Peter Martin

Worried about losing your job? Breathe more gently.

noreply@blogger.com (Peter Martin) — Wed, 15 Jul 2009 00:00:00 +0000

The latest NAB business survey shows employers easing off on letting go of workers and more inclined to take workers on. And it accords with what they are also telling the Commonwealth Treasury.

Only 1 in 5 employers felt the need to trim staff in June, down from 1 in every 3 in March.

The proportion expanding their workforce climbed from 8 per cent to 10 per cent.

"Employment is still going backwards, but not at the rate it was," said NAB chief economist Alan Oster. "We are no longer seeing large chunks of labour shedding."

The finding mirrors that of the Treasury's Business Liason Program which found this month that job cuts were becoming "less prevalent" and that some retailers and construction firms were taking more workers on...

Extraordinarily good conditions and forward orders for retailers and motor vehicle traders as well as improved conditions for construction contractors pushed the NAB's business conditions index to its highest point since before the late 2008 financial crisis in June. Business confidence turned positive and climbed to its highest point since December 2007.

"I am surprised by the results, and I am concerned they won't hold," said Mr Oster. But June appears to have been the best retail month on record, right up there with December when the first stimulus cheques arrived. Car sales are probably being boosted by tax breaks in the Budget and the extension of the first home boost is feeding construction."

"But can we be sure the jobs market will continue to improve when when each of those supports is removed later this year? I'm not sure."

Mr Oster is maintaining the NAB's forecast that the unemployment rate will peak at 8 per cent, somewhat below the government's forecast of 8.5 per cent. But emboldened by the survey other forecasters think things now won't get that bad.

"We would only expect 7.5 per cent now, not much higher," said UBS economist George Tharenou. "We are now expecting 6.5 to 7 per cent," said CommSec economist Savanth Sebastian.

Every forecaster expects Australia's unemployment rate to continue to climb beyond its present 5.8 per cent even if the jobs market does turn. Immigration and the annual influx of school leavers means employment needs to grow by about 3 per cent a year in order to stop the rate climbing.

Treasurer Wayne Swan took credit for some of the change in sentiment saying as he moved around the country, businessmen and women have told him "again and again that stimulus means they still have customers coming through their doors, and that means they can hold on to more staff than they otherwise would".

The former boom states of Queensland and Western Australia now have the weakest business conditions according to the NAB survey, with NSW the strongest, and Victoria the middle of the pack.

Mr Swan said the global recession still had "some way to run".

"The terms of trade effect alone is expected to cut about 3 per cent from national income over 2009/10," he told an audience at the Australian National University in Canberra.

"And the effect does not stop there - it cycles into weaker business profits and hence into weaker investment and employment outcomes. It also shows up in weaker government revenue."

"Budget decisions are going to remain difficult for the next few years at least."

Published in today's SMH and Age

Graphic: From here

NAB June 09

Our banks are getting bigger

noreply@blogger.com (Peter Martin) — Mon, 13 Jul 2009 23:30:00 +0000

It's time to act

Australia's banks have gained near unrivaled dominance over the financial system, accounting for almost $90 of each $100 lent - an all-time high.

The market-share figures for May, covering personal loans, housing loans, commercial loans and lease finance come as Finance Minister Lindsay Tanner lends support to a new financial system inquiry.

Addressing international regulators in Sydney Mr Tanner said the pace of financial innovation had now "outstripped the capacity" of regulators to keep up.

"The world has changed beyond recognition," he told the conference. "Whether we’re talking about the United States or Australia, we need a regulatory regime that’s appropriate for 2010 and beyond, not one that simply reinvents the past"...

Australia's last inquiry into the financial system in 1996 and 1997 took place at a time when competitors to the banks had a large and growing share of the market.

The May figures show the share of new loans issued by building societies, credit unions, wholesale lenders and finance companies falling to a record low 10.6 per cent, down from 15 per cent a year ago.

The banks' share was a record 89.4 per cent, up from 85 per cent. The banks' share of new mortgages climbed from 90 per cent to 92 per cent and their share of motor vehicle and other lease finance jumped from 35 per cent to 45 per cent.

Former Competition and Consumer Commissioner Stephen King said there was now a real question as to the degree to which the big four banks "were keeping each other honest and were kept honest by facing competition."

"These figures show the smaller players are becoming less relevant as a constraint on the banks. We have a straight out competition problem. The last 18 months have reversed a 20-year trend for the banks to face more competition," he said.

Professor King is one of the six public policy economists who last week petitioned Treasurer Wayne Swan asking for a new inquiry into Australia's financial system.

"The last financial system inquiry was carried out against a background of the banks facing increasing constraints on their behaviour from emerging competitors, and that has turned around - a 180 degree change," he said.

What the people who say we don't need an inquiry are ignoring is that the rest of the world is changing. In the UK and other countries the old rule book is being thrown out. We can't act as if we are an island."

Australia's Financial Services Minister Chris Bowen Sunday opened the door to a new financial system inquiry saying he "would not rule out" such a review "at the appropriate time".

Treasurer Wayne Swan is understood to also be open to the idea of an inquiry after the dust has settled on the current financial crisis.

Mr Tanner said Australia’s regulators had been vigilant in overseeing Australia's financial sector but that it was clear that a new international rules were needed. "We cannot simply restore past regulation, as appealing as it may be to some," he added.

New lending for housing hit a record high in May with the figures showing a sharp jump in borrowing to buy investment properties, suggesting that more investors are "positively gearing" to take advantage of high rents and low interest rates

Published in today's SMH and Age

Here's Tanner's full speech.

Why you shouldn't trust a mortgage broker

noreply@blogger.com (Peter Martin) — Mon, 13 Jul 2009 20:37:00 +0000

Today's Australian:

"The Commonwealth Bank has told 8000 mortgage brokers from a variety of broking firms they will no longer be able to offer the bank's home loans if they fail to write enough business for the bank.

Wayne Ormond, executive chairman of Queensland-based mortage brokers Refund Home Loans, told The Australian yesterday the CBA had written to his firm last month stepping up a demand first made in January that each of its brokers submit four home loans per quarter.

Mr Ormond said Refund employed 270 brokers, meaning the group would have to put through 1000 CBA home loans every three months...

"It would be valid for consumers to ask: if a broker is recommending a CBA loan, is that the best loan, or is it being recommended so the broker won't lose his accreditation?"

Well what about private foreign debt then?

noreply@blogger.com (Peter Martin) — Mon, 13 Jul 2009 14:47:00 +0000

It's climbed enormously since the 1970s, taking up where government debt left off:

A lot - but not all - of it has been borrowed for worthwhile purposes.

Recently it's been leveling off:

This is the Parliamentary Library paper that explains what's been happening.

A commenter asked whether I thought the explosion in private foreign debt mattered much.

I replied that I didn't think it mattered much in and of itself.

But I noted that markets may (suddenly) take a (quite possibly irrational) set against it, which would make my own views beside the point.

I wrote about the danger here.

Worried about government debt?

noreply@blogger.com (Peter Martin) — Mon, 13 Jul 2009 10:29:00 +0000

Then don't look at this.

It'll make you realise you should have been worrying much more all through the 1910s, 1920s, 1930s, 1940s, 1950s, 1960s, 1970s, 1980s and 1990s:

Thanks to Bill Mitchell for reminding me.

The source is the Treasury itself. I wrote about it at the time here, as it happens earning a Saturday morning phone call expressing the Opposition's displeasure.

STOP PRESS: The Parliamentary Library have just put out a paper on the topic.

