July 1969. Let's remember

At the Warradale Primary School 40 years ago this morning our Headmaster (Mr Munday, I think) told the assembly that any of us who wanted to could go home immediately and watch the planned moon walk.

The students who stayed watched in the school Library.

I walked home with my two younger sisters, and we turned on the TV.

I actually think I was out of the loungeroom in the kitchen when it happened.

But here's what did happen:





A guy who was in the ABC Sydney television control room that day tells me that they didn't have a direct Aussie-style (PAL) feed they could broadcast. The signals were in the US NTSC format. So they put a camera in front of their one NTSC monitor and put what they captured to air - all four Australian stations took it.

There was a problem - the unorthodox method of broadcasting the vision meant that it was going to air after the sound. So they rigged up two audio tape recorders, recorded the sound on one and spooled the tape along to the other a few feet away where it was played back. They got the distance and the delay about right.

I am sure there are many more such stories.

More details: The Television broadcasts

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A computer will help your child get ahead. Well...

The centrepiece of Kevin Rudd's education revolution may not only be useless, it may actually be worse than that, according to a visiting United States researcher.

In the leadup to the 2007 election Mr Rudd undertook to spend 2.3 billion rewarding parents who installed or spent money on home computers.

"When it comes to investing the nation’s future I can’t think of a better, more important way than to provide an education tax refund which helps mums and dads help their kids engage in a digital economy," he said.

"If you’re a kid today, let’s face it, if you’re not wired at home and if you don’t have access to laptops and computers and software, you start to fall behind."

He later said his decisions would be "evidence-based"...

Professor Jacob Vigdor, from Duke University has conducted what's probably the worlds biggest study on the the effect of gaining a home computer on maths and reading scores. He finds "statistically significant" evidence it sends them backwards.

"In total, children in homes with computers tend to do better than those in homes without, there's no doubt about that." Professor Vigdor told The Age. "But there could be other reasons. Those homes also have a lot of other things other homes don't have, and often have more educated parents."

"I wanted to examine the performance of individual students before and after their home gained a computer."

Of necessity this meant examining the performance of students from less well-off homes. The better-off homes already had computers. But Professor Vigdor does not think this was an important limitation.

"These are the children that laptop and home computer policies are meant to help," he told an Australian National University seminar.

When Year 3 to Year 8 students in North Carolina take end-of-year tests they are also asked a number of other questions including whether they have a computer at home and what they use it for.

Using five years of answers to compare the average performance of each student before and after their home acquired a computer Professor Vigdor found it made their results "significantly worse" in both reading and mathematics.

"The bad effects fade somewhat over time, but even after 5 years they are still negative," he said.

He found similar results for the penetration of broadband (using postcode data) and even similar results for the amount of time the students reported using the computer for homework.

"The point is that playing games, using email and social networking sites and homework - they are all easier if you have a computer," he said.

"I am not saying go out and burn all the computers. If you want to buy junior a computer with your own dollars, that's fine. If you make this decision that junior's momentary pleasure is worth a small loss in knowledge - go ahead."

"But it's another thing when we talk about spending public dollars. The justification for these polices when they are proposed is not to allow students to have a good time, it's to improve the way they perform at school. It's expensive, and it's not working."

Other studies had found that even computers in schools did little to improve outcomes.

"They should be able to help, but good old fahsioned non-computerised instruction appears to have some advantages. Perhaps we haven't figured out how to get computers as good," said Professor Vigdor.

But the evidence isn't all bleak for the Prime Minister. He can take heart from a different study published on the weekend in the Economics of Education Review. In it University of Technology Sydney academic Mario Fiorini finds that for younger children, aged 5 to 7, time spent on the computer actually improves cognitive skills - partly by cutting the time they spend watching television and playing video games.


Published in today's SMH and Age

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The man who bought much of the world the moon landing...

(via Australia as it happens)

...has passed on

Here's his LA Times obituary.


What did he say at that special moment, almost 40 years ago?

"Whew, boy!"


And here he is announcing Kennedy's death:



It is said that at that moment television became America's cathedral.

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The Indonesia bombings were really, really stupid

I was angry when I arrived at work to be told the news. Really, really angry.

It put me in mind of this, written on the website of the London News Review hours after the 2005 London subway attacks.

(Apologies for the language - it's necessary)

"What the fu*k do you think you're doing? This is London. We've dealt with your sort before. You don't try and pull this on us.

Do you have any idea how many times our city has been attacked? Whatever you're trying to do, it's not going to work.

All you've done is end some of our lives, and ruin some more. How is that going to help you? You don't get rewarded for this kind of crap.

And if, as your modus operandi indicates, you're an al-Qaeda group, then you're out of your tiny minds.

Because if this is a message to Tony Blair, we've got news for you. We don't much like our government ourselves, or what they do in our name. But, listen very clearly. We'll deal with that ourselves. We're London, and we've got our own way of doing things, and it doesn't involve tossing bombs around where innocent people are going about their lives.

And that's because we're better than you. Everyone is better than you. Our city works. We rather like it. And we're going to go about our lives. We're going to take care of the lives you ruined. And then we're going to work. And we're going down the pub.

So you can pack up your bombs, put them in your arseholes, and get the fuck out of our city."

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Where are out export prices heading?

Australian export prices "fell off a cliff" in the June quarter in the biggest slide since 1974, heralding the start of the much anticipated collapse in Australia's terms of trade.

Export prices slid 21 per cent in the quarter, after sliding only 5 per cent in the preceding quarter.

Leading the index down was a 37 per cent collapse in the prices received for coal, coke and briquettes and a 23 per cent drop in the prices of metal-producing ores including iron ore.

The slide was worsened by a 12 per cent appreciation in the Australian dollar.

"We had the last gasp of the good times in 2008," said TD Securities economist Annette Beacher...

"Now our terms of trade have fallen off a cliff."

"This is a real loss of income. So far we have escaped a technical recession by spending, but we can't indefinitely ignore income."

"While no Armageddon, this lost income will eventually hurt our broader economy. We can't have continued expenditure without income."

ANZ economist Riki Polygenis said the lower prices would hit corporate profits, national income and government revenues. "But this was widely expected," she added. "The real question is what happens from here?"

Most of the slide is the result of sharply lower coal and iron ore prices negotiated earlier in the year. Those lower prices will remain in force for 12 months.

But the Commonwealth Bank believes their weight on Australia's terms of trade may be less extreme than had been thought.

"The peculiarities of the Australian pricing system are smoothing out the cycle," said economist Michael Blythe. "Large price rises for coal and iron ore were locked in early in 2008, offsetting the subsequent slump in broader commodity prices. Now large falls in their prices are in place. But other commodity prices are rising as global growth expectations improve. So we have managed to top and tail the extremes of the commodity price cycle."

"There are indications that the global economy is bottoming out and some of the key commodity-consuming nations are picking up," said Mr Blythe.

