By economics commentator Alex Erskine, of the Henry Thornton website


The plunge in consumer confidence
reported yesterday afternoon has indeed created screaming headlines.
“The binge is over” is a common theme.

The
no-rate-hike school will love it, and the property spruikers will
become more strident. But the hike-again school will simply say it’s a
product of sampling immediately after a crescendo of bad news where
part of the news (the rate hike) was meant to have that effect and
another part of the news (the GDP slowdown) has been misinterpreted. So
maybe it’s not as important as real data on capacity constraints.

Meanwhile,
commodity prices spike upwards, the Aussie dollar tackles US$.80
(compared with fair value nearer .70) and US equity prices take a dive
overnight.

It seems that Australians
have suddenly learned that we are in no “golden age.” We are
handicapped by a chronic propensity to live beyond our means, and (as
usual) the current account deficit shows the unsustainability of the
dash for growth. High terms of trade (which has boosted national
income) and low global interest rates (which have limited debt payments
both for the nation and its over-indebted households) have allowed the
good times to roll.

Now we need to tighten our belts, and
a more cautious approach by Australian households is part of the
necessary adjustment. Read the article here.

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