The next war?

Costello says it'll be inflation

Former Treasurer Peter Costello has declared inflation to be Australia's "next big challenge" as the Reserve Bank has signaled our economic recovery could be stronger than expected.

Mr Costello said that after Australia pulled out of the present downturn it would have to find a way to deal with "all the liquidity" it had created in the attempt to fight it off.

"After we have bottomed and when we start coming out, then you are going to see inflationary fears taking hold, and around the world and you are going to see interest rates whirring back," he told a packed press conference organised to discuss his decision to leave parliament.

"This is only going to happen after we have bottomed and after we are into the recovery, but it is going to be the next big challenge."

"I always believe that you sow the seeds of the next challenge while you are confronting the present one...

...I think the origins of sub-prime fallout lay in the response to the tech-wreck of 2001 and the terrorist attacks when the United States Federal Reserve pumped liquidity in to the system, tried to stave off recession and build confidence.

"Well in this downturn once again liquidity has been pumped up - quite rightly - and interest rates have been cut aggressively, although too late in my view.

"Managing inflation will be Australia's next big challenge".

The International Monetary Fund identified tax as a key priority after recovery begins in a staff paper released overnight.

It found that while the tax system had not caused the global crisis, built-in biases in favour of debt had exacerbated it. It was particularly critical of the tax treatment of executive remunertation.

The Reserve Bank's board minutes are upbeat, with a lexicographical analysis by Commonwealth Securities finding that only 17 per cent of the statements in it were negative compared to 60 per cent positive.

"There's a quiet confidence in the minutes, with members focused on the recovery in China and convinced it will soon reach record growth," said CommSec economist Savanth Sebastian.

The board minutes note that the rate of economic decline in advanced economies is slowing and that there has been a pick up in production in Japan. By contrast Europe remains in a deepening recession.

The Bank still expects "subdued global growth overall" but says "downside risks have lessened".

At home the Bank is upbeat saying it does not expect business investment to fall "to unusually low levels" and describing Australian exports as "remarkably strong" and credit conditions as "improving".

It believes retail spending grew further in May, in part because of the April and May stimulus payments.

It says recent data give it no reason to revise its view that the Australian economy will soon gradually improve and notes that "if anything, some indicators have been on the stronger side".

The Treasury's executive director in charge of macroeconomics David Gruen adopted a more cautious approach to Australia's outlook in a public address late yesterday saying "celebration would be premature".

"The fall in Australia’s terms of trade that is just now hitting the economy on the back of re-negotiated contract prices for iron ore and coal will strip about 3 per cent from national income in the coming year," he told the Sydney Institute.

"That is about the same magnitude - but in the opposite direction - to the boost to national output from the government’s stimulus measures."

"It is encouraging see the gathering signs that the global financial crisis is abating," Dr Gruen said. "But the global recession, and its Australian counterpart, still have some way to run."

Read more >>

I've done Malcolm Turnbull a diservice

I suggested that he was prepared to let others spout garbage linking the Commonwealth Bank's 0.10 per cent mortgage hike to the government's plans to run up debt.

But yesterday in Question Time he did it himself:

Mr TURNBULL (2.15 pm)—My question is to the Prime Minister. I refer to the Commonwealth Bank’s claim that its recent rate rise was caused by an increase in its own long-term wholesale borrowing costs. Given the increase in long-term rates is directly related to the massive explosion in government debt, doesn’t the Prime Minister accept that it is his reckless spending and debt binge which is pushing up interest rates?

I was speechless.

Australian banks do borrow (much of) their mortgage funds from abroad - the same pond from which our government also borrows, so there could be a link, but the Australian government is an absolutely tiny borrower in the scheme of things relative to the US and others. The story below makes that point.

There is of course another mechanism by which government borrowing to fund stimulus payments could push up mortgage rates - the stimulus payments could be successful in stimulating the economy, as Joshua Gans points out.

But the Opposition (most of the time) claims they won't be successful in stimulating the economy, so this probably isn't what it is pointing to.

Anyway, today in Question Time it backed away from the assertion that Australian government borrowing could push up international bond rates, with Joe Hockey instead asking:

"Is the Treasurer prepared to claim that there is no relationship at all between the record level of projected borrowing by governments and the dramatic increase in interest rates on long-term bonds in the last three months?"

Note the switch.

By the way there is actually considerable debate about Joe Hockey's recast proposition.

Debate about Hockey and Turnbull's original proposition is continuing at Core Economics.

Below the fold is this morning's Age story:

Leading economists have derided continuing claims by the Opposition that government debt is forcing up Australian retail mortgage rates.

Chief economists from Westpac, Access Economics and the Commonwealth Treasury all told the annual conference of the Committee for the Economic Development of Australia that they could see no link of the kind identified by the Opposition between the government's borrowing plans and the move by the Commonwealth Bank to lift its mortgage rates 0.10 points.

"Australian banks borrow offshore," said Westpac chief economist Bill Evans. "The cost of that money is going up because loans the taken out before the crisis are expiring and being replaced by new loans at higher rates. That's what's putting Australian mortgage rates under pressure."

The head of macroeconomics at the Australian Treasury David Gruen told the conference that his reading was that Australian bond rates largely followed US bond rates which were climbing for other reasons.

Inside parliament Prime Minister Kevin Rudd said the Australian government's contribution to the global bond market amounted to 0.001 per cent.

Opposition leader Malcom Turnbull persisted with the claim, asking whether the governemtn's "reckless spending and debt binge" had helped push up bank borrowing costs.

Mr Rudd said the government's decision to guarantee bank borrowing following the collapse of worldwide financial markets had in fact enabled the banks to borrow at rates that would have otherwise been obtainable.

Access Economics director Chris Richardson told CEDA that not only did Australia's proposed government debt "not scare" him, but that he didn't worry too much about the debt being run up by other governments.

"After World War II many governments had very large public sector debts. What's important is how economic management is handled and whether that translates into inflation," he told the conference.

"The point is that we needed to stomp on the accelerator in Australia. Do I think our stimulus packages were perfect? No. Do I think they were much better than their international equivalents? Yes I do."

"Does the amount of debt that they create worry me? No. But at some stage we will need to find a sustainable path for the federal budget," Mr Richardson said.

Lending finance figures released yesterday showed business borrowing continuing to decline, suggesting that the government's proposed borrowing program was unlikely to get in the way of corporate demand for funds.

Commercial borrowing slipped 12.9 per cent in April retracing a gain in March to be down 0.1 per cent in trend terms. Lease financing slipped 3.3 per cent in trend terms with housing finance the only bright spot, climbing a further 2.9 per cent in trend terms.

Outside the CEDA conference the Treasurer Wayne Swan warned other banks against increasing their mortgage rates by in line with the Commonwealth Bank saying copycat increases would spark "understandable community outrage."

"The government and community need to work together. That's why this decision from the Commonwealth Bank is so disappointing," he said.

