RBA Governor Glenn Stevens view on property and inflation

[boomtown]

The RBA can't reduce the rate of inflation, but they can set expectations and attempt to prevent expectations feeding into a wage-price spiral. If they don't succeed in this, the only way out is a recession.

I doubt there is anything the RBA can do to affect the expectation that wage rises should meet or exceed CPI increases. The one thing the RBA can do is drive up interest rates to dry up demand.

Unfortunately demand is mostly overseas driven so not within the RBA's turf. Bit of a tough nut for them unfortunately.

 

[FHB]

I doubt there is anything the RBA can do to affect the expectation that wage rises should meet or exceed CPI increases. The one thing the RBA can do is drive up interest rates to dry up demand.

Unfortunately demand is mostly overseas driven so not within the RBA's turf. Bit of a tough nut for them unfortunately.

There is an easy (perhaps risky) way to reduce wage expectations, increase unemployment.

 

[alexlee]

There is an easy (perhaps risky) way to reduce wage expectations, increase unemployment.

Which is exactly where we're headed, if you ask me. Entrenched inflation or unemployment? I choose unemployment. For someone else.
Alex

 

[FHB]

Which is exactly where we're headed, if you ask me. Entrenched inflation or unemployment? I choose unemployment. For someone else.
Alex

Yep, it is the lesser of two evils from the RBA's POV.... it could be difficult to control though.

 

[alexlee]

Yep, it is the lesser of two evils from the RBA's POV.... it could be difficult to control though.

I'd rather have a recession than entrenched inflation. Of course, this is on the assumption that I won't be laid off.
Alex

 

[Ausprop]

think of it as a rebalancing between productive and non-productive employees. of course if you are a unionist you believe that everyone can do less and be paid more, which is the next looming battle. Joe McDonald is getting excited.

 

[Kennethkohsg]

Ken,

I know your views on the ALP, which you have repeatedly made clear in various posts. You're entitled to those views, and I certainly don't agree with everything the ALP has done since winning power. But to say that Labour "appeals/procures" votes, and then in the same breath say that Costello/Howard never did such a thing, is ridiculous!

Why do you think Australians got 5 consecutive years of inflationary tax cuts, while the economy was already at capacity? That is clearly vote buying. Why did pensioners get so many one-off payments, direct from the Government, for nothing? That is vote buying. Why did millionaires get $5000 lump sums when they had children? That is vote buying.

Labour is cutting off welfare for people on $150K or more, and distributing the savings to those who actually need it by increasing the tax-free threshold. That seems reasonable to me. The Libs main policy at the moment is reducing petrol taxes. How is that in the long-term interests of Australia?

If we are to have a recession in Australia, a quick glance around the world's economies can tell me that it's clearly not the ALP that will cause it this time.

&&&&&&&&&&&&&&&&&&&&&&&&&&&&
Dear Dave99,

1. One thing that I have learnt about the Australian politics is that both the ALP and Liberal-Coalition Party are "bi-partisan", whereby they will seek to govern Australia in the manner so as to primarily benefit their own respective working class families voters VS "business" people voters respectively, rather than being committed to truly govern Australia for the long term interests and the Australian peoples per see.

2. They seem to be more interested in holding on to their ruling Government powers then being fully committed towards governing Australia for the long term interests of the Country and its various Australian Peoples.

3. Neither are the former Liberal Coalition Federal Govt and the various ALP State Govt fully co-operating with one another to better serve the long terms interests of Australia and the Australian peoples, though there was an inherent built-in check-balance system embedded into such a 2- dominant Parties Ruling Government political structure.

4. To me, they are actually "politicking" with one another at the expense of the long term interests of Australia and the Australian peoples, when required investments neccessary to build the required road infrastructure or/and to provide required adequate affordable land/housing, education, skills training and sustainability of water supplies for the various Eastern States and the Murray-Darling Basin area so as to further expand the capacity of the Australian Economy, were "wilfully" neglected to a certain extent, at both the Federal and State Govt though such inter-level ruling Government "politicking".

