So, the war continues. In this now long-running saga between an extremely senior government insider and one of Australia's most respected interest rate strategists (aka 'the faceless economist'), the insider strikes back hard, exclusively to Aussie Macro Moments:
"Did anyone write this story during the GFC? [Ed: Government insider's tongue is plumb in cheek...]
The fiscal stimulus from the Government – some 6% over two years in the wake of the greatest threat to the global economy since the 1930s Great Depression - is simply not enough. Claims that the stimulus in the Budget of over $100 billion in just two years is sufficient to prevent a deep recession are just rhetoric. It will do nothing to stop the stop a disinflationary spiral and a collapse into recession.
The Government should have done more with extra spending, extra cash hand outs and additional tax cuts.
The RBA must be looking at this stimulus measure as a soft option.
The Budget stimulus measures do nothing to prevent the RBA from cutting rates in the next few months. All of the hard yards to prevent a recession will be left to the RBA who must be worried about the need to cut interest rates. Each meeting of the RBA Board is now live. A cut could come as soon as next month.
On the forecasts contained in this Budget, that is a fall in GDP and the unemployment rate sky-rocketing from 4.0% to 8.5%, the Treasurer must be expecting lower interest rates.
The broader issue is why a weak or recessionary economy does not have a larger Budget deficit. We still expect the RBA to cut rates a further 200bps over the next year.
The Treasurer is fond of saying we are on the cusp of a deep recession and that his counterparts in G20 meetings are close to panic about the meltdown in the banking and insurance sectors and many other central banks are now printing money because they have cut interest rates to zero and don’t know what else to do. Yet this Budget, by keeping spending too tight, fails to boost spending fast enough meaning that the RBA will have little choice but to cut interest rates in the months ahead."