Read more >>

Dr Peter and Mr Costello

Tim Colebatch delivers a fair assessment

"In 12 years, Costello never complained to me face to face about anything I had written. Rather, he went behind my back, complaining to my editors and suggesting I be replaced with someone more amenable — suggestions they ignored."

WE thought we knew Peter Costello well, and in a sense we did: the tall blond guy with the swagger of self-confidence, the master of the wounding jibe, the frowning, serious treasurer in a dark blue suit, the fluent wit and speaker. All these were the real Costello, a man born to the theatre of politics, and one of its most skilled performers in my lifetime. As treasurer, he presided over 12 years of the one of the best runs of growth Australia has ever experienced, and convinced himself and many others that it was no accident that it happened while he was at the tiller.

His ability was never in doubt. I saw him perform a number of times in international forums, and he left you feeling proud to be Australian: I wish I could say the same of every Australian minister. Some of his global peers have told me privately of their respect for him and his clear, constructive and sensible interventions around the conference table. Their acceptance of Melbourne's bid to host the G20 finance ministers' meeting in 2006 was partly the result of that respect.

And yet there was another Peter Costello we knew who was less impressive...

He surrounded himself with admirers, and seemed to expect admiration as his due. He was the leadership contender who ignored the backbench electorate he needed to cultivate, the media star who regarded the media as unfriendly if it criticised him. He could be charming, and the life of the party. He was also incurably vain, and a bully.

ANZ bank chief economist Saul Eslake, a man widely respected for his integrity, has told how, in Hobart in 2002, he criticised the government's decision to define the GST as a state tax (which it had done to make its tax take look smaller). By the time his plane landed back in Melbourne, Costello had already rung the bank's chief executive with a threat that if this were repeated, there could be regulatory action taken that the ANZ would not like.

"After 2002, Costello never had any conversation with me about anything I had said, but there were numerous times when he or his staff rang to complain to people whom they thought might influence what I said," recalls Eslake, who had known Costello since their days in the Young Liberals. "This might be acceptable behaviour in Singapore. It ought not to be acceptable in Australia."

Eslake's experience was far from unique. One foreign bank succumbed to the pressure and moved its chief economist aside after the treasurer complained about his writings. Another senior bank economist declined to be quoted on his experience after he disagreed publicly with one of the treasurer's policies.

My experience as economics editor of The Age was similar. In 12 years, Costello never complained to me face to face about anything I had written. Rather, he went behind my back, complaining to my editors and suggesting I be replaced with someone more amenable — suggestions they ignored.

In some ways Costello resembled the younger Sir Robert Menzies. In his first stint as prime minister from 1939 to 1941, Menzies was seen as brilliant yet arrogant, a glorious speaker, yet disdainful of lesser beings. Eight years in the wilderness followed, from which he re-emerged with a greater understanding of people, and a new ability to weld them into a successful team. Costello never had those years in the wilderness. Everything came to him easily. That was perhaps his greatest handicap.

In two ways, it is hard to pin down his achievements as treasurer. It is hard to define how much governments influence economic activity. They claim credit for anything good that happens on their watch and disown responsibility for anything bad. Their opponents always argue the reverse. The reality is elusive.

In this government, moreover, Howard was the boss. While they worked closely together, and mostly saw eye to eye, Howard clearly called the shots, even in Costello's area of responsibility. It was Howard who overrode Costello's objections to a goods and services tax — although Costello had to go out and sell it to a sceptical Australia, and did so with great skill.

Howard barred Costello from joining the Aboriginal reconciliation march, rejected his plans for an emissions trading scheme and vetoed his proposal to introduce jail terms for anti-competitive conduct. The deluge of middle-class welfare payments in the government's later years came mostly from Howard — with the baby bonus an obvious exception.

But the work that went into the 1996 budget cuts was clearly Costello's. He can claim credit for putting the budget back in the black and keeping it there. It was because Labor inherited his budget surpluses and zero net debt that it has been able to inject so much stimulus into the economy in recent months.

The Coalition may have been lucky that it governed at a time of global prosperity, rising commodity prices and low interest rates worldwide. It may have been lucky to inherit the benefits of Labor's reforms. But Costello kept Australia on track, and did nothing to derail our good luck.

One final thing. In a government notorious for playing favourites, Costello made key appointments solely on merit. Ken Henry, former tax adviser to Paul Keating, became secretary of Treasury. Ian Macfarlane and Glenn Stevens at the Reserve Bank, John Laker at the Australian Prudential Regulation Authority, Graeme Samuel at the Australian Competition and Consumer Commission were quality appointments that served Australia well.

Could he have come back from the wilderness a wiser, humbler man? We will now probably never know.

Read more >>

Peter Costello will get a pay rise

Lucky, eh?

I wrote this in November '08:

Whatever reasons Peter Costello has for continuing to hang around, they don't include money.

Right now, as a backbencher, the former Treasurer is earning $127,000 per year.

But calculations performed by The Age using tables prepared by the Department of Finance suggest that if he retired instead, his annual income would jump to $176,633 courtesy of Australia's generous parliamentary superannuation scheme.

That payment would grow with increases in parliamentary salaries and would stay with the 51-year old for the rest of his life.

In plain terms each extra year that Mr Costello remains in Parliament as a backbencher is costing him $50,000. Each extra week is costing him $1,000.

And staying on won't boost his super payout...

Peter Costello entered Parliament in March 1990 – more than 18 years ago.

Eighteen turns out to be an important number in the design of the parliamentary superannuation scheme. Before 18 years there's something to be gained by staying on to build up a bigger super payment. The payout increases by 0.00685% for each additional day that an MP stays in office.

But at 18 years the payout hits a ceiling of 75% of the backbench salary (plus an allowance for having served as a Minister) and can't move higher.

In recognition of that after 18 years the required super contribution drops from 11.5% to 5.75% of the MP's salary.

But from the point of the view of the MP it's wasted money. The extra super contributions don't increase the super payout.

The payment that Peter Costello gets for having served as the Treasurer is also close to maxing out. As Australia's longest-serving Treasurer, in the job for more than 11 years, he is entitled to 73.4% of the extra salary he got as the Treasurer, close to the maximum of 75 per cent allowed under the rules.

If he wants he can halve his $176,633 per year pension and turn the rest into a lump sum of $1.77 million.

But, in the spirit of the rules that he oversaw when he was Treasurer, he will be unable to get access to the lump sum until he is 55.

Another rule that he introduced might complicate things. In his first budget Peter Costello slugged high-income earners with an extra superannuation surcharge, worth 15% of their super contributions.

He abolished it nine years later. As a member of parliament he has had the right to pay the surcharge each year as it fell due or to let it accumulate and to pay it with interest on his retirement.

If he took the second option it'll cut his retirement payout.

Whatever he does he'll be better off than many. MPs elected after 2004 get access to a much less generous scheme.

As the leader of his party pointed out in parliament Monday, single old-age pensioners get around $300 per week, a mere 8 or so per cent of what the former Treasurer will make.