"Trends in the Chinese economy are particularly encouraging. Commodity prices will, on average, be lower in 2009. But they should rise in 2010."

Import prices also fell sharply in the quarter, losing 6.4 per cent mainly as a result of the stronger dollar. The slide is the biggest since import price records were first collected in the early 1980s.

When the collapse in import prices is offset against the collapse in export prices, Australia's terms of trade fell an estimated 15 per cent after sliding 2 per cent in the March quarter.

"We are expecting worse ahead," said JP Morgan economist Helen Kevans. "We had been expecting the terms of trade to fall at least 30 per cent from top to bottom, although it now looks like it will be more than that."

Commonwealth Bank economist Michael Blythe said a silver lining was the likelihood of further falls in import prices.

"Declining activity in the major economies means a sizeable output gap is opening up. At the same time, the lift in the Aussie dollar – with more to come – will keep downward pressure on local-currency import prices."

"It will help offset some of the damage from lower export prices."


Published in today's SMH and Age

Graphic: Wikimedia Commons

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The top 25 Economics Blogs

...as assessed by the Wall Street Journal

Not an Australian one among them, I think.

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Comments Policy

I don't have one. Apart from the obvious. I delete spam and abusive comments (of anyone).

But the Prime Minister does, and how!

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Once registered just head to the latest PM’s Blog and post a comment in response after the Prime Minister commences the blog.

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By registering and contributing to the blog, you give permission for your comments to be posted on the site, and for us to contact and invite you if other online forums are held on the PM’s website.

When contributing your views to this blog, please ensure that you:

do protect your personal privacy and that of others by not including personal information of either yourself or of others in your posts to the forum, (such as names, email addresses, private addresses or phone numbers);

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do not post overtly party political comment (eg. reference to candidates, fundraisers, support for political parties)."


I love the bit about nothing "overtly party political"

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The price plunge you don't notice

And the price explosion you do

If you don't believe Australia's published inflation rate, it could be because you're buying frozen peas.

In the year to March the Sydney price of a 500 gram packet of peas climbed from $1.75 to $2.18 according to the Bureau of Statistics - a jump of 24 per cent.

The price of a sliced white loaf jumped from $3.50 to $3.75 - an increase of 7 per cent.

And yet Australia's "official" inflation rate is just 2.5 per cent. It isn't the rate most of us think we are paying.

Now in an effort to reconcile the statistics with reality researchers from the Reserve Bank have gone back 16 years and discovered that the prices that have moved the least are likely to be those we notice the least...

We tend to buy manufactured goods relatively rarely, even if we sometimes spend up big when we do. The paper from Reserve Bank economists David Orsmond and Tom Rosewall says in aggregate the price of manufactured goods "has barely changed" since 1993.

Audio visual equipment has actually halved in price since in that time, motor cars are 10 per cent cheaper. If that doesn't accord with your view of reality it could be because you're comparing the prices that are on the labels. The Bureau of Statistics adjusts these prices to take account of improvements in quality. One thousand dollars buys a much better computer, or a much better sound system than it used to.

Clothes and shoes cost roughly the same as before in dollar terms, and household goods a just 20 per cent more 16 years on.

But the things we buy regularly and can't do without; food beverages and tobacco, have soared in price since 1993, climbing just short of 90 per cent, about 4 per cent per year.

Services such as insurance, education, health, rents and restaurant meals are up 75 per cent, with the price of insurance climbing 6.5 per cent per year, the price of education 5.2 per cent and the price of restaurant and takeaway meals 3.4 per cent.

The reason for the difference according to the economists is that services and food "typically have a high domestic labour cost component, whereas manufactured goods prices are more dependent on developments in world prices".

The cost of the Australian labour used in making goods has increased by 2.7 per cent per year according to the paper. In contrast the price of imported goods has climbed just 0.4 per cent per year.

Tobacco is a special case. Ever-increasing taxes have tripled its price since 1993.

It adds to a pattern where the things we are addicted to or can't live without and buy frequently climb in price quite quickly. The purchases we can put off or rarely make increase in price very slowly, or fall in price when improvements in their quality are taken into account.

Other Reserve Bank figures released yesterday show moving away from credit cards with the average balance down 0.5 per cent over the year and the number of cash advances down 20 per cent.

Going Up

Tobacco 7.2%
Insurance 6.5%
Education 5.2%
Fruit & vegetables 4.1%
Bread & cereals 3.8%
Petrol 3.6%
Restaurant & takeaway 3.4%
Alcohol 3.3%

Going Down

Clothing and footwear -0.1%
Motor vehicles -0.8%
Audio visual equipment -4.7%

Average annual price changes 1993 - 2009

RBA Trends in Relative Consumer Prices, July Bulletin

Published in today's SMH and Age

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It's a 'he-session', not a recession

Men are now more likely to be unemployed than women throughout every part of Melbourne as male unemployment climbs to its highest point in seven years.

Detailed figures released yesterday show an extra 282,500 men have joined the national unemployment queue so far this year, compared to only 50,200 women.

In inner suburbs including St Kilda, Prahran and Richmond the male unemployment rate of 6.5 per cent is almost double the female rate of 3.4 per cent. In outer-western Melbourne male rate of 9.9 per cent dwarfs the female rate of 5.8 per cent. There is no longer a single statistical region of Melbourne in which men have an advantage.

Only in some parts of regional Victoria do men still have an advantage over women...

The change reflects a collapse in employment in the finance sector. The Bureau of Statistics says 1 in every 10 full-time finance jobs have vanished over the last year - a loss of around 9000 full-time positions. By contrast, employment in Victoria's female-dominated retail sector has actually grown, surging 3500 between November and February.

The sinking fortunes of men are now building male long-term unemployment. Almost 70,000 unemployed men have now been without full-time work for more than a year, up from 41,000 in January.

Female long-term unemployment has climbed from 35,600 to 43,200.

So far this year 56,400 men have lost jobs Australiawide as 25,800 women have gained jobs.

Published in today's Age

Graphic: DryIcons

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We're down half a trillion

Feeling poorer?

Since December 2007 you've lost $33,500 if you're an "average" Australian. If you come from an average household, it's lost around $110,000.

Commonwealth Securities has calculated the losses using Treasury data released to economic modelers yesterday and Australian population estimates.

The Treasury says Australian households have lost a total of $602 billion in the five quarters since the crisis took hold, the longest run of wealth destruction in the five decades it's been compiling figures.

Household wealth per person peaked at $250,200 in December 2007 and fell to $216,700 by March. The Treasury estimate pulls together property, share market and financial wealth and is not broken down into components.

Income is also falling...

...with share market dividends sliding a record 37 per cent in half-year to March and take-home pay actually going backwards in the March quarter - the first such slide since the early 1990s recession.

Wage income fell 3 per cent in the first three months of this year as full-time work was switched to part-time work and overtime cut.

Income from unemployment benefits climbed to an all-time high with a record $3 billion paid out to job seekers by Centrelink , up from $2.7 billion in the December quarter.

