EYE-BALL’s Guru on – The Wayne Swan 2013-14 Federal Budget – Special EYE-BALL Guru Report – The Economic Triggers Part 2.4 –
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– 28th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – The Economic Triggers Part 2.3 –
– 28th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – The Economic Triggers Part 2.2 –
– 27th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – The Economic Triggers Part 2.1 –
– 18th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – Part 1 –
– 13th May – Wayne Swan’s “Treasury Mistakes” – The Evidence of Incompetence – a Ponzi expert in the making.
– 10th May – Wayne Swan’s “Treasury Mistakes” – A Follow-Up –
– 29th Apr – Wayne Swan’s “Treasury Mistakes” – Heads must roll – Swan and Bradbury must accept responsibility’ –
– 23rd Apr – Wayne Swan’s – “Investment pipeline” – disappearing before his eyes – where does he go for his next ‘bunny excuse’ –
– 21st Apr – Wayne Swan’s legitimacy – He Says … ‘high A$ causes $7.5b hole since Oct ’12’ – He’s a unique type of idiot –
– 14th Apr – The Debt Clock ticks … Tic Toc … – Gillard just spent another $3,000 – counting the real cost of this ALP Disaster –
– 5th Apr – Superannuation 2013-14 – the Government’s new Slush Fund – Proposed Changes show SWAN and SHORTEN’s stupidity –
– 3rd Apr – Government not happy about its tax collect – Claims Tax Minimisation deserves ‘Naming and Shaming’ –
To see more GURU posts: – click here …
– The Wayne Swan 2013-14 Federal Budget –
– A Special EYE-BALL Guru Report –
– The Economic Triggers Part 2.4 –
| Author: EYE-BALL Guru | 28th May 2013 |
|Links to previous posts in this series about – “The Wayne Swan 2013-14 Federal Budget” – A Special EYE-BALL Guru Report:
List of Chapters in this Post:
Economic Trigger – CPI:
Central Bank Responsibility – The RBA:
The CPI is the ambit of the RBA – it is the hammer they have used to bludgeoned the Australian economy for the last 20 odd years via Interest Rate policy.
Crush the consumer with higher interest rates in good times to quell the surges that impact on inflation, and reduce rates ever so slowly in placid times so as to not ignite the economy too quickly –
MADNESS is another way to describe the RBA’s policies in the post GFC era.
It’s a draconian perspective and about as broad thinking as a simple draught board when all the big boys now play on a three dimensional chess board.
The RBA charter is to target inflation at between 2-3%.
This is spelt out in a bipartisan agreement from both sides of the House. Their ‘ROLE’ is spelt out in part below:
The RBA Board are Government appointments and the last one was Ms Rideout the ex-boss of AIG – [Australian Industry Group].
Ms Rideout was a Gillard/Swan political appointment and brings years of Labor Party schooling to the table. She was a keynote speaker at the recent AWU Annual conference on the Gold Coast.
Quite unusual for a RBA Board Member to speak at a Union delegates meeting – is it not.
The RBA Board are seen as a conservative bunch and for Ms Rideout to venture into a Union delegates conference as a new appointee to the RBA Board – must have raised some eyebrows.
We live in changing times and this visible connection between the AWU and a RBA Board member sends a message that reeks of some many bad things …
RBA’s mushroom thinking:
The RBA’s inflation targeting is a leftover from the late 80’s and early 90’s where inflation killed the economy and prompted Keating to confess the famous words: ‘the recession we had to have’.
Interest rates during that period were pushing 20% and in some cases went above for higher risk Bank clients.
Federal Government bonds underpinned the market and were above 14%, State borrowings where higher and the lesson learned was that inflation was the enemy.
It no longer is – yet the RBA modelling as with all Treasury thinking remains entrapped in an economic management mindset that has long ago since progressed to different market conditions and with a different focus.
It’s now a global market where ‘hot’ money floats around the globe looking for weak regulatory controls and Central Banks stuck in the dark-age thinking – all with the intention of exploitation the local economies.
Australia is one such plum picking – we are 23 million people, yet China has for 20 years used its pegged currency to create its transition into a super power of economic activity. Swan and his Treasury and RBA minions take pride in a floating currency – yet history tells us that under a fixed currency system before 1983 – the Government made decisions to ‘devalue’ and never to revalue.
There is knowledge in that history – but dumbass bureaucrats think they know better.
The world now trades in things like labour costs, value added and that is all to do with currency value. Jobs being exported offshore are about domestic costs verses international costs.
For years our Current Account has imported that cheap labour to our shores via cheaper imports … nobody ever though that the end game would be loss of jobs here. The catalyst is currency value. At A$0.75c we were competitive with the rest of our trading partners. With a currency value at or near parity, we have gifted our competitors a 35% discount – i.e. we are now 35% more expensive to deal with.
Australia is none of these things, and both sides of politics do not support currency intervention, nor other tariff, or excise policies to combat the trade wars that have eroded A$ trillions in export revenues over the last 10 odd years.
If inflation is to be controlled by interest rate targeting, why is it that 0% interest rates in Japan for 20 odd years has never caused inflation? Why is it that with 0% interest rates in the US, and other major economies they don’t have an inflation problem?
Since the GFC inflation is nowhere to be seen in the Nth Hemisphere. Inflation is no longer the enemy.
