Australia's top rates commentator, Terry McCrann, has got engaged in the debate featured exclusively here between a very senior government advisor and one of the most respected interest rate strategists in the land. McCrann published the following article in the Herald Sun overnight:
"Economists chew cud in blogosphere
Terry McCrann
Herald Sun
May 12, 2011
AN interesting debate/battle over the budget has erupted in cyberspace.
The battle, which to political and economic insiders and aficionados may seem fascinating, has erupted on the Aussie Macro Moments blog of idiosyncratic economist and Reserve Bank 'adviser' Christopher Joye.
It's between a so-called "high-profile interest rate strategist" and a so-described "high-profile government insider". Joye is neither of them, his blog is just the vehicle.
The strategist launched the first salvo -- nailing the budget as "not an inflation busting budget".
His argument was that spending rose in every year of the budget forecasts relative to the last budget update, the 2010-11 MYEFO.
This utterly shredded Wayne Swan's claim to have brought down a tough budget on Tuesday night. He actually increased net spending from the budget's starting point, which had itself been stimulatory.
The insider lashed back at this - and other comments on the budget - that implied that "everything the government does should be directed at putting downward pressure on interest rates."
"To say the Budget will not stop a near-term rate hike, which is what many claim, is about as dumb as saying the Budget will not stop it raining tomorrow!" quoth the insider.
He went on to claim that the Budget was tough on spending; and that if the RBA did hike, "it will not be because of fiscal policy".
The strategist came back, that he'd only framed his critique in relation to rates, because he thought the government would put "this spin on a weak budget that did no such thing".
But just as a person should save some of any windfall gain, so should the government with the harvest of the greatest terms of trade boom in our history.
"Thus, I conclude that this (budget) is a lost opportunity for all of us," quoth the strategist.
But then the insider hit back, by trawling back to the market hysteria that not enough money was being thrown at the global financial meltdown.
The insider pulled out a quote that the earlier budget had been far too tight. "It had failed to boost spending fast enough," and the RBA -- back then, to stress, would have to cut rates.
Touche or two economists dancing on the head of the same pin? Although it might seem all a bit esoteric and even artificial, it is extraordinarily refreshing to see two economists actually engaging. Rather than as usual, just bloviating."
