your little, old receipt for rent, rent, rent.

I look across the rented world and idle land I see,
Whose owner doesn’t work it, for he’s working you and me,
And on the first of every month all tenants bow the knee,
And pay the rent of vacant land, in great or small degree

The worker’s hands are busy and the business back is bent;
The idle lands advance in price and every single cent,
Of that advance is paid by us in rent, rent, rent.

UNCIVILISED

An ancient ape, once upon a time
Disliked exceedingly to climb
And so he picked him out a tree
And said “Now this belongs to me.
I have a hunch that monks are mutts,
And I can make them gather nuts
And bring the bulk of them to me,
By claiming title to this tree .”

He took a green leaf and a reed
And wrote himself a title-deed,
Proclaiming pompously and slow:
“All monkeys by these presents know.”
Next morning when the monkeys came
To gather nuts, he made his claim:
“All monkeys climbing on this tree
Must bring their gathered nuts to me,
Cracking the same on equal shares;
The meats are mine, the shells are theirs .”

“But by what right?” they cried, amazed,
Thinking the ape was surely crazed.
“By this,” he answered; “ if you’ll read
You’ll find it is a title-deed,
Made in precise and formal shape
And sworn before a fellow ape,
Exactly on the legal plan
Used by that wondrous creature, man,
In London, Tokyo, New York,
Glengarry, Kalamazoo and Cork.
Unless my deed is recognized,
It proves you quite uncivilized.”

“But”, said one monkey, “you’ll agree
It was not you who made this tree.”
“Nor”, said the ape, serene and bland,
“Does any owner make his land.
Yet all of its hereditaments
Are his and figure in his rents.”

The puzzled monkeys sat about;
They could not make the question out.
Plainly, by precedent and law,
The ape’s procedure shows no flaw;
And yet, no matter what he said,
The stomach still denied the head.

Up spoke one sprightly monkey then;
“Monkeys are monkeys, men are men;
The ape should try his legal capers
On men who may respect his papers.
We don’t know deeds; we do know nuts,
And spite of  ‘ifs’ and ‘ands’ and ‘buts’,
We know who gathers and un-meats ’em,
By monkey practice also eats ’em.
So tell the ape and all his flunkeys
No man-tricks can be played on monkeys.”

Thus, apes still climb to get their food,
Since monkeys’ minds are crass and crude,
And monkeys, all so ill-advised,
Still eat their nuts, uncivilized.

– Edmund Vance Cooke