Getting China wrong

noreply@blogger.com (Peter Martin) — Mon, 13 Jul 2009 03:39:00 +0000

Guess what? Tomorrow's must-see conference, the 2009 China Update, is hosted by "The Rio Tinto - ANU China Partnership".

No joke. Check out the sponsorship notice at the top of the conference website.

John Garnaut's typically brilliant report from China in today's Herald and Age begins like this:

"WHEN Rio Tinto holds press events in China, its public relations firm sometimes hands out red envelopes of cash to Chinese journalists who are kind enough to turn up.

Well, doesn't every company in China do it?

No, the best multinational companies do not. And the best Chinese journalists don't accept those "expense" payments, either..."

Read the full thing

Let's see... Australia's AWB stooped to bribery and suffered the consequences, it is alleged that a subsidiary of our Reserve Bank also stopped to bribery and it is awaiting the consequences. Hasn't this taught firms such as Rio anything?

At least Alan Jones hands out money as if he means it

noreply@blogger.com (Peter Martin) — Mon, 13 Jul 2009 03:13:00 +0000

The other media barrons play both sides of the street.

This breakdown of their political donations from Crikey:

Oh, and John B Fairfax and Ramsay/Prime.

Why oh why do they bother with the G8?

noreply@blogger.com (Peter Martin) — Mon, 13 Jul 2009 01:47:00 +0000

Italy? Germany? The G8 is no way get the globe on board

Nina Hachigian at the East Asia Forum

"The underlying trouble is the G-8 itself. The world simply needs a different set of countries at the high table of global governance to tackle today’s challenges.

Inertia was the mother of this G-8 summit. The G8 occurs because the member countries—the United States, Germany, Japan, France, Great Britain, Canada, Russia, and Italy—agreed a number of years ago that it would. Over the years, though, the G-8 has lost credibility because it does not reflect the realities of power, influence, and capacity in the world today...

In late 2008 President George W. Bush brought the Group of 20 to life at the leaders’ level, recognizing that China, India, Brazil and other major economies needed to be at the table to plan a coordinated response to the global economic crisis.

In response, Italy this year decided that instead of giving up the G-8 host prerogative — the political equivalent of a cheetah giving up its prey — it would also invite the G-20 countries to meet alongside the G-8. That idea was later pushed aside and the three-day summit now includes meetings of the G-8, the G-8 plus emerging economies, the Major Economies Forum (17 countries), and the G-8 plus emerging economies plus leaders from select African countries. That’s a lot of Gs.

The most valuable commodity in international politics—leaders’ time, especially President Barack Obama’s time — is being lavished on all these meetings. I truly hope breakthroughs result because the issues on the table could not be more serious—the economic crisis, development, and climate change, among others."

"Woolies boss heavied me: Choice man"

noreply@blogger.com (Peter Martin) — Fri, 10 Jul 2009 23:11:00 +0000

It's war, and of course this is great, but Woolies is cheaper than IGA - GroceryChoice (deceased) said so

Story 1 - AAP

Consumer group Choice has set its sights on keeping the two supermarket giants honest - a job it says went begging following the scrapping of the Grocery Choice website.

Choice has ordered its policy and campaign teams to drop all other issues to try and figure out how to bring down supermarket prices in Australia, which rate among the highest in the developed world.

Story 2 - Kelly Burke SMH

NICK STACE has sat with Sinn Fein and Ulster Unionists at the bargaining table; he has had tough dealings with giant European car manufacturers and survived the political uber-egos of 10 Downing Street.

But it was a meeting that took place in Australia on the morning of June 5 this year that the chief executive of Choice says has been the most hostile and intimidatory in his career. That meeting was with the Woolworths boss Michael Luscombe.

Worth a read.

Reading Terry McCrann

noreply@blogger.com (Peter Martin) — Fri, 10 Jul 2009 08:54:00 +0000

Here's John Quiggin:

Terry McCrann has responded to the call for a new inquiry into the financial system with a snark-filled piece which is of sociological, if not intellectual, interest. Let’s jump to his last para.

What next then? Setting up a government-owned home-buying service at the Post Office? Presumably two others among the ’six-pac’, Nicholas Gruen and John Quiggin, would love that, provided it directed the trusting unsophisticated only into carbon neutral homes.

The most charitable interpretation of McCrann’s reference to carbon-neutral homes is that he is indicating a tribal affiliation. He knows that the typical reader of the Herald-Sun business pages has delusional beliefs about climate change, and is assuring his readers that he shares these beliefs. This alone would be enough reason to dismiss the rest of the column. If McCrann is prepared to dismiss a vast amount of scientific evidence on a topic on which he has no particular expertise, simply because members of his social group don’t like the conclusions, his judgements are worthless. In the absence of any new factual evidence (and, all the facts mentioned in his column are well-known), his arguments have no evidentiary weight. In essence, they amount to the statement “if you’re on my team, you shouldn’t agree with these guys, because they are on the other team”

But that, as I observed, is the charitable interpretation...

The less charitable view is that McCrann rejects climate science because his world view is incompatible with the existence of the atmosphere, or any kind of global public good. There’s plenty of evidence for this interpretation in his column. On McCrann’s apparent view, the fact that Australia is not in a deep recession proves that there is, and can be, no such thing as a global recession. Since we haven’t been affected, there’s no need to worry. To quote his column

For their call for a massive, Campbell-and-Wallis type inquiry into the financial system actually lacks ‘a problem’ that has been exposed and thereby needs fixing. … global financial crisis. Not many dead or even injured in Australia. From any systemic fault, that’s to say.

There is a real problem here. McCrann is significantly less ignorant and wilfully stupid than the average defender of economic liberalism in Australia (compare for example, Andrew Bolt or the Institute of Public Affairs). But he can’t allow himself to be much smarter than his readers, and stupidity and ignorance (whether endowed by nature or acquired by effort) are essential if you are to be a full member of the tribe. In a period when social democracy is on the rise, we need better opponents than this.

Here's McCrann's column:

ONE Stephen King writes silly fantasy and horror fiction – the other Stephen King writes international best-selling blockbusters.

The so-called 'people's bank' proposed by the first King, the dean of economics and business at Monash University and five fellow 'influential' -- they wish! -- economists, is an idea whose time has definitely come.

In 1911. When King O'Malley founded the Commonwealth Bank.

And then gone. In 1990 when one of his political heirs and successors, Paul Keating started its privatisation. Thereby posing the question: which bank is now just another bank?

A sale, it might be noted, which not exactly incidentally, coincided with the bankruptcies and forced sale of the other three 'people's banks' -- the State Banks of Victoria, Western Australia and South Australia.

There are two insurmountable functional problems with the concept of such a bank -- which were exposed so graphically in the 1980s and Keating understood only too well.

Plus the huge all-encompassing holistic one -- "I'm from the government and am here to help you."

Oh yeah, sure. Only a particular type of economist could still believe that.

Only an even narrower group, well represented by this 'six-pac' would have sufficient intellectual arrogance to believe they could design the right can-opener. The one to open the can (of worms?) in which such a bank would be found.

The first functional problem is such a bank's core ethos.

Is it designed to be commercial? If so, what's the point, if it's just another bank doing exactly what the other banks are doing? Which means paying market rates of interest on deposits, charging market rates to borrowers.

Which is exactly where the Commonwealth Bank was in 1990. But doing things sub-optimally because of legacy restraints and the fact that it was still 'from the government'.

Even accepting the 1980s disasters that also had been created in the private banks, Keating knew that unless it was sold, in the long run it would wither and die in public ownership.

