All Torys are venemous towards Keating while all Reds loved Kimbo . So I made an assumption.
Recession likely in Australia
- Thread starter greedy saffa
- Start date
All Torys are venemous towards Keating while all Reds loved Kimbo . So I made an assumption.
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Dear Shady,
1. I do not think this is exactly what Ian McFarlance meant in his article when he wrote, "The recession started in the September quarter of 1990 and lasted until the September quarter of 1991".
http://www.theage.com.au/news/busin...-we-had-to-have/2006/12/01/1164777791623.html
2. Firstly, the Australian Economy has presently slowed down at this point in time. It has still not officially fallen into a Recession yet, at this point in time.
3. Glenn Stevens and his RBA are presently adopting, what Professor Don Harding has described, as a "Flexible Inflation Targetting Policy" to manage the Australian Economy. Thus, local inflation rates are allowed to rise than the officially targetted 2%-3% inflation rate level, from time to time as long as the high inflation rate do not remain "entrenched" permenantly into the Australian Economy.
4. Neither Stevens nor his RBA thinks that the 4.2% inflation rate has been officially "entrenched" into the Australian Economy at this point in time. If they have, the RBA would have further increased its official interest rate ( and cash rate) in April and May 2008.
5. Professor Don Harding has openly cautioned the RBA, against allowing the high inflation to be entrenched into the Australia Economy with its present "softly softly" approach of monetary policy , in his following article, entitled, "RBA's Three Strategies". He has further recommended that should the high inflation rate fails to fall and stabilise itself subsequently (as a result of the continued resource boom),as a precautionary safeguard, the RBA may have to increase its real cash rate accordingly, from its present 3% to 3.5% level, after adjusting for inflation.
http://www.theaustralian.news.com.au/story/0,25197,23644269-7583,00.html
6. However, according to the Minute of the RBA Board Meeting for May 2008, both Steven and his RBA reportedly believe that inflation are likely to fall in the coming months when the Australian Economy slows down further over the next few months. This is as per the following RBA's official minutes extract: "... In the short term, inflation is likely to remain relatively high, but it should decline over time provided demand evolves as expected. "
http://www.rba.gov.au/MediaReleases/2008/mr_08_07.html
7. Morever, it is still "debatable" whether there is presently an asset /housing price bubble ongoing in Australia at this point in time, even though reputable agencies like Demographia, IMF and even the local ANZ Bank do presently believe that the present housing prices in Australia are reportedly "over-valued" by some 20% at this point in time. This has been separately discussed in another 2 different threads, as follows:
http://www.somersoft.com/forums/showthread.php?t=41632&page=2
http://www.somersoft.com/forums/showthread.php?t=41495
8. I believe Paul Keating's words, " this is the Recession that we need to have" , referring to 1990-1991 Recession in Austraiia, is fallacious to a certain extent. In Ian MacFarlance's own words, " I do not want to give the impression that policymakers knew exactly what was happening and were in control throughout. We did not set out to have a recession in order to reduce inflation. The recession happened because of the unwinding of the excesses of the 1980s, the international recession of the early 1990s and the high interest rates."
http://www.theage.com.au/news/busin...-we-had-to-have/2006/12/01/1164777791623.html
9. Consequently, I personally believe that it is highly "unwise" and "untenable" for Glenn Stevens and his RBA to "deliberately" engineer for the Australian Economy to fall into an official Recession first with the attendant high unemployment rate to be reported subsequently, simply just for the sake of trying to quickly bring down the existing inflation rate down to its targetted 2%-3% level.
10. For your further comments and discussion, please.
11. Thank you.
Cheers,
Kenneth KOH
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1. According to Ian McFarlance, there was reportedly an real asset bubble occuring in Australia in the mid-1980s.
a. "First, any boom built on rising asset prices financed by increased borrowing has to end."
(1) The further asset prices rise above their intrinsic value, the more likely it is that a reassessment will be made and they will stop rising. At this point, there is a "rush for the exits", as everyone wants to sell before prices fall.