A Case Study – Japan’s need for Inflation:
Japan came out late last year telling the world it was going to buy inflation and would do everything to devalue their currency, and lift inflation to 2% and above. See Bloomberg story on-line here.
The Nikkei Index rose from the 9,000 levels to just under 16,000, before a near 2000 point sell-off last week on the back of comments made from Fed Reserve Chairman Ben Bernanke.
Given where the Nikkei has been over the last 20 odd years – it was above 37,000 in the early 1990’s – this recent rally since last November was again all speculation. What goes up will come down in market speak. On the back of this stimulus, the ¥Yen has reversed its modern day strength. See short term chart below: [See 1yr and 10 year charts above. These Charts courtesy of Incredible Charts.]
10 Year Chart:
1 Year Chart:
Not only have Japan printed billions of currency for stimulus purposes, they have also entered the market to sell their currency against a long term trend of appreciation against all major currencies. [See currency charts below.]
Short term ¥Yen currency value against the US$ – showing recent inteventions.
Charts courtesy of www.tradingeconomics.com
The long term strength of the ¥Yen has been the reason for their economic ‘stagnation’. Enough is enough the Japanese Leadership have said.
Wait – it gets better, look at the last few quarters of GDP growth, [Source http://www.TradingEconomics.com ], and the Debt/GDP numbers over the last 25 odd years in the Chart below. [click to enlarge]
Summary of Japan’s actions:
Never underestimate what Government spending can do to hold up an economy. Japan’s DEBT/GDP will explode is the Japanese themselves don’t start to spend domestically. The Japanese are playing a very dangerous game with risks beyond what the GFC delivered.
Japan and the rest of the world are in a trade war with China and their pegged currency.
Recent mumblings from around the world support Japan, Germany announce yesterday their own abandonment of austerity in favour of investing in Southern Europe … read that story here … snippet posted below:
The World is in one giant poker game – and a few players have gone ‘all-in’ on weak hands.
Stand back and watch the carnage unfold.
CPI v Interest Rates:
No – the reason the RBA keeps interest rates at a margin above the major trading partners is to attract capital … and Australia’s mortgage holders pay the price via higher mortgage costs as a result.
It’s been said many times here before – the rest of the world has a siphon hose plugged into Australia’s back door raping and pillaging our wealth to feed the carpetbaggers of the investment world. Australian home-owners are the ones paying the price for the RBA’s incompetence over their High A$ policy and the higher interest rates applicable in this Nation compared with the rest of our major competitors.
Inflation is as good an indicator for the future in this post GFC global marketplace as a barren cow, and it’s about time the RBA and Treasury got out of its own way and figured it out for themselves.
Because Inflation is an RBA charter, the modelling for Budget forecasts assumes the RBA targeting will get it right most of the time, and with that brilliant foresight the Treasury modelling bank the RBA’s targeted inflation rate into their forecasts.
CPI: Actuals v Budget Forecasts
In the CPI Table at right – you can see the stoic numbers and it makes you wonder why the Treasury bureaucrats are paid the big bucks. Look at the forecasts and see how often Mr Swan signed off on correct results.
Since 2007-08 there is not one forecast number within 20% of the actual results. Most are over 50% in error and some well over 100% … is there any wonder the budget results are $290 billion out from forecasts …
The record of actuals verses forecasts would make anyone who believed Mr Swan’s budget forecasts across all his last six Budgets some sort of fool.
If Business made investment decisions based on the biggest business in town – i.e. the Federal Government expenditure spend, there would be some busted up businesses.
Given all that has been said in these series of post about how the RBA targets Inflation – you would think they would be good at it. The Budget forecasts when stacked up against the actual results suggest poor performance that has contributed to the budget errors.
Look at every year in the CPI Table at right and you will see the variances in each and every year.
The RBA suck at forecasting CPI … and the budget framework around the CPI targeting would be blown apart by the errors in these actuals verses forecast numbers.
Nobody doubts the global economic conditions are tough to predict. The GFC has played havoc since 2008 and will continue to do so. But when a Central Bank uses interest rates to crush any sign of inflation – getting the inflation targeting comes with a high price for failure.
Some of the forecasts in the Table are out by well over 100% when measured against the actual result. This is poor form and unforgivable in economic terms.
Across all the years since 2007-08, there is only one forecast that is out by a minimum of 25% – every other number is out by 50% or more, and more than half the revision forecasts are still out by 100%.
Whatever credence the Treasury places on CPI in its modelling – do they know or realise the historical errors in past forecasts, and do they load the budget with this knowledge?
To help with the visual of the CPI Table data at right, the above chart – [click to enlarge] – plots Government Expenditure growth year on year as a percentage, plotted against the CPI annual rate.
The chart below [click to enlarge to get a better perspective of this chart] – is a very good chart to show how Government Expenditures and Revenues have grown Year on Year – verses the Annual CPI, with mean average for Revenues, [8.12%] and Expenditure, [7.80%] growth since 1981 – plotted as a straight line in the chart below.
CPI is a very important number – Economic Trigger rated 6 out of 10 where currency is the 10/10 benchmark. But when the RBA get is so wrong and it is their main charter – blame is due where mistakes are made and the RBA have to wear their share.
This does not let Mr Swan off the hook. He is in a position to make decisions about all the Economic Triggers – the fact that he has sat on his hands over the Currency proves his understanding is not in the same league of the off-shore players raping and pillaging this Nation through currency based trading.
In the next Chapter the Unemployment ‘Economic Trigger’ is examined.
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