Dear All,
1. Today, the local "The Australian" newspapers has a front page headline, entitled, "RBA warns on bank guarantee as Reserve and Treasury at loggerheads". It was reported subsequently that:
a. "RESERVE Bank Governor Glenn Stevens is warning the Rudd Government its blanket guarantee of deposits is creating serious dislocation in the entire financial system and must be changed."
b. "The Government ignored the RBA's strongly voiced concerns about the impact of an unlimited guarantee scheme in its rush to announce a guarantee of all deposits in Australian deposit-taking institutions on October 12."
c. "The Government faces severe embarrassment that its emergency measures are now creating new problems, given that it refused to heed RBA advice at the time."
d. "The Australian heads of several investment banks wrote an unusually pointed letter to the Government last Friday, warning that their exclusion from the scheme was damaging their ability to lend to the corporate and mortgage market in Australia."
e. "The Government is belatedly considering the introduction of a new deposit cap of $5 million, but the RBA believes this may still be too high to avoid the dramatic shift that is occurring."
f. "The RBA is arguing that the current version of the guarantee is completely distorting the market, particularly the short-term money market. It suggests the Government risks the perverse consequence of making it harder rather than easier for many Australian companies to raise funds."
g. "The main problem is that so much money, particularly short-term money, is rushing out of any institution or security or cash management trust that is not guaranteed and being put into deposits that are."
h. "In many cases these are deposits worth many millions of dollars by large institutional investors, rather than the small retail depositors the Government wanted to reassure and protect."
i. "This is why the RBA wants the Government to urgently announce a dollar cap to the guarantee to prevent the situation from becoming worse."
j. "Despite the Government's assurances that it is working closely with the regulators on the global financial crisis, the argument has strained relations between the RBA and Canberra."
k. " Kevin Rudd said after the deposit scheme was announced that the Government was acting in accordance with the regulator's advice in this difficult time."
l. "Before the Government acted, Opposition Leader Malcolm Turnbull had suggested the planned guarantee on bank deposits should be increased to $100,000. But after dismissing this as unnecessary, the Government then went much further."
m. "At the same time, the Government's decision to guarantee all term wholesale borrowing by the banks -- while charging for the insurance -- is creating market havoc. This is because those who have access to wholesale money are rushing into the guaranteed institutions and their securities."
n. "The RBA is bluntly warning Treasury this trend will only accelerate unless the Government clarifies the situation as soon as possible."
http://www.theaustralian.news.com.au/business/story/0,28124,24528503-643,00.html
2. Who, then, shall we believe and trust as being the proper and appropiate advice for the Australian to adopt and follow, in this case? RBA vis-a-vis the Australian Treasury?
3. So much, for Kevin Rudd and his ALP Federal Government's economic management record, to date.
4. It seems probable that the Australian Economy is likely to fall into an Official Recession in the immediate near future, sooner than expected, with such knee-jerk crisis-management style and the various repeated policy "reversals" in Australia, which are being presently undertaken by Kevin Rudd and his ALP Federal Govnerment.
5. Likewise, Michael Stutchbury, the Economics Editor, for the local "The Australian" newspapers, has similarly criticised Kevin Rudd over his A$10.4 Billion Economic Security Stimulus Package, as "Bad Politics".
6. Michael Stutchbury has ably and clearly argued that:
a. "The great bulk of the "economic security strategy" package won't improve Australia's economic security because that would require supply-side measures to improve productivity. Instead, it's a demand-side package that mostly will redistribute the economic adjustment."
b. "The global credit crunch has king hit the US, Europe and Japan into recession. Commodity prices have collapsed as the China boom comes off the boil."
c. "This leaves Australia exposed, because households have overconsumed and overgeared themselves to overinflated housing prices. National income has taken a hit and we have to tighten our belts."