"These figures quantify and bring home the profound impact of the global slump," said CommSec economist Savanth Sebastian. "The sharp decline in wealth has has hurt consumer spending, cascaded to weaker business profits and is pushing up unemployment."

CommSec believes the latest decline in wealth will be the last for some time.

"We think wealth recovered in the June quarter. House prices climbed and the share market improved substantially. The slide should be over," said Mr Sebastian.

Residex data released also yesterday showed national house prices climbing a further 0.7 per cent in June after climbing 2.1 per cent in May, enough to claw back all of the losses over the last year.

Residex says the typical Sydney house price is now $577,500, up 0.8 per cent over the year, and the typical Melbourne price $492,500 - up 2.7 per cent, the best performance in the nation.

The price rises are most striking for units with prices in both Sydney and Melbourne up 5.7 per cent over the first six months of this year.

"Units are benefiting substantially from strong first home buyer demand," said Westpac economist Matthew Hassan. "The uptrend in prices appears to be building momentum, attracting interest from upgraders and investors."

"It is also removing a significant downside risk to the consumer and economic outlook stemming from the potential for house price falls to cut household wealth and weigh on consumer demand."

The Seek employment index for June points to a slowdown in deterioration in the labour market with the number of new jobs advertised on the Seek site falling a further 4.5 per cent, but the number of new job applicants climbing only 0.2 per cent.

Seek managing director Joe Powell said the news showed the jobs market stabilising rather than improving.


Published in today's SMH and Age

Graphic: Arthur 2

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Haul the banks before the Senate?

Australia's banks face the prospect of a Senate inquiry into their behaviour unless the Rudd government agrees to set up an independent inquiry into the financial system along the lines proposed by six public policy economists.

The last such inquiry, chaired by business figure Stan Wallis reported in 1997.

Greens leader Bob Brown said the financial system had changed in since then with the banks lifting their share of new loans to 89.4 per cent from 85 per cent in just the last year.

"If the government fails to act will move to establish a Senate Inquiry into Australia's banking system when the Senate resumes in August," he said. "At a time when we need robust diversity in financial systems, we instead are seeing a concentration in favour of banks...

...and especially the big four banks which are benefiting the most from the Rudd Government's guarantee."

Independent Senator Nick Xenophon said he would support a move for a Senate inquiry in August and said it might even be necessary even if the government did set up a new independent inquiry along the lines proposed.

"It would need good terms of reference and a representative panel. I would want a consumer organisation such as Choice on the panel," he said.

A member of the original 1990s Wallis Inquiry Ian Harper has suggested that the former Reserve Bank Governor Ian Macfarlane would be a suitable figure to head the inquiry.

The Coalition wouldn't be drawn on the idea of a Senate inquiry but strongly supports the idea of a new independent inquiry. "Wallis is a long time ago now, and we've had very big changes both domestically and internationally," said Leader Malcolm Turnbull last week.

Family First Senator Steve Fielding was uncertain about a Senate inquiry saying that 37 inquiries into petrol prices over two decades hadn't brought prices down. He said he would prefer direct action to prohibit exorbitant penalty fees and to force banks to justify their interest rate moves.


Published in today's Age

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Worried about losing your job? Breathe more gently.

The latest NAB business survey shows employers easing off on letting go of workers and more inclined to take workers on. And it accords with what they are also telling the Commonwealth Treasury.

Only 1 in 5 employers felt the need to trim staff in June, down from 1 in every 3 in March.

The proportion expanding their workforce climbed from 8 per cent to 10 per cent.

"Employment is still going backwards, but not at the rate it was," said NAB chief economist Alan Oster. "We are no longer seeing large chunks of labour shedding."

The finding mirrors that of the Treasury's Business Liason Program which found this month that job cuts were becoming "less prevalent" and that some retailers and construction firms were taking more workers on...

Extraordinarily good conditions and forward orders for retailers and motor vehicle traders as well as improved conditions for construction contractors pushed the NAB's business conditions index to its highest point since before the late 2008 financial crisis in June. Business confidence turned positive and climbed to its highest point since December 2007.

"I am surprised by the results, and I am concerned they won't hold," said Mr Oster. But June appears to have been the best retail month on record, right up there with December when the first stimulus cheques arrived. Car sales are probably being boosted by tax breaks in the Budget and the extension of the first home boost is feeding construction."

"But can we be sure the jobs market will continue to improve when when each of those supports is removed later this year? I'm not sure."

Mr Oster is maintaining the NAB's forecast that the unemployment rate will peak at 8 per cent, somewhat below the government's forecast of 8.5 per cent. But emboldened by the survey other forecasters think things now won't get that bad.

"We would only expect 7.5 per cent now, not much higher," said UBS economist George Tharenou. "We are now expecting 6.5 to 7 per cent," said CommSec economist Savanth Sebastian.

Every forecaster expects Australia's unemployment rate to continue to climb beyond its present 5.8 per cent even if the jobs market does turn. Immigration and the annual influx of school leavers means employment needs to grow by about 3 per cent a year in order to stop the rate climbing.

Treasurer Wayne Swan took credit for some of the change in sentiment saying as he moved around the country, businessmen and women have told him "again and again that stimulus means they still have customers coming through their doors, and that means they can hold on to more staff than they otherwise would".

The former boom states of Queensland and Western Australia now have the weakest business conditions according to the NAB survey, with NSW the strongest, and Victoria the middle of the pack.

Mr Swan said the global recession still had "some way to run".

"The terms of trade effect alone is expected to cut about 3 per cent from national income over 2009/10," he told an audience at the Australian National University in Canberra.

"And the effect does not stop there - it cycles into weaker business profits and hence into weaker investment and employment outcomes. It also shows up in weaker government revenue."

"Budget decisions are going to remain difficult for the next few years at least."

Published in today's SMH and Age

Graphic: From here

NAB June 09

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Our banks are getting bigger

Australia's banks have gained near unrivaled dominance over the financial system, accounting for almost $90 of each $100 lent - an all-time high.

The market-share figures for May, covering personal loans, housing loans, commercial loans and lease finance come as Finance Minister Lindsay Tanner lends support to a new financial system inquiry.

Addressing international regulators in Sydney Mr Tanner said the pace of financial innovation had now "outstripped the capacity" of regulators to keep up.

"The world has changed beyond recognition," he told the conference. "Whether we’re talking about the United States or Australia, we need a regulatory regime that’s appropriate for 2010 and beyond, not one that simply reinvents the past"...

Australia's last inquiry into the financial system in 1996 and 1997 took place at a time when competitors to the banks had a large and growing share of the market.

The May figures show the share of new loans issued by building societies, credit unions, wholesale lenders and finance companies falling to a record low 10.6 per cent, down from 15 per cent a year ago.

