Glenn Stevens to gun down inflation

Great opinion piece in the Sunday Tele today by Mark Bouris.

The RBA is confronted with a mining industry that is running at 16% inflation - and the remainder of the economy that is running at around 1.5% ... but ... as pointed out by Mark Bouris (I tried to find the article online with no sucess) increasing interest rates has absolutely no affect on the mining inflation because they are not reliant on local borrowings - only on international ability to pay.
 
lizzie said:
Great opinion piece in the Sunday Tele today by Mark Bouris.

The RBA is confronted with a mining industry that is running at 16% inflation - and the remainder of the economy that is running at around 1.5% ... but ... as pointed out by Mark Bouris (I tried to find the article online with no sucess) increasing interest rates has absolutely no affect on the mining inflation because they are not reliant on local borrowings - only on international ability to pay.
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Even if that's true or not raising interest rates does put retail workers and real estate agents out of a job which leaves more room for the mining boom to continue without pushing up inflation too much.
 
TomW said:
Even if that's true or not raising interest rates does put retail workers and real estate agents out of a job which leaves more room for the mining boom to continue without pushing up inflation too much.
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huh - don't understand what you mean.

Expecting 80,000 to be out of work within 12 months - don't think the mining industry will absorb that many.

Does point out the tough position the RBA are in - but also why they haven't raised rates despite inflation being "high"
 
lizzie said:
who can afford to buy bananas? :eek:
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ask Glenn Stevens and his Keynesian mates. they obviously think us yobs earning less than $200k pa salaries will keep buying bananas no matter their price, or the bank cost to borrow. same for houses. :)

makes me wonder what's the purpose of a central bank post banking deregulation. got to be more than jaw boning.
 
lizzie said:
huh - don't understand what you mean.

Expecting 80,000 to be out of work within 12 months - don't think the mining industry will absorb that many.

Does point out the tough position the RBA are in - but also why they haven't raised rates despite inflation being "high"
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I mean if the mining industry is sucking up labour and pushing up wages (and therefore putting upward pressure on wages) the RBA can't afford to have the retail sector and the property also putting upward pressure on inflation.

Of course most of the 80000 won't find work in the mining industry but a slightly higher unemployment rate will mean less inflationary pressure and more room for the mining expansion.

In other words the retail and property sectors have to stay flat on their backs (right where the RBA wants them) to make room for the mining industry.
 
But that's what he was getting at - by increasing interest rates it is targeting a sector that is already running under low inflation and struggling. An interest rate rise will see it to it's grave.

Whilst the mining industry is running at high inflation but won't be affected at all by any interest rate rises as they operate on international rules.

The problem with the small businesses getting hammered by the slow economy is that they are the major employers of the country - whereas the mines pay big money but employee very few as a percentage of their turnover.

Higher unemployment won't bring down the wages in mining either.

Was just interesting in explaining why they didn't raise interest rates - and probably shouldn't in the near future.
 
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lizzie said:
But that's what he was getting at - by increasing interest rates it is targeting a sector that is already running under low inflation and struggling. An interest rate rise will see it to it's grave.

Whilst the mining industry is running at high inflation but won't be affected at all by any interest rate rises as they operate on international rules.
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Exactly. If you're BHP and you're making $22bn per year, would you really care about a 0.25%, or even a 1% increase in interest rates? Mining companies historically have very low levels of debt because they always get equity raisings from the stock market. That is the dilemma that the RBA faces and so far they can only really use scare-tactics to ensure that all the Eastern States aren't put to the wall
 
Aaron_C said:
Exactly. If you're BHP and you're making $22bn per year, would you really care about a 0.25%, or even a 1% increase in interest rates? Mining companies historically have very low levels of debt because they always get equity raisings from the stock market. That is the dilemma that the RBA faces and so far they can only really use scare-tactics to ensure that all the Eastern States aren't put to the wall
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I think that is the whole problem with monetary policy in Australia post 2000 anyway.

Nearly all businesses apart from a handfull of historically highly leveraged ones like developers and capital intense companies are much more lowly geared than households.

Don't worry about mining companies there are not that many businesses who would go to the wall with interest rates rising 1% even from here. Households; there would be a few...

Of course the secondary effects of raising interest rates 1% from here would send many to the wall mostly through our floating exchange rate and our dollar soaring to some ridiculous new height.

Interest rates were once a tool to promote business investment (rise in wage inflation pressures) or curb it (lower wage inflation pressures) directly. Now it only works in a secondary manner through household consumption rising and falling depending on whats left after one pays the mortgage and the level of the exchange rate so how much we pay for fuel etc.

Sure these were factors before but I wonder if it has become an even more blunt instrument than it once was because households have taken over from business as the most highly geared.

