Wayne and Joe are politicians
by Peter Switzer
Now that the Reserve Bank (RBA) and its governor, Glenn Stevens, have acted to cut rates, I feel a tad guilty about my suggestion yesterday that he and his board need to get off their arses and get outside their comfort zone. I guess tough love is sometimes needed.
Well done RBA, the debtors of Australia will appreciate it. CommSec’s Tom Piotrowski is now predicting another cut on Cup Day. Let’s hope he’s right! Talking on my Switzer program on the Sky News Business channel, he says the RBA seldom does just one cut.
Both he and ING Direct’s CFO Glenn Baker argue that one cut will not be enough to get scared Aussie consumers and hesitant business owners to take the risk to stop saving and start borrowing, which was normal prior to the GFC.
Life has become so responsible and bordering on the responsibly weird that households are saving around 10 per cent of their income. We were once criticised for being so in debt that our savings ratio was negative!
And while this development from excessive spenders to measured money accumulators sounds so grown up, savers, non-buyers and business non-investors can create a slow economy, which will not be good for jobs or Treasurers looking to create a budget surplus.
The Gillard Government wants to create a small surplus but it needs the economy to be growing at 3.25 per cent to make it happen.
Our last reading for growth was 3.7 per cent for the year to end of June but the quarterly growth rate was 0.6 per cent, yet in March the figure for the quarter was 1.4 per cent. So if we annualise these figures, we see the first three months of the year brought 5.6 per cent pace for growth but it dived to 2.4 per cent by the June quarter.
That’s a big drop and it comes as the USA is growing slower than expected, and ditto for China while Europe is in recession.
Politicians being politicians
Wayne Swan’s crowing about his budgetary performance providing the reason for a rate cut is disingenuous. I think there is a case to argue that the political goal for a budget surplus borders on the crazy, given the weakness in 80 per cent of the two-speed economy. He’s using one-speed economics in a two-speed economy.
Meanwhile Joe Hockey telling us we're close to emergency levels of interest rates is unnecessarily alarmist. As I have been arguing, the RBA has been wrong on interest rates for too long and these levels are around where rates should have been, given the weak global economy and our low inflation rate.
You can never forget that Joe and Wayne are just politicians.
Things are OK in the Aussie economy but they could be better and seeing the RBA improve its interest rate policy is a step in the right direction. Now I’d like to see the government stop playing politics on individuals and stick to the issues that really count.
Personality politics — where the man is played, not the politics — has come out of the reaction to the Prime Minister breaking her promise on the carbon tax, which many voters did not like. This has resulted in Labor playing the politics of envy game, punishing non-Labor voters such as self-managed super fund trustees who have built up healthy balances to win back disaffected Labor voters.
We need policies to make consumers buy and businesses to invest if we want to get back to a more normal economy and right now I don’t think the leadership from Canberra is doing enough to promote economic growth as the mining boom slows down.
In simple terms, I guess I’m sick of politicians playing politics and would love to see a leader — the country is badly in need of it. I was glad to see that the RBA showed some overdue leadership with that rate cut.
And Wall Street?
P.S. For those who want the overnight summary from Wall Street — the Dow was down 0.24 per cent while the S&P 500 was up 0.09 per cent — so nothing was doing. Big news for the week comes on Friday when the latest US jobs report is released. A better than expected number hot on the heels of the better than expected manufacturing ISM survey could give this rally another leg up.
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Published on: Wednesday, October 03, 2012
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