Australia facing a recession in 2014? Economist says RBA needs rates cut of 1.25%!

[Peter 14.7]

A follow on from the previous mega thread

http://somersoft.com/forums/showthread.php?t=78802

Article below claims usless rates and $ goes done we are in for trouble.

A key note is

2013 is a huge year in terms of the decisions that need to be taken but there will be a political vacuum until the election is held.

Read more: http://www.smh.com.au/business/rece...nomist-warns-20121127-2a4jy.html#ixzz2DNaCk0K

Economist ( respected?) says RBA will drop rates 1.25% to get it going and avoid a cliff!

FYI and comment, Peter

 

[Trippy]

Economist ( respected?) says RBA will drop rates 1.25% to get it going and avoid a cliff!

FYI and comment, Peter

From the article:

‘‘You have an excellent starting point, you have the ability to both fiscally and monetarily support and mitigate the effects of this slowdown,’’ the prominent Copenhagen-based economist said.

I don't know where he is looking If you are me and looking up and down the street where our office is all I can see are for sale signs and for lease signs. 3 years ago we employed 15 staff, 12 months ago we employed 10 staff...now down to 5. Everyone I know (in business circles) is quiet and want more work. I was speaking to a mate yesterday and he thinks there will be mass layoffs where he works before Christmas due to lack of work (a small business with 12 staff). I don't think any recession will be as late as 2014 it's here now! I see the next 12 months trading conditions being worse than the last 12 months (in regards to suitable levels of work at acceptable margins). More staff to be let go here If anyone thinks we are going OK just have a look at all the firms going to the wall each week.

Regardless of any technical term you care to use for a recession, business in general is in decline... It's now been 5 years since the GFC and the world is still buggered. If our solution is to drop rates to 1.25% then good luck...I think if the general population see rates this low they will further de-leverage and avoid debt. Low rates are not a sign of a healthy economy, they are a sign of a sick economy and I think the public post GFC are now more aware of this.

 

[The Fence]

+1 Trippy !!

Took the words right outta my keyboard.

Things are crook as I have ever seen them, except for rental rates ATM...but...the big but.....any further layoffs & businesses to walls that will change.

 

[Peter_Tersteeg]

Low rates are not a sign of a healthy economy, they are a sign of a sick economy and I think the public post GFC are now more aware of this.

Absolutely! I'd like to see Australia's rates increase a little, and the rest of the world increase a lot! This would reduce the value of our dollar (compared to the other major enconomies) and make us more compeditive in exports again. In many ways the mining boom is killing our economy.

We need to see other economies recover, not for us to join them in recession, but I've got no idea how to get the US and Europe out of the hole they've dug.

 

[Aaron_C]

Obviously these RBA goons are in their ivory tower and don't run businesses or work in real jobs, so they have no idea what is happening out there for the rest of us.

 

[Aaron_C]

Absolutely! I'd like to see Australia's rates increase a little, and the rest of the world increase a lot! This would reduce the value of our dollar (compared to the other major enconomies) and make us more compeditive in exports again. In many ways the mining boom is killing our economy.

I think so too Peter. The high dollar is killing, inter alia, the Gold Coast and that filters its way down to the rest of us, one way or another. Having said that, it's not just the high dollar's fault. Businesses/Universities here have rode the gravy train that is international students for too long, jacked up prices willy-nilly, and now we are even more expensive than places like the UK/USA - but they cry poor now. Sometimes it is just desserts too.

 

[Peter 14.7]

From the article:


I don't know where he is looking If you are me and looking up and down the street where our office is all I can see are for sale signs and for lease signs. 3 years ago we employed 15 staff, 12 months ago we employed 10 staff...now down to 5. Everyone I know (in business circles) is quiet and want more work. I was speaking to a mate yesterday and he thinks there will be mass layoffs where he works before Christmas due to lack of work (a small business with 12 staff). I don't think any recession will be as late as 2014 it's here now! I see the next 12 months trading conditions being worse than the last 12 months (in regards to suitable levels of work at acceptable margins). More staff to be let go here If anyone thinks we are going OK just have a look at all the firms going to the wall each week.

Hello All

The Gang is back

Seriously, I think the economist Steen Jakobsen is saying the same thing as you. He is saying:

1) the Mining Boom is the only thing we have going for us and
2) when it slows ends we are stuffed unless
3) we act now.

He is also saying it is in 2013 the rates and dollar must fall to avoid a a recession in 2013 which is two quarters of nil or less growth. So those two quarters could be from July 2013, only 7 months away to meet this outcome.

He also touches on untouchables like we need:

Greater workplace flexibility and the abolition of some indirect taxes are necessary to reduce unit costs and making businesses more competitive,

So on the money here!!!!