(2) The situation is usually made worse by banks wishing to call in loans, or refusing to roll them over, as they react to falling collateral values.
(3) This is the classic dynamic of an asset price boom and bust such as that which occurred in Australia. "
b. "The second factor was the relentless pressure of high interest rates on businesses, which in many cases were borrowed up to the hilt."
(1) The aim of the high interest rates was to slow the economy by discouraging further borrowing, particularly by businesses.
(2) In this way, monetary policy would also contribute to ending the asset price boom. The combination of high levels of debt and high interest rates also constrained cash flow, and limited the ability of companies to undertake investment and increase employment.
(3) At the same time, households were also being affected by the rise in mortgage interest rates, which reduced their disposable income.
(4) I do not think anyone disputes that monetary policy had to respond to the overheating of the economy and the asset price boom of 1988 and 1989.
(5) In the event, the cash rate reached 18 per cent in the second half of 1989, the mortgage rate 17 per cent, and many loans to businesses well in excess of 20 per cent.
c. "A good indicator of the fall of asset prices is provided by the price of office buildings, most of which are purchased or developed using very large amounts of credit. Between their peak in 1989 and their trough in 1993, the average price of office buildings halved."
(i.e 50% price drop over a 4 years period!)
d. "Clear evidence that their previous rise was a bubble is given by the fact that even now in 2006, prices have not regained the level they were in 1989 — they are still about 15 per cent below that peak." ( i.e. asset prices failed to return to its last market peak levels, even after some 15 years time period has lapsed)
http://www.theage.com.au/news/busine...777791623.html
Cheers,
Kenneth KOH
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Sorry guys, I was not offering the article as a reason for anything, As I mentioned in my previous post, I wanted to do a bit of research before I waged in on the topic of recession.
In my opinion the article was thought provoking and the extract I posted merely suggested that there were no instances in the developed world of a nation bringing entrenched high inflation undercontrol without a recession.
The dot.com boom, the Asian crisis were not associated with high inflation so are irrelevant in regards to the extract I posted.
Again, I'm not sure who wrote the article, I would usually goggle their name to who and what they have done before I give weight to any opinion, in print or the interenet.
All the points you raised Kenneth are also thought provoking.
In my opinion the article was thought provoking and the extract I posted merely suggested that there were no instances in the developed world of a nation bringing entrenched high inflation undercontrol without a recession.
The dot.com boom, the Asian crisis were not associated with high inflation so are irrelevant in regards to the extract I posted.
Again, I'm not sure who wrote the article, I would usually goggle their name to who and what they have done before I give weight to any opinion, in print or the interenet.
All the points you raised Kenneth are also thought provoking.
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Dear Shady,
The author for the said article, is Mr Ian McFarlance himself, who was former Chairman for RBA, from 1996-2006.
Cheers,
Kenneth KOH
Slowing Down the Australian Economy into a Recession?
Dear All,
1. It was further reported today that:
a. "On the eve of the budget, RBA governor Glenn Stevens has raised the possibility that later this year, rather than curb demand, the Government may need to take action to revive an economy that has been slammed into a wall by interest rate rises already in the system."
b. "Despite this, inflation is still forecast to be well above the RBA's target range of 2 to 3 per cent."
c. " Mr Stevens has forecast the most serious economic slowdown since 1992, with growth falling from 4 per cent to 1.5 per cent in the year to December, excluding the farm and mining sectors."
d. " If it happens, it will confirm The Australian's warnings about the difficulties of using monetary policy to manage imported inflation from higher oil and food prices."
http://www.theaustralian.news.com.au/story/0,25197,23672748-16741,00.html
2. According to Kerrie Sinclair, in the article, entitled, "Growth Forecasts Slashed, Jobs at Risk",
a. the RBA has reportedly further revised downwards its growth forecast for the Australian Economy from 3.25% down to 2.25% as well as revised its inflation growth rate upwards projections from 3.5% to 4.5% by the end of 2008.