Read more >>

Farewell Peter Costello, travel well

I wrote this back in November 2007 after Costello turned down the Liberal leadership:

Costello "liked to weild the power that had been bestowed upon him.”

There was “an implicit threat of unspecified retaliation”

Question time has lost its spark. No-one in parliament could hold a candle to Peter Costello as an entertainer.

All the talk about him “throwing the switch to vaudeville” if ever he became leader ignored the fact that vaudeville was what he did.

His daily routines whenever the parliament was sitting made watching a thrill.

Without Peter Costello making people laugh and taking them along with him for the kill the new Opposition will lack oomph. Whoever else is elected leader may well be good, but in terms of parliamentary pizzazz will be no Peter Costello.

However, as a winner of hearts and minds in his role as Treasurer Peter Costello has cost the Coalition dearly...

Saul Eslake is the chief economist of the ANZ bank. He hasn’t felt free to tell this story until today.

He made it known to me and a number of other people some time ago on the condition that that nothing was printed until either he or Peter Costello was no longer in his job.

As Eslake put it to me in an email: “much as I would love to see this brought to the attention of a wider audience, I obviously can't allow that to happen in circumstances where Costello could inflict damage on the ANZ”.

Outwardly relations between the ANZ and Peter Costello have been good. His wife Tanya Costello is a senior manager with ANZ Philanthropy Partners.

But beneath the surface things have been tense.

In February 2002 Eslake was asked at a chartered accountants conference whether the Howard government had ever engaged in creative accounting.

He replied that it had: in its accounting treatment of the GST; in its timing of Reserve Bank dividend payments; and in using its sell-off of Canberra buildings to appear to improve its underlying cash surplus when it has really improved little.

But he stressed that what it had done had been “no worse than any previous government".

Saul Eslake says Peter Costello phoned the ANZ head John McFarlane and threatened to take what McFarlane subsequently described as “regulatory action which ANZ would not like” if Eslake said that sort of thing again.

Eslake says a member of the Treasurer’s staff also sent a copy of a news report about Eslake to the chairman of the ANZ Charles Goode with an offending quote circled.

McFarlane asked Eslake to ring Costello “to square things off” but Costello wouldn't take the call.

Eslake has told me that “since then there have been other examples where Costello's office has complained to McFarlane's office, or to our media relations people, about things which I have said in terms which have conveyed an implicit threat of unspecified retaliation”.

I know of another chief economist who has described similar behaviour on the Treasurer’s part.

He has told me that he was asked to leave his job as a result.

I put Eslake’s claims to the Treasurer’s office last night but received no response.

In his negotiations with political stakeholders the man who was able to captivate parliament proved similarly unsubtle.

Richard Denniss is these days the chief of staff for the Greens’ leader Bob Brown. In 2002 he was the chief of staff to the then Democrats’ leader Natasha Stott Despoja. In Mr Costello’s budget speech that year he had announced that pensioners and other concession card holders would have to pay more for their medicines. Their co-payment would climb from $3.60 to $4.60 per prescription.

The Democrats said they would oppose the measure in the Senate. Some weeks later Senator Stott Despoja and Dr Denniss were summoned to the Peter Costello’s office.

Denniss says Costello took them through page after page of laminated graphs, talking at them for the best part of an hour. The Treasurer seemed surprised to discover that they hadn’t been won over.

“At one point Costello said: Natasha, you don’t appear to understand the numbers. To which she replied: I do understand the numbers Peter, you don’t have them in the Senate and you won’t be passing this bill”.

A few days later the two were summoned to the Prime Minister’s office. Denniss says he had expected Mr Howard to be even worse.

Instead they found Howard “effusive in apologising for being late, come in sit down, can I get you a cup of tea – lots of chit chat, lots of actual conversation”.

The Prime Minister said “I know you spoke to the Treasurer last week and I’m sure he showed you all his graphs” and I understand your position: “we are trying to drive up the price of medicine for sick people, of course the Democrats are going to oppose it”.

And then he said: “How about ten cents? That wouldn’t hurt anyone.” “It absolutely floored us.”

Howard said: “Natasha, you’re the leader, I’m the leader, can’t we just settle this right now?”

Denniss says he found the Prime Minister almost impossible to resist. “His genius was to make us feel powerful.”

Costello by contrast “wanted to wield the power that had been bestowed upon him.”

As a student Peter Costello studied law rather than economics. He mastered his portfolio in the impressive way that lawyers master briefs. Observing him during several budgets I have never seen him excited about economics. But I have seen his eyes light up at the mention of commercial law.

As Australia’s longest-serving Treasurer and the Howard government’s best parliamentary performer Peter Costello had many of the qualities needed to be a great Treasurer. But perhaps not all.

Read more >>

Mortgage rate memories

Remember this graph?

Promoted by the Coalition during the election is purported to show that mortgage rates were always lower under the Coalition than under Labor.

Of course the whole concept was silly.

It needs updating now.

But I was reminded of it just listening to inane suggestions in parliament that Labor is "pushing up" mortgage rates.

Read more >>

Enough already with the tax revolt

says the BCA 

The Business Council of Australia has broken ranks with other business bodies declaring in its submission to the Henry Review that it sees no compelling case at present for further cutting personal income tax rates.

The submission puts it at odds with the Australian Chamber of Commerce and Industry which has told the Henry Review the 45 per cent top rate should be cut in increments to the company tax rate, at present 30 per cent.

The Chamber says Australia's top rate of 46.5 per cent including Medicare is above the OECD average and that cutting it would incentivise higher income earners who "are more responsive to taxes than lower income earners."

By contrast the Business Council submission released today finds that Australia's top marginal rate and threshold "are now in line with OECD averages" and that the contribution of Australian income tax to total tax revenues is "low by OECD standards"...

It rejects the proposition that a lower top rate of tax would encourage more high income earners to work or to come back from overseas contending that "the majority of the domestic labour supply is immobile in an international sense".

It says while it will be important to monitor Australia's ability to attract and retain skills as the global economy recovers a far more important problem is the relatively low rates of work among sole parents, women with children and Australians with disabilities, all of whom would be helped by are adjusting the rate at which benefits are withdrawn rather than cutting the top marginal rate.

Since July last year the 45 per cent rate has only applied to Australians earning more than $180,000. The second-top rate of 40 per cent will be cut to 38 per cent next month under already-legislated tax cuts and be cut again to 37 per cent in July next year.

The Business Council proposes instead halving the headline rate of company tax from 30 per cent to 15 per cent and also cutting capital gains tax and the tax on income from saving to 15 per cent.

It says the proposed flat 15 per cent tax rate would give all investments the same tax-preferred status as by superannuation, effectively creating a two-tier tax system in which income from investments is taxed more lightly than income from work.

The Council is unable to point to other tax measures that might pay for the proposed concessions, indicating that that its members are divided as to whether to abolish dividend imputation in order to fund a lower company tax rate as suggested by the review's chairman Treasury Secretary Ken Henry is a speech earlier this year.