Which also buries the idea that such an institution can 'keep the bastards honest.' It didn't work in 1990 and it won't in 2020. Because the market essentially does, even though 98 per cent of you won't believe it.

The alternative -- then and now -- is to make such a 'people's bank' operate with government subsidies in order to subsidise some or all of its customers in some way.

That is the path to all sorts of disasters, as we saw in those earlier 'people's banks'. It's moral and actual financial hazard on a grand scale.

You make it 'uncommercial', you introduce serious distortions in the market, which at best damage activity and, at worst, end in disaster.

Have any of the 'six-pac' heard of Freddie and Fannie? In their different way, intended to achieve precisely what this bank would try. On both the deposit and lending sides.

As the Bankers Association was quick to point out yesterday -- true, partly speaking its book -- the first victims of such a bank would be all the small banks and building societies and credit unions. Thereby actually strengthening the Big Four.

In simple terms whether or not it had actual subsidised rates, a government-owned bank would have an overwhelming competitive advantage against small financial institutions -- which presumably will have lost their government guarantee.

An advantage, especially in the wake of the very financial crisis, the very consequences of which, the 'six-pac' letter is purportedly designed to address.

Well, it'll just be a 'post-bank' - taking deposits and making plain vanilla housing loans.

Easier said than done. You have to set up an infrastructure, you have to build staff.

Or does the 'six-pac' envisage it operating like another service in the Post Office. I'll have a book of 55c stamps and a $350,000 housing loan, thank you.

Their bigger point is even sillier, but also provides us with a possible pathway to what's it all about Alfie? Actually, Christopher -- one of the six, Christopher Joye, who seems to have a thing about securitisation.

For their call for a massive, Campbell-and-Wallis type inquiry into the financial system actually lacks 'a problem' that has been exposed and thereby needs fixing.

Both in the big -- global financial crisis. Not many dead or even injured in Australia. From any systemic fault, that's to say.

And in the small -- yes, the securitisation which funded the alternative lenders has disappeared. But not because of anything that happened here. And actually, good riddance.

Is there any evidence that home buyers are having trouble getting finance? And on very attractive terms, with the basic mortgage rate just 2.8 percentage points above the Reserve Bank's cash rate.

Joye and fellow letter-writer, the Melbourne Business School's Sam Wylie, seem besotted by the securitisation dynamic which proved such a moral and financial disaster in the US.

Wylie wrote a very silly article, attacking variable rate housing loans. When the evidence demonstrates we have been extremely well served by the system of banks taking variable term deposits and lending mostly medium-term at variable rates.

It's proved best for borrowers. Official rates have been cut by about the same in the US and here. But while our borrowers have seen their rates drop by nearly 400 points, in the US the average borrower has been lucky to get 100 points.

And thereby also most effective for monetary policy. The RBA cuts (or hikes) and it actually feeds into market rates. In the US, the impact is muted.

In their grab-bag of 'ideas' the 'six-pac' did highlight some big and important issues, like our foreign debt and unsophisticated investors getting access to trustworthy investment.

But it was ever-thus and can be addressed or looked at individually on their merits.

It is not a sensible basis for a massive inquiry into 'the financial system'. Far less, for starting down the path to ever-broadening government delivery of financial 'services' to the unsophisticated.

What next then? Setting up a government-owned home-buying service at the Post Office? Presumably two others among the 'six-pac', Nicholas Gruen and John Quiggin, would love that, provided it directed the trusting unsophisticated only into carbon neutral homes.

Graphic: Peirce clipart

Join John Clarke and Bryan Dawe with Kevin Rudd in Rome

noreply@blogger.com (Peter Martin) — Fri, 10 Jul 2009 02:46:00 +0000

Enjoy!

It should start in Windows Media Player when you click this.

A good year for some (really):

noreply@blogger.com (Peter Martin) — Thu, 09 Jul 2009 22:25:00 +0000

The year so far

Male employment down 56,400
Female employment up 25,800

Teenage employment down 31,000
Adult employment up 400

NSW employment down 6,200
Victorian employment down 13,200
Queensland and WA down 18,100
South Australia and NT up 11,500

Trend figures, ABS 6202.0

Women are the surprise winners from the the changes that have flowed from the global financial crisis, with the latest jobs figures showing that female employment has been climbing at a time when male employment has been sliding.

In the first six months of this year an extra 25,800 women have found jobs at a time when the number of men with jobs has slid 56,400.

And the extra jobs for women are not - as widely believed - part-time.

Trend figures produced by the Bureau of Statistics show that the number of women employed full-time has climbed 26,500 over the course of this year while the number of men employed full time has slid almost 100,000.

Asked why he thinks women should be doing well at a time when men are suffering, Melbourne Institute labour economist Mark Wooden says the male story is a "classical downturn story".

"The female story on the other hand is completely bizarre," he adds...

"The only explanation I can come up with is that the industries that are continuing to do well are those that employ women."

An examination of industry trends reveals that employment has been growing in the fields of health care, social administration and arts and recreation while shrinking in the fields of mining, manufacturing and real estate; lending weight to the Professor Wooden's suspicions.

It's not the only clear demarcation in the latest employment figures. A Herald analysis shows that of the 30,600 jobs lost so far this year, all but 400 jobs have been been lost by teenagers.

This doesn't mean that adults haven't also lost jobs in big numbers this year. As in all years, they have. But it means that almost all of the jobs lost by adults no longer in their teenage years have been replaced by new jobs offered to such adults. The young haven't been so lucky. Teenage unemployment has climbed from 13.5 per cent to 17.4 per cent.

"Employers are hoarding labour," says Commonwealth Bank economist Michael Workman. "Unfortunately it means young job seekers lose out."

Australia's unemployment rate barely changed in June, inching up a mere 0.07 points to 5.8 per cent confounding repeated forecasts that the rate is about to surge.

"If the consensus forecasts since October had been correct, by now we would have lost 118,000 jobs," said Mr Workman. "Instead we have lost 25,000. Jobs are holding up because low interest rates and massive government spending have lifted incomes and confidence."

NSW remains by far Australia's worst performing state, although Victoria is catching up to it, losing 13,200 jobs in the first half of this year, double those jobs lost in NSW.

The NSW and Victorian unemployment rates stand at 6.5 and 6.0 per cent, well above the national average, and far higher than the 5.4 and 5.1 per cent recorded in Queensland and Western Australia.

Employment Minister Julia Gillard yesterday stood by the Budget forecast that unemployment would peak at 8.5 per cent, but other analysts began to move their forecasts down.

"We're now expecting the unemployment rate to top out at just 6.5 to 7.0 per cent," said CommSec economist Savanth Sebastian. "However it's important to remember that employers are cutting hours if not jobs and that will dampen consumer spending."

Yesterday's Austrade-DHL Export Barometer lent weight to suspicions that employers are reluctant to let workers go finding that most exporters expect orders to pick up in the coming year.

Published in today's SMH and Age

Graphic: DryIcons

So how'd we get to be buying all this bottled water in the first place?

noreply@blogger.com (Peter Martin) — Thu, 09 Jul 2009 09:21:00 +0000

Al Jazeera's reporting our news. But how did it come to this?

"The outrageous success of bottled water, in a country where more than 89 percent of tap water meets or exceeds federal health and safety regulations, regularly wins in blind taste tests against name-brand waters, and costs 240 to 10,000 times less than bottled water, is an unparalleled social phenomenon, one of the greatest marketing coups of the twentieth and twenty-first centuries." - Bottlemania, Elizabeth Royte

What do you buy each time you reach into a shop fridge grab a 600ml bottle of water?