They really have to ask themselves (well they should have 10-15 years ago I think) whether the same policies should apply now.
 
tom32 said:
I think that is the whole problem with monetary policy in Australia post 2000 anyway.

Nearly all businesses apart from a handfull of historically highly leveraged ones like developers and capital intense companies are much more lowly geared than households.

Don't worry about mining companies there are not that many businesses who would go to the wall with interest rates rising 1% even from here. Households; there would be a few...

Of course the secondary effects of raising interest rates 1% from here would send many to the wall mostly through our floating exchange rate and our dollar soaring to some ridiculous new height.

Interest rates were once a tool to promote business investment (rise in wage inflation pressures) or curb it (lower wage inflation pressures) directly. Now it only works in a secondary manner through household consumption rising and falling depending on whats left after one pays the mortgage and the level of the exchange rate so how much we pay for fuel etc.

Sure these were factors before but I wonder if it has become an even more blunt instrument than it once was because households have taken over from business as the most highly geared.

They really have to ask themselves (well they should have 10-15 years ago I think) whether the same policies should apply now.
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Exactly. It's just the domino effect - only this time it is led by consumers. If rates go up, consumers spend less, businesses make less money and start firing people etc. It will become a viscious cycle
 
josko said:
We have a problem. Stagnation.
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I suspect we will also have stagflation fairly soon.

As soon as our capacity to export iron ore along with brazils, Indias etc reaches a point that meets or exceeds demand and the investment pipeline is cut off watch;

Our stockmarket falls probably predicting the eventual capitulation of mineral prices.

Our dollar falls.

Investment in new mineral projects or those only in the planning stages is put on hold or cancelled.

Interest rates fall.

Forcing our dollar to fall further.

In the middle of job losses and our central bank slashing rates we would also have inflation starting to get out of control with petrol at $2.20 or more and other imports becoming prohibitively expensive.

We then suffer stagflation while we have both GDP going backwards and inflation rising due to our weakening dollar.

Of course with a weaker dollar other exports become more competitive but the shift into these will be even slower than the shift out of them so a few years of pain at least before things kick off again and likely 10 years or more before minerals prices get into another investment cycle.

The GFC in my opinion prolonged this current investment boom in mining. We had all sorts of projects postponed all around the world and it gave us more time to reap the rewards of this boom. Capitalism however has one major weakness around long lead time items like minerals, it always overshoots on the supply side.

Edit: and so the high interest rates now are assisting this transition into a mining economy when we need at the least fiscal policies to keep our capacity in things other than mining. Otherwise the pain when this cycle ends (the minerals cycle has been happening for 100 years or more this is not going to be the last of them...) will be greater.
 
tom32 said:
As soon as our capacity to export iron ore along with brazils, Indias etc reaches a point that meets or exceeds demand and the investment pipeline is cut off watch;
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the scale to which bhp is ramping up ore exports in the pilbara is staggering. however that is just the tip of the iceberg, with investment in oil and gas going off and commited over multiple decades (this will mitigate our oil exposure too) not to mention just about every other commodity. My point is that surely these companies have an informed view of demand that exceeds 12 months when they are comitting this sort of capital?
 
No increasing of interest rates will stop BHP or RIO, because they are cashed up??? DUH!~!~!~!

And it doesn't stop half the miners in WA/QLD because their money comes from India (eg Tata, Aditya Birla) and China (CITIC, Hunan Valin, Tianjin Steel) and Japan (Mitsubishi, Mitsui, Sojitz).....!!!

The only thing raising rates stops is construction, retail, tourism, education and real estate in general. Hahaha
 
Belbo said:
I regret to say it means you skipped too many elementary school English classes.
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OK It's not a word I use.
To tell you the truth I thought you were not to bright and meant -More of a misfit.

If it had been used ion the context for which it was intended it may have made more sense.
 
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Stevens is very aware of our housing bubble and all of it's possible consequences and seems far more concerned with that than a couple of temporary inflation figures which will take care of themselves in time as thing's slow down further and business is forced to reign in their greed . I think he's been playing the right cards for a long time and set himself up with room to move as soon as he got the leeway last time and he's still doing it.

But he's trying not to spook anyone , just v/quietly doing his best to avoid a crash . Personally I think the guy's far more clued in than the knockers realize .

Cheers
 
If you're dreaming about rate cuts you're not seeing the forest for the trees. If Europe falls over it will take a lot more than a rate cut to save the housing market.
 
Mate , so you interpret that as me thinking there's no housing bubble , I can'y see forest for trees and , that I'm hoping for rate cuts - I give up !
I would have thought it was obvious I'm the last dreamer in this place and couldn't give a damn about rate cuts , I owe sweet fa money. They sure as hell won't be going up anyway .
What did I just say ? he's a clued in guy and would obviously know he couldn't save us but he can at least do what he can !

I swear , I'm giving up forums .
 
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