It puts forward rough calculations suggesting that halving the rate of corporate tax might boost GDP by 2 percentage points a year, but says the Treasury would need to study the matter properly and also cut government spending in order to fund the concessions.

The Henry Review will host a major conference on at Melbourne University this Thursday and Friday on international directions in tax including the taxation of savings and wealth and specific goods and services including alcohol and tobacco.

Read more >>

Why does Malcolm Turnbull cut his frontbenchers loose?

Does he not care about their reputations?

Julie Bishop as Shadow Treasurer said truely appallingly silly things.

Her leader Malcolm Turnbull knew better and never made those claims himself.

But there's no obvious evidence that he tried to stop her.

Now it's happening again.

Her replacement as Shadow Treasurer Joe Hockey spoke bizarre garbage on Friday about government borrowing forcing the Commonwealth Bank to push up its mortgage rates.

Malcolm knows better and wouldn't made those claims himself.

But did he try to stop Hockey?

What gives?

One guess is that he doesn't mind totally silly claims being made so long as they feed anti-Government sentiment and can't be pinned on him.

If so, it's an extraordinarily selfish way to treat colleagues.

Hockey's Friday press conference follows (in full):

JOE HOCKEY:

The increase in interest rates by the Commonwealth Bank today is directly linked to Kevin Rudd’s debt. If Kevin Rudd is going to borrow up to $3 billion a week, it is inevitably going to put upward pressure on interest rates and the decision by the Commonwealth Bank today is just the beginning.

If the Government is borrowing so much money in competition with the banks, then the cost of funds to the banks will inevitably rise. You cannot continue with low interest rates whilst the Australian Government is borrowing billions of dollars every week to hand out cheques for $900.

Today I hear that Kevin Rudd and Wayne Swan are outraged about it. Kevin Rudd and Wayne Swan are so upset about this decision they’re going to do absolutely nothing about it. That says everything about the fact that their debt is now contributing to higher interest rates and their debt is going to make it more difficult for the Australian recovery.

Handing out cheques for $900 came at a price and Australian homeowners are going to start feeling that price from today.

JOURNALIST:

inaudible

HOCKEY:

Well the Government should reduce its borrowings. The Government should spend less money. If the Government is borrowing money in direct competition with the banks then it inevitably pushes up the cost of money to the banks and it inevitably has an impact on the price of a mortgage for everyday homeowners.

We have always been warning that when the Government borrows so much money in competition with the banks who themselves borrow money, then inevitably the cost of money is going to rise and the ultimate price of that is going to have to be paid by homeowners because of Kevin Rudd’s debt.

And Kevin Rudd and Wayne Swan know. They’ve feigned outrage about this interest rate increase and yet they are directly responsible for it. This is the beginning. You will end up with higher interest rates directly as a result of the spending binge of the Rudd Government and the massive debt that they are accruing.

JOURNALIST:

inaudible

HOCKEY:

But the Government does have an influence on the cost of borrowings for the banks. When the Government is out there borrowing $3 billion dollars a week to fund their $900 cash splashes, to fund waste and mismanagement, building classrooms in schools that are about to be demolished – this is the price Australians are paying for Kevin Rudd’s debt. There’s no argument about it.

It is also the case that the Government bungled its guarantee and in turn that’s going to have an impact as well. But ultimately the most direct impact on the cost of funds to the major banks and Australian home borrowers is going to be Kevin Rudd’s debt.

JOURNALIST:

Will other banks follow the Commonwealth’s lead?

HOCKEY:

I would expect that this is the beginning because of Kevin Rudd’s debt. This is the price Australians are going to pay for the Federal Government borrowing tens of billions of dollars and the Federal Government being out there in competition with the banks in borrowing markets.

There’s only so much money in the world and if the Federal Government for the first time is borrowing money on such a large scale in competition with the banks then the cost of funds to the banks is inevitably going to rise and they’re going to pass straight through to home borrowers.

Kevin Rudd and Wayne Swan will feign indignation. Kevin Rudd and Wayne Swan will pretend to be outraged about it but they know that their borrowing binge has directly contributed to this initiative from Commonwealth Bank and it will lead to higher interest rates into the future.

[ends]

Read more >>

Enjoying that low mortgage rate?

Saviour it while you can

The Commonwealth Bank is to lift all of its key mortgage rates amid signs that the global economy is recovering faster than anticipated.

The International Monetary is understood to have lifted its forecast for global growth next year from 1.9 per cent to 2.4 per cent signalling a faster recovery than had been expected and a swifter return to higher interest rates.

From Monday the Commonwealth Bank will lift each of its variable mortgage rates 0.10 percentage points because of what is says are increasing costs, in a move that has left Treasurer Wayne Swan "furious".

Mr Swan late yesterday phoned the bank's chief executive Ralph Norris to express concern, telling a press conference later the move would "get in the way of the rate relief needed to stimulate our economy and support jobs"...

The increase will push up the Commonwealth's standard variable rate from 5.64, at present the lowest of the big four banks, to 5.74 per cent, matching what is at present the second-lowest rate charged by the National Australia Bank.

A customer with a $300,000 Commonwealth mortgage will be required to pay an extra $18 per month. However the bank says most of its borrowers are already paying more than is required and so will not need to lift their repayments.

The new rate will remain the lowest offered a major bank. The ANZ and Westpac each charge a higher 5.81 per cent.

The consumer organisation Choice conceded that the Commonwealth Bank had "a good case" in an environment where borrowing costs were climbing.

"They've stuck their head out and said they've held off as long as they can, we appreciate that," said spokesman Elise Davidson. "However them going forward and taking a hit makes it more likely that the others will move to do the same."

Wayne Swan labeled the Commonwealth's decision "selfish," noting that the banks had benefited from the government's deposit guarantee.

"There are few decisions I can think of more selfish than this one," he declared while declining to outline what he had said to the Bank in private.

The Commonwealth Bank said it would not respond to Mr Swan's public comments, claiming that it's customers had benefited from the lowest rate of the big banks for some time and would continue to do so.

"Our customers are unlikely to switch," said spokesman Bryan Fitzgerald.

"Our long-term debt is expiring. It is costing us significantly more to roll it over."

The Commonwealth Bank's share price jumped on the announcement, climbing 36 cents to $37.80. The ANZ, National Australia Bank and Westpac responded saying they too were reviewing their rates.

Macquarie Bank analyst Rory Robertson said if the other banks did follow suit and unemployment kept rising, pressure would build on the Reserve Bank to cut official rates further.

"This reinforces the story that the likely next move in the Reserve Bank's cash rate is likely to be down not up," he said.

The IMF is expected to officially update global growth forecasts next month.

Housing Funding Costs

Read more >>

Sydney is a disfunctional city; NSW a failed state

Richard Ackland lays it out starkly in today's SMH:

"Sydney is not a lovely place in winter. The CBD is a biting wind tunnel, Frank Sartor's granite footpaths are stained with the grease from spilled milkshakes, the sun is thin, the faces chapped and there's a pervading pong of rotten cooking oil and urine.

