Private rate rises

Eight of 21 Australian economists surveyed are tipping a rate rise by the end of the year. Two even tip a hike by the Reserve Bank next week. But there is no need to hold our breaths.

Major banks, the Commonwealth, National, Westpac and St George have all introduced higher card rates that are not directly linked to RBA (central bank) interest rate rises.

The Reserve Bank has now regulated interchange and cut back the merchant service fees. As a result, card issuers have shifted more of the cost on to consumers through higher annual fees, penalty charges and interest rates.

Banks used to adjust their credit card interest rates in line with official cash rates but not any more.

Obviously the concern over an official rate rise in Australia is academic when banks are boosting their rates independently. So obviously official economic figures are no longer to be relied on when it comes to the big picture.

Talking the disconnect

The major battle for the hearts and minds of Australian voters is being fought around ‘economic management’ credentials. Call it pedantry, or even polemic, but government has long since given up the reins of the economy.

The Australian government no longer control currency or interest rates. They no longer have any function in setting tariffs or central wage fixing. They have sold off airlines, rail systems, the national telco carrier and much more. What they have not sold outright they have corporatised. Anything but economic management.

That just leaves fiscal policy, setting the level of public expenditure, distribution of the loot – or otherwise. The fact that there is still plenty of loot to distribute is thanks solely to the China boom. The resource exports to China are set to carry us for a while yet.

The fly in the ointment there really does come down to politics and who gets the kudos – state or federal politicians. So holding the purse strings the feds can behave a bit like parents doling out pocket money. More often than not there are strings attached designed to give the feds maximum glory for spending our money.

Meantime the major parties are running the agenda on this false claim of economic management. At present the Howard Government has the running in this illusory game. There are very real issues out there, but these guys know the glib jargon that gets the average punter going.

Jerking the figures

Having give my previous post, Howard faces rate rise reality, a little more thought I think I am starting to understand the dynamic. There are a couple of stand out issues; trade and domestic growth. So starting with the latter:

Like other western economies Australia has gone with the ‘growth is good’ dynamic. Of course growth is fine in its place, but you can’t keep paying off last months debt by creating another notional income stream.

“When we've got no spare capacity, the economy can't grow faster than its longer-term trend rate of growth, known to economists as its "potential" growth rate.” Gittins

Developers are driving the economy. Both commercial and residential development is the fundamentalist economic mantra. This is at a time of the country’s peak in personal bankruptcies and insolvencies. It is a time when retailers are battling to cover rising rental costs as consumer spending is falling.

On Trade:

“…growth of 4.5 per cent in the volume of exports, but then must subtract the exceptionally strong growth of 11.3 per cent in the volume of imports. Combine the two and "net external demand" (exports minus imports) subtracted 1.6 percentage points to give growth in aggregate demand (domestic plus external) of 3.8 per cent (near enough).” Gittins

The net foreign debt stood at $532 billion (or 52 per cent of GDP) at the end of March, up from $492 billion (51.7 per cent) a year earlier. This is about free trade vs fair trade. Australia has gone the free trade route and in the process sacrificed self-sustainability and self reliance.

We are sending raw product, mineral resources, out of the country as fast as we can load ships. But we are bringing in a wide range of manufactured and food products to make up for the industry sectors we have given away under various free trade agreements.

I was amazed some months back to see kiwifruit in supermarkets which came from eastern Europe. We send our wool to Italy and China, then buy back manufactured goods. I could go on, but the fact is, our masters have fallen for the pea and thimble trick. I hope so at least, the other alternative is that they will walk away with fat pockets while the country goes down the tube.

Howard faces rate rise reality

Australian Reserve Bank governor Glenn Stevens is flag the potential for a rate rise before the upcoming federal election He warned that decisions would not be influenced by the political timetable.

The warning flies in the face of government claims of a booming economy, but we have all heard that one before.

One commentator, Ross Gittins, says:

“This week's sheaf of figures may be great news for the politicians, but for the economic managers they're a worry. For most of last year, the great puzzle was why the national accounts said the economy was growing slowly when the labour force survey said employment was growing strongly.

“The national accounts say real gross domestic product grew by a rapid 3.8 per cent over the year to March, while the labour force survey says employment grew by a rapid 3.1 per cent over the year to May.

“Trouble is, with the economy having grown so strongly for so long - employment grew by 3.2 per cent over the previous year to May - you'd expect to be seeing signs of inflation pressure building, and there aren't any.

