The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, January 30, 2012

Edited: Is there something wrong with Australian democracy?

Yesterday I punched out a post that I quickly pulled because I thought it was a tad too pointed. I have kept it in my drafts folder. I've decided to publish the opening few paragraphs this morning so you get a feel for the direction in which I was heading...

You'd think so when a journalist can confidently predict the outcome of the non-democratically elected central bank's crucial monetary policy decision weeks before the government-appointed Board that oversees that central bank has met. Before the central bank's own staff has caucused to decide their recommendation to that Board (they will this Wednesday). Before the staff's recommendations are inserted into Board papers and secreted to all the individual Board members, as they will this Friday. And before, presumably, the Board itself has had an opportunity to debate the issue, as they will next Tuesday.

This morning [Sunday] Terry McCrann of News Ltd has published his third column in days declaring that the RBA "will almost certainly" cut rates Tuesday week. Apparently those Mr McCrann speaks to have also informed him that the RBA will cut rates not to really reduce lending rates by one quarter of a percentage point, but to "help the banks" (that's a quote).

Really. This is a fascinating issue. If the RBA only cuts by 0.25 percentage points, it will be a quite explicit exercise in bank margin expansion on the ostensible basis that margins have become apparently too thin. If it cuts by 0.50 percentage points, we will know that it wanted to deliver at least one standard rate cut (or 0.25 percentage points) of rate relief to borrowers.

According to McCrann, "The global financial turmoil has made it more expensive for the banks to raise the money they do in global markets. The RBA knows the banks will cut their lending rates by less than the official cut. This is in part precisely why it is doing it. This means, critically, that the coming rate cut is not making a major statement on where the economy may be headed. In itself, it is not signalling the economy's headed over a cliff. It's more an exercise in housekeeping, in positioning, from the RBA."