You've more chance of being crippled for life by a wild-eyed skateboarder than you have of finding a delicious and inexpensive meal after 2.30 in the afternoon..."

Playwright Louis Nowra brilliantly spelled out the whole incredibly sad story in the May 30-31 Weekend Australian Magazine.

Highlights on the link below:

In the outer suburbs there is little transport infrastructure, health services are stretched and cultural amenities are virtually non-existent. These suburbs are awash with drugs, domestic violence and family breakdown. The underclass has been herded into isolated Housing Commission estates and forgotten. The so-called "hard-luck suburbs" were created by politicians who didn't care...

Sydney's rail system is a disaster. "We have not built the infrastructure that will be needed in the future," a frustrated Ron Christie, former coordinator general of rail and author of the 2001 Christie Report, said last month. His report had predicted that, unless the network were extended, Sydney would be "doomed to a future under which more than half the urbanised metropolitan area ... will not be served by the rail system"...

In the year to April 2008 Sydney ferry crews reported 13 collisions with their own or other vessels; the year before there was a collision between a ferry and a boat that killed four people. The average age of Sydney ferries is 17 years and all the government spokesmen can say is that they might talk about a "replacement strategy" later in the year...

Even an attempt to emulate the small-bar culture of Melbourne has been ineptly handled, not helped by the Australian Hotels Association, which fought against it. This powerful lobby would prefer you to drink in beer barns and spend your money on the pokies. The idea that some people would like to sit in a small, comfortable venue, drink wine and not play the pokies is anathema to them...

Politicians have allowed bikers free rein, whether it be dealing in drugs or using my Kings Cross as a nocturnal battleground. One of the results of this refusal to combat the problem is that a brutal fight broke out in Sydney airport in March. Anthony Zervas, a Hells Angels associate, was beaten to death in front of ordinary citizens and a CCTV system that didn't work. Only then, when, as Premier Rees said, "the violence had spilled over into the public domain", did the Government decide to do something. But it was too late. The bikers had become so powerful that Rees now has extra bodyguards to protect him.

Even the Gay and Lesbian Mardi Gras, a symbol of Sydney's tolerance, has found itself tainted by violence. At this year's event, police barely held their own as drunken troublemakers went on a rampage in Hyde Park, destroying the atmosphere of the world-famous party.

And don't get any Sydneysider talking about the health system. Not so long ago I was rushed to hospital in an ambulance. It took the paramedics three attempts over several hours to find me a hospital with a spare bed. During my stay I saw overworked, stressed nurses and doctors trying to function in a system collapsing around them.

All this reminds me of the two years I spent in Melbourne during the early'90s, when Joan Kirner was premier. She was the last of a long line of Labor leaders who had avoided dealing with longstanding problems with the city's infrastructure. The result was disorganised government and a city reeking of failure and lassitude. It took Jeff Kennett, the Liberal premier, to finally restore a sense of pride to Melburnians. He may have acted the dill too many times but he had the energy and ferocity of a cattle dog plus a burning conviction that his beloved city could be revitalised.

Broken cities can be fixed. Take New York. During the'70s and'80s it was crime-ridden, dispirited and close to bankruptcy. It took energetic and enthusiastic men and women to turn it around, and they did. Now New York is again one of the great cities of the world.

The trouble with Sydney is that it has outgrown the imagination of its politicians. A city is a complex web of economic, social and cultural factors and a great city needs good public transport, health services and energy supplies, but it's more than that. It needs a sense of pride, of youthful enthusiasm, an architectural landscape that thrills its inhabitants and visitors, a cultural exuberance and social diversity that creates a melting pot of ideas and a sense of purpose, which in turn creates optimism and happiness. At the moment it's wallowing in a malaise of apathy and cynicism.

As I was putting the final touches to this story my computer went blank and the fan overhead slowed and stopped. It was the third blackout in a couple of weeks. Rees now says that blackouts will continue for some months yet. It was another sign, if any more were needed, that Sydney is on the verge of a nervous breakdown.

Photo: baddogwhiskas@ Flickr

Read more >>

"She's with me"

Obama, being cool

Read more >>

Australia's least-employed...

...live in Victoria (apparently)

Victorians are losing work faster than Australians anywhere else according to a new set of official figures that takes into account both unemployment and so-called "underemployment".

Victoria's employment rate for May was 5.9 per cent, the second-worst in the nation. But its under-employment rate, which measures the proportion of workers also forced to work fewer hours, was easily the nation's worst at 8.5 per cent, almost one complete percentage point above the national average.

Its combined so-called "underutilisation rate", reported by the Bureau of Statistics with the unemployment rate for the first time yesterday, amounts to an extraordinary 14.4 per cent, meaning that 1 in every 7 Victorians available for work are now unable to work as much as they want.

The Bureau's says the national underutilisation rate has soared from 10 per cent at the start of last year to more than 13 per cent today. In that time an extra 210,000 Australians have been forced to work reduced hours in addition to the 58,000 who have lost their jobs outright.

ICAP Securities economist Adam Carr says employers are doing everything they can to hold on to workers at reduced hours rather than sack them completely, in the hope that things turns up.

"Re-hiring is expensive and there is clearly a realisation that to shed staff hard now would leave firms ill-placed to deal with a pick-up," he says.

But JP Morgan's Helen Kevans says some employers thinking of sacking workers have little time left.

"Under the new laws from July the WorkChoices exemption from unfair dismissal laws for businesses employing less than 100 staff change. More small businesses again will again be subject to those laws."

Melbourne University economist Mark Wooden told a Melbourne Institute forum that many of workers who are on paper being switched form full-time to part-time work may find themselves working just as many hours as before.

"It isn't right to think that a downturn necessarily means fewer hours away from home," he said.

Melbourne consultant Ed Shann, a former senior Treasury official and economist for the Business Council said far more people would be affected by work drying up than the headline unemployment rate of 5.7 per cent suggests.

"It is tempting to think around 94 per cent of the workforce are unaffected," he told the forum.

"But given the huge flows into and out of employment each month many of those people are in for a period of unemployment over the next two years and many more will lose work and income without being technically unemployed.

"Some are moving from full-time work to part-time work involuntarily as their boss cuts their hours, some are going straight from employment on to the old age or disability pension, and others are moving from high-paid jobs in former boom sectors like mining and finance to lower-paid jobs elsewhere."

Dr Shann said that while the number of Australians officially unemployed was likely to hit 1.1 million, the number who found themselves unemployed for at least one month or were forced to work fewer hours over the next two years was likely to reach 3.3 million.

Australia's total workforce amounts to 11.4 million.

"I stress that the figure of 3.3 million is a guess," Dr Shann told the Forum.

"But it gives you an idea of how far the pain will spread."

"The self-employed in trades and in retail and tourism might actually find they are working longer hours because they have customers who are spending less. They might have to work harder just to try and bring in the same income."

Prime Minister Kevin Rudd yesterday asked the Australian Industry Group to brace for "more bad news to come," as unemployment continued to rise.

