I didn’t actually look out the window this morning, when I briefly rose early to phone in my local sports results service to Ron on 3NRG, so while I had the feeling that I had heard some rain overnight [and also while Heather mentioned, in a brief early morning phone chat that it was raining in Ballarat], it was a bit of a shock when I went out to the car at 8am - to find it overcast, cold and drizzling rain, and judging by the amount of water around the driveway area, had been raining consistently for a while!! Didn’t have to go out, in fact was feeling a little unwell, but had decided to make an early visit to the newsagent in town, and the coffee shop across the road. Copies of today’s Australian Financial Review [FR], and the Weekly Times, while cross the road, I made do with a small cappuccino. I thought briefly of calling in at Baker’s Delight to say hello to son Adam, whose car was out the front of the shopping centre, but decided he would probably be at the peak of business at present, better not disturb him!
I don’t apologise for the major emphasise of today’s blog on subjects of a financial and national interest – each of the items referred to below, were newsworthy items of importance yesterday, and having read some of the relevant articles, like to record and/or share one or two of the principal media approaches to reporting upon them. Despite studying economics and finance at university during the early 1970s, I don’t claim any expertise in those areas, but accept that there are many different viewpoints quite strongly expressed from time to time by a range of ‘experts’ and others on such matters. The following are just a small sample aimed at giving some idea of the matter at hand.
Not surprisingly, the feature articles, Editorial, etc in the FR were concentrating on yesterday’s decision by the Reserve Bank of Australia to lower the official interest rates – by .05 of a percentage point [to 3.75%] – the biggest cut in official interest rates since the height of the global financial crisis! The question being asked, by borrowers in particular, was whether the major banks would follow that lead and pass on the full reduction to customers. Unlikely it seems! Meanwhile, in the Weekly Times, concern there was back onto to one of my pet topics of interest – foreign invasion of investors, with reports that a huge chunk of Victorian farmland [about 11 times the size of Melbourne’s CBD] had controversially fallen into foreign hands. The gist of this kind of report is that such sales are angering ‘locals and politicians, with many calling on the Foreign Investment Review Board to more closely scrutinise the purchase of farmland to foreigners’. I personally have to wonder, whether these levels of foreign investment, not just in farmland but in other resources as well, are really in the national interest? The problem it seems, is that often, Australians have the opportunity to make these purchases, but fail to do so, and the reasons for this needs to be considered. Certainly, the issue received much attention in the ‘Letters’ page of the Times today, and is obviously concerning many Australians.
Meanwhile, the other issue of significance yesterday was the State Budget – the editorial in the Weekly Times [which is obviously slanted towards the rural side of things] felt that the Budget was ‘good on surface’! This is what the Weekly Times Editorial had to say.
‘At a quick glance it appears country Victoria has fared reasonably well in what looms as one of the toughest state Budgets in years. While the Baillieu Government announces its big spends and tries to convince a sceptical electorate his team has true leadership and vision, the Budget’s real impact will be felt for years to come.
What isn’t clear yet is what has missed out on funding, or where the gradual public sector cuts, already announced, will be most felt. While it has achieved the promised surplus, the Coalition has played true to its conservative roots, pulling in the purse strings to keep the ship afloat. And it appears it has still managed to allocate some decent spending – $5.8 billion for infrastructure projects and upgrades to the rail network and major roads, mostly around Melbourne.
The agricultural sector has had both a major win and a major loss in the Budget. It secured $61 million over four years for a new farming research and development strategy. Compared with manufacturing’s package of $58 million to boost that sector, it looks pretty decent. But if you look at the former Brumby government’s Future Farming Strategy the new plan replaces, the picture is not as rosy. That strategy was $205 million over four years. Many country people will agree with the Government’s frugal approach, but time will tell how reduced spending will affect services and Department of Primary Industries jobs. Some country schools appear to have missed out on much-needed funding to upgrade buildings. Rural councils have welcomed the ongoing $160 million roads and bridges spend. Yet, it means each council can only access $1 million a year. Considering the condition of many country roads, you don’t have to be too cynical to think the money won’t go far. Despite heavy lobbying from the Victorian Farmers Federation for an expansion of the young farmer stamp duty exemption scheme, there won’t be any additional help provided in this Budget. So while it appears Premier Ted Baillieu and his deputy Peter Ryan have done a fair job for country Victoria in difficult times, country people will be right to reserve their right to see how the next year of the Government’s term plays out’.