The banks' share was a record 89.4 per cent, up from 85 per cent. The banks' share of new mortgages climbed from 90 per cent to 92 per cent and their share of motor vehicle and other lease finance jumped from 35 per cent to 45 per cent.

Former Competition and Consumer Commissioner Stephen King said there was now a real question as to the degree to which the big four banks "were keeping each other honest and were kept honest by facing competition."

"These figures show the smaller players are becoming less relevant as a constraint on the banks. We have a straight out competition problem. The last 18 months have reversed a 20-year trend for the banks to face more competition," he said.

Professor King is one of the six public policy economists who last week petitioned Treasurer Wayne Swan asking for a new inquiry into Australia's financial system.

"The last financial system inquiry was carried out against a background of the banks facing increasing constraints on their behaviour from emerging competitors, and that has turned around - a 180 degree change," he said.

What the people who say we don't need an inquiry are ignoring is that the rest of the world is changing. In the UK and other countries the old rule book is being thrown out. We can't act as if we are an island."

Australia's Financial Services Minister Chris Bowen Sunday opened the door to a new financial system inquiry saying he "would not rule out" such a review "at the appropriate time".

Treasurer Wayne Swan is understood to also be open to the idea of an inquiry after the dust has settled on the current financial crisis.

Mr Tanner said Australia’s regulators had been vigilant in overseeing Australia's financial sector but that it was clear that a new international rules were needed. "We cannot simply restore past regulation, as appealing as it may be to some," he added.

New lending for housing hit a record high in May with the figures showing a sharp jump in borrowing to buy investment properties, suggesting that more investors are "positively gearing" to take advantage of high rents and low interest rates

Published in today's SMH and Age

Here's Tanner's full speech.

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Why you shouldn't trust a mortgage broker

Today's Australian:

"The Commonwealth Bank has told 8000 mortgage brokers from a variety of broking firms they will no longer be able to offer the bank's home loans if they fail to write enough business for the bank.

Wayne Ormond, executive chairman of Queensland-based mortage brokers Refund Home Loans, told The Australian yesterday the CBA had written to his firm last month stepping up a demand first made in January that each of its brokers submit four home loans per quarter.

Mr Ormond said Refund employed 270 brokers, meaning the group would have to put through 1000 CBA home loans every three months...

"It would be valid for consumers to ask: if a broker is recommending a CBA loan, is that the best loan, or is it being recommended so the broker won't lose his accreditation?"

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Well what about private foreign debt then?

It's climbed enormously since the 1970s, taking up where government debt left off:

A lot - but not all - of it has been borrowed for worthwhile purposes.

Recently it's been leveling off:




This is the  Parliamentary Library paper that explains what's been happening.

A commenter asked whether I thought the explosion in private foreign debt mattered much.

I replied that I didn't think it mattered much in and of itself.

But I noted that markets may (suddenly) take a (quite possibly irrational) set against it, which would make my own views beside the point.

I wrote about the danger here.

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Worried about government debt?

Then don't look at this.

It'll make you realise you should have been worrying much more all through the 1910s, 1920s, 1930s, 1940s, 1950s, 1960s, 1970s, 1980s and 1990s:




Thanks to Bill Mitchell for reminding me.

The source is the Treasury itself. I wrote about it at the time here, as it happens earning a Saturday morning phone call expressing the Opposition's displeasure.

STOP PRESS: The Parliamentary Library have just put out a paper on the topic.

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Getting China wrong

Guess what? Tomorrow's must-see conference, the 2009 China Update, is hosted by "The Rio Tinto - ANU China Partnership".

No joke. Check out the sponsorship notice at the top of the conference website.

John Garnaut's typically brilliant report from China in today's Herald and Age begins like this:

"WHEN Rio Tinto holds press events in China, its public relations firm sometimes hands out red envelopes of cash to Chinese journalists who are kind enough to turn up.

Well, doesn't every company in China do it?

No, the best multinational companies do not. And the best Chinese journalists don't accept those "expense" payments, either..."

Read the full thing

Let's see... Australia's AWB stooped to bribery and suffered the consequences, it is alleged that a subsidiary of our Reserve Bank also stopped to bribery and it is awaiting the consequences. Hasn't this taught firms such as Rio anything?

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At least Alan Jones hands out money as if he means it

The other media barrons play both sides of the street.

This breakdown of their political donations from Crikey:


Oh, and John B Fairfax and Ramsay/Prime.

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Why oh why do they bother with the G8?

Italy? Germany? The G8 is no way get the globe on board

Nina Hachigian at the East Asia Forum

"The underlying trouble is the G-8 itself. The world simply needs a different set of countries at the high table of global governance to tackle today’s challenges.

Inertia was the mother of this G-8 summit. The G8 occurs because the member countries—the United States, Germany, Japan, France, Great Britain, Canada, Russia, and Italy—agreed a number of years ago that it would. Over the years, though, the G-8 has lost credibility because it does not reflect the realities of power, influence, and capacity in the world today...

In late 2008 President George W. Bush brought the Group of 20 to life at the leaders’ level, recognizing that China, India, Brazil and other major economies needed to be at the table to plan a coordinated response to the global economic crisis.

In response, Italy this year decided that instead of giving up the G-8 host prerogative — the political equivalent of a cheetah giving up its prey — it would also invite the G-20 countries to meet alongside the G-8. That idea was later pushed aside and the three-day summit now includes meetings of the G-8, the G-8 plus emerging economies, the Major Economies Forum (17 countries), and the G-8 plus emerging economies plus leaders from select African countries. That’s a lot of Gs.

The most valuable commodity in international politics—leaders’ time, especially President Barack Obama’s time — is being lavished on all these meetings. I truly hope breakthroughs result because the issues on the table could not be more serious—the economic crisis, development, and climate change, among others."

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"Woolies boss heavied me: Choice man"

It's war, and of course this is great, but Woolies is cheaper than IGA - GroceryChoice (deceased) said so

Story 1 - AAP

Consumer group Choice has set its sights on keeping the two supermarket giants honest - a job it says went begging following the scrapping of the Grocery Choice website.

Choice has ordered its policy and campaign teams to drop all other issues to try and figure out how to bring down supermarket prices in Australia, which rate among the highest in the developed world.

Story 2 - Kelly Burke SMH

NICK STACE has sat with Sinn Fein and Ulster Unionists at the bargaining table; he has had tough dealings with giant European car manufacturers and survived the political uber-egos of 10 Downing Street.

But it was a meeting that took place in Australia on the morning of June 5 this year that the chief executive of Choice says has been the most hostile and intimidatory in his career. That meeting was with the Woolworths boss Michael Luscombe.

Worth a read.

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Reading Terry McCrann

Here's John Quiggin:

Terry McCrann has responded to the call for a new inquiry into the financial system with a snark-filled piece which is of sociological, if not intellectual, interest. Let’s jump to his last para.

What next then? Setting up a government-owned home-buying service at the Post Office? Presumably two others among the ’six-pac’, Nicholas Gruen and John Quiggin, would love that, provided it directed the trusting unsophisticated only into carbon neutral homes.

