So the CPI figure yesterday was “benign”. But before the Reserve Bank
meets to look at interest rates next Tuesday, have a look at what
Morgan Stanley economist Steve Roach has to say about America’s “Asset Economy.”

“In all my years in this business,” writes Roach, “never before have I
seen a central bank attempt to spin the debate as America’s Federal
Reserve has over the past six or seven years. From the New Paradigm
mantra of the late 1990s to today’s new theories of the current account
adjustment, the US central bank has led the charge in attempting to
rewrite conventional macroeconomics and in making an effort to convince
market participants of the wisdom of its revisionist theories…”

It’s very applicable to Australia – and not just because of Treasury
head Ken Henry’s rates hints on Tuesday. “It was the Asset Economy that
enabled consumers and businesses to draw on the pixie dust of a new
source of purchasing power – asset appreciation – as a means to
augment what has since turned into a stunning shortfall of organic
domestic income generation.” See what we mean?

Peter Fray

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