"No-one likes to see unemployment rise. But even after today’s data Australia’s unemployment rate is lower than each of the major advanced economies except Japan."

Industry Group chief executive Heather Ridout responded that while things were tough they seemed to be "getting worse more slowly".

Read more >>

So? What's wrong with the ABS graph?

Yes. The number "12" is missing from the vertical scale:


But what does that mean?

According to the ABS it does not mean that the values or their placement are wrong - only that the space between 11 and 13 ought to be stretched (doubbled) so that the proportions look right.

I've done this (roughly) here:


It looks more impressive (as it should).

But it is still not right.

As Rationalist has noted, the line is meant to end at 13.4 - both the trend and the seasonally adjusted lines actually.

But it looks as if they end at 13.7

I let the Bureau know about this after hours. They'll be working on it today.

And trying to work out how things went wrong.

Read more >>

Quiz: Spot what's wrong with this graph

Our graphics artist at The Age picked it.




This is one of the rare occasions where the ABS actually has made a mistake.

But what is it?

And how did it make its way into page 4 of the publication?

Read more >>

But here's the story

More of us are not working the hours we want:

Read more >>

We're losing jobs, but slowly

Today's figures:



Employment levels are little-changed: down 1,700 people.

The unemployment rate has returned to 5.7 per cent from an upwardly-revised 5.5.

Read more >>

The Aussie versus the Yank

Enjoy!



HT: Mark Colvin

Read more >>

Bloody hell! We do have confidence in confidence itself

In the largest jump in consumer confidence in 22 years The Westpac Melbourne Institute index has rebounded 12.7% from 88.8 to 100.1.


Our positive responses now outweigh our negative answers!

Yet Westpac itself is now forecasting four straight quarters of negative growth - recession for a year:

Westpac Forecasts

Read more >>

We have confidence in confidence itself

As Julie Andrews would have said

Which is good, because the underlying reality is still pretty awful

Labor's May budget appears to have passed its first test, sparking an extraordinary wave of renewed business confidence that has neutralised months of negative sentiment.

The National Australia Bank business survey conducted in the weeks after the Budget saw the confidence index jump from minus 14 to minus 2, meaning that the number of optimists is now close to matching the number of pessimists. A figure of zero would see the number of optimists and pessimists evenly balanced.

The jump in confidence is the biggest in almost a decade and puts the index back to where it was the financial crisis that folowed the collapse of Lehman Brothers in September.

"The recovery is broadly-based but particularly marked in domestically-driven industries with notable improvements in the construction, manufacturing and wholesale sectors which have taken heart from the infrastructure spending," said NAB chief economist Alan Oster...

"The Budget has clearly raised hopes of a government investment-led recovery, with construction industry confidence leading the way."

Prime Minister Kevin Rudd welcomed the turnaround declaring it to be "a strong indication that we have made some progress in our strategy of nation building for recovery and that the government's investment in the economy is having an affect".

But the NAB survey shows that confidence has jumped at a time when most objective business condtions are deteriorating.

Forward orders, trading conditions, employment and export sales all worsened in May with the impact of improved overseas economic conditions dented by the rising Australian dollar.

NAB is forecasting a retun to negative growth in the June quarter and further interest rate cuts before the year's end as conditions deteriorate.

The ANZ measure of measure of job advertisements for May shows vacancies stabilising at levels "consistent with outright declines in employment throughout the rest of 2009".

Employment figures for May to be released tomorrow (THURS) are expected to show renewed job losses after a surprise dip in the unemployment rate from 5.7 per cent to 5.4 per cent in April.

The Melbourne Institute consumer confidence index to be released this morning (WED) will indicate the extent to which consumers share the optimism of businesses aobut the Budget.

Access Economics warns today of a looming end to the boom in consumer spending brought on by the series of multi-billion dollar cash handouts, predicting a "very tough 18 months" for shopkeepers.

"The focus of the stimulus in the Budget has shifted from cash handouts to infrastructure and the prospects for further stimulus packages are more limited. That means that retail sales growth will be driven more by the underlying economic fundamentals, which are not strong," the report says.

Access predicts no growth in retail sales in real terms until 2011.

In a seperately released study BIS Shrapnel says that even after consumers spending recovers retailing will remain "much less lucrative" than in the past.

"Households won't go through the same debt build-up that drove retail growth earlier this decade. And with governments focussing on reducing debt, there won’t be tax cuts to boost household disposable income," the report's author Frank Gelber says. "Retail margins are unlikely to reach the dizzy heights of the golden age."

Read more >>

Australia's new Superannuation Minister had a vision

To impoverish some of us by locking away 15 per cent of each salary in super

Then he took it "off the agenda"

For now


Australia's newest Cabinet Minister has taken an increase in compulsory superannuation contributions "off the agenda" just a day after appearing to put it on.>

Former Assistant Treasurer Chris Bowen who will today join Cabinet as the Minister for Superannuation, Financial Services and Human Services was quoted yesterday as saying that "in an ideal world" the compulsory super levy would climb from 9 per cent to 15 per cent as had been proposed by the former Prime Minister and Treasurer Paul Keating.

But he later told The Age that such an increase was "not on the agenda".

"I am not persuing it, it is not on the agenda at this stage," he said.

"In an ideal world John Howard would have kept the increases going to 15 per cent of salary...

...but we are in a far from ideal world now."

"Australia's has many challenges to get through including the global financial crisis, and trying to find an extra 6 per cent for super is not the right thing at this time."

The previous Superannuation Minister, Nick Sherry was agnostic on the question of whether or not the levy should increase.

The retirement incomes report of the Henry Review, released with the Budget in May found that the present rate of 9 per cent would in time be enough to give most Australians "a substantial replacement of their income, well above that provided by the age pension".

It said that while lower-income earners would still have to rely on the pension, any increase in the 9 per cent compulsory contribution rate would run the risk of damaging their working incomes.

"That's obviously something I would need to take into account," said Mr Bowen. "But I am not pursuing it. I've got enough on my agenda without it."

"Nick Sherry has set up a very good agenda for reforms which should cut the cost of superannuation and save money - that's the agenda I am looking forward to progressing."

The new Cabinet minister is keen to use the end of the global crisis to develop Australia as an Asian financial services hub. "We have good regulation and a stable political system," he said. "I don't want to pick winners, but I do want to get impediments out of the way."

One impediment is any remaining laws that discriminate against so-called Islamic banking, the provision of financial services without charging interest.

"Great Britain has the eighth-larges Islamic finance market in the world, and it is not an Islamic nation."

"The majority of Muslims in the world live in Asia; Singapore and Malaysia are trying to target this market. I don't pretend that we will be the world leader in this, of course we won't, but if we want to be seriously regarded as a financial services hub, that's the sort of thing we want to be certain our regulations can provide."

Read more >>

Confidence improving

Confidence is the grey line. Actual business conditions is the lime green line.

Today's NAB survey looks encouraging:


:

Read more >>

The most careful assessment of Malcolm Turnbull to date

A bargain at $16.95

There is nothing in Annabel Crabb's beautifuly-crafted 35,000 word account of Malcolm Turnbull that is thoughtless or unconcerned.