5. While Australia now has a single ALP Government at both the Federal and State levels, to curb such "counter-productive" inter-level ruling Govt "politicking" activities, I am not sure if the long term interests of Australia and the Australian Peoples are better served as a result of this new single ALP Dominant Party Ruling Govt political structure in Australia.

6. Nonetheless, this is the "choice" which the Australian peoples have decided for themselves, during the last Federal Election, collectively speaking.

7. So, whether for better or for worse in the near future and no matter what the actual outcomes of their political "choice" will eventually turn out to be, collectively, the Australian peoples will have to bear the full consequences for their voting decision and to learn from this experiences where neccessary.

8. In the mean-time, the various ALP State Govt have all still not scrapped their respective stamp duties for asset title transfers, in exchange for the GST implementation back in 2000.

9. Consequently, as a result of this new GST implementation since July 2000, the Australian peoples are fundamentally being slugged with additional taxes over past 8 years, as a result. Such additional tax burdens do not actually benefit the Australian Peoples collectively as a whole, but only serve to inflict more pains on them subsequently when so much Budget surpluses, arising fro the resource boom, were not being fully invested to expand the Australian Economy or/and to truly improve the living conditions and quality of life for the Australian Peoples, collectively as a group.

10 For your further comments and discussion, please.

11. Thank you.


Cheers,
Kenneth KOH

 

[Kennethkohsg]

think of it as a rebalancing between productive and non-productive employees. of course if you are a unionist you believe that everyone can do less and be paid more, which is the next looming battle. Joe McDonald is getting excited.

&&&&&&&&&&&&&&&&&&&
Dear Ausprop,

1. Properly re-balancing the Australian Economy, together with the rebalancing of the various major key stakeholders' expectations is the key to the solution. That is what both the ALP Federal Govt and the RBA should be jointly working, in full collaboration/co-operation with one another for the long term interests of Australia as well as for the collective good of the Australian people, at this point in time.

2. Ideally speaking, the RBA should safely and skilfully slow down the Australian Economy for a soft landing, without stalling it into an official Recession and without an expected sharp increase in unemployment figures subsequently

3. This re-balancing of the Australian Economy is no exact nor precise Science.

4. Like the aircraft landing, it is more of an Art whereby the RBA will need the required experience and skills level to safely. pro-actively and skilfully slow down the Australian Economy smoothly for a soft landing, instead of landing it down with a hard bump and into a full-blown Recession subsequently.

5. Whether Glenn Stevens and his present RBA Board of Governors are able to do so, safely and skilfully, is still very much left to be seen subsequently, at this point in time.

6. For your further comments and discussion, please.

7. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

I'd rather have a recession than entrenched inflation. Of course, this is on the assumption that I won't be laid off.
Alex

&&&&&&&&&&&&&&&&
Dear AlexLee,

1. How about the third option of "No Recession with No entrenched Inflation" scenario, please?

2. Do you not want this to happen in Australia, in the near future, personally speaking?

3. Of course, the worst scenario will be " Entrenched Inflation with a Full-blown Recession".

4. For your further comments and discussion, please

Cheers,
Kenneth KOH

 

[alexlee]

1. How about the third option of "No Recession with No entrenched Inflation" scenario, please?

I think we're past that point. The last boom was too much too fast. Before you ask, no, I don't believe Australia is that 'special'. At least not special enough to ignore business cycles.

2. Do you not want this to happen in Australia, in the near future, personally speaking?

If I had control over it? Probably. But I don't. No one does. Right now I believe it's a choice between entrenched inflation or recession. I believe the RBA will go for the latter. They don't want to, but they see entrenched inflation as (rightly, I think) the greater evil.

In any case, we all talk about how when there's blood in the streets, it's the best time to make money. We will get our chance. I'm afraid of it, but I also think 'man, if I manage to get enough courage to buy during a downturn....'

3. Of course, the worst scenario will be " Entrenched Inflation with a Full-blown Recession".

I don't believe that's a possibility. The full blown recession is a possibility, the entrenched inflation is not. Only because I believe the RBA will drive us into recession before inflation becomes truly entrenched.