Certainly in that latter respect, the confidence in the Victorian Government is not very high at the moment, and the Financial Review’s impression of the State budget uses terms like ‘Baillieu’s tough task: to hold spending’; Not enough for industry, say lobbyists; with an introduction which tells us that ‘Ted Baillieu might not be very popular, but he has taken on a difficult task. Victoria is caught in the same revenue undertow that is affecting most of the other states. But along with South Australia, it also is the epicentre of Australia’s highly assisted manufacturing – a part of the economy particularly affected by the resources boom and the strong Australian dollar. Yet while the economy slows, Victoria’s Premier is trying to strengthen the government’s medium-term financial position, which was allowed to deteriorate behind the veil of federal government fiscal stimulus money’ [before the State Liberals came to power]. Certainly, some of my Face Book friends are not happy about many of the aspects in the budget, particularly those affecting cuts to education funding, and public service job cuts, although I’d expect that response from a group who are essentially Labor supporters, with their attitude being that ‘anything’ the Baillieu Government does is ‘wrong’!!
Finally, looking at the FR’s Editorial on the Reserve Bank’s cut in interest rates, which is headed ‘Rate cut won’t cure all our ills’, their view is as follows.
print‘The Reserve Bank of Australia’s decision to deliver a super-sized cut in official interest rates has been driven by the impact of a “persistently” high exchange rate on non-mining sectors of the domestic economy, the dark clouds that hover over Europe, and the prospect of tighter fiscal policy delivered through state and federal budgets. But cheaper money shouldn’t be viewed by government and business as some sort of quick fix to avoid the major structural adjustments the economy is undergoing due to high commodity export prices and the resulting strong dollar. Lower interest rates aren’t going to prevent these difficult adjustments from taking place, nor are government handouts to rent-seeking sectors of the economy and uncompetitive industries. Households still need to “deleverage” their balance sheets by paying off their debts. Australians will still take more of their holidays abroad because of the high dollar. By cutting the RBA’s overnight cash rate by half a percentage point instead of the quarter of a point expected by financial markets, governor Glenn Stevens and the central bank’s more dovish board have moved to get ahead of the curve, recognise that the cash rate lever has to work harder to deliver a given change in so-called financial conditions, and defuse some of the wackier policies being pushed to protect the slow lane of Australia’s two-speed economy.
The high exchange rate, which has helped contain inflation well within the RBA’s target band by lowering import prices, even if domestically generated inflation remains worrisome, is still likely to stay stronger for longer. The aggressive cut takes into consideration the fact that Australia’s commercial banks are unlikely to pass on the full reduction to mortgage holders due to their higher funding costs, much of it reflecting the higher premium needed to attract more stable deposits, despite the jaw-boning of federal Treasurer Wayne Swan. As Mr Stevens made clear in his statement on Tuesday, the cash rate cut, from 4.25 per cent to 3.75 per cent, is designed to achieve an “appropriate’” level of interest rates charged by banks to their business and household customers. Mr Stevens has toughened up his language on the strong Australian dollar, pointing out that the exchange rate “remains high” even though the terms of trade have come off their peak, and that the economy is going through considerable structural change. The governor is now talking more about “financial conditions”, recognising that the transmission of monetary policy to the economy through the interest rate that banks charge for overnight money – the cash rate – is influenced more than previously by the floating dollar and by bank funding costs.
Perhaps strangely, the RBA has steered clear of any commentary on how fiscal policy fits in with its monetary policy stance, perhaps to avoid being seen to pass political judgment on the federal budget on Tuesday. But there is little doubt that the rate cut is, in part, a dividend from the federation-wide tightening of fiscal policy highlighted by the Victorian budget on Tuesday and, hopefully, by the federal budget. As The Australian Financial Review suggested when helping to put this idea on the policy agenda in November last year, such a change in the mix of macro-economic policy would help rebalance it towards the demands of the mining boom economy. Budget policy has been structurally too loose for most of the mining boom, throwing too much weight on monetary policy through higher interest rates and a stronger dollar that, in turn, has disproportionately fallen on sectors such as manufacturing. The central bank has begun to rebalance this mix. Now the federal budget will play its part by delivering a confidence-boosting surplus through cuts to wasteful government spending rather than by simply slugging more productive higher-income earners who already pay the bulk of the nation’s tax.
[from the Australian Financial Review, 2nd May 2012 Editorial]
With all this conversation about budgets, interest rates, and so on, it was a sharp contrast and a return to the real world of personal friendships [that can never be destroyed by macro financial and economic woes] to open a piece of mail this afternoon and to be almost reduced to tears, by the kindness, love and respect which came through the words written therein. Maybe, older age is leading to a more emotional response to things beautiful in one’s life, or perhaps it’s simply a part of one’s nature that doesn’t surface very often. The writer will leave it at that! Anyway, a bit of TV tonight [another episode of ‘Revenge’] followed by attempts to have a reasonably early night, which as usual was not successful – well, I think I did wake again when Susie returned home from a late volleyball game with Jodie, and that set the pattern for the rest of the night – wake, dose, sleep, wake, and so on >>>>>>>>>>>>>>>>>>