http://www.theaustralian.news.com.au/story/0,25197,24526672-5017771,00.html
7. For your comments and discussion, please.
8. Thank you.
regards,
Kenneth KOH
1. Today, the local "The Australian" newspapers has a front page headline, entitled, "RBA warns on bank guarantee as Reserve and Treasury at loggerheads". It was reported subsequently that:
a. "RESERVE Bank Governor Glenn Stevens is warning the Rudd Government its blanket guarantee of deposits is creating serious dislocation in the entire financial system and must be changed."
b. "The Government ignored the RBA's strongly voiced concerns about the impact of an unlimited guarantee scheme in its rush to announce a guarantee of all deposits in Australian deposit-taking institutions on October 12."
c. "The Government faces severe embarrassment that its emergency measures are now creating new problems, given that it refused to heed RBA advice at the time."
d. "The Australian heads of several investment banks wrote an unusually pointed letter to the Government last Friday, warning that their exclusion from the scheme was damaging their ability to lend to the corporate and mortgage market in Australia."
e. "The Government is belatedly considering the introduction of a new deposit cap of $5 million, but the RBA believes this may still be too high to avoid the dramatic shift that is occurring."
f. "The RBA is arguing that the current version of the guarantee is completely distorting the market, particularly the short-term money market. It suggests the Government risks the perverse consequence of making it harder rather than easier for many Australian companies to raise funds."
g. "The main problem is that so much money, particularly short-term money, is rushing out of any institution or security or cash management trust that is not guaranteed and being put into deposits that are."
h. "In many cases these are deposits worth many millions of dollars by large institutional investors, rather than the small retail depositors the Government wanted to reassure and protect."
i. "This is why the RBA wants the Government to urgently announce a dollar cap to the guarantee to prevent the situation from becoming worse."
j. "Despite the Government's assurances that it is working closely with the regulators on the global financial crisis, the argument has strained relations between the RBA and Canberra."
k. " Kevin Rudd said after the deposit scheme was announced that the Government was acting in accordance with the regulator's advice in this difficult time."
l. "Before the Government acted, Opposition Leader Malcolm Turnbull had suggested the planned guarantee on bank deposits should be increased to $100,000. But after dismissing this as unnecessary, the Government then went much further."
m. "At the same time, the Government's decision to guarantee all term wholesale borrowing by the banks -- while charging for the insurance -- is creating market havoc. This is because those who have access to wholesale money are rushing into the guaranteed institutions and their securities."
n. "The RBA is bluntly warning Treasury this trend will only accelerate unless the Government clarifies the situation as soon as possible."
http://www.theaustralian.news.com.au/business/story/0,28124,24528503-643,00.html
2. Who, then, shall we believe and trust as being the proper and appropiate advice for the Australian to adopt and follow, in this case? RBA vis-a-vis the Australian Treasury?
3. So much, for Kevin Rudd and his ALP Federal Government's economic management record, to date.
4. It seems probable that the Australian Economy is likely to fall into an Official Recession in the immediate near future, sooner than expected, with such knee-jerk crisis-management style and the various repeated policy "reversals" in Australia, which are being presently undertaken by Kevin Rudd and his ALP Federal Govnerment.
5. Likewise, Michael Stutchbury, the Economics Editor, for the local "The Australian" newspapers, has similarly criticised Kevin Rudd over his A$10.4 Billion Economic Security Stimulus Package, as "Bad Politics".
6. Michael Stutchbury has ably and clearly argued that:
a. "The great bulk of the "economic security strategy" package won't improve Australia's economic security because that would require supply-side measures to improve productivity. Instead, it's a demand-side package that mostly will redistribute the economic adjustment."
b. "The global credit crunch has king hit the US, Europe and Japan into recession. Commodity prices have collapsed as the China boom comes off the boil."
c. "This leaves Australia exposed, because households have overconsumed and overgeared themselves to overinflated housing prices. National income has taken a hit and we have to tighten our belts."
http://www.theaustralian.news.com.au/story/0,25197,24526672-5017771,00.html
7. For your comments and discussion, please.
8. Thank you.
regards,
Kenneth KOH
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