I don't cloud reality with what I want, Kenneth. You WANT to believe there won't be a recession or entrenched inflation because you don't want to see people suffer. Noble, but your good wishes won't change reality. Unfortunately.
Alex

 

[dave99]

They seem to be more interested in holding on to their ruling Government powers then being fully committed towards governing Australia for the long term interests of the Country and its various Australian Peoples.

Hi Kenneth,

Political parties only hold on to power if they win elections. You might not believe it, but many people vote based on the long term interests of the country, not just their own hip pockets. Not all, of course, but enough to sometimes change the result.

If the Australian people are interested in the long term future of the country, they'll vote for it. Elections are a natural way to turn what people want into real policies.

4. To me, they are actually "politicking" with one another at the expense of the long term interests of Australia and the Australian peoples, when required investments neccessary to build the required road infrastructure or/and to provide required adequate affordable land/housing, education, skills training and sustainability of water supplies for the various Eastern States and the Murray-Darling Basin area so as to further expand the capacity of the Australian Economy, were "wilfully" neglected to a certain extent, at both the Federal and State Govt though such inter-level ruling Government "politicking".

You could argue the Liberal government in fact neglected these things, and have been voted out because of it. If people really want those things, they will vote for them. Perhaps they did when voting in the ALP?

5. While Australia now has a single ALP Government at both the Federal and State levels, to curb such "counter-productive" inter-level ruling Govt "politicking" activities, I am not sure if the long term interests of Australia and the Australian Peoples are better served as a result of this new single ALP Dominant Party Ruling Govt political structure in Australia.

The federal and state governments have largely separate roles - there are only a few areas where they overlap. But I think you're right; and voters agree. You watch the next NSW and VIC state elections - the ALP is likely to be voted out I think. Voters are aware of things you speak of, and vote accordingly. No level of "control" is needed of voters.

so much Budget surpluses, arising fro the resource boom, were not being fully invested to expand the Australian Economy or/and to truly improve the living conditions and quality of life for the Australian Peoples, collectively as a group.

You're talking about stamp duty - but didn't Costello give 5 consecutive years of tax cuts - which should have used to improve infrastructure and the capacity of the economy? Instead of acting in the long term interest of Australia, he was buying votes!

7. So, whether for better or for worse in the near future and no matter what the actual outcomes of their political "choice" will eventually turn out to be, collectively, the Australian peoples will have to bear the full consequences for their voting decision and to learn from this experiences where neccessary.

It's funny, you talk as if the Government are like a father figure, and voters are naughty children who are stupid and have to be taught a lesson. I know in Singapore the approach by the Government is to say that the citizens don't know what's best for them, that the country is "not ready" for voters to have power, that if the Opposition was in power the country would fall apart, and in short that the Government knows best.

You can see from Australia's experience that a change of power is normal and pain-free. The public service practices for the changeover process every year to ensure no abuses occur. This cannot happen Singapore while the Government makes it seem abnormal to change power, and does not allow the public service to practice changeover processes. Can you see this is a deliberate strategy?

I don't want to offend you but I find it intriguing how much you have internalised the Singapore democratic experience.

 

[Kennethkohsg]

I think we're past that point. The last boom was too much too fast. Before you ask, no, I don't believe Australia is that 'special'. At least not special enough to ignore business cycles.
Alex

******************
Dear Alex,

1. Please clarify further what you mean when you said, " we're past that point"?

2. How long does each business cycle normally last, as far as the conventional Business Cycle Theory goes?

3. I do not think that your Business Cycle Theory can adequately explain why Australia has continually been able to enjoy its prolonged economic prosperity over the last 17 years period.

4. Neither do I think that your Business Cycle Theory can adequately explain what has been happening in China over the last 20 years, following its recent economic reforms towards Capitalism, as initiated by Deng Hsiao Peng.

5. Theory only applies effectively under a certain set of assumptions and premises. Such pre-concieved assumptions and premises as used in the usual Business Cycle Theory may not neccessarily apply well in the context of the present Australian Economy and the Chinese Economy over the last 15-20 years respectively.

