Wall St was down 94 overnight, its biggest fall in a month, while the local market is down 66.
What was the RBA advice on guaranteeing deposits?
|
The predictable consequence of the Government intervening in the financial market to guarantee loans and deposits — that those not afforded the same guarantee are competitively disadvantaged — didn’t take long to emerge. And, to resort to footballing parlance, full credit to the Opposition. Julie Bishop raised the impact of the guarantee on commercial paper last Tuesday in Parliament. Wayne Swan ignored the question. Malcolm Turnbull called a press conference at lunchtime to press the issue, demanding to know the RBA’s advice to the government. Question Time today might have its first real bite for a while, especially since Turnbull is on familiar territory. Expect it to occupy a larger role in Question Time today. This is not exactly a barbecue stopper of an issue. Try explaining to your average punter that the guarantee is punishing investment banks and they’re likely to think even more highly of the Government for doing it. The Government will still get all of the credit for interest rate falls without any of the political downside that should flow from bad, panicky policy. With any luck the Government won’t heap bad policy on bad policy by extending the guarantee further. But that’s the problem with government interventions, whether they’re sovereign guarantees or economic stimulus packages. Those who miss out on the benefits complain long and loud. At some point brokers and investment analysts will start pointing out that the guarantee is causing a flow of money out of equities, depriving Australian companies of much-needed capital. The logic of the stimulus package — it behoves all of us to resist using the Government’s carefully-contrived and possibly market-tested names for these things — is the orthodoxy that Reserve Bank interest rate cuts will take 12-18 months to flow through to the real economy. This was certainly the case in years gone by, but the public is now far more literate about interest rates and inflation now, and far more responsive. They understand the signals the Reserve Bank was sending with repeated small increases in rates last year, and the message behind the 1% cut. They get the message from the media, not when they eventually go to the bank and decide they can’t afford that home loan they were hoping for. Maybe I’m talking rubbish — unlikely to be the first or last time — but think about this. The RBA minutes from the Board meeting that led to the 1% cut refer, amidst the welter of disastrous economic and financial news, to smaller sample sizes and greater uncertainty in retail sales figures. The impact of the Government’s efficiency dividend cuts on the quality of ABS data have been discussed previously in Crikey and elsewhere. But there’s a bigger data problem. The financial crisis has been moving so quickly data is out of date before it can be assessed and used as a basis for policy. “The Board’s discussion of international economic conditions commenced with a review of the latest data for the United States, which … predated the latest bout of financial market turmoil…” the Bank’s minutes noted. And, later, “the paper prepared for the Board recommended a large reduction in the cash rate, of at least 50 basis points, with the amount to be subject to review in light of any events occurring between the preparation of the paper and the time of the meeting. In the event, the recommendation put to the Board at the meeting was for a reduction of 100 basis points…” The Reserve Bank’s usual mechanism for avoiding being too dependent on data is its direct liaison with businesses, ramped up since the mid-1990s when it copped criticism for being out of touch, and increased as it embarked on its most recent round of rate rises. Now events are moving even too quickly for that sort of input, so fast a board paper is out of date before the relevant meeting. The Prime Minister has been making a virtue of not waiting for the data to come in before deciding on what to do about the economic effects of the financial crisis. We were too busy applauding him to notice the irony of self-professed advocate of evidence-based policy doing that. But the RBA had done the same on 7 October. “In view of the latest economic and financial market developments, members judged that the material change to the balance of risks surrounding the outlook for growth and inflation in Australia meant that a significantly less restrictive stance of monetary policy was now appropriate.” That’s bureaucrat speak for “we don’t know how bad things are but they’re pretty bad.” Now is probably not the time to indulge in optimistic speculation, but what happens if we move just as quickly out of the financial crisis and out of an economic slowdown? Will the Government have blown $10.4b of the surplus for nothing? Maybe we should hope so. |
|
|
11 Comments
Bernard, I agree that government intervention of whatever kind disadvantages someone. Look at England. Ireland guaranteed bank deposits.Result?a flood of money to Ireland. The UK Government guaranteed £ 35 000 of deposits. Result? depositors withdrew amounts over £35 000 and put it in other banks. I think there would have been a “flight to quality” anyway, and the amount it was worsened by the Rudd guarantee is unquantifiable. As to a flow of money out of equities, looked at the All Ords lately?
To me the whole thing smells of 1929. I read JK Galbraith’s history of 1929 events a few years ago and this one looks like that so quick early action to halt panick was the right action. I do not see any quick recovery. Money will remain tight and the gamblers will all go to the wall and when it does recover then we will return to putting all our funds in dodgy US instruments and the merigoround will all start again. Unfortunately people never learn from their history. The unfortunate thing is the naysayers will prevent action against climate change at a proper level and this is what will eventually deal with the problem for good.
The Reserve Bank Gov said this morning he “agreed ’ with the Gvernment intervention!!! Whats the problem? Just because moaning Malcolm and the ice maiden boring Bishop demand they see papers they do not have a God given right to see, why would the Govt do so? Memory tells me Labor put up with 12 years of the very same “no”. Whats good for the goose huh? I think Bernardo you are jost looking for a decent stouch, doubt you will get one from Mal and Jules. They dont have it in them. Doubt the PM is shaking in his shoes.