The most charitable interpretation of McCrann’s reference to carbon-neutral homes is that he is indicating a tribal affiliation. He knows that the typical reader of the Herald-Sun business pages has delusional beliefs about climate change, and is assuring his readers that he shares these beliefs. This alone would be enough reason to dismiss the rest of the column. If McCrann is prepared to dismiss a vast amount of scientific evidence on a topic on which he has no particular expertise, simply because members of his social group don’t like the conclusions, his judgements are worthless. In the absence of any new factual evidence (and, all the facts mentioned in his column are well-known), his arguments have no evidentiary weight. In essence, they amount to the statement “if you’re on my team, you shouldn’t agree with these guys, because they are on the other team”

But that, as I observed, is the charitable interpretation...

The less charitable view is that McCrann rejects climate science because his world view is incompatible with the existence of the atmosphere, or any kind of global public good. There’s plenty of evidence for this interpretation in his column. On McCrann’s apparent view, the fact that Australia is not in a deep recession proves that there is, and can be, no such thing as a global recession. Since we haven’t been affected, there’s no need to worry. To quote his column

For their call for a massive, Campbell-and-Wallis type inquiry into the financial system actually lacks ‘a problem’ that has been exposed and thereby needs fixing. … global financial crisis. Not many dead or even injured in Australia. From any systemic fault, that’s to say.

There is a real problem here. McCrann is significantly less ignorant and wilfully stupid than the average defender of economic liberalism in Australia (compare for example, Andrew Bolt or the Institute of Public Affairs). But he can’t allow himself to be much smarter than his readers, and stupidity and ignorance (whether endowed by nature or acquired by effort) are essential if you are to be a full member of the tribe. In a period when social democracy is on the rise, we need better opponents than this.

Here's McCrann's column:

ONE Stephen King writes silly fantasy and horror fiction – the other Stephen King writes international best-selling blockbusters.

The so-called 'people's bank' proposed by the first King, the dean of economics and business at Monash University and five fellow 'influential' -- they wish! -- economists, is an idea whose time has definitely come.

In 1911. When King O'Malley founded the Commonwealth Bank.

And then gone. In 1990 when one of his political heirs and successors, Paul Keating started its privatisation. Thereby posing the question: which bank is now just another bank?

A sale, it might be noted, which not exactly incidentally, coincided with the bankruptcies and forced sale of the other three 'people's banks' -- the State Banks of Victoria, Western Australia and South Australia.

There are two insurmountable functional problems with the concept of such a bank -- which were exposed so graphically in the 1980s and Keating understood only too well.

Plus the huge all-encompassing holistic one -- "I'm from the government and am here to help you."

Oh yeah, sure. Only a particular type of economist could still believe that.

Only an even narrower group, well represented by this 'six-pac' would have sufficient intellectual arrogance to believe they could design the right can-opener. The one to open the can (of worms?) in which such a bank would be found.

The first functional problem is such a bank's core ethos.

Is it designed to be commercial? If so, what's the point, if it's just another bank doing exactly what the other banks are doing? Which means paying market rates of interest on deposits, charging market rates to borrowers.

Which is exactly where the Commonwealth Bank was in 1990. But doing things sub-optimally because of legacy restraints and the fact that it was still 'from the government'.

Even accepting the 1980s disasters that also had been created in the private banks, Keating knew that unless it was sold, in the long run it would wither and die in public ownership.

Which also buries the idea that such an institution can 'keep the bastards honest.' It didn't work in 1990 and it won't in 2020. Because the market essentially does, even though 98 per cent of you won't believe it.

The alternative -- then and now -- is to make such a 'people's bank' operate with government subsidies in order to subsidise some or all of its customers in some way.

That is the path to all sorts of disasters, as we saw in those earlier 'people's banks'. It's moral and actual financial hazard on a grand scale.

You make it 'uncommercial', you introduce serious distortions in the market, which at best damage activity and, at worst, end in disaster.

Have any of the 'six-pac' heard of Freddie and Fannie? In their different way, intended to achieve precisely what this bank would try. On both the deposit and lending sides.

As the Bankers Association was quick to point out yesterday -- true, partly speaking its book -- the first victims of such a bank would be all the small banks and building societies and credit unions. Thereby actually strengthening the Big Four.

In simple terms whether or not it had actual subsidised rates, a government-owned bank would have an overwhelming competitive advantage against small financial institutions -- which presumably will have lost their government guarantee.

An advantage, especially in the wake of the very financial crisis, the very consequences of which, the 'six-pac' letter is purportedly designed to address.

Well, it'll just be a 'post-bank' - taking deposits and making plain vanilla housing loans.

Easier said than done. You have to set up an infrastructure, you have to build staff.

Or does the 'six-pac' envisage it operating like another service in the Post Office. I'll have a book of 55c stamps and a $350,000 housing loan, thank you.

Their bigger point is even sillier, but also provides us with a possible pathway to what's it all about Alfie? Actually, Christopher -- one of the six, Christopher Joye, who seems to have a thing about securitisation.

For their call for a massive, Campbell-and-Wallis type inquiry into the financial system actually lacks 'a problem' that has been exposed and thereby needs fixing.

Both in the big -- global financial crisis. Not many dead or even injured in Australia. From any systemic fault, that's to say.

And in the small -- yes, the securitisation which funded the alternative lenders has disappeared. But not because of anything that happened here. And actually, good riddance.

Is there any evidence that home buyers are having trouble getting finance? And on very attractive terms, with the basic mortgage rate just 2.8 percentage points above the Reserve Bank's cash rate.

Joye and fellow letter-writer, the Melbourne Business School's Sam Wylie, seem besotted by the securitisation dynamic which proved such a moral and financial disaster in the US.

Wylie wrote a very silly article, attacking variable rate housing loans. When the evidence demonstrates we have been extremely well served by the system of banks taking variable term deposits and lending mostly medium-term at variable rates.

It's proved best for borrowers. Official rates have been cut by about the same in the US and here. But while our borrowers have seen their rates drop by nearly 400 points, in the US the average borrower has been lucky to get 100 points.

And thereby also most effective for monetary policy. The RBA cuts (or hikes) and it actually feeds into market rates. In the US, the impact is muted.

In their grab-bag of 'ideas' the 'six-pac' did highlight some big and important issues, like our foreign debt and unsophisticated investors getting access to trustworthy investment.

But it was ever-thus and can be addressed or looked at individually on their merits.

It is not a sensible basis for a massive inquiry into 'the financial system'. Far less, for starting down the path to ever-broadening government delivery of financial 'services' to the unsophisticated.

What next then? Setting up a government-owned home-buying service at the Post Office? Presumably two others among the 'six-pac', Nicholas Gruen and John Quiggin, would love that, provided it directed the trusting unsophisticated only into carbon neutral homes.