Malcolm Turnbull comes across as the engaging, caring person that he is.

Two quotes:

"One of things I find striking about Malcolm is that he is essentially not a cynical person."

And

"There are many things that are endearing about Malcolm Turnbull, not least his persistent and misguided belief that politics is a meritocracy."

For $16.95 at the Portrait Gallery bookshop this weekend I bought myself a keeper.

I expected Malcom Turnbull to become Liberal Party leader way back before he entered Parliament.

I expected him to lead the nation as well.

Read more >>

Not exactly on the mend, but...

The only big international organisation to foresee the global financial crisis believes the worst of it may have passed.

The Swiss-based Bank for International Settlements says "glimmers of hope" are sparking a "rebound of risk appetite among investors," pushing up borrowing by more than a quarter so far this year.

"The key economic indicators remain at depressed levels," the Bank says in its latest quarterly report. "But investors are focused instead on incipient signs that economic conditions are deteriorating less rapidly than before, while intensified policy actions to counter the crisis have helped bolster confidence".

In Australia the latest Dunn & Bradstreet survey finds businesses more positive with expected expected sales, profits and employment all improving from a low base...

The sales expectations index is up 16 points to minus 32, the profits index up 17 points to minus 40 and the employment index up 2 points to minus 24.

Around 8 per cent of the employers surveyed say they now expect to put on more staff, compared to 32 per cent who expect to downsize.

Dun & Bradstreet consultant, Duncan Ironmonger, said the survey indicated that, after "a very bleak June quarter, there would be some improvement in the September quarter".

"In July, there is an income tax cut and government infrastructure spending will have an increasing positive impact on jobs and incomes in the quarters to follow,'' Dr Ironmonger said.

The next round of employment figures to be released Thursday are nonetheless expected to be grim.

Officially Australia's unemployment rate fell from 5.7 per cent to 5.4 per cent from March to April in what market economists interpret as statistical noise.

Westpac believes the rate returned to to 5.7 per cent in May and will eventually climb above 8 per cent. It expects the Thursday's figures to show that an extra 30,000 Australians have lost their jobs.

The bookmaker Centrebet is also offering the shortest odds on an unemployment rate of 5.7 per cent and is offering a good return to anyone prepared to punt their money on Australia continuing to avoid a so-called "official recession".

Although the March quarter growth figures released last week had Australia avoiding the two consecutive economic contractions commonly taken to define a recession, the Alice Springs based betting agency will pay $1.85 to anyone prepared to punt $1.00 on Australia continuing to remain out of the woods.

Dunn & Bradstreet found that only 6 per cent of executives expect to increase their investment spending in the year ahead, while 17 per cent plan to cut it.

The Bank for International Settlements distinguished itself from the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development by pointing to the dangers of an global financial crisis ahead of it starting in 2007.

It says in its quarterly report that economic data is turning out to be less gloomy than expected, particularly in the United States. Business and consumer confidence is rebounding in the US and across Europe. Only in Japan does positive news "remain scarce".

Read more >>

The ABS busts a new urban myth

And says says it can't contact Gerard Minack

Jiggery-Pokery in Age Article

"I write to express my disappointment that The Age published an inaccurate and misleading article about the Australian Bureau of Statistics and the statistics it publishes ('The 'R' word's already here, and things will get worse', The Age, 4 June 2009, with authorship attributed to Gerard Minack). The author did not check the claims made in the article with the ABS, nor apparently with any other authority familiar with macro-economic statistics.

Many of your experienced readers who are familiar with macro-economic statistics will realise that the claims made in the article cannot be correct. Unfortunately, queries received by the ABS about the inaccurate article indicate that some people have been mislead by it.

The methodology to estimate the volume of bulk commodity exports described in The Age article attributed to Mr Minack is not used by the ABS .

The statement in the article that "Yesterday it (the ABS) announced that it was factoring in lower prices in the March quarter' is not correct. No such announcement was made. Furthermore, given the methodology that the ABS uses to measure the volume of bulk commodity exports, such a claim could not possibly have been correct.

The volume measures of exports of bulk commodities recorded for the latest quarters in the ABS Balance of Payments and National Accounts Statistics are calculated by multiplying the quantities of such exports, as reported by exporters in tonnes or some other unit of quantity, by the average price of such commodities, as reported by exporters in the reference year. For the March quarter 2009 volume estimates, 2006-07 is the reference year for prices. The reference year prices are updated annually, in the September quarter accounts. For example, the September quarter 2009 accounts will use average prices reported in 2007-08. This methodology assures that movements in the volume of bulk exports from one quarter to the next reflect only changes in actual volumes and are not influenced by changes in prices.

The ABS methodology for compiling the volume estimates of bulk commodity exports has been in place for many decades, is very well documented on the ABS website, and well understood by most analysts. In 1997 the ABS moved to update the historic reference year from once every 5 years or so, to once every year -- apart from this the methodology has been essentially unchanged.

The ABS has tried, without success, to contact Mr Minack about the erroneous claims in his article. If Mr Minack had bothered to contact the ABS to gain an understanding of the relevant macro-economic statistics methodology, your readers may have been spared the misleading reporting that appeared in The Age.

I would encourage Mr Minack in future to either contact the ABS or visit our website if he is seeking to understand the statistical methods that are used by the ABS."


Peter Harper
Acting Australian Statistician


"The 'R' word's already here

Gerard Minack
June 4, 2009

Ignore misleading statistics and prepare for some tough times ahead, writes Gerard Minack.

THE March quarter gross domestic product changes very little. In particular, it doesn't change the fact that on any sensible definition Australia is in recession. Nor, more to the point, does it change my view that things will get worse.

The surprise was due to the Australian Bureau of Statistics changing the way it tracks bulk commodity prices. Usually the bureau waits for the major contracts to be settled, and factors in the price changes in the June quarter (because the contract prices are set from April 1). Yesterday it announced that it was factoring in lower prices in the March quarter. Factoring in a lower price implied a higher volume for exports, which lifted GDP. Consequently, net exports added 1.4 percentage points to growth in the quarter. Forget this statistical jiggery-pokery: the key numbers to focus on are national income and domestic demand. Australia's boom was not a GDP boom; it was a national income and domestic demand boom. Yesterday's data confirm that boom is busting. Gross national spending fell by 1 per cent in the first quarter, following a 1.3 per cent fall in the fourth. Real gross domestic income fell by 1.2 per cent in both quarters.

These are the variables that drive domestic profits, employment and the Reserve Bank. The weakness points to further job losses. Ongoing increases in unemployment will keep the pressure on the RBA to keep cutting rates. I think the cash rate target will be lowered to 2 per cent.

A couple of follow-on points. First, the most important thing about exports is total receipts; it doesn't matter whether it is prices or volumes that are driving the aggregate. Yesterday's report confirmed the global bust is finally having an impact.