b. "If consumers respond as the RBA expects, it will be the slowest growth in the Australian economy since 1992, excluding the period after the introduction of the GST, which would place jobs at risks."
http://www.news.com.au/business/story/0,23636,23674767-462,00.html
3. With such self-contradictory revised growth downwards and upward inflation forecast projection, there is thus much increasing risks for the present slowing down Australian Economy to drop into an official Recession subsequently, should the RBA fails to take timely appropiate actions and measures to pro-actively and skillfully "slow down" the Australian Economy sufficiently for a soft landing in the near future, without "over-slowing" it down into an official Recession.
4. It was further reported that
a. "Just three months ago (i.e in February 2008), the Reserve Bank believed it would be starting to win the war on inflation by December, with the rate of price growth dropping back from 4 per cent to 3.5per cent. "
b. "The Reserve Bank now expects inflation to start easing next year, falling to 3.25 per cent by the end of 2009, and eventually getting back into its 2-3 per cent target zone by the end of 2010, when it falls to 2.75per cent."
c. " it also expected three months ago that there would be only a modest slowdown in non-farm growth to 2.75per cent.
d. "However, it has been persuaded to cut its forecast by the dive in consumer confidence, lower household borrowing, weak retail sales and rising petrol costs."
http://www.theaustralian.news.com.au/story/0,25197,23673832-20142,00.html
4. Consequently, with the RBA's present many growth/inflation forecast revisions over the last few months, it is quite likely that the RBA may also "unknowingly" overdo its job of slowing down the Australian Economy into a Recession instead of achieving a soft landing, as it has originally intended.
5. For your further comments and discussion, please.
6. Thank you.
Cheers,
Kenneth KOH
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Dear All,
1. It was further reported today that:
a. "On the eve of the budget, RBA governor Glenn Stevens has raised the possibility that later this year, rather than curb demand, the Government may need to take action to revive an economy that has been slammed into a wall by interest rate rises already in the system."
b. "Despite this, inflation is still forecast to be well above the RBA's target range of 2 to 3 per cent."
c. " Mr Stevens has forecast the most serious economic slowdown since 1992, with growth falling from 4 per cent to 1.5 per cent in the year to December, excluding the farm and mining sectors."
d. " If it happens, it will confirm The Australian's warnings about the difficulties of using monetary policy to manage imported inflation from higher oil and food prices."
http://www.theaustralian.news.com.au/story/0,25197,23672748-16741,00.html
2. According to Kerrie Sinclair, in the article, entitled, "Growth Forecasts Slashed, Jobs at Risk",
a. the RBA has reportedly further revised downwards its growth forecast for the Australian Economy from 3.25% down to 2.25% as well as revised its inflation growth rate upwards projections from 3.5% to 4.5% by the end of 2008.
b. "If consumers respond as the RBA expects, it will be the slowest growth in the Australian economy since 1992, excluding the period after the introduction of the GST, which would place jobs at risks."
http://www.news.com.au/business/story/0,23636,23674767-462,00.html
3. With such self-contradictory revised growth downwards and upward inflation forecast projection, there is thus much increasing risks for the present slowing down Australian Economy to drop into an official Recession subsequently, should the RBA fails to take timely appropiate actions and measures to pro-actively and skillfully "slow down" the Australian Economy sufficiently for a soft landing in the near future, without "over-slowing" it down into an official Recession.
4. It was further reported that
a. "Just three months ago (i.e in February 2008), the Reserve Bank believed it would be starting to win the war on inflation by December, with the rate of price growth dropping back from 4 per cent to 3.5per cent. "
b. "The Reserve Bank now expects inflation to start easing next year, falling to 3.25 per cent by the end of 2009, and eventually getting back into its 2-3 per cent target zone by the end of 2010, when it falls to 2.75per cent."
c. " it also expected three months ago that there would be only a modest slowdown in non-farm growth to 2.75per cent.
d. "However, it has been persuaded to cut its forecast by the dive in consumer confidence, lower household borrowing, weak retail sales and rising petrol costs."
http://www.theaustralian.news.com.au/story/0,25197,23673832-20142,00.html
4. Consequently, with the RBA's present many growth/inflation forecast revisions over the last few months, it is quite likely that the RBA may also "unknowingly" overdo its job of slowing down the Australian Economy into a Recession instead of achieving a soft landing, as it has originally intended.
