The war of words between one of our most prominent economic Madarins, aka the Invisible Insider, and one of our leading interest rate strategists, who blogs under the name, Ricardian Ambivalence, continues this weekend. And the rates strategist rightly enlists the support of 30yr RBA veteran, John Broadbent. JB was quoted in the AFR attacking the Government's fiscal policy stance (I am not sure how I missed this), and echoing the views of economists that it would not influence RBA policy. Here is the strategist's take:
"My mate Chris Joye has been hosting an enjoyable debate on the budget on his excellent blog. Until now, it has been good sport but I think the latest contribution from the so called ‘invisible insider’ on the hill is weak.
Rather than defend myself I am going to quote from ex RBA head of domestic markets – a man with 30years experience at the RBA. John Broadbent said that:
“When I saw the growth numbers from the budget, it was indicative to me that they [the government] are not pulling back fast enough.
“When you see [growth] numbers starting with a four, and with private domestic demand growing around 6%, well what it is telling me is that there is not enough slowdown in other parts of the economy to make way for the mining sector...
[I]f you are going to be successful in boosting the economy during the GFC, you need to be successful in pulling away as quickly as you can so you can leave enough room for the private sector to expand.”
Broadbent goes on to link fiscal policy and monetary policies:
“one way you can get growth back closer to trend if fiscal policy is a given, is for the the RBA to put a harder break on the economy”
I find it unlikely that so many professionals are wrong, and don’t understand economics. More likely, the insider has a political axe to grind. Most surely, that’s what the shot at Costello suggests."