None of the 10.4 Billion is wasted.
The opposition was differentiating itself previously as being for pension increases and seriously chastising the Govt for not being of similar mind but ignored with the media the lump sums in the May budget which added up to just such pension increases.
Well these new recent lump sums are about the increases being caught up and futured to a lesser extent so the tears for pensioners were clearly not genuine then.
We have a financial crisis when the gurus who would have us believe they were the experts missed the main event because they were busy talking there nuts off about nothing. Now we have ‘fix it’ experts who make out they could fix anything talking their nuts off.
Action is worth our attention not expert talk therapy for nuts.
What irks me is the blatant attempt by turnbull, bishop and hockey to assert the Govt acted without consultation with the Reserve or the Treasury. That was put to bed this morning by the Reserve governor who clearly and regardless of the pontificating by the Murdoch rag the Australian, totally supported the Governments decision to guarantee loans and deposits . What is getting under the Oppositions skin is simply the Government not having a bar of the attempt by Turnbull to appear bipartisan when in reality he is playing cheap, politics. It is very noteworthy since he took over the leaders position, the mood has gone from ineffective (Nelson) to greasy and cheap. Turnbull has a lot to learn and he is currently showing all the signs of an upstart, know it all. He doesn’t, and his problem and the Coalitions is he doesn’t listen to anyone but Malcolm. All the ingredients of a toffee nosed I am. Lets talk honymoons, Turnbulls. How long before those who didnt support his leadership start murmering?
Incidently Bernard, you indicated you just may be talking rubbish, no maybe about it pal you are correct.
Denis, JamesK is a very special and different person providing special stimulus. Look on him as you would a sexy pole dancer prepared to go to extremes to stimulate and excite us so we should show that special respect and courtesy.
Frank Birchall is onto how serious things really are.
WW1 broke the world and the 20’s depression was our ignorance of the consequences.
The Bush wars are bringing on the same crap in a world pretending till now to be that ignorant. Wisdom is breaking through and things may just be better if in time. Notice that as wisdom is breaking though the Bush influence is so sidelined its almost a joke Psychopaths feigning cretinism once again took over the world. John Howard should give us some insights if he resepcts his fellow Australian.
Dennis you nasty little dingbat. First of all Business Spectator could hardly be called a “right wing rag”.
Governor Stevens did not I repeat DID NOT say that he advised the Rudd government to guarantee bank deposits without limit. He pointedly talked in generalities of the appropriateness of guaranteeing deposits. He specifically made the point that adjustments would likely be made. He is not a politician and was not questioned by the media to clarify as far I can ascertain.
Arrogance and rank stupidity is so very characteristic of leftist knob commentators on this board such as you.
If Governor Stevens did recommend that (and that is NOT clear from his statements thus far) then he should resign because it is stupid and NEEDS to change (and indeed that he desires imminent change is implied by his remarks today) .
If he did not then Swan is (like you apparently) a COMPLETE DILL and worse may have mislead parliament.
I note Terry McCrann (Is he anti Kev too Dennis?) opens his column today with:
“KEVIN Rudd has created a major mess with his flamboyant - top-of-the-head - unlimited guarantee of bank deposits. The only way to fix it is to set an upper limit. Preferably around $250,000.
This though could prove a major political embarrassment. Worse, it could undermine the very confidence in the banking system that Rudd sought to achieve.”
Why don’t you desist peddling your Rudd-love-in crap Dennis?
Are you suggesting John, the Government should have done nothing? or more to the point damned if they do and damned if they dont. I havent seen any Government come up with a ‘perfect solution’ so the steps the PM and Swanee did take have as David has correctly pointed out, met with the approval of the Reserve Bank Governor. I doubt whatever they did do, it wouldn’t have been approved in total by the Opposition, thats not how the game is played.
What “irks” Dennis “is the blatant attempt by turnbull, bishop and hockey to assert the Govt acted without consultation with the Reserve or the Treasury”.
Why?
From today’s Business Spectator:
“Reserve Bank governor Glenn Stevens is warning the federal government its guarantee of bank deposits must be changed.
The government ignored the RBA’s concerns about the impact of an unlimited guarantee scheme for all Australian deposit-taking institutions from October 12.”
Seems a clear cut case of a Swan f-ck up. If the RBA did indeed give him that advice then Stevens needs to resign. If Swan and Rudd are ‘misleading’ Parliament then they would need to resign.
Appropriate stuff for an opposition to chase.
“Full credit to the Opposition” for what exactly? The same tired, unoriginal attempts to score political points via one-liners, door stops and tabloid sniping. Sadly, Turnbull’s elevation to the Opposition leadership has changed absolutely nothing. Does anyone imagine that this confected blather would have been any different under Brendan Nelson? So much for bipartisanship at times of crisis!
James K read the transcript of the Governors speech today to the business community. He said it loudly and clearly so even your dense head could take it in, he agree with the govt, thats AGREES, with the action taken. I prefer to believe what he says directly rather than an article from a right wing rag and you. I repeat again in case you are that stupid, the Governor agreed with the Labor Govts action to guarantee loans and deposits. Peddle your Liberal crap elsewhere.