Second, the recession is starting to affect consumers. Real income is feeling the pinch. Income strength underpinned better consumer spending in the March quarter, but I doubt that spending will sustain its momentum for much longer.

I will be wrong unless there are significant job losses, but yesterday's data is consistent with job losses to come.

Gerard Minack is a Morgan Stanley economist."

Read more >>

The letter that leaves Turnbull naked

Read the full letter

Prime Minister Kevin Rudd has seized on an open letter from 21 leading economists including former Reserve Bank Governor Bernie Fraser and ANZ economic chief Saul Eslake to claim that the Coalition's campaign against government debt lacks mainstream support.

Brandishing the letter in Parliament and noting it was also signed by academic economists John Freebairn, John Quiggin, Joshua Gans, Andrew Leigh and Nicholas Gruen as well as a former Treasury Secretary Tony Cole and a former Reserve Bank Deputy Governor Stephen Grenville.

Mr Rudd quoted them saying that even the extra debt forecast in the Budget Australia would retain "a very healthy margin of safety in its reputation for economic prudence".

The letter says Australia's net debt will stay below 14 percent of GDP "compared with an average of over five times this in comparable countries which nevertheless retain their creditworthiness in capital markets."

While Opposition leader Malcolm Turnbull spoke Wednesday of an "larger and larger and less sustainable burden of debt, both on our shoulders and those of our children", the economists say "fears and phobias" about debt exacerbated the Great Depression...

"Of course other things being equal it is better for governments to be debt free," the letter says.

"But as any homebuyer knows, debt can help us build assets now that we couldn’t otherwise afford, and repay the costs when the assets bear fruit."

Explicitly backing the government's multi-billion dollar series of cash handouts the letter says there was "no more effective way to stimulate the economy quickly".

"The success of these measures can be seen in the relative strength of Australian retail sales compared with almost any of our peers," the authors say.

"Deploying our strong balance sheet to use otherwise idle resources – or to put it more compellingly, deserted factories and unemployed workers – to build assets that improve our lives and our economy in the future, seems much more appealing, much more commonsensical than retreating into phobias," it concludes.

Overseas signatories include Stephen Koukoulas, the London-based global strategist for TD Securities and Max Cordon, emeritus professor at Johns Hopkins University. Other Australian signatories include Mike Waller, a former chief economist at BHP Billiton, and Glenn Withers and Fred Argy, both former heads of the government's Economic Planning and Advisory Council.

The economists go further than defending a build up in government debt for the purpose of dealing with the current downturn arguing that as Australia's population and infrastructure needs grow, Australians will have to "decide whether they prefer a balance sheet more suited to genteel decline or one that supports investment, dynamism and growth".

The current Reserve Bank Governor Glenn Stevens also endorsed running up debt to fund stimuls programs in an address to university students in Townsville saying the resulting stimuls would be "substantial."

While expressing concern about other countries that had run up government debt in excess of 100 per cent of GDP, he said he had no such concern about this government's plans.

New figures released yesterday highlighted the depth of Australia's economic challenges, showing that exports fell 11 per cent in April, he worst monthly decline for 12 years.

THE NAMES:

Paul Binsted, Company Director and Economist
Tony Cole, Former Secretary to the Treasury
Max Corden, Emeritus Professor, Johns Hopkins University
Owen Covick, Associate Professor, Flinders University
Steve Dowrick, Professor of Economics, ANU
Saul Eslake, Chief Economist, ANZ Bank
John Foster, Professor of Economics, University of Queensland
Bernie Fraser, Former Governor Reserve Bank and Secretary to Treasury
John Freebairn, Professor of Economics, University of Melbourne
Joshua Gans, Professor of Economics, Melbourne University
Paul J. Gollan, Associate Professor, Macquarie University
Roy Green, Dean, Faculty of Business, University of Technology, Sydney
Stephen Grenville, Former Deputy Governor, Reserve Bank of Australia
Nicholas Gruen, CEO, Lateral Economics
Tony Harris, Former Auditor General of NSW
Stephen Koukoulas, Global Strategist, TD Securities
Andrew Leigh, Professor of Economics, ANU
John Quiggin, Professor and ARC Federation Fellow, University of Qld
Mike Waller, Former Chief Economist, BHP Billiton
Glenn Withers, Adjunct Professor, Australian National University

Read more >>

The more manufacturing you've got, the worse your GDP will fall

So says Reserve Bank Governor Glenn Stevens today.

Here's his graph:

Read more >>

In the midst of the GFC and domestic political turmoil... let's go back to the Eighties

If you remember the eighties you'll probably remember this film clip, now reworded:



HT: Tory Maguire, The Punch

I actually liked the film clip at the time. And I loved the eighties.

Here's the original - a work of art, although I don't know what it means, and perhaps that's the point.

And an Australian, Russell Mulcahy, produced it.

More details below the fold:

"Russell Mulcahy's career began with making early music videos while he was working for the Seven Network in Sydney, Australia. In early 1974, former radio DJ Graham Webb launched a weekly teen-oriented TV music show cawlled Sound Unlimited which screened on Sydney's ATN-7 on Saturday mornings.

In need of material for the show, Webb approached Mulcahy (who was then employed in the Seven newsroom) and asked him to shoot film footage to accompany popular songs for which there were no purpose-made clips. The success of his early efforts encouraged Mulcahy to quit his TV job and become a freelance director, and during this period he made clips for several popular Australian acts including Stylus, Marcia Hines, Hush and AC/DC.

After relocating to the UK ca. 1976, Mulcahy made successful music videos for several noted British pop acts -- his early UK credits included XTC's "Making Plans For Nigel" (1979), The Vapors' hit "Turning Japanese" and his landmark video for The Buggles' "Video Killed The Radio Star" (1979) which became the first music video played on MTV in 1981.

By the mid-1980s Mulcahy was one of the most sought-after video makers in the world, directing videos for some of the most successful pop-rock acts of the period including The Human League, The Tubes, Elton John, Ultravox, most of the major hits of Duran Duran, Spandau Ballet, Kim Carnes, Bonnie Tyler, Rod Stewart, Billy Joel, The Motels, Supertramp and The Rolling Stones."

Mulchay's hallmark was water. He used a lot of it.

Here's Video Killed the Radio Star:



And here's I Guess That's Why They Call It The Blues:

Wow! (You'll probably need to hit play then pause and wait for some of it to download)

The way this works with the music is awesome. What does it mean?

Maybe that's not the point. Brian Eno said on Radio National last week that too many composers tried to make the lyrics literally "mean" something. Instead he wants lyrics to feel right. He says those are nearly always the lyrics that first come to mind.

And here's Allentown: (Again, you'll probably need to hit play then pause and wait)



Wow again.

But back to Total Eclipse:

"The Gothic themed video features Bonnie Tyler clad all in white, apparently having a dream or fantasy about her students in a boys' boarding school. Young men are seen dancing and participating in various school activities such as swim team, fencing, football, and singing in a choir. Also, there are unexplained ninjas."

That's enough for me:

Read more >>