The cynic in me thinks only a Danish AKA outsider economist will tell the truth as those in the Big 4 Banks and other in AUS have vested interest to protect or don't want to incur the wrath of government that refuses to face up to reality.

Lets just hope the RBA is really independent and willing to tell it as it is. That is our ONLY hope because as he and I agree on, niether party will go the 2013 Election with policies of aboliton of taxes via GST or workplace reform.

After the lIBs OK but then we are into end of 2013 and then things are already dead.

Keep comments coming, Peter

 

[mattnz]

They can't reduce rates that much.

Australia's equivalent of ZIRP is around 2.5%. They can't afford to drop it lower as they need a premium to major economies, to attract capital into the country. If they drop rates below this, funding that runs the economy and foreign capital that is propping up the housing bubble disappears and it collapses.

The other reason they won't lower rates more than that is that the banks will protect their margins no matter what. lowering the OCR below this won't actually impact lending rates. Just look at NZ, their OCR is 2.5%, but their retail rates to consumers are in line with Australia's. The same issues have been recognised there of capital flight.

RBA has very little real room to manouvre. We are close to the bottom of the cycle already.

 

[Peter 14.7]

Obviously these RBA goons are in their ivory tower and don't run businesses or work in real jobs, so they have no idea what is happening out there for the rest of us.

Some do, Others Don't

As I said lets hope the RBA is really independent and willing to act.

Peter

 

[Peter 14.7]

They can't reduce rates that much.

Australia's equivalent of ZIRP is around 2.5%. They can't afford to drop it lower as they need a premium to major economies, to attract capital into the country. If they drop rates below this, funding that runs the economy and foreign capital that is propping up the housing bubble disappears and it collapses.

The other reason they won't lower rates more than that is that the banks will protect their margins no matter what. lowering the OCR below this won't actually impact lending rates. Just look at NZ, their OCR is 2.5%, but their retail rates to consumers are in line with Australia's. The same issues have been recognised there of capital flight.

RBA has very little real room to manouvre. We are close to the bottom of the cycle already.

So are we stuffed? We have not tools? What can we do?

Peter

 

[mattnz]

If you want to drop the exchange rate, without capital flight, print money and hope they don't drop the nation's credit rating too far.

 

[Peter 14.7]

If you want to drop the exchange rate, without capital flight, print money and hope they don't drop the nation's credit rating too far.

But will that not bring inflation that then needs rates to rise in future?

Peter

 

[mattnz]

But will that not bring inflation that then needs rates to rise in future?

Peter

As seen in other economies, when the country is struggling and unemployment jumps, inflation becomes a non-issue that you deal with afterwards.

 

[The Fence]

.... inflation becomes a non-issue that you deal with afterwards.

...when it becomes the issue.

 

[The Fence]

Obviously these RBA goons are in their ivory tower and don't run businesses or work in real jobs, so they have no idea what is happening out there for the rest of us.

Arent some board members running businesses...?

 

[wategos]

As seen in other economies, when the country is struggling and unemployment jumps, inflation becomes a non-issue that you deal with afterwards.

Unless you made the mistake of tying your economy to an inflation-a-phobe dead weight like Germany, no doubt the GIIPS countries regret that, they can't do what the US & UK are doing and destroy their currencies to enhance competitiveness.

 

[mattnz]

...when it becomes the issue.

The experiment with inflation targeting is a very recent school of thought, which has clearly failed. It will be looked back upon in history books in that light, as a massive over-reaction to the inflation of the 70s and 80s. Inflation targeting is not the economic panacea it was thought to be. Other measures like debt levels are far more important to ensure they don't get out of hand.

We are starting to see this change in economic thought and moderate inflation isn't seen as the evil it once was, except in Germany as pointed out by Wategos.

 

[mattnz]

Read this if interested in the topic
http://blogs.reuters.com/great-debate/2009/03/19/time-to-rethink-inflation-targeting/
An excerpt....

"The real problem is that a narrow obsession with hitting inflation targets blinded central bankers around the world to the build up of other problems, including bubbles in the bond and real-estate markets, as well as the build up of excessive levels of household and corporate debt.

Moderate growth in each month’s consumer price numbers provided false comfort even as distortions built up in other parts of the financial system (overvalued asset markets) and economy (a gaping trade imbalances and surging commodity prices).

If the ultimate purpose of inflation targeting was to provide a stable economic framework for long-term decision-making by households and businesses, it has failed. Bubbles and over-indebtedness have caused far greater output losses when they collapsed than any amount of moderate consumer price inflation."

 

[Ausprop]

we have all become very comfortable with the dollar as it is. any significant drop and you wil see real pain across the board

 

[mattnz]

we have all become very comfortable with the dollar as it is. any significant drop and you wil see real pain across the board

Can you please expand on that Ausprop? Are you referring to the cost of living increase of imported goods?