October is usually a shaky month for investors – both the 1929 and 1987 crashes and half of the ten biggest drops on Wall Street have been in October. But this October was one for the record books as the Dow gained 401.66, or 3.44%, and broke through the 12,000 barrier for the first time.
The domestic markets have also been powering along, with both the S&P/ASX 200 and the All Ordinaries indexes closing at record highs on Monday, led mainly by the mining companies.
Although Treasurer Peter Costello today warned that the commodities boom is over (“more a message for RBA guv Glenn Stevens than a real forecast”, one cynic quipped) prices are still at quite spectacular levels and this is reflected in the strength of the share market.
Despite Costello’s warnings, he must realise the extent to which the unprecedented wealth arising from the commodities boom has benefited the Coalition Government.
Paul Kelly concurs – “If Howard fails at the 2007 poll, it will constitute the greatest defeat amid prosperity in Australia’s history. It would represent a failure to optimise the economics and politics of the golden age.”
Kelly’s overview of the fourth economic and social outlook conference currently being held at Melbourne Uni is some enlightening reading. Unsurprisingly, some of the gurus at the conference are far from laudatory of Howard and co. Access Economics principle Chris Richardson is particularly critical:
I think it [the Government] has made two mistakes. First, it has redistributed too much revenue to the demand side of the economy via tax cuts and spending, thereby worsening capacity constraints. As the Government gives tax cuts, boosting demand, the Reserve Bank puts up interest rates, restraining it. The Government should have been more careful and run higher surpluses with lower interest rates.
Second, the Government’s spending program has not been sufficiently focused on the supply side. Reform is about the supply side. It is about more and better focused investments in education and training and in infrastructure.
Henry has long agreed. It is exceedingly wasteful to have contradictory fiscal and monetary policy, and it is highly likely that we’ll see even more tax cuts in the run up to next year’s election at a time when interest rates are on the rise. The unexpected $47 billion windfall arising from the commodities boom cannot be squandered – it’s time to listen to these gurus and begin some serious reform.
Read more at Henry Thornton.