About one-quarter of a bottle of oil, according to most authoritative estimate - taking into account the oil that has been used to make the plastic, turn it into a bottle, transport it to you and then take it away to be buried, burnt or recycled.

And you are buying more water than you imagine: typically double what’s in the bottle when the water needed to cool and clean the bottling machines is taken into account.

So how did it come to this, and why is it still like this when both water and oil are more scarce than they have ever been?

That’s the mystery tacked by American author Elizabeth Royte in an engrossing new book, Bottlemania: How water went on sale and why we bought it...

We didn’t used to buy bottled water in modern times, although we certainly did in earlier times when public water wasn’t safe.

It began with Orsen Wells intoning in 1978 that “There is a spring and its name is Perrier.” Sales trippled on a campaign built not around thirst, but image.

Then in 1989 came polyethylene terephthalate.

The new so-called PET bottles were “cheap, light, shiny, bright and clean.”

The advertisements used the pop star Madonna and pictures of waterfalls and mountains to imply that drinking bottled water was a “path to enlightenment - like practicing yoga or eating organic food”.

Sales exploded from 115 million to 4 billion in seven years.

Along the way there was help from a myth – that each of us needed to drink eight glasses per day.

Royte traced it back to the food and nutrition board of the US National Research Council which once said that an adult needed one millilitre of water for each calorie of food.

But the board also went on to say (these days unreported) that most of that water was already in the food we ate. Cooked rice and noodles are full of it.

And there was a particularly nasty attempt to change the attitude of restaurant patrons. Waiters were trained to shame them into paying for bottled water, sometimes by forcing them to repeat the word “tap”.

In Canberra, with tap water too good to bottle, we should be above that.

Published in The Canberra Times, June 22, 2008

Elizabeth Royte, Bottlemania: How Water Went on Sale and Why We Bought it, Bloomsbury, June 2008

http://www.bottlemania.net/

Extract:

"The outrageous success of bottled water, in a country where more than 89 percent of tap water meets or exceeds federal health and safety regulations, regularly wins in blind taste tests against name-brand waters, and costs 240 to 10,000 times less than bottled water, is an unparalleled social phenomenon, one of the greatest marketing coups of the twentieth and twenty-first centuries. But why did the marketing work? At least part of the answer, I'm beginning to understand, is that bottled water plays into our ever-growing laziness and impatience.

Americans eat and drink more on the run than ever before. The author Michael Pollan reports that one in three American children eat fast food every single day, and 19 percent of American meals and snacks are eaten in the car. Bottled water fills a perceived need for convenience (convenience without the calories of soda, that is): hydration on the go, with bottles that fit in the palm of the hand, in a briefcase or purse.

According to research conducted by the Container Recycling Institute (CRI), between 1960 and 1970 the average person bought 200 to 250 packaged drinks each year-mostly soda and beer-and many of those were in refillable bottles. When I was growing up, my family drank only from the faucet and from family-size containers. We quenched our thirst, when out and about, with water from public fountains. Either that, or we waited till we got where we were going. On picnics, we might have a big plastic jug of lemonade, homemade. Sure, the grown-ups occasionally bought beer, but the idea of single-serve beverages were considered, by and large, frivolous.

Today, the tap is just as alien to today's youth, who've grown up thinking water comes in bottles, taps aren't for drinking, and fountains equal filth. Kids like having their hands on a personal water bottle, but they have no interest in washing that bottle out, to be reused another day, or otherwise taking responsibility for their waste.

Stores selling water are on every corner, while drinking fountains or restaurants happy to fill a glass for free are increasingly rare. "As refillables were phased out, as technology developed to enable single-serving plastic bottles, and as industry marketing efforts were ramped up," CRI reports, "packaged beverage consumption grew and grew." The success of portable water in the nineties hinged on the mind-set, established in the seventies and eighties, that it was okay to buy-and then toss-single servings of soda while on the go. In 2006, Americans consumed an average of 686 single-serve beverages per person per year; in 2007 we collectively drank fifty billion single-serve bottles of water alone. An entire generation is growing up with the idea that drinking water comes in small plastic bottles. Indeed, committed tap-water drinkers are far more likely to be older than devoted bottled-water drinkers.

Like iPods and cell phones, bottled water is private, portable, and individual. It's factory- sealed and untouched by human hands-a far cry from the public water fountain. (Fiji exploits this subliminal germophobia with its slogan "Untouched by Man," as does a company called Ice Rocks that sells "hygienic ice cubes"-springwater hermetically packaged in disposable plastic.) Somehow, we've become a nation obsessed with hygiene and sterility. Never, outside of an epidemic, have we been more afraid of our own bodies. Supermarkets provide antibacterial wipes for shopping cart handles. Passengers bring their own linens to cover airline pillows. Supermarkets wrap ears of corn in plastic: corn still in its husk! (The downside, besides mountains of waste, is the development of super-resistant bacteria immune to most of the commonly used antibiotics.)

In Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole, Benjamin Barber argues that consumer culture has turned adult citizens into children by catering to our narcissistic desires and conditioning us to passionately embrace certain brands and products as a necessary part of our lifestyles. Is it narcissism that pulls people into stores the second they feel thirsty? Or is it a need for emotional succor?

City dwellers walk down the street swigging; they stand in conversation and mark time with discreet sips. You see it in lines at the movies and in cars on the freeway. (But only in the United States, Michael Mascha, the bottled water expert I'd enticed to sample water with me, says. "In Europe, no one walks down the street sucking on a bottle of water. We wait and we have a nice meal.") Surely these people have access to water at the end of their journey and are in no danger of desiccating on the spot. No, this is water bottle as security blanket."

But it's the men who are losing the jobs

noreply@blogger.com (Peter Martin) — Thu, 09 Jul 2009 04:55:00 +0000

Graph from Scott Haslem at UBS

Our job numbers still aren't falling much

noreply@blogger.com (Peter Martin) — Thu, 09 Jul 2009 03:55:00 +0000

The ABS has the story

Support grows, and names are mentioned

noreply@blogger.com (Peter Martin) — Thu, 09 Jul 2009 03:29:00 +0000

...to head the next financial system inquiry

Former Reserve Bank heads Bernie Fraser and Ian Macfarlane have emerged as two potential candidates to head an inquiry into Australia's financial system as Treasurer Wayne Swan has downplayed the prospect of a "people's bank," but left the door open to an inquiry of the kind being pushed by six leading economists.

The economists' call for an update of the landmark 1997 Wallis Inquiry yesterday received backing from a key member of that inquiry, Ian Harper who until Tuesday chaired the government's Fair Pay Commission.

Now free to speak after unveiling his final pay decision, Professor Harper told The Herald/Age the entire "intellectual framework of his 1997 inquiry had been rendered redundant by the financial crisis.

"Our framework was essentially the efficient markets theory," he said...

"We thought we had found the ultimate fixed point in the universe, namely the market price, and so we built on top of that the regulatory framework."

"But then there was no market price. The evolution we expected has stopped, reversed and gone the other way."

Professor Harper said it was vital that the new inquiry took place straight away.

"Right now overseas they are designing the next global system which they will ask us to sign up to," he said.

"We need to know the answers to the questions they will ask us. An inquiry here can be an information-gathering exercise that will stop us getting lumped with the wrong system."

Treasurer Wayne Swan held the door ajar to the possibility of a new inquiry saying the government was "always mindful of how competitive our financial system is and prepared to look at other arrangements".

He is understood not to have ruled out the idea absolutely, merely to be wary of starting an Australian inquiry one while high-level international discussions are underway.

Mr Swan was reluctant to embrace the economists' suggestion of a government-run "people's bank" to compete with the majors saying the banks were competitive and interest rates low.