5. For your further comments and discussion, please.
6. Thank you.
Cheers,
Kenneth KOH
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Dear All,
1. According to The Australian Newspapers today, it was reported that
a. "The figures showed the (Australian) economy is achieving a soft landing in the wake of world financial turbulence and the RBA's campaign of rate rises."
b. “Families are feeling the impact of rising prices and rising interest rates, with household consumption growth slowing to 0.7 per cent in the quarter and 4.3 per cent over the year,”.
c. "Healthy growth in industry output and income is offsetting a slowdown in consumption. "
d. "The 0.6 per cent growth in the latest quarter follows similar growth in the December quarter and shows the economy has dropped from the breakneck growth of 4.3 per cent achieved in the year to September to a level of 2.6 per cent in the last six months."
e. "Household spending, which was still causing alarm at the RBA in the December quarter when it leapt by 1.5 per cent, grew at only 0.7 per cent in the March quarter. "
f. "Households cut back the growth in spending on food and alcohol, with a sharp fall of 2.4 per cent in eating out. Motorists responded to soaring fuel prices by driving less. "
g. "Interest costs have soared by 22.9 per cent over the past year, with households spending $1.5 billion more a month on interest now than they were a year ago."
h. "However, employment growth means that incomes are more than $3.5 billion a month higher now than they were then."
i. "New business investment continued to grow strongly, rising by 1.6 per cent in the last quarter."
http://www.theaustralian.news.com.au/story/0,25197,23809185-601,00.html
2. Despite this, Lindsay Tanner, the new Australian Federal Finance Minister is reportedly still "talking up" the local inflation rate and the need for the RBA to increase its IR rate, in the abovementioned news article.
3. In particular, Lindsay Tanner is suggesting that "inflation remains a major challenge,....(and) that the inflation fight is far from over...Higher inflation means higher interest rates which, in turn, tend to reduce economic growth and employment growth.”
4. Mr Tanner further suggested that "it was too early to say whether the two interest rate rises this year had led to people cutting back on eating out or driving".
5. This is in spite of the present various ongoing economic pains suffered by many Australians today, including their present severe housing/rental stress as well as financial strains on their existing household budgets.
6. Of late, more motorists in Western Australia ( as well as in many other Australian States), are further reportedly seen to be switching over to the use of the public transport instead of driving their cars to Perth CBD to/from work, in their attempts to cope with the soaring petrol prices.
7. Thus, it can be seen that despite their common concerns and anti-inflation fight, both the Australian Treasury/Finance Ministry/ALP Federal Govt and the RBA are having differing assessment outcomes and management approach towards managing the Australian Economy.
8. The RBA has claimed that the recent Budget was indirectly "stimulating" the local demand with its various (non-inflationary) tax cuts measures, despite its record budget surplus, being announced by the new ALP Federal Govt.
9. Yet the ALP Federal Govt, through Wayne Swan as its Federal Treasurer or/and Mr Lindsay Tanner, as its new Federal Finance Minister, on the other hand, has repeatedly continued to openly maintain that its 2008 Budget is "non-inflationary" in nature, ( yet in essence, neither was the recently released Budget sufficiently "anti-inflationary" enough to be an effective anti-inflation tool in/of itself despite its frequent rhetorics).
10. The KR's ALP Federal Govt has further "hinted" on a number of occasions that despite the present economic pains suffered by many Australians, RBA could do more by increasing its official cash rate and interest rate further, in order to effectively curb down the local inflation rate to its desired 2%-3% inflation level target.
