Discussion in 'Four Corners' started by whall15, Sep 14, 2015.
Wtf has that got to do with it
he August 2008 memo opens with the observation that the RBA was deliberately trying to slow the economy down in the first half of that year. But the RBA had overshot. The slowdown was "occurring more sharply than initially anticipated". This was the context for the early stimulus planning - a bad RBA error.
In October 2008 the RBA changed course and cut the cash rate by a full percentage point. In his book, Swan writes how the rate cut news came during a cabinet committee meeting into stimulus planning. The committee was stunned into silence.
"Without doubt this changed the entire dynamics of events over the next 18 months."
What extraordinary timing. But should the October rate cut really have been such a cause for panic? Only insofar as it demonstrated how badly the central bank had misread the economic climate. Over the course of the next six months the RBA completely reversed its earlier policy, plunging the cash rate from 7.25 in August 2008 to 3 per cent in April 2009.
Tony Makin pointed out a few years ago that, from the perspective of individual consumers, this interest rate fall made the $900 cheques look like chicken feed.
But there it stopped. The cash rate never approached zero. It never got close. Even as the stimulus package was being rolled out the RBA began to lift rates. First in October 2009. Then in November. Then in December. Then in March, April, and May 2010.
Those increases were predictable. It's what the memo said might happen: "The Reserve Bank through its control over interest rates, determines the overall level of aggregate demand in the economy, and the Bank would likely take account of any fiscal stimulus in its monetary decisions - that is, more spending would keep interest rates higher than otherwise."
As Stephen Kirchner writes, that's a pretty good description of the "monetary offset". When a country has a central bank targeting inflation and growth, fiscal stimulus is redundant. It's both costly and unnecessary.
So why did the Rudd government push so hard for stimulus? Once again, it's right there in the document: because of "the potential political costs of being seen to do nothing in the face of slower growth and rising unemployment".
Monetary policy is hardly nothing. But the government couldn't take credit for it.
The decision to deploy massive fiscal stimulus set in train all the events and personality clashes that defined Labor's term in government.
The debt racked up in those few months crippled Kevin Rudd's policy agenda, undermined every one of its future budgets, and, by liquidating the surplus in an instant, damaged its economic management credentials.
And for what? To avoid "the potential political costs of being seen to do nothing".
Here's another good read, instead of letting the RBA ease rates Kev splurged, so we got a couple of rates rises for their effort.
You are proposing that an article that details government spending is a complete explanation as to why our budget position is what it is.
I am proposing that it is not ( and nor do I believe was that the authors intent ) as it does not deal with the revenue side of the equation.
Your obsession with government spending has been expressed often here in these pages, I don't think it much of leap of logic to then assert that you find this article to be more than it is due to said obsession.
Well, again you should take note of the word in the little black box at the beginning of the piece, which quite clearly indicates this to be opinion, I'm rather certain that I could equally find a dissenting view to copy and paste.
Yeah ok so you thought it's was good that we got a rate cut, the the govt iniates a cash splurge so the rba jacks rates up to combat it.
Monty python stuff
Why not let the rba do it's job and reduce rates.
What's the current cash rate?
Reducing rates is not the RBA's job, what are you on about?
You obviously didn't read the article just looked for something to confirm your bias
Oh and really
The Reserve Bank of Australia (RBA) is Australia's central bank and derives its functions and powers from the Reserve Bank Act 1959. Its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system, and issuing the nation's banknotes
Well, actually I did, the problem is that it was written in 2014 and therefore lacks the hindsight we now have available, If it were true that the stimulus package forced the RBA to raise rates, why did they then continue to fall thereafter?
Yes mate, really. You stated "Why not let the rba do it's job and reduce rates.", this implies that the RBA's job is to reduce rates, and as I responded "Reducing rates is not the RBA's job, what are you on about?"
.Your link supports that, it's job in that sphere is to maintain the target inflation rate, it attempt to do this by setting the cash rate. That is by either raising or lowering it. Again, it aint the Reserve banks job to reduce rates.
It raised the rate in response to what it felt was inflationary pressure applied by the stimulus package, it lowered it there after because as it turned out, they were wrong, and they kept on lowering it because they needed to prop up inflation.
You know exactly what I meant when I said do their job.
No mate, i thought you meant what you posted, People have all kinds of dumb arsed ideas, I thought that was just another one.
Quality diversion though.
Well done Bandy.
I have no idea what you are talking about
What a coincidence, neither does he!
Libs back to 48-52 in Newspoll. Primary gone backwards.
Another one of those short lived renaissances then.
Post-budget dead cat bounce?
If it holds or worsens, you'd have to think so.
Separate names with a comma.