The idea of a people's bank was embraced by Senators' Bob Brown and Steve Fielding but firmly rejected by Opposition Leader Malcolm Turnbull.

"The reality is that Australia has a very good banking system," he said. "The dominance of the banks has been in large measure been created by the Rudd Government itself through its deposit guarantee."

However he welcomed the idea of an inquiry telling a business audience in Perth it was "a very good proposal".

"The conclusion will be that by and large, we have got it right. But it is high time we have a careful review of our financial system."

"Wallis is a long time ago now, and we've had very big changes both domestically and internationally," he said.

Professor Harper nominated the former Reserve Bank Governor Bernie Fraser, and the former Governor Ian Macfarlane as suitable names to chair a new inquiry, noting that each understood the financial system well.

Every one of the big four banks yesterday refused to comment on the idea of an inquiry or a people's bank, putting forward instead the head of the Bankers Association David Bell to say they "wouldn't shy away from an inquiry" but that a people's bank could "erode competition".

Published in today's SMH and Age
Photo: Sun Herlad

Up, up and away!!!

noreply@blogger.com (Peter Martin) — Thu, 09 Jul 2009 02:10:00 +0000

We're losing the glooms

Australian consumers have smothered thoughts of recession as the International Monetary Fund has sharply revised up its forecasts, staking its reputation on a stronger than expected global recovery next year.

The IMF expects global growth of 2.5 per cent in 2010, a sharp upgrade on its forecast of 1.9 per cent in April.

China will grow by 7.5 per cent this year and 8.5 next year, both upgrades of 1 percentage point on its April forecast.

Even Japan is to grow far more strongly than expected, rebounding 1.7 per cent next year, up from 0.5 per cent...

The IMF expects the economies of Europe and the United States to remain weak.

The Fund credits "public intervention," with the improved outlook, but notes that "the global recession is not over, and the recovery is expected to be slow."

At home Australian shoppers have effectively declared "recession" over producing by far the biggest jump in consumer confidence in the 34-year history of the Westpac-Melbourne Institute measure.

In the space of two months the index has soared 23 per cent to the point where optimists now clearly outnumber pessimists in each of the forward-looking questions the institute asks about the future.

There are 2 per cent more optimists than pessimists when asked about economic conditions over the next 12 months, 22 per cent more optimists when asked about conditions over the next 5 years, 24 per cent more optimists when asked whether now is a major time to buy a major household item, and and 17 per cent more optimists when asked about family finances in the year ahead.

"Clearly we are dealing with much larger forces than the ones that typically drive
confidence," said Westpac chief economist Bill Evans who confessed that he was astounded by the results. "The stand out force must be the huge financial handouts introduced to counter the global financial crisis."

In an extraordinary endorsement Mr Evans said the success of the Rudd government's government’s stimulus package in boosting confidence would be "a lesson to other governments including the United States."

"The key is not the direct impact of increasing spending capacity, those two big handouts only represent 2 per cent of GDP. The key is to restore confidence, and the government's approach seems to have been more successful than either tax cuts or direct spending."

The confidence index has jumped from 88 to 109 since the May budget, where a level of 100 indicates that pessimists and optimists are evenly balanced.

The measure sees confidence higher than at any time since the very early days of the financial crisis in December 2007 and a full 38 per cent higher than a year aog.

Importantly optimists now outnumber pessimists in every income group, every occupational group, and in every category of home ownership.

Only when it comes to voting intention is there a clear difference in consumer confidence, with pessimists slightly outweighing optimists among Coalition voters with an index number of 99.2. The confidence measure among Labor voters exceeds 118.

Separately released figures show the number of new housing loans climbing a further 2.2 per cent in May to a 16-month high.

First home-buyers accounted for a record 29 per cent of new home loans according to the Australian Bureau of Statistics, with lending for construction up 8 per cent in the the month and 55 per cent over six months.

Published in today's SMH and Age

imfweojuly2009pdf

Consuemr Sentiment July 2009pdf

Westpac Chief Economist, Bill Evans, commented, "This is unquestionably a stunning
result. My personal view had been that given that last month we saw the second largest
increase in the Index since we started measuring the Index in 1974 any rise in July would
have been a great result. The news on the variables that traditionally impact the Index had
generally been downbeat. Despite this, sentiment has posted another strong gain with the
Index now printing an increase of 23.2% over the last 2 months – the largest 2 month
increase in the Index since the survey began in 1975. And it is the largest increase by a
substantial margin. The second largest 2 month increase was 18.8% in March 1992 when
households were finally convinced that the Australian economy was coming out of
recession.

“This is now the highest level of the Index since December 2007. It is 38.5% above its
level a year ago and at 109.4 optimists decisively out-number pessimists for the first time
since December 2007.

“This rise is despite no boost from the traditional drivers of confidence – petrol prices
actually increased by 3.6%; the Reserve Bank left rates on hold in June despite its
maintaining its easing bias; we even saw one bank modestly raising mortgage rates
despite no rate change from the Reserve Bank; the equity market rally has stalled since
the last survey registering a modest fall of 3.6%; and the rise in the Australian dollar has
been arrested. International news has been mixed. China's recovery has gathered pace
but it has become apparent that market optimism about an early recovery in the major
economies has been misplaced with global sharemarkets down by 3.7% since the last
survey.

“Last month we indicated that a key explanation for the near record jump in the Index was
the relief that households would have felt when reading that Australia had dodged a
recession with the release of the March quarter national accounts. This is likely to have
been a supporting reason behind the July result – with notable rises in sentiment towards
the economic outlook. However, we suspect there have been other factors at work as well.

“Clearly we are dealing with much larger forces than the ones that typically drive
confidence. The stand out force must be the huge financial handouts introduced by the
Government to counter the global financial crisis. Note that the handouts came in two
tranches. The first tranche of $8.4bn was paid mainly to pensioners and carers in
December and the second of $12.7bn has been paid to low /medium income earners over
the March/May period. After Sentiment and spending failed to respond to the first tranche
there was some criticism that the payments had been "wasted". In hindsight it appears that
this first tranche may have been too narrowly based and that those receiving the payments
were initially cautious given the avalanche of disturbing information associated with the
global financial crisis. No such criticism can be levelled at the second tranche. It has now
been almost fully disbursed and has resulted in an instant boost to retail sales and
supported this surge in confidence.

“The unexpected resilience of the employment figures has also played a role. Households
whose exposure to the sharemarket had been limited had expected that the major impact
of the global financial crisis on their welfare would have been through the jobs market.

However, over the last two months the unemployment rate has remained steady. It
appears that firms which only a year ago were nominating a shortage of quality labour as
the major constraint on their businesses are now hoarding labour. The lead indicators are
suggesting that firms have sharply curtailed plans to employ new workers but the ongoing
switch from full time to part time highlights firms' efforts to retain workers. Workers are
feeling more secure in their jobs. As of June, the Westpac-Melbourne Institute measure of
job security1 has improved by 12% since its low in February, although it is still 20% lower
than a year ago. We will release the latest update of this index tomorrow. The Consumer
Sentiment Index is now at its highest level since December 2007 when the unemployment
rate was 4.3% compared with the current reading of 5.7%.

“The success which the government’s stimulus package has achieved in boosting
confidence will be a lesson to other governments including the US which have taken
different approaches in their stimulus packages. The key is not the direct impact of
increasing spending capacity - even these two huge handouts still only represent 2% of
GDP. The key is to restore confidence and this policy approach as the first stage of a
comprehensive program seems to have been more successful than tax cuts or direct
spending.