11. In the mean-time, the new ALP Federal Govt has continued to openly "blamed" John Howard and the former Liberal Federal Govt for the present economic dilemma during the present ongoing parliamentary debate, without offering an effective solution to bring down the local inflation rate in Australia.
12. For your further comments and discussion, please.
13. Thank you.
Cheers,
Kenneth KOH
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1. "In fact, Stevens is probably relieved that March did not produce a negative GDP figure, which preliminary indicators suggested was certainly possible...That would have started a great hue and cry about the RBA sending the economy into recession and an acute attack of political nerves in Canberra."
2. "In its forecasts last month, the RBA had GDP growth running at 2.5per cent over the year to June...While growth in the year to the March quarter was running at 3.6per cent, if we annualise the quarterly rate of 0.6per cent, like the US does, growth is running at 2.4per cent - pretty much line ball."
3. "And these figures have not had time to reflect much impact from the two official interest rate rises in February and March, which had a marked impact on consumer sentiment, as well as further mortgage rate rises from the banks."
4. "A closer look at the figures suggests Reserve Bank governor Glenn Stevens will, find them reassuring, or at least reassuring enough to continue to sit on interest rates....They show an economy that clearly is slowing, even if it remains a bit more vigorous than the central bank and markets expected."
5. "The RBA would also be looking at the so-called high-frequency economic data in and beyond the March quarter, such as retail sales, credit growth and consumer confidence, which all point to a further slowing in growth in the current quarter."
6. "The next shoe the central bank is waiting to see drop is employment. Rising unemployment will be the clearest indication monetary policy is working."
7. "The RBA needs such evidence to hold inflation expectations in check, since its own projections, which have inflation remaining elevated to the end of 2010, are stretching its anti-inflation credibility to the limit."
http://www.theaustralian.news.com.au/story/0,25197,23812949-20501,00.html
8. Personally, I am also "relieved" to read at this point in time, that RBA is presently still able to stay well on track in slowing down the Australian Economy for a soft landing proactively, without neccessarily stalling it into an official Recession subsequently, to date, so far.
9. Despite the RBA's good progress to date, however, we still cannot effectively rule out the risk regarding whether or not, Australia will eventually experience an official Recession subsequently, as it is still much left to be seen, as unemployment figures has also started to increase, at this point in time too.
10. For your further comments and discussion, please.
11. Thank you.
Cheers,
Kenneth KOH
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1. According to David Uren, " the OECD released its annual economic outlook yesterday, tipping Australian growth this year would be 2.9 per cent, slipping to 2.7 per cent next year."
2. "The OECD expects inflation to be tamed faster than the Reserve Bank's predictions. "
3. "It says inflation will average 4.1 per cent this year and 3.1 per cent next year, before returning to the bank's 2-3per cent target band by the end of next year - one year earlier than the bank's forecast."
http://www.theaustralian.news.com.au/story/0,25197,23812941-20501,00.html
4. Thus, it appears that neither RBA nor the OECD shares the same "bleak" assessment outcome regarding the existing inflation "problem"/ challenge in Australia, as has been repeatedly and officially painted by the ALP Federal Govt, through Wayne Swan, Lindsay Turner or/and KR, at this point in time.
5. To indirectly "cause" the (supposedly "independant") RBA to "pre-maturely" increase its official cash rate and IR further, is thus, being overly "hawkish" in managing the existing inflation risk as well as likely to increase the risk of stalling the Australian Economy into an official Recession subsequently.
6. This is especially so, in the present context of a continued slowing down Australian Economy, the recent higher/additional rate increases by the major banks as well as a likely surge in the local unemployment figures occurring in the immediate near future, please.
7. Neither is such a "pre-emptive" policy move, deemed appropriate or neccessary at this point in time, to be truly in the long term interests for the working Australians, in view of their present ongoing housing/rental stress and sufferings from the various economic pains being inflicted upon them.
