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, November 5, 2012
Adam Carr on the RBA's policy dilemma
It’s hard not to notice an unsettling pattern developing with regards to this easing cycle. When you go through each press release on the occasions they’ve cut, nearly every factor nominated by the board as a reason, has come to nothing. And that’s been the case consistently since November 2011. Weak consumer spending and domestic demand turned out to be strong consumer spending and domestic demand. Low inflation, not so low. Europe hasn’t imploded, global growth is reaccelerating, China didn’t have a hard landing and the slump in iron ore prices – the great end to the mining boom – turned out to be nothing. Well not nothing, a great embarrassment to those chicken little policy makers and politicians making that cry. Our leaders – the nation’s generals! Spare me!
It seems the RBA board has been panicking in response to whatever the latest headlines have been – the latest fear. This doesn’t inspire confidence in the nation’s policy makers and we’ve seen that in a variety of indicators. Confidence has actually been worse since the board started cutting. This unfortunately, is damaging the credibility of the RBA board at time when central banking more broadly is held in low regard...
Unfortunately we are very close to the point where if something did go wrong, we’ve got nothing to fight it with (a cash rate below say 2.5 per cent or 2 per cent offers no additional policy stimulus and we’re at 3.25 per cent). So why are we cutting? Political motives loom large as some have suggested and I have sympathy for that view. The government is deeply unpopular after all and has clearly stacked the board with ‘friends’ – manufacturing lobbyists and ALP staffers. Whatever the case, economics doesn’t really seem to be playing much of a role and so we’ll probably get more rate cuts at some point. On that note, Paul Kelly wrote an excellent article in The Weekend Australian noting one of the key messages from the recent Economic and Social Outlook Conference. It was that Australia needed much more intellectual honesty in public debate – I think monetary policy would be a great place to start because let’s be honest – there is simply no need for rate cuts with the economy we’ve got. That may change, sure (it may not), but let’s only cut rates if it does hey?