14 Mar 2008

Stand By for Another Rate Rise

By Alan Thornhill
Tough talking Reserve Bank Governor Glenn Stevens has issued a warning to treasury officials, writes Alan Thornhill
Stand by for another rate rise, the 13th in the present cycle. The Reserve Bank Governor, Glenn Stevens, told Treasury officials in a speech released today that tough tactics will be needed to beat Australia's inflation, which he expects to hit 4 per cent by the end of April.

Stevens didn't say there would definitely be another rate rise, nor when it would come. But those present left the room expecting there would be one - because Stevens's speech represented a return to the aggressive tone of the Bank's pronouncements before the latest rate rise earlier this month.

Stevens showed no sympathy for the wets, who would be prepared to accept higher rates of inflation. Nor was he prepared to tolerate any thought of an early withdrawal from the Bank's fight against inflation. He appeared dismissive, too, of the plight of young families in outer suburbs, who believe the 12 rate rises they have already had to endure are unfair. "Presumably, the same argument would mean that it is equally unfair to savers to put interest rates down when the economy is weak," he said.

Surprisingly, he made no mention of two facts that many economists regard as highly relevant to Australia's present economic situation: he did not acknowledge that the confidence of Australia's shoppers and business has already collapsed under the combined weight of 12 rate rises and the recent falls in the share market. Nor did he address the impact of the sub-prime crisis that has already driven the world's largest economy, that of the United States, to the brink of recession.

He noted that some people are relaxed about inflation because Australia's annual inflation rate on the CPI is only 3 per cent, a figure that merely puts it at the top of the Bank's target range. But he warned: "When we get the March 2008 (CPI) figures, we will most likely find that the rise over four quarters is more like 4 per cent." Stevens made it clear that he would not tolerate any upward revision of the target: "The surest way to higher interest rates is to accept higher inflation."

Just as oddly, Stevens also argued that monetary policy is not the "blunt instrument" that many people believe it to be. He insisted that monetary policy can work at many levels, including moderating the effects of rising terms of trade.

Monetary policy was also reviewed every month, so it could be reversed quickly if necessary, he said. Fiscal policy, however, is traditionally reviewed only in the months before the annual May budget.

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Jonah Bones
Posted Friday, March 14, 2008 - 14:22

So now the country is run by the reserve bank governor.
Out here in small business land we have to weather the effects of his ill considered opinion , without the cash reserves of a woolworths we rely on debt . Lucky us we get hit twice ,falling sales and rising interest bills. Only one answer to that increase prices.
If these blokes had every lived in the economy they prattle on about then maybe they would understand how it works. Good sales results will see us trim margins to strengthen our position against competitors. Very basic , economics is only ever complicated by politicians and academics.
Even the rising terms of trade is simple , customers are clamouring for Australian made goods , but we don't do industry policy anymore.
All these indicators are just history , history prejudicing the future .
A government looking to lay strong foundations for the future , now that would be novel.
My Friday rant - if your having a weekend hope it rains.

Kevin H
Posted Friday, March 14, 2008 - 15:53

Jonah, the Reserve Bank Governor must be old enough to remember when people acquiring debt for houses, small businesses, farms, cars, electrical appliances and so on relied on thrift, saving and mimimum borrowing. The days of cheap credit and living cheaply on others' money are gone for now. I'm sure they'll be back eventually. In the interim, the old virtues will again come to the fore.