Graphic: Peirce clipart

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A good year for some (really):

The year so far

Male employment down 56,400
Female employment up 25,800

Teenage employment down 31,000
Adult employment up 400

NSW employment down 6,200
Victorian employment down 13,200
Queensland and WA down 18,100
South Australia and NT up 11,500

Trend figures, ABS 6202.0

Women are the surprise winners from the the changes that have flowed from the global financial crisis, with the latest jobs figures showing that female employment has been climbing at a time when male employment has been sliding.

In the first six months of this year an extra 25,800 women have found jobs at a time when the number of men with jobs has slid 56,400.

And the extra jobs for women are not - as widely believed - part-time.

Trend figures produced by the Bureau of Statistics show that the number of women employed full-time has climbed 26,500 over the course of this year while the number of men employed full time has slid almost 100,000.

Asked why he thinks women should be doing well at a time when men are suffering, Melbourne Institute labour economist Mark Wooden says the male story is a "classical downturn story".

"The female story on the other hand is completely bizarre," he adds...

"The only explanation I can come up with is that the industries that are continuing to do well are those that employ women."

An examination of industry trends reveals that employment has been growing in the fields of health care, social administration and arts and recreation while shrinking in the fields of mining, manufacturing and real estate; lending weight to the Professor Wooden's suspicions.

It's not the only clear demarcation in the latest employment figures. A Herald analysis shows that of the 30,600 jobs lost so far this year, all but 400 jobs have been been lost by teenagers.

This doesn't mean that adults haven't also lost jobs in big numbers this year. As in all years, they have. But it means that almost all of the jobs lost by adults no longer in their teenage years have been replaced by new jobs offered to such adults. The young haven't been so lucky. Teenage unemployment has climbed from 13.5 per cent to 17.4 per cent.

"Employers are hoarding labour," says Commonwealth Bank economist Michael Workman. "Unfortunately it means young job seekers lose out."

Australia's unemployment rate barely changed in June, inching up a mere 0.07 points to 5.8 per cent confounding repeated forecasts that the rate is about to surge.

"If the consensus forecasts since October had been correct, by now we would have lost 118,000 jobs," said Mr Workman. "Instead we have lost 25,000. Jobs are holding up because low interest rates and massive government spending have lifted incomes and confidence."

NSW remains by far Australia's worst performing state, although Victoria is catching up to it, losing 13,200 jobs in the first half of this year, double those jobs lost in NSW.

The NSW and Victorian unemployment rates stand at 6.5 and 6.0 per cent, well above the national average, and far higher than the 5.4 and 5.1 per cent recorded in Queensland and Western Australia.

Employment Minister Julia Gillard yesterday stood by the Budget forecast that unemployment would peak at 8.5 per cent, but other analysts began to move their forecasts down.

"We're now expecting the unemployment rate to top out at just 6.5 to 7.0 per cent," said CommSec economist Savanth Sebastian. "However it's important to remember that employers are cutting hours if not jobs and that will dampen consumer spending."

Yesterday's Austrade-DHL Export Barometer lent weight to suspicions that employers are reluctant to let workers go finding that most exporters expect orders to pick up in the coming year.


Published in today's SMH and Age

Graphic: DryIcons

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So how'd we get to be buying all this bottled water in the first place?

Al Jazeera's reporting our news. But how did it come to this?

"The outrageous success of bottled water, in a country where more than 89 percent of tap water meets or exceeds federal health and safety regulations, regularly wins in blind taste tests against name-brand waters, and costs 240 to 10,000 times less than bottled water, is an unparalleled social phenomenon, one of the greatest marketing coups of the twentieth and twenty-first centuries." - Bottlemania, Elizabeth Royte

What do you buy each time you reach into a shop fridge grab a 600ml bottle of water?

About one-quarter of a bottle of oil, according to most authoritative estimate - taking into account the oil that has been used to make the plastic, turn it into a bottle, transport it to you and then take it away to be buried, burnt or recycled.

And you are buying more water than you imagine: typically double what’s in the bottle when the water needed to cool and clean the bottling machines is taken into account.

So how did it come to this, and why is it still like this when both water and oil are more scarce than they have ever been?

That’s the mystery tacked by American author Elizabeth Royte in an engrossing new book, Bottlemania: How water went on sale and why we bought it...

We didn’t used to buy bottled water in modern times, although we certainly did in earlier times when public water wasn’t safe.

It began with Orsen Wells intoning in 1978 that “There is a spring and its name is Perrier.” Sales trippled on a campaign built not around thirst, but image.

Then in 1989 came polyethylene terephthalate.

The new so-called PET bottles were “cheap, light, shiny, bright and clean.”

The advertisements used the pop star Madonna and pictures of waterfalls and mountains to imply that drinking bottled water was a “path to enlightenment - like practicing yoga or eating organic food”.

Sales exploded from 115 million to 4 billion in seven years.

Along the way there was help from a myth – that each of us needed to drink eight glasses per day.

Royte traced it back to the food and nutrition board of the US National Research Council which once said that an adult needed one millilitre of water for each calorie of food.

But the board also went on to say (these days unreported) that most of that water was already in the food we ate. Cooked rice and noodles are full of it.

And there was a particularly nasty attempt to change the attitude of restaurant patrons. Waiters were trained to shame them into paying for bottled water, sometimes by forcing them to repeat the word “tap”.

In Canberra, with tap water too good to bottle, we should be above that.

Published in The Canberra Times, June 22, 2008


Elizabeth Royte, Bottlemania: How Water Went on Sale and Why We Bought it, Bloomsbury, June 2008

http://www.bottlemania.net/

Extract:

"The outrageous success of bottled water, in a country where more than 89 percent of tap water meets or exceeds federal health and safety regulations, regularly wins in blind taste tests against name-brand waters, and costs 240 to 10,000 times less than bottled water, is an unparalleled social phenomenon, one of the greatest marketing coups of the twentieth and twenty-first centuries. But why did the marketing work? At least part of the answer, I'm beginning to understand, is that bottled water plays into our ever-growing laziness and impatience.

Americans eat and drink more on the run than ever before. The author Michael Pollan reports that one in three American children eat fast food every single day, and 19 percent of American meals and snacks are eaten in the car. Bottled water fills a perceived need for convenience (convenience without the calories of soda, that is): hydration on the go, with bottles that fit in the palm of the hand, in a briefcase or purse.

According to research conducted by the Container Recycling Institute (CRI), between 1960 and 1970 the average person bought 200 to 250 packaged drinks each year-mostly soda and beer-and many of those were in refillable bottles. When I was growing up, my family drank only from the faucet and from family-size containers. We quenched our thirst, when out and about, with water from public fountains. Either that, or we waited till we got where we were going. On picnics, we might have a big plastic jug of lemonade, homemade. Sure, the grown-ups occasionally bought beer, but the idea of single-serve beverages were considered, by and large, frivolous.

