Monday, February 04, 2008

Bad news, Good news …

“The strong monetary intervention of central banks, especially the Federal Reserve, may help restore confidence. But many economists doubt it will be sufficient to prevent a serious economic slowdown in North America and Europe and perhaps later in Asia. There is usually a lag of 12 months or so before interest rate changes have a significant impact on the economy, but the more fundamental concern is that monetary policy may not have its usual punch. This is because the paralysis in credit markets is not due to the high cost of money or the incapacity of banks to lend. It stems from the lack of trust in capital markets and intense risk aversion...” government might need to throw the switch to deficits


Federal Reserve chairman Ben Bernanke says ''fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone''.
He also hinted at the kinds of stimuli that might be most appropriate. Money, he said, should be put in the hands of ''low and middle-income households that would spend it in the near term''. He is not worried about a temporary blow-out in the fiscal deficit and is hopeful that inflationary pressures will soon ease.

A worldwide economic slowdown is predicted for later this year, though is already biting in the US. Australia is actually tweaking monetarist and fiscal controls to cool an overheating economy, so an imposed slowdown would be helpful here.

Promised tax cuts should be ditched, as they will simply feed inflation, negating any real benefit. A more effective approach would be to impose, through the Reserve Bank, regulatory controls over bank rates and fees. That would be an immediate benefit where tax cuts would simply be mopped up by increased bank rates.

A slow down would then allow our surplus to be put directly into much needed infrastructure development - education, health, low-cost housing, urban roads and freeways, public transport, ports, energy, rivers and water.

Okay, I’m in danger of being labelled a lefty here, but the fact is a government should be managing the economy for all – and for long term. But a US recession can only be good for Australia, so long as the situation is fully utilised.

8 comments:

abi said...

Well there you go thinking again. No wonder you're in danger of being called a lefty.

As you say in the post below, there are too many noisy Americans who see tax cuts as the solution to any problem, and too many timid Americans who are, well, just too timid to say out loud that government regulation can be a good thing.

Scary word, that L word.

Cart said...

I would have blamed Keynes or even Galbraith, but I've been assured in the past that the are considered of the left in the US.

BTW, have you been over to http://ragebot.com/ yet? Kvatch's new enterprise. I get to post there from time to time.

Kvatch said...

But a US recession can only be good for Australia, so long as the situation is fully utilised.

Well...as long as it's good for someone, eh? I'm finding that even I'm not so sure that a slowdown in the US is a bad thing. There are many segments in our economy that are in dire need of correction. The problem here, as Abi points out, is that there to many supply-siders who want to preserve wealth transfer in the upward direction.

Cart said...

I just left a comment at Dada’s – Saturday blather. On the health issue primarily, but the general change argument.
It shouldn't matter who your president is. What should matter is that he/she knows that the people demand change, demand a fair slice of the pie…
I know Robin’s campaign didn’t change the world, but we added to the voices telling whoever won that something different and better was expected. Part of our approach was a letters campaign across nearly 100 regional and suburban newspapers.
It actually caused some steamy arguments in the letters pages, but people were taking notice. The idea was to articulate the arguments in a clear and repeatable way. I think it just happened to be in right dynamic and we were tapping into something bigger.
The same surely goes for the US just now. Christ, we have an untested bloke named Kevin, but he knows he has to listen and deliver and is working hard on that.
I agree, kvatch, the US is ripe for correction, but also ripe to use the building economic chaos drive essential changes.
If anyone wants to get something going I know both me and Robin would be only too happy to help out.

TomCat said...

You raise some excellent points, Cart. The problem is that the rich supply-siders have the the resources to profit on the way up, long, and profit on the way down, short, and the poor ones are brainwashed by the MSM. Inflation is already high here, but it does not show in the official rate (the one to which food stamps and social security are indexed), because food, health care and energy costs are excluded before that rate is calculated. Since Bush took office, purchasing power has decreased for all but the richest 10% of Americans.

Monetary policy changes will only make inflation worse. The Bush tax cuts need to be canceled for the top 10%, and fiscal stimulus needs to be directed to those who have the immediate need to spend it.

TomCat said...

PS. I added you to my blogroll. Please pardon the delay.

Cart said...

Tom we use different terminology, but the effect is the same. Trouble is no one seems interested in recognising the obvious and helping themselves.
We are expecting another rate rise this week and housing prices and sales are still blowing out.
That is despite warnings of this rise causing another 300,000 defaults. That is significant in our population.

on blog roll. I've been remiss too. I really must get in today and update things :(

TomCat said...

It's easy to neglect the grub work (pun intended), when we're having fun.