8. For your further comments and discussion, please.
9. Thank you.
Cheers,
Kenneth KOH
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"bleak assesment" ? who's painting a bleak assesment for Australia?
Australia is like a roadhouse full of fuel, beer and deep fried food, on a major interstate highway with the nearest competition 500km away.
in other words, every man and his dog is filling up and spending a packet.
what does it mater if people aren't sitting down in the restaraunt? those staff should be moved to the areas pumping fuel or serving at the counter.
bleak assesment - i don't think so.
Australia is like a roadhouse full of fuel, beer and deep fried food, on a major interstate highway with the nearest competition 500km away.
in other words, every man and his dog is filling up and spending a packet.
what does it mater if people aren't sitting down in the restaraunt? those staff should be moved to the areas pumping fuel or serving at the counter.
bleak assesment - i don't think so.
I suspect the OECD and RBA projections are based on falling commodities prices. And I think the OECD and RBA have it wrong - commodity prices will stay steady or rise in my books.
Like I said before we need to see the July CPI figures before saying inflation is beaten. I dont think it is.
Like I said before we need to see the July CPI figures before saying inflation is beaten. I dont think it is.
Interesting to look at where people live, and the bullish or bearish views they have.
We certainly are a two speed economy right now, but I think we should get used to it.
See ya's.
We certainly are a two speed economy right now, but I think we should get used to it.
See ya's.
ah it's definitley not beaten because it's imported.
that said though my coffee is still costing me $3.50 - was $3.20 at the start of the year.
maybe when my coffee comes back to $3.20 i can start to expect the RBA rate rises to be comfortably on hold.
that said though my coffee is still costing me $3.50 - was $3.20 at the start of the year.
maybe when my coffee comes back to $3.20 i can start to expect the RBA rate rises to be comfortably on hold.
Petrol prices at $2.00 before the end of the year.
That is a 50% increase on the start of the year - unprecedented in our lifetimes.
As a key driver of inflation, it is only going to get harder for everyone who is already mortgaged up. Every cost in your budget is going to steadily increase. Many food prices are already up by as much as 30% on this time last year.
If it is not already stinging you, perhaps you've not sat down to think about it...
That is a 50% increase on the start of the year - unprecedented in our lifetimes.
As a key driver of inflation, it is only going to get harder for everyone who is already mortgaged up. Every cost in your budget is going to steadily increase. Many food prices are already up by as much as 30% on this time last year.
If it is not already stinging you, perhaps you've not sat down to think about it...
Or maybe you already take public transport to work.
I usually ride a bike to work, but I caught the bus the other day and holy heck - it was packed! I had to stand and couldn't even open my book to read.
Large car sales down, public transport up. And they said that petrol demand was inelastic! What's really scary is if the Aussie dollar wasn't so strong - imagine what the price of petrol would be! The RBA needs to keep rates high to keep the foreign money here (we're a nation of debt junkies) - if they cut it to try and save asset prices (like UK and US have tried, unsuccessfully) petrol prices will go through the roof as the foreign money leaves our shores and asset prices....
Australia is one of the highest energy using, low density sprawled car cultures on earth - we've built a society assuming petrol is infinite and cheap, and promised years and years of high wages (and a high proportion, assuming food and energy and imports were cheap) for these houses and cars... probably not so smart....
Large car sales down, public transport up. And they said that petrol demand was inelastic! What's really scary is if the Aussie dollar wasn't so strong - imagine what the price of petrol would be! The RBA needs to keep rates high to keep the foreign money here (we're a nation of debt junkies) - if they cut it to try and save asset prices (like UK and US have tried, unsuccessfully) petrol prices will go through the roof as the foreign money leaves our shores and asset prices....
Australia is one of the highest energy using, low density sprawled car cultures on earth - we've built a society assuming petrol is infinite and cheap, and promised years and years of high wages (and a high proportion, assuming food and energy and imports were cheap) for these houses and cars... probably not so smart....