“The lift in Confidence appears to have spread to the housing market. In May we added a
special question to the Survey asking households about their expectations for house
prices. In May, only 32% of respondents expected house prices to rise over the next 12
months. In the July survey that proportion has increased to 52%. And the rise has not
been due to over exuberant First Home Buyers. Respondents in the 35-54 age bracket
have increased their confidence levels from 28% to 53%.

“Risks still remain. The handouts have now been curtailed. The second stage of the
government's stimulus package - the $14.7bn spending over 2009/10 mainly directed at
schools is unlikely to have a similar impact on confidence. Meanwhile the unemployment
rate is set to rise further (we expect it to reach 7.5% by year's end). Even if there are
limited job reductions the lack of new hiring will mean the natural increase in the workforce
will not be absorbed and the unemployment rate will rise. We still expect, despite an
improving outlook for consumer spending, that second quarter GDP will print negative,
reviving recessionary concerns. Evidence from the last recession points to confidence
levels taking a solid hit once the unemployment rate starts to rise quickly.

“Four of the five components of the Index increased. In particular respondents were
positive about the economic outlook. "Expected economic conditions over the next 12
months" increased by 19.6%; "Expected economic conditions over the next 5 years"
increased by 15.7%. Assessments of their own finances were more subdued. "Family
finances over the next 12 months" increased by 3%; "Family finances compared to a year
ago" fell by 0.9%; "Whether now is a good time to buy major household items" increased
by 9.5%. Note that this latter component actually fell last month by 1.6% despite the 12.7%
rise in the overall Index. Research shows this component is a particularly reliable lead
indicator of overall spending so its strong rise is a very encouraging point for retailers.

“Yesterday we saw the latest Statement from the Governor following the Reserve Bank's
Board meeting in July. While maintaining the general sentiment, "some scope for further
easing of monetary policy" the rhetoric in the Statement was substantially more up beat
than in June. This print for the Index will encourage even more optimism from the Bank.
Clearly it will be some months before a case can possibly be made to deliver on the easing
bias. In these volatile times the situation can change rapidly with the labour market and the
global economy being the most likely candidates. However we must say that the
probability of the Bank acting on its bias has diminished markedly.”, Mr. Evans said.

The Reserve Bank's Quarterly chart pack

noreply@blogger.com (Peter Martin) — Wed, 08 Jul 2009 03:50:00 +0000

Check out the lot, out today

Son of Wallis, daughter of Campbell

noreply@blogger.com (Peter Martin) — Wed, 08 Jul 2009 01:54:00 +0000

Its time is approaching

The growing power of Australia's big banks has been targeted by a coalition of six influential economists who have petitioned the Prime Minister and Treasurer to set up an a new inquiry into Australia's financial system - the first since the Wallis and Campbell inquiries of 1997 and 1981.

Since the onset of the financial crisis Australia's banks have increased their share of the mortgage market from 80 per cent to 92 per cent and have taken over non-bank lenders including Aussie and RAMS and second-order banks including St George and BankWest.

The open letter expresses concern about the way in which the banks are using their privileged access to government guarantees, saying they are "rushing offshore" to expand despite Australians being "repeatedly told that our banks were lucky not to have had substantial overseas exposures"...

The Campbell and Wallis inquiries were aimed at opening up Australia's financial system. Campbell recommended floating the dollar, letting in foreign banks and abolishing exchange controls. Wallis recommended 'light touch' regulation allowing banks to expand into superannuation and insurance.

But the letter says much of what it brought in was inappropriate or is now out of date. It cites as an example the Wallis Inquiry's decision to reject the use of deposit guarantees, tools which turned out to be "critical" during the current crisis.

The open letter is signed by economists who have advised both sides of politics including Dr Christopher Joye who chaired former Prime Minister John Howard's 2003 Home Ownership Task Force and Dr Nicholas Gruen who is chairing current Finance Minister Lindsay Tanner's Government 2.0 Task Force.

Delivered to Mr Swan's office late yesterday it has sparked support across the political spectrum receiving backing from Trade Union President Sharan Burrow as well as Coalition Treasury Spokesman Joe Hockey.

But a spokesman for the Treasurer appeared to reject it straight away saying Australia's financial system had performed "very well" during the crisis compared to others and that the government was "not contemplating" any major systemic review.

"The Government of course remains vigilant in relation to our financial system and Australia is a full participant in current G20 reforms to the architecture of the international financial system," he added.

Dr Joye, who runs the research and investment firm Rismark, labelled the response an example of the complacency the open letter is warning against.

“Everybody knows that providence has played a part in Australia’s ability to skate through this crisis," he said. "When a coalition of top academic economists calls for a review to evaluate improvements to Australia’s decades old regulatory system, politicians should listen.”

Also signed by Melbourne Business School Professor Joshua Gans, Monash Professor and former ACCC commissioner Stephen King, Queensland University Professor John Quiggin and management consultant Sam Wylie, the letter says Australia would "do well not to discount the possibility that a roll of the dice left us without more significant system failures.

It adds, "in future, we may not be so lucky."

Twelve years on from the inquiry that neither foresaw the current crisis nor developed tools to deal with it, the new inquiry would examine whether Australia's banks should pay a "systemic capital charge" to account for the risks inherent in their business, whether they should be required to accumulate capital in good times, and whether the government should set up a "basic bank" that would allow ordinary Australians to deposit money with Australia Post and have it managed by the Future Fund.

Shadow Treasurer Joe Hockey said yesterday while he thought the Wallis Inquiry got things 85 per cent right, the crisis had taught us "about the other 15 per cent".

"We can't be policy lazy," he said. "This is a debate worth having."

ACTU President Sharan Burrow said Mr Rudd and Swan had been understandably scrambling "to apply bandaids to symptoms," but now needed to formulate an overarching policy.

Is Australia ready for...

the third wave?

The Campbell Inquiry: 1981

- led to floating the dollar

- allowing in of foreign banks

- dismantling exchange controls

- abolishing interest controls

The Wallis Inquiry: 1997

- allowed banks to manage super

- set up APRA and ASIC

- favoured "light touch" regulation

- found against government guarantees

The Next Inquiry: 2009?

- banks to pay for their advantages?

- a new "basic" government bank?

- official oversight of foreign debt?

- Reserve Bank to target bubbles?

Published in today's SMH and Age

Australia Needs a Comprehensive Financial System Inquiry

noreply@blogger.com (Peter Martin) — Wed, 08 Jul 2009 01:15:00 +0000

Joshua Gans, Nicholas Gruen, Christopher Joye, Stephen King, John Quiggin, Sam Wylie

"Ever since the severe market failures in Australia’s securitisation industry were identified in 2008, we have been concerned that these problems were partly attributable to more fundamental flaws in Australia’s ageing regulatory architecture and the inadequately defined role of government in dealing with such crises.

The shortcomings within our governance system have been exacerbated by the relentless changes that have occurred in financial markets since the essential elements of our regulatory infrastructure were put in place decades ago. One example of this is the 1996 Wallis Inquiry’s rejection of the use of deposit guarantees, which have been critical tools for maintaining stability during the current crisis. Following the lessons that have been learned during the global financial crisis, and the 12 years that have elapsed since the last such exercise, we believe that a broad-based inquiry into the integrity of Australia’s financial system is now warranted...