Posted Friday, March 14, 2008 - 19:11

In the meantime, there is going to be one Hell of a lot of pain out there in voter land!
The Reserve Bank Governor operates on statistics. The financial world seems to operate on myth and insanity, speculation, greed and 'must be better than the Joneses'. It would seem that maybe never the twain shall meet! In the meantime, ordinary 'Howard, (now Rudd), battlers' are going to have an even harder job in putting food on the table and a roof over their heads. At the same time, it appears Rudd is going to continue the insane Baby Bonus, one of Costello's major crazies in a shrinking world, even though it is costing the country dearly, and will continue to do so for hundreds of years. For Gawd's sake, we need a lot LESS humans in the world, not bloody more! The sustainable population of Australia has been estimated at around 12 millions, and we have already nearly doubled this. Will someone please have a real good look at just how the Hell we are going to feed and provide for the Business Council requirement of 40 millions???? Has someone checked the oil prices lately??? Some sanity, please. like NOW!
Mr. "Me-Too" Rudd seemingly, to win the election, made promises to keep almost every one of the stupidities of Howard and Costello going, for the next three years, at least. So, no chance of any light at the end of any tunnel for a damned long time yet, if ever!
This 'keeping promises at all costs' could cost him the next election and this country it's very existence.

Posted Monday, March 17, 2008 - 22:39

Are there really still Australians who believe we control our own currency? Seriously?

In fact, are the still Australians who believe the B/S CPI crafted by liars and thieves? You must be joking.

Australia's token coins are no longer even worth the metals they are minted with and can be exchanged abroad for more than their face value based purely on their commodity value!

Think about that, our Aussie dollar is literally no longer worth the paper it's printed on nor the value of the nickel and copper it's minted with. Strewth!

How did this come about and what do Australians tell their kids when they ask "where does money come from?" - Imagine the kid's surprise when you tell them "actually, it comes from nowhere, it's like a magician's trick - it is created from nothing at the whim of a banker and the plastic paper apparition we call "money" is given legal status by laws passed by politicians who prefer that none of us discovered the answer to that question son"

You could respond with "Once upon a time paper money had printed on it "Pay To Bearer On Demand" which referred to the face value of the note payable in GOLD - which is REAL money" but the poor child would just repeat it somewhere and people would think he was insane!

See, people today have been conditioned to believe that real money attracts an interest rate, but, in reality, the rate at which the magician's banking trick is used to create this plastic illusion we call "money" is in fact inflation and since we need to remove this excess "cash" before our economy starts to look like Robert Mugabe's Zimbabwe and before the peasants realise they're being fleeced, we simply introduce an interest rate to soak it all back out of the system - brilliant!! It's the perfect social welfare system for the super rich and their pet politicians!

The best part is that it's paid for by the dimwitted "working class" who still believe that if it says "Australian dollars" it really is!! It's just so bloody sick!

Gold, in the meantime, which is what we previously used as money, is currently worth over $1,100.00 per ounce and climbing, and some fools in Australia, being fools, have exchanged their plastic RBA notes and their copper and nickel for gold and silver specie.

These fools have received no interest but they have enjoyed an increased value against the AU$ at a rate of more than 500% growth in buying power. In fact they have over 20% greater purchasing power this year alone! Imagine that?

Makes you wonder why people struggle so hard to hang on to "money" made of plastic paper when it costs so much!! What the heck is the attraction?

So, on the topic of the interest rate rise, who cares about interest rates when you're one of those fools who can't be caught by the flick of the banking magician's wand and who holds little or no "plastic" "money".

George Vickers

Posted Tuesday, April 1, 2008 - 13:44

I concur with Rockjaws comments above but am not sure whether Australians on masse are stupid for falling into the debt trap or the Australian governments are evil for manipulating such a large strata of middle Australia so calously. Scanning the media reveals no proper coverage of the banking issue in Australia and it has not been covered by the ABC either. I understand 4 Corners did an abysmal commercial channel 'woe is me' coverage last night but did not dig deep at all...why is this...why is the media and the RBA rabbiting phrases like 'sub prime' as if we are expected to trust two word explanations for a situation which has been designed with intent and exactitude by successive labor and Liberal governments. There is plenty that can be done to improve the lot of indebted Australians but it appears they are out on their own limb and that limb is about to break as the RBA watches the banks creep interest rates up further. Are there no politicians left with the self respect and decency to speak out in support of the financial victims of Howard, Keating and the others? Please feel free to read some more about this issue at rosettamoon http://rosettamoon.copley.org.au/?p=129

The solution to all this rests with our government but who exactly is our government at the moment?