6. Both you and I know that both the Australian and Chinese Economies are presently not behaving in accordance to the usual Business Cycle Theory due to their own uniqueness and special set of circumstances. These 2 Economies have continued to prosper beyond the usual time norms as forecasted by or associated with the Business Cycle Theory.

7. For your further comments and discussion, please.

8. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

Hi Kenneth,

Political parties only hold on to power if they win elections. You might not believe it, but many people vote based on the long term interests of the country, not just their own hip pockets. Not all, of course, but enough to sometimes change the result.

If the Australian people are interested in the long term future of the country, they'll vote for it. Elections are a natural way to turn what people want into real policies.

You could argue the Liberal government in fact neglected these things, and have been voted out because of it. If people really want those things, they will vote for them. Perhaps they did when voting in the ALP?

The federal and state governments have largely separate roles - there are only a few areas where they overlap. But I think you're right; and voters agree. You watch the next NSW and VIC state elections - the ALP is likely to be voted out I think. Voters are aware of things you speak of, and vote accordingly. No level of "control" is needed of voters.

*****************************************
Dear Dave99,

1.What then, do the Australian peoples collectively deemed as their own long term interests as well as that of their Country, in the first place?

2. I do not think that this national interests and core values have been clearly articulated publicly and agreed to by the majority of the Australians who are eligible to vote, at this point in time.

3. While I can agree with you that many voters may have voted for the long term interests of Australia in good faith, but what then truly constitute the real core values and long terms interests of Australia and its Australian Peoples?

4. While the different political parties may have different ways of achieving these long terms goals for Australia and the Australian peoples, I believe that the Australian peoples will need to be unified in their own national aspirations, through a national agenda, clearly and publicly articulated in one single voice and to collectively hold the ruling government accountable for their office term and their pursuit of the long term goals for Australia

5. I saw KR on ABC's TV show this evening. He seems to have a tendency to "avoid" answering the real pains suffered by the pensioners or/and other Australians by simply "blaming" these various social ills on his precedessor Govt or/and suggesting that more monies have now been allocated to the problematic areas, as compared to the previous Govt.

6. For example as far as the rising petrol price is concerned, I believe that given the abundant Budget surpluses, the ALP Federal Govt is presently in the position to temporarily freeze its taxes on petrol where neccessary, if it is seriously committed towards alleviating the existing pains suffered by many Australians, as well as help to curb down the inflationary pressures as caused by the rising petrol prices.

7. Instead KR choose to "blame" the rising petrol price on John Howard's Govt for its support/participation in the Iraqi War, when the ALP has failed to strongly object/protest against the Australian Govt's decision in committing its own forces there previously, as the Federal Opposition Party.

8. To me, as the present Australian PM incumbent, KR is simply paying some "lip-service" to the various issues/" grouses" raised and cleverly "politicking" with the audience members and with the Australians at large with his own replies.

9. What exactly do Australians truly expect KR to do as its PM or/and hold him and ALP Govt accountable for, now that we have the same ALP-dominant government at both the Federal and State Govt levels?

10. For your further comments and discussion, please.

11. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

Hi Kenneth,

It's funny, you talk as if the Government are like a father figure, and voters are naughty children who are stupid and have to be taught a lesson.

I know in Singapore the approach by the Government is to say that the citizens don't know what's best for them, that the country is "not ready" for voters to have power, that if the Opposition was in power the country would fall apart, and in short that the Government knows best.

You can see from Australia's experience that a change of power is normal and pain-free. The public service practices for the changeover process every year to ensure no abuses occur. This cannot happen Singapore while the Government makes it seem abnormal to change power, and does not allow the public service to practice changeover processes. Can you see this is a deliberate strategy?

I don't want to offend you but I find it intriguing how much you have internalised the Singapore democratic experience.

*******************
Dear Dave99,

1. Let me first clarify that Singapore is a "Democratic-Socialist" country, just as Indonesia has its own unique "Guided-Democracy" system. This is much unlike the present Australian's Democratic traditions, the UK Democratic Parliamentary System or/and the American's "President-led" Democracy ideals.