Today, the tap is just as alien to today's youth, who've grown up thinking water comes in bottles, taps aren't for drinking, and fountains equal filth. Kids like having their hands on a personal water bottle, but they have no interest in washing that bottle out, to be reused another day, or otherwise taking responsibility for their waste.

Stores selling water are on every corner, while drinking fountains or restaurants happy to fill a glass for free are increasingly rare. "As refillables were phased out, as technology developed to enable single-serving plastic bottles, and as industry marketing efforts were ramped up," CRI reports, "packaged beverage consumption grew and grew." The success of portable water in the nineties hinged on the mind-set, established in the seventies and eighties, that it was okay to buy-and then toss-single servings of soda while on the go. In 2006, Americans consumed an average of 686 single-serve beverages per person per year; in 2007 we collectively drank fifty billion single-serve bottles of water alone. An entire generation is growing up with the idea that drinking water comes in small plastic bottles. Indeed, committed tap-water drinkers are far more likely to be older than devoted bottled-water drinkers.

Like iPods and cell phones, bottled water is private, portable, and individual. It's factory- sealed and untouched by human hands-a far cry from the public water fountain. (Fiji exploits this subliminal germophobia with its slogan "Untouched by Man," as does a company called Ice Rocks that sells "hygienic ice cubes"-springwater hermetically packaged in disposable plastic.) Somehow, we've become a nation obsessed with hygiene and sterility. Never, outside of an epidemic, have we been more afraid of our own bodies. Supermarkets provide antibacterial wipes for shopping cart handles. Passengers bring their own linens to cover airline pillows. Supermarkets wrap ears of corn in plastic: corn still in its husk! (The downside, besides mountains of waste, is the development of super-resistant bacteria immune to most of the commonly used antibiotics.)

In Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole, Benjamin Barber argues that consumer culture has turned adult citizens into children by catering to our narcissistic desires and conditioning us to passionately embrace certain brands and products as a necessary part of our lifestyles. Is it narcissism that pulls people into stores the second they feel thirsty? Or is it a need for emotional succor?

City dwellers walk down the street swigging; they stand in conversation and mark time with discreet sips. You see it in lines at the movies and in cars on the freeway. (But only in the United States, Michael Mascha, the bottled water expert I'd enticed to sample water with me, says. "In Europe, no one walks down the street sucking on a bottle of water. We wait and we have a nice meal.") Surely these people have access to water at the end of their journey and are in no danger of desiccating on the spot. No, this is water bottle as security blanket."

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But it's the men who are losing the jobs

Graph from Scott Haslem at UBS

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Our job numbers still aren't falling much

The ABS has the story

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Support grows, and names are mentioned

...to head the next financial system inquiry

Former Reserve Bank heads Bernie Fraser and Ian Macfarlane have emerged as two potential candidates to head an inquiry into Australia's financial system as Treasurer Wayne Swan has downplayed the prospect of a "people's bank," but left the door open to an inquiry of the kind being pushed by six leading economists.

The economists' call for an update of the landmark 1997 Wallis Inquiry yesterday received backing from a key member of that inquiry, Ian Harper who until Tuesday chaired the government's Fair Pay Commission.

Now free to speak after unveiling his final pay decision, Professor Harper told The Herald/Age the entire "intellectual framework of his 1997 inquiry had been rendered redundant by the financial crisis.

"Our framework was essentially the efficient markets theory," he said...

"We thought we had found the ultimate fixed point in the universe, namely the market price, and so we built on top of that the regulatory framework."

"But then there was no market price. The evolution we expected has stopped, reversed and gone the other way."

Professor Harper said it was vital that the new inquiry took place straight away.

"Right now overseas they are designing the next global system which they will ask us to sign up to," he said.

"We need to know the answers to the questions they will ask us. An inquiry here can be an information-gathering exercise that will stop us getting lumped with the wrong system."

Treasurer Wayne Swan held the door ajar to the possibility of a new inquiry saying the government was "always mindful of how competitive our financial system is and prepared to look at other arrangements".

He is understood not to have ruled out the idea absolutely, merely to be wary of starting an Australian inquiry one while high-level international discussions are underway.

Mr Swan was reluctant to embrace the economists' suggestion of a government-run "people's bank" to compete with the majors saying the banks were competitive and interest rates low.

The idea of a people's bank was embraced by Senators' Bob Brown and Steve Fielding but firmly rejected by Opposition Leader Malcolm Turnbull.

"The reality is that Australia has a very good banking system," he said. "The dominance of the banks has been in large measure been created by the Rudd Government itself through its deposit guarantee."

However he welcomed the idea of an inquiry telling a business audience in Perth it was "a very good proposal".

"The conclusion will be that by and large, we have got it right. But it is high time we have a careful review of our financial system."

"Wallis is a long time ago now, and we've had very big changes both domestically and internationally," he said.

Professor Harper nominated the former Reserve Bank Governor Bernie Fraser, and the former Governor Ian Macfarlane as suitable names to chair a new inquiry, noting that each understood the financial system well.

Every one of the big four banks yesterday refused to comment on the idea of an inquiry or a people's bank, putting forward instead the head of the Bankers Association David Bell to say they "wouldn't shy away from an inquiry" but that a people's bank could "erode competition".

Published in today's SMH and Age
Photo: Sun Herlad

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Up, up and away!!!

We're losing the glooms

Australian consumers have smothered thoughts of recession as the International Monetary Fund has sharply revised up its forecasts, staking its reputation on a stronger than expected global recovery next year.

The IMF expects global growth of 2.5 per cent in 2010, a sharp upgrade on its forecast of 1.9 per cent in April.

China will grow by 7.5 per cent this year and 8.5 next year, both upgrades of 1 percentage point on its April forecast.

Even Japan is to grow far more strongly than expected, rebounding 1.7 per cent next year, up from 0.5 per cent...

The IMF expects the economies of Europe and the United States to remain weak.

The Fund credits "public intervention," with the improved outlook, but notes that "the global recession is not over, and the recovery is expected to be slow."

At home Australian shoppers have effectively declared "recession" over producing by far the biggest jump in consumer confidence in the 34-year history of the Westpac-Melbourne Institute measure.

In the space of two months the index has soared 23 per cent to the point where optimists now clearly outnumber pessimists in each of the forward-looking questions the institute asks about the future.

There are 2 per cent more optimists than pessimists when asked about economic conditions over the next 12 months, 22 per cent more optimists when asked about conditions over the next 5 years, 24 per cent more optimists when asked whether now is a major time to buy a major household item, and and 17 per cent more optimists when asked about family finances in the year ahead.

"Clearly we are dealing with much larger forces than the ones that typically drive
confidence," said Westpac chief economist Bill Evans who confessed that he was astounded by the results. "The stand out force must be the huge financial handouts introduced to counter the global financial crisis."

In an extraordinary endorsement Mr Evans said the success of the Rudd government's government’s stimulus package in boosting confidence would be "a lesson to other governments including the United States."