While the $40-50 billion per annum residential mortgage-backed securities (RMBS) market supplied the funding for up to a quarter of all Australian home loans it did so with little-to-no government oversight or support. The growing depth and liquidity of this market enabled the emergence of significant alternatives to the major banks in the form of empowered regional banks and building societies, and smaller non-bank lenders. When this market disappeared due to an entirely external shock—the US sub-prime crisis—many of these institutions were brought to the brink of collapse and forced to withdraw from lending altogether or merge with competitors. At least one smaller Australian bank would likely have failed had it not done so.

The biggest beneficiaries of this chaos have been the four major banks that receive the most favourable regulatory treatment under the existing system, which was not conceived with many of their smaller rivals, and the new markets that they rely on, in mind. Yet the forced ‘reintermediation’ of the major banks into the residential lending arena has had other unintended effects, with the pressure placed on their balance-sheets in turn compelling them to ration credit to the higher risk small business, corporate, and commercial property sectors.

We are still in the midst of understanding the consequences of the global financial crisis and the actions of governments (including Australia’s) in response to it. Importantly, it remains uncertain to what degree Australia’s comparatively successful performance in navigating through this catastrophe has been due to our own regulatory foresight or just good luck. We would do well not to discount the possibility that a 'good roll of the dice' left us without more significant system failures such as those seen in the UK. In future crises, we may not be so lucky.

This cataclysm was imposed upon us by the increasingly interconnected and globalised nature of capital markets. These interdependencies also extend to government policy. The catalytic event that was US sub-prime borrowers defaulting on home loans that barely exist in Australia pushed the world into a deep recession and has subjected Australia to a marked slowdown accompanied by significant job losses. As a nation with a large foreign debt that has continually increased its liabilities via enormous current account deficits, Australia’s vulnerability to foreign shocks is in many respects greater than most of our peers.

It is, therefore, critical that policymakers take this opportunity to thoroughly review the existing system and evaluate whether changes need to be made to it. Although the dependence of financial institutions on national governments has been reinforced by the crisis, global capital market integration is not going away. We have little comprehension of the consequences of the raft of new policies that are being implemented by other nation states. What effect will the whole or partial nationalisation of banking systems around the world have on Australian institutions and, more specifically, our ability to source foreign credit? Will the UK Government’s recent decision to guarantee securitised home loans along the lines of the Canadian model place Australian lenders at a competitive disadvantage in a global capital raising context? What are the long-term ramifications for Australia of the new regulatory regime being instituted by the Obama Administration?

These linkages cannot be ignored and should be examined under the auspices of a first-principles system review process similar to that undertaken by Campbell in 1981 and Wallis in 1996 with the benefit of new insights.

If there is any doubt as to why Australia needs to urgently revisit the foundations of its financial architecture, and evaluate what renovations might be required in light of the current crisis, consider that the following questions remain unanswered:

· Will the Australian government seek to establish a regulated clearinghouse for the hundreds of billions of dollars worth of over-the-counter derivatives contracts that are otherwise beyond the remit of policymakers;

· Should banks be subject to a ‘systemic capital charge’ to account for the risks associated with the correlation between bank balance sheets given that current capital charges reflect the idiosyncratic risks to the institution itself, and may not be collectively large enough to compensate for system-wide catastrophes;

· Will the deposit and/or wholesale funding guarantees be phased out and, if so, what new policy guidelines will explain how they might be redeployed when capital markets seize up again in a manner that minimises disruptions to other sectors (such as the knock-on effects seen in non-guaranteed areas like the commercial paper debt markets, the mortgage trust industry, and the CMBS and RMBS markets). If they are not phased out, how will the terms and price of these subsidies be determined and what regulatory constraints will be applied to prevent the emergence of moral hazard risks. More broadly, what parts of the credit markets will or will not be guaranteed in the future;

· Should APRA impose ‘automatic stablisers’ that require banks to accumulate capital in good times to serve as insurance against the bad;

· Has this crisis reminded us that Australia’s major banks fulfill a unique community role akin to public-private utilities that warrant special controls to guard against system stability risks? Here it is odd that we’ve been repeatedly told that our banks were lucky not to have had substantial overseas exposures and yet they now appear to be rushing offshore to obtain exactly these;

· What new regulations will govern executive compensation at banks and securities firms to mitigate the ‘call-option’ like payoffs that have tainted these arrangements in the past and how might these be tied to prudential supervision (eg, higher risk-weightings for firms that have short-termist structures and/or claw-backs on remuneration for executive negligence and adventurism);

· Can real competition emerge while consumers face significant costs in switching between financial institutions? Does a government-regulated securitisation market provide an opportunity to consolidate mortgage account standards and more effectively enable switching;

· Where government guarantees are deemed necessary is it preferable for them to be offered against complex institutions like banks, or against tangible portfolios of assets the characteristics of which can be relatively easily assessed by independent experts;

· Should citizens who feel unsure and unqualified to shop wisely in our financial markets be able to access basic savings, payments, and wealth management products that have been vouchsafed by governments as being safe and professionally managed (eg, why can’t Australians invest with the Future Fund)? In this regard, is there a role for a publicly-owned entity, akin to KiwiBank in New Zealand, to offer essential services in Australia’s finance sector that leverage off unique government infrastructure (eg, Australia Post, the tax system, and the government bond market);

· How will policymakers remedy the regulatory asymmetry between institutions like the larger banks that rely on short-term retail deposits as their primary source of funding (in combination with wholesale debt) and many of their competitors that depend on the longer-term and (ironically) ‘matched’ funding furnished by the RMBS market? Whereas banks benefit from a range of government subsidies (implicit and explicit deposit guarantees, term funding guarantees, RBA liquidity support, etc), which glue together the enormous asset-liability mismatch created by funding 30 year loans with at-call deposits, Australia’s regulatory architecture does nothing to maintain the liquidity and integrity of its securitisation market. This contrasts with the Canadian system, which has remained open and functional throughout the crisis (and displayed lower default rates than Australia);

· Should the RBA ‘lean against’ incipient asset-price booms fuelled by increases in system-wide leverage;

· Should Australia’s global foreign debt position be the subject of any general policy oversight and, if so, what measures should be pursued to ensure that these exposures are prudent;

· What position should Australia take in relation to the restructuring of the global financial architecture? This will begin in earnest once it is clear that the worst of the crisis has passed. We need to be prepared for the negotiations that lead to new organisations, treaties and the global regulation of finance. For example, European states appear to favour a global super-regulatory body. The US has not embraced this approach. Where should Australia stand? And what will Australia’s views be on other key issues, such as the uniform global reform and regulation of rating agencies and hedge funds; and finally

· What does Australia want to achieve from trade negotiations relating to the opening of foreign financial systems to overseas firms? Australia should be able to expand its supply of global financial services because of its location, political stability, resilient financial infrastructure, skilled workforce and competitive institutions. What steps will be taken to optimise Australia’s ability to both import and export financial services?

These are but a small subset of the many profound policy questions facing Australia and its financial system. Our relatively strong economic position offers an opportunity to review, investigate, consolidate and reform (if necessary). We need to take active steps to avoid the temptation of complacency and accept the lure of challenge. Only a full-scale independent commission on the financial system—roots and branch—can put us on a path to continued stability and insulation against the unpredictable. Following in the footsteps of Campbell in 1981 and Wallis in 1996, such a review’s time has now come."

Published in today's Age

Graphic: From here

It's getting closer

noreply@blogger.com (Peter Martin) — Wed, 08 Jul 2009 00:07:00 +0000

So thinks the RBA

The Reserve Bank believes China's economic recovery is already helping Australia and that the ailing United States economy could be "approaching a turning point".

The unusually upbeat pronouncement accompanied the Bank's announcement that it would keep its cash rate on hold for the third successive month while standing ready to cut it again "if needed".