2. Each society will need to adapt the "democracy" ideals that best suit its own national interests and national psyche of its local electorate, given their own historically "unique" circumstances, that have given rise to the democracy ideals being officially embraced in their own respective countries/ contexts in the first place.

3. While what you said may actually be, what the present Singapore Govt wants to believe for itself, however, as a Singaporean myself, I know and I truly believe that both the well-educated Singaporean electorate and its Civil Service are presently "mature" to accept for a change in the national leadership and ready for its smooth leadership transition, should one occur in the near future.

4. However, the present Opposition Parties in Singapore will need to first attract more top talents to its key appointments as well as into its various rank and file as well as to improve its own appeal to the local electorate more effectively and win their votes by offering themselves as an alternative effective and credible Government to the present ruling PAP Party.

5. Thus, I will say, "To each its own", please.

6. Thank you.


Cheers,
Kenneth KOH

 

[boomtown]

Ken

China doesnt have business cycles as such because it is going through explosive growth in an industrial revolution. Transformative experiences like this are once in a nations history. Japan went through it post war. Africa is still waiting for it.

2. Each society will need to adapt the "democracy" ideals that best suit its own national interests and national psyche of its local electorate, given their own historically "unique" circumstances, that have given rise to the democracy ideals being officially embraced in their own respective countries/ contexts in the first place.

With respect, thats crap. That is the standard excuse used by oppressive governments including Myanmar, North Korea, Uganda, PRC, Indonesia etc etc. Beijing's favourite line is "socialism with Chinese characteristics" which means "no democracy past the village level".

People put up with crap fed to them by the government of Singapore because (i) it does a relatively good job and (ii) the economy is strong. Bread and circuses. If the paychecks stop coming in there will be democracy riots in the streets.

Go take a walk down Little India at 10pm on a Sunday night and tell me if you see a happy and stable population. The thousands of migrant workers you see milling around on the streets will trash Singapore if they stop getting paid and it wont be pretty.

 

[josko]

Which is exactly where we're headed, if you ask me. Entrenched inflation or unemployment? I choose unemployment. For someone else.
Alex

I would RATHER unemployment. My husband had one reply to his ad for Registered SUrveyor - Potential Business Partner. This is the second ad we have placed in 2 years. He should put his prices up again . . . but that's another issue!

In answer to the China Vrs Inflation prob, has anyone asked, or can you guys tell me why the Inflation Rate can't be raised to 3-4%?

Jo

 

[Ausprop]

tell me why the Inflation Rate can't be raised to 3-4%?

Jo

it probably will be, but for now the credibility of our central bank is on the line. once inflation is under control there is a suggestion that the band may be adjusted.

 

[josko]

Sorry guys, just saw the thread by evand : Economist criticises rate targeting!

Got some reading to do again!

(Time managing New baby making me rush through and miss things! By the time I have read and have anything to add, you've all said it all. Very hard to type left handed whilst breast-feeding also!)

Love your thoughts and views Kenneth and Alexee>

jo

 

[Kennethkohsg]

Dear Boomtown,

1. My corresponding responses to your various comments made in your post are as follows below:

2. For your further comments and discussion, please.

3. Thank you

Cheers,
Kenneth KOH

******************************************

" Each society will need to adapt the "democracy" ideals that best suit its own national interests and national psyche of its local electorate, given their own historically "unique" circumstances, that have given rise to the democracy ideals being officially embraced in their own respective countries/ contexts in the first place."
********************************************
Ken,
With respect, thats crap.

Comments:

1. In that case, despite both countries being ex-British colonies, why does the democratic practices and the government structure in Australia differs from that in America or/and that in the UK, to a certain extent, and in the first place, please?

People put up with crap fed to them by the government of Singapore because (i) it does a relatively good job and (ii) the economy is strong. Bread and circuses. If the paychecks stop coming in there will be democracy riots in the streets.

Comments:

1. We have our own fair share of Recessions and increased unemployment during 1984-1987 period, the 1997 Asian Financial Crisis and 2001-2003 minor Recessions.