"The key is not the direct impact of increasing spending capacity, those two big handouts only represent 2 per cent of GDP. The key is to restore confidence, and the government's approach seems to have been more successful than either tax cuts or direct spending."

The confidence index has jumped from 88 to 109 since the May budget, where a level of 100 indicates that pessimists and optimists are evenly balanced.

The measure sees confidence higher than at any time since the very early days of the financial crisis in December 2007 and a full 38 per cent higher than a year aog.

Importantly optimists now outnumber pessimists in every income group, every occupational group, and in every category of home ownership.

Only when it comes to voting intention is there a clear difference in consumer confidence, with pessimists slightly outweighing optimists among Coalition voters with an index number of 99.2. The confidence measure among Labor voters exceeds 118.

Separately released figures show the number of new housing loans climbing a further 2.2 per cent in May to a 16-month high.

First home-buyers accounted for a record 29 per cent of new home loans according to the Australian Bureau of Statistics, with lending for construction up 8 per cent in the the month and 55 per cent over six months.


Published in today's SMH and Age

imfweojuly2009pdf

Consuemr Sentiment July 2009pdf


Westpac Chief Economist, Bill Evans, commented, "This is unquestionably a stunning
result. My personal view had been that given that last month we saw the second largest
increase in the Index since we started measuring the Index in 1974 any rise in July would
have been a great result. The news on the variables that traditionally impact the Index had
generally been downbeat. Despite this, sentiment has posted another strong gain with the
Index now printing an increase of 23.2% over the last 2 months – the largest 2 month
increase in the Index since the survey began in 1975. And it is the largest increase by a
substantial margin. The second largest 2 month increase was 18.8% in March 1992 when
households were finally convinced that the Australian economy was coming out of
recession.

“This is now the highest level of the Index since December 2007. It is 38.5% above its
level a year ago and at 109.4 optimists decisively out-number pessimists for the first time
since December 2007.

“This rise is despite no boost from the traditional drivers of confidence – petrol prices
actually increased by 3.6%; the Reserve Bank left rates on hold in June despite its
maintaining its easing bias; we even saw one bank modestly raising mortgage rates
despite no rate change from the Reserve Bank; the equity market rally has stalled since
the last survey registering a modest fall of 3.6%; and the rise in the Australian dollar has
been arrested. International news has been mixed. China's recovery has gathered pace
but it has become apparent that market optimism about an early recovery in the major
economies has been misplaced with global sharemarkets down by 3.7% since the last
survey.

“Last month we indicated that a key explanation for the near record jump in the Index was
the relief that households would have felt when reading that Australia had dodged a
recession with the release of the March quarter national accounts. This is likely to have
been a supporting reason behind the July result – with notable rises in sentiment towards
the economic outlook. However, we suspect there have been other factors at work as well.

“Clearly we are dealing with much larger forces than the ones that typically drive
confidence. The stand out force must be the huge financial handouts introduced by the
Government to counter the global financial crisis. Note that the handouts came in two
tranches. The first tranche of $8.4bn was paid mainly to pensioners and carers in
December and the second of $12.7bn has been paid to low /medium income earners over
the March/May period. After Sentiment and spending failed to respond to the first tranche
there was some criticism that the payments had been "wasted". In hindsight it appears that
this first tranche may have been too narrowly based and that those receiving the payments
were initially cautious given the avalanche of disturbing information associated with the
global financial crisis. No such criticism can be levelled at the second tranche. It has now
been almost fully disbursed and has resulted in an instant boost to retail sales and
supported this surge in confidence.

“The unexpected resilience of the employment figures has also played a role. Households
whose exposure to the sharemarket had been limited had expected that the major impact
of the global financial crisis on their welfare would have been through the jobs market.

However, over the last two months the unemployment rate has remained steady. It
appears that firms which only a year ago were nominating a shortage of quality labour as
the major constraint on their businesses are now hoarding labour. The lead indicators are
suggesting that firms have sharply curtailed plans to employ new workers but the ongoing
switch from full time to part time highlights firms' efforts to retain workers. Workers are
feeling more secure in their jobs. As of June, the Westpac-Melbourne Institute measure of
job security1 has improved by 12% since its low in February, although it is still 20% lower
than a year ago. We will release the latest update of this index tomorrow. The Consumer
Sentiment Index is now at its highest level since December 2007 when the unemployment
rate was 4.3% compared with the current reading of 5.7%.

“The success which the government’s stimulus package has achieved in boosting
confidence will be a lesson to other governments including the US which have taken
different approaches in their stimulus packages. The key is not the direct impact of
increasing spending capacity - even these two huge handouts still only represent 2% of
GDP. The key is to restore confidence and this policy approach as the first stage of a
comprehensive program seems to have been more successful than tax cuts or direct
spending.

“The lift in Confidence appears to have spread to the housing market. In May we added a
special question to the Survey asking households about their expectations for house
prices. In May, only 32% of respondents expected house prices to rise over the next 12
months. In the July survey that proportion has increased to 52%. And the rise has not
been due to over exuberant First Home Buyers. Respondents in the 35-54 age bracket
have increased their confidence levels from 28% to 53%.

“Risks still remain. The handouts have now been curtailed. The second stage of the
government's stimulus package - the $14.7bn spending over 2009/10 mainly directed at
schools is unlikely to have a similar impact on confidence. Meanwhile the unemployment
rate is set to rise further (we expect it to reach 7.5% by year's end). Even if there are
limited job reductions the lack of new hiring will mean the natural increase in the workforce
will not be absorbed and the unemployment rate will rise. We still expect, despite an
improving outlook for consumer spending, that second quarter GDP will print negative,
reviving recessionary concerns. Evidence from the last recession points to confidence
levels taking a solid hit once the unemployment rate starts to rise quickly.

“Four of the five components of the Index increased. In particular respondents were
positive about the economic outlook. "Expected economic conditions over the next 12
months" increased by 19.6%; "Expected economic conditions over the next 5 years"
increased by 15.7%. Assessments of their own finances were more subdued. "Family
finances over the next 12 months" increased by 3%; "Family finances compared to a year
ago" fell by 0.9%; "Whether now is a good time to buy major household items" increased
by 9.5%. Note that this latter component actually fell last month by 1.6% despite the 12.7%
rise in the overall Index. Research shows this component is a particularly reliable lead
indicator of overall spending so its strong rise is a very encouraging point for retailers.

“Yesterday we saw the latest Statement from the Governor following the Reserve Bank's
Board meeting in July. While maintaining the general sentiment, "some scope for further
easing of monetary policy" the rhetoric in the Statement was substantially more up beat
than in June. This print for the Index will encourage even more optimism from the Bank.
Clearly it will be some months before a case can possibly be made to deliver on the easing
bias. In these volatile times the situation can change rapidly with the labour market and the
global economy being the most likely candidates. However we must say that the
probability of the Bank acting on its bias has diminished markedly.”, Mr. Evans said.

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