Ahead of an update from the International Monetary Fund's due tonight the Reserve Bank said it believed the global economy was "stabilising", with "downside risks diminishing".

"Growth in China has strengthened considerably," it said. "This is having an impact on other economies in the region...

...including Australia."

In the Bank's first suggestion that it believes the United States economy could be about to pick up it says it sees "tentative evidence that the US economy is approaching a turning point".

While conditions in Europe are still weak, "the considerable economic policy stimulus in train around the world should support recovery", the Bank says, "although slowly at first".

The statement raises the possibility of an Australian economic recovery sooner than the Bank's current official forecast of early next year by describing Australian conditions as "not as weak as expected a few months ago".

While business borrowing has been shrinking, the Bank says demand for home loans and home prices are picking up and that interest rates are in any event very low by historical standards, despite some recent increases in bank margins.

The Bank credits both "fiscal measures" and its own lower interest rates with Australia's resilience in an explicit acknowldegment of the effectiveness of the government's multi-billion stimulus stimulus packages.

On reading the statement Commonwealth Bank economist John Peters said he now found it "hard to see the central bank moving to ease rates again in the near term".

JP Morgan economist Helen Kevans went further declaring that "the next move in the official rate will be up, rather than down".

"Previously, we expected two small rate cuts from later this year," she said. "Our view now is that, given the unprecedented policy stimulus in place, the Bank will not wait for the unemployment rate to peak before starting to take back the current policy accommodation".

The Bank's statement holds open the possibility of at least one more rate cut, saying that in assessing how it might use its scope to ease, it would "continue to monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery."

Published in today's SMH and Age

Graphic

PM will be on in a few minutes...

noreply@blogger.com (Peter Martin) — Tue, 07 Jul 2009 06:59:00 +0000

It's 40th anniversary.

I was there for the 20th and the 30th, and quite a few years either side.

Raise a glass tonight, and consider listening.

Something for everyone from a pretty-pleased RBA

noreply@blogger.com (Peter Martin) — Tue, 07 Jul 2009 05:26:00 +0000

Annoucement here

My take at BusinessDay

"In deciding to keep interest rates unchanged for the third straight month Australia's Reserve Bank board has shown itself to be optimistic about economic recovery declaring the global economy to be "stabilising" and growth in our biggest customer to be considerably stronger.

The Bank's statement says downside global risks have "diminished," and that a resurgence of growth in China is having "an impact on other economies including Australia"...

Domestic economic conditions "have not been as weak as expected a few months ago," demand for housing credit is picking up, and Australian house prices are "tending to rise".

Offsetting the rosy picture is business borrowing which has been falling "as companies postpone investment plans and seek to reduce leverage in an environment of tighter lending standards".

But the Bank says "large firms have had good access to equity capital" and that market and mortgage rates are at very low levels by historical standards, despite recent increases with business loan rates are below average.

In an explicit acknowldegment that government stimulus measures are helping prop up the economy it credits both "fiscal measures" and lower interest rates with Australia's economic resilience.

While low wage and price growth give it "some scope for further easing of monetary policy, if needed," for the moment it is happy to keep its cash rate at 3.00 per cent - its lowest level in 48 years.

In a phase that will be interpreted as providing hope that it might cut rates one last time in the current cycle it says "in assessing how it might use that scope, the Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery in economic activity".

The more important implication is that it is giving no thought to increasing interest rates quickly as the economic recovery it foresees takes hold.

That's good news for Australians yet to be as convinced as the Bank that things are about to turn up.

Our Reserve Bank's optimistic

noreply@blogger.com (Peter Martin) — Mon, 06 Jul 2009 14:20:00 +0000

So it'll keep rates on hold today at 2.30 pm

Australia's Reserve Bank board will hold its nerve and keep interest rates steady today despite new evidence pointing to a hiring freeze and jump in unemployment.

The ANZ's count of newspaper and internet job advertisments slipped a further 6.7 per cent in June to to its lowest level since the take-up of internet advertising - roughly half its level of a year ago.

Newspaper job advertisements in The Age and the Herald Sun bounced back from earlier losses in June to be roughly steady over the last five months and down 50 per cent on the year.

ANZ economist Warren Hogan believes that while employers have stopped hiring they so far still "hoarding labour" and are yet to seriously shed staff.

"For the moment population growth is driving the unemployment rate up rather than widespread job losses," he says...

"The key to the future is whether this continues of whether labour shedding picks up."

Forecasters surveyed by Reuters expect a further 25,000 jobs to be lost when the official figures are released on Thursday, which combined with population growth would push up the unemployment rate from 5.7 to 5.9 per cent. Most expect an unemployment rate of 7 per cent by December.

The Reserve Bank board will be unmoved by the outlook for Australian unemployment when it holds its monthly meeting in Sydney this morning, focusing instead on improving prospects for Australia's biggest export customer China.

Since the Bank's governor Glenn Stevens declared China's recovery to be "real" at a business function in May, Reserve Bank staff have firmed in their view that China's increased demand for Australian raw materials reflects an economic rebound rather than speculative stockpiling.

Australia's exports to China have hit record highs in each of the last 3 months, eclipsing exports to Japan.

The Bank believes that while there might be an element of speculation to these purchases they are primarily driven by real and probably sustainable demand flowing from the Chinese government's stimulus program that is fundamental and probably sustainable.

The Bank expects the International Monetary Fund to revise up its outlook for China when it reports on Wednesday.

At home the Reserve Bank is buoyed by confidence surveys suggesting a return to optimism amongst businesses and consumers and by some of the results from its business liaison program.

A Treasury report on its separate business liaison program finds conditions in the mining sector better than had been expected and Australia's retail and construction sectors "buoyant."

However it finds manufacturing conditions mixed, with "those operating in the food and beverage sector or supplying lower value retailers generally enjoying relatively benign conditions" and "those engaged in the production of consumer durables and business plant and equipment less sanguine".

But is says even amongst heavy manufacturers "several contacts believed the bottom of the current economic cycle may have been reached".

On employment the Treasury finds accounts of planned job cuts "less prevalent than in past months, with the outlook relatively steady among those firms contacted, subject to the economic outlook holding up".

Financial markets expect the Reserve Bank to keep rates on hold today for the third consecutive month, but expect at least one further cut in the Reserve Bank's 3.00 per cent cash rate by the end of the year.

Job advertisements slide

In the last month:

Internet advertisements down 7%

NSW newspaper advertisements down 1%
Victorian newspaper advertisements up 7%

In the last 12 months:

Internet advertisements down 51%

NSW newspaper advertisements down 48%
Victorian newspaper advertisements down 50%
Queensland advertisements down 62%
Western Australian advertisements down 61 per cent

ANZ job advertisement series

Published in today's SMH and Age

"Keep your feet on the ground...

noreply@blogger.com (Peter Martin) — Mon, 06 Jul 2009 05:00:00 +0000

...and keep reaching for the stars."

We will Casey.

At 77, Casey Kasem has actually hung up his microphone.

Here you can download a sampler of his 1970's programs. It is particularly worth listening to from 6.04 where you will hear a (these days questionably tasteful) reference to Australia, and then the famous sign-off.

Casey has made a lot of us very happy.

I used to love his references to being heard "coast to coast and around the world on radio stations like" including on one occasion - I kid you not - "5AU in South Australia's industrial north."

One of my proudest possessions is a boxed set of the LPs that constituted an actual Casey Kasem program, diverted by a 2SM staffer who knew how much it would mean to me.

Here's the rundown from July 1984. Prince and Bruce Springsteen were at 1 and 2.

At 40210784