2. However, we do not have open street protests to deliberately disrupt the essential services provisions in Singapore so as to deliberately hurt fellow Singaporeans nor further inconveniences them. Nor do we want the social-political stability in Singapore to be taken for granted or to be un-duely affected such that foreign investors no longer deem it safe to want to continue with their investment activities in Singapore.

3. In Singapore, the Government, the various Employers' Federations and Chambers of Commerce as well as the NTUC /workers' unions have an effective and close tripatrite working relationship to ensure social harmony and the national interests of Singapore are best served, with a "win-win" basis for the various key stakeholders with conflicting social interests groups. Its National Wage Council (NWC), an independant Committee, will balance the National needs and the prevailing Singapore's economic performance so as make an equitable annual wage review recommendations for all parties to consider and accept for implementation by the various employers' organisations groups.

4. Say what you like, the Singapore Govt's official belief is that the best form of social welfare for its peoples, is to create new job opportunities for Singaporeans to be gainfully employed so that they are able to effectively provide for their own families' needs.

5. I believe this is what John Howard and the Liberal Coalition Govt's's basic underlying beliefs as far as the Australians' social welfare system is concerned.

Go take a walk down Little India at 10pm on a Sunday night and tell me if you see a happy and stable population.

The thousands of migrant workers you see milling around on the streets will trash Singapore if they stop getting paid and it wont be pretty.

Comments:

1. In case you do not know, we have specially-built official "hostels", similar to our public flats, to house these migrant workers at their construction sites, which are normally located within the various HDB housing estates.

2. Yes, in "Little India", there are many Indians there both local as well as foreign migrant workers and tourists there, just like there are many Thai migrant workers gathering together at the Golden Mile Complex in Beach Road such that you will seen a mini-Thai community/culture centre there.

3. Yes, do we have cases where migrant workers were not paid the proper salaries for their work in Singapore by some dishonest employers or/and their agents, who have to subsequently flee overseas to "hide" themselves for their own safety.

4. However, as Singapore is very much a law abiding country, many of these migrant workers will normally resort to lodging official complaints to the local police or/and Singapore Labour Ministry to air their grievances and have their complaints properly investigated and dealt with in accordance with the local Singapore Laws.

5. If Singapore is indeed a "gold mine" and land of great opportunity for these migrant workers, why should the migrant workers want to openly "revolt" in Singapore and to destroy their own hopes and their own land of opportunity in Singapore, in the first place, please?

6. Yes, as Singapore is highly congested with 25% of the local population being transient construction workers and foreign maids, the local social atmosphere can be tense at times.

7. However, as long as they are properly managed and are able to co-live peacefully with the local population and fellow migrants workers from different countries in Singapore, the Singapore Govt is likely to allow these migrant workers to come to work in Singapore as they do contribute to the Singapore Economy to a certain extent, on a "win-win" basis.

 

[dave99]

3. While what you said may actually be, what the present Singapore Govt wants to believe for itself, however, as a Singaporean myself, I know and I truly believe that both the well-educated Singaporean electorate and its Civil Service are presently "mature" to accept for a change in the national leadership and ready for its smooth leadership transition, should one occur in the near future.

I'm glad that you can accept a leadership transition as a possibility, to have regular citizens such as yourself consider this possibility is the first chink in the armour of the PAP. Please don't think I'm picking only on Singapore - of course Malaysia, Thailand, Indonesia and many other nations have the same kind of issues.

4. However, the present Opposition Parties in Singapore will need to first attract more top talents to its key appointments as well as into its various rank and file as well as to improve its own appeal to the local electorate more effectively and win their votes by offering themselves as an alternative effective and credible Government to the present ruling PAP Party.

While the PAP systematically silences the opposition through censorship and libel suits, the opposition will never be a credible alternative in the eyes of voters. You can see this is a deliberate strategy for the PAP right? Not to argue on the merits of their policies for Singapore, but to silence the opposition?

5. Thus, I will say, "To each its own", please.

This is easy to say when you are male, middle class, majority member of Singapore society. But for those at the margins, who are poor, or gay, or don't wish to get married, or don't want to have children, or are not interested in getting rich; they are disadvantaged by PAP policies and have no way to get their voices heard in the political process.

Hi Ken,