“…financial markets were right to respond to this week's figures by increasing their estimate of the probability that the Reserve Bank will raise the official interest rate again.” If it looks too good to be true, it probably is

I can’t say I fully understand the argument, but I respect the commentator and rarely find him off the mark. The bottom line is that Howard will no go to an election before his cobber George W visits Australia in early September.

The tipping is now building for a rate rise early in September which will more closely reflect the household economics of the country as opposed to the ‘booming’ markets. Good news at least for my well worn economic election prediction model.

Wading through treacle

Since being back in Australia working the blogs and my corruption website have become an annoying frustration rather than the pleasure they once were. Why?

Australia lags, says net guru

Larry Smarr, director of the California Institute for Telecommunications and Information Technology, says "real broadband" would allow connections 1000 times the speed of the current average Australian connection - and 80 times the speed the Government and Labor propose.

"Australia is great in terms of the old infrastructure … so you think of yourselves as a modern country", but on internet infrastructure, "Australia ranks 42nd in the world in the cost of internet service, 38th in mobile phone costs, 40th on the availability of skilled labour and engineers, and 20th on scientific infrastructure. If you want your living standard to remain … one of the best in the world, it's going to have to be by adding value in a globally interconnected economy."

Working on the net here is like wading through treacle. Broadband is closer to North American dial up than true broadband. One of the results I have noticed here is a real ignorance of the benefits of various net tools among people here.

Over a decade ago I was at an internet conference in Sydney where Vinton Cerf , inventor of tcp/ip took the then minister for communications to task for Australia’s appalling internet connectivity. Nothing has changed!

Constructing a campaign

As reported previously, kvatch’s commandos proved a little confronting for poor sensitive Australians. We still intend having little plastic guys spreading our message of ‘Who Cares?’ through the electorate of Lyne.

We lucked onto these construction workers, the message of building a better country fits well and shouldn’t disturb any poor puppies out there.

These guys still need to be labelled, which will happen when our ‘campaign calligrapher’ turns up for work.

The things haunting our dreams

I know there are far better things to do with our sleeping time, but I woke today with a vision, as reproduced here, of Mark Vaile riding a bull.

As leader of the junior coalition partner, the rural based Nationals, the imagery seemed to fit. If the Nationals are further reduced they will simply be absorbed into the Liberal Party and Vaile will probably become just another backbencher.

I’m not sure we can seriously damage him in this electorate, but he is still fighting for his political future.

The party grinding down

A few weeks ago we had political and media fireworks from the Australian Labor Party national conference. That event was matched this weekend with a slow hising from the Liberal party’s big event.

Very little media or fireworks. In fact the conference appeared more content to focus on the past rather than the future. Howard's message all weekend was similar. "I have a great story to tell," and; "It is never a time for a change unless a change is for the better."

Some of the more interesting media quotes:

Ultimately, workers are more swayed by their own financial circumstances than macroeconomic theory.

The elephant in the room over the weekend remained what to do if the polls did not improve within six weeks.

The internal sentiment is that things may have been different had the party changed leaders last year when there was a chance. This, however, ignores the fact that no one then knew Labor was going to switch from Kim Beazley to ...

"Howard was our power source back then," said one senior party figure harking back to last July. "Now he's like an old mobile phone battery. He doesn't hold his charge."

One MP likened the Government to the Black Knight from Monty Python and the Holy Grail, staying put defiantly with severed limbs but willing to fight. SMH

Howard said: "The question I pose to the Australian people, quite directly, is this: who do you trust to take these vital decisions about our future? Age

Given the current polling, I am surprised Howard would pose the question when he does not know the answer. Trust might not be the most effective argument to put just now.

So much for secrecy

I know some countries can’t even boast the second rate public health services available in Australia. The Howard government, fond as it is of the ‘level playing field’ is now planning to sell of the government health insurer Medibank.

They are looking to add around $2 billion to the notional national pot. Not that they have any desire to compensate the population with this supposed windfall. On latest figures the money will probably be spent on publicly funded self-advertising.

If that is not worrying enough, there is a now not so secret plan to boost Medibank’s bottom line, and sale price, by adding in another key government health service; Health Services Australia (HAS).

HAS which generates revenues of about $100 million a year provides health and disability checks, rehabilitation and vaccination services.

Minister for Human Services, Chris Ellison, who is responsible for Health Services Australia, has stonewalled over questions about proposals for a transfer, citing commercial confidentiality.

Given the outrageous spending on government advertising at present, topping $25,000 an hour nationally, we are getting a very clear idea of how Howard’s team is choosing to spend the funds from selling off our assets. So much for a healthy society.