Hockeynomics 101: the fiscal fumble while Canberra bumbles>>> While the federal opposition makes plenty of political capital out of reminding the Prime Minister of her carbon tax lie last year, the rest of us are left to desperately hope Joe Hockey is lying now about the Liberal Party's economic policy. >>> “You're facing higher interest rates over the next two years, rising prices, Australian families are doing it pretty tough and the best relief you can give them is to reduce the tax burden.” For an extra mark, explain the compatibility of fiscal policy whose stated primary aim is returning to surplus with giving income tax cuts and scrapping a resources rent tax – if you can.>>> What if Hockey and Abbott really were silly enough to believe they were the good old days? Sure, there were surpluses, but fiscal policy was neutral, providing no fiscal drag while showering voters with tax cuts and throwing economic management responsibilities back on the Reserve Bank. Consequently the headline variable home mortgage rate hit 9.6 per cent in 2008 before the GFC intervened and probably saved us from something worse.>>> Even the “deficit bad, surplus good” chant is itself dangerous. As the RBA governor underlined earlier this month, the present pace of return to surplus is already taking 2 per cent off the nation's GDP in the new financial year. Hockeynomics might have fun explaining to the retailers and “Australian families doing it tough” that he'd like to reduce economic growth further. The current rate movement towards surplus is a finely balanced thing on the assumption that the commodities and capex booms will continue as planned. >>> The retailing readjustment has been made harder by deflation of traded goods – while volumes are up, prices aren't, meaning retailers have to run twice as hard to stand still. But that's business. The number of customers in Australia with higher disposable incomes continues to grow – there are many more now than there were in that 2003-8 boom period, they just need the right offer to be convinced to part with their money.>>> Some good businesses fail, but many more adapt and get better. That's what is making us a more wealthy country – as long as silly macro policies don't stuff it up.>>> Its might be better if the economis is independent to control the macro based on the reality in micro that have to be more controlable...... >>> Crude for August delivery was at $US92.83, down 6 cents, in electronic trading on the New York Mercantile Exchange at 12:13 p.m. Sydney time. The contract yesterday gained $US2.28, or 2.5 per cent, to $US92.89, the highest close since June 22. Prices are 22 per cent higher the past year and down 13 per cent in the second quarter. Futures fluctuated after climbing the most in six weeks yesterday. Energy Department data today may show US inventories fell 1.5 million barrels last week, according to a Bloomberg News survey. Stockpiles shrank 2.7 million barrels, an industry report indicated. Greek Prime Minister George Papandreou's plan to cut spending and sell assets is set for a vote in parliament today.>>> Brent oil for August settlement slid as much as 68 cents to $US108.10 a barrel on the London-based ICE Futures Europe exchange. The contract yesterday climbed $US2.79, or 2.6 per cent, to $US108.78. The European benchmark traded at a premium of $US15.60 to West Texas Intermediate, the US benchmark grade. The spread reached a record $US22.29 a barrel on June 15.>>> The industry-funded American Petroleum Institute reported that US crude-oil stockpiles slipped 2.7 million barrels to 360.3 million, the lowest in 10 weeks.>>

Hockeynomics 101: the fiscal fumble while Canberra bumbles

June 29, 2011 - 1:34PM

://www.smh.com.au/business/hockeynomics-101-the-fiscal-fumble-while-canberra-bumbles-20110629-1gq6x.html 

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While the federal opposition makes plenty of political capital out of reminding the Prime Minister of her carbon tax lie last year, the rest of us are left to desperately hope Joe Hockey is lying now about the Liberal Party's economic policy.

Here's a quick essay question that should be easy marks for a high school economics student:

Discuss the contradiction in the following statement: “You're facing higher interest rates over the next two years, rising prices, Australian families are doing it pretty tough and the best relief you can give them is to reduce the tax burden.” For an extra mark, explain the compatibility of fiscal policy whose stated primary aim is returning to surplus with giving income tax cuts and scrapping a resources rent tax – if you can.

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It took shadow treasurer Hockey less than a minute from the first question on the ABC's Q&A program to promise that dangerous contradiction of running fiscal policy to counter the Reserve Bank's monetary policy and to imply the intent to get into surplus even quicker than Wayne Swan.

It is the benefit of being in opposition that you don't really have to make sense - you can't do any of the stuff you rave about and it's pretty safe to assume the electorate will only remember the simplistic slogans and most outrageous claims, not the boring detail and more mundane realities.

Same mistakes?

But it provides no confidence for the nation if the alternative government proposes to repeat the same mistakes of Peter Costello's last few budgets. What if Hockey and Abbott really were silly enough to believe they were the good old days? Sure, there were surpluses, but fiscal policy was neutral, providing no fiscal drag while showering voters with tax cuts and throwing economic management responsibilities back on the Reserve Bank. Consequently the headline variable home mortgage rate hit 9.6 per cent in 2008 before the GFC intervened and probably saved us from something worse.

While the government bumbles implementation and lets a jerking knee get in front of thinking (cattle exports just the latest example), the opposition promises damaging macro policies. Oh dear.

Even the “deficit bad, surplus good” chant is itself dangerous. As the RBA governor underlined earlier this month, the present pace of return to surplus is already taking 2 per cent off the nation's GDP in the new financial year. Hockeynomics might have fun explaining to the retailers and “Australian families doing it tough” that he'd like to reduce economic growth further. The current rate movement towards surplus is a finely balanced thing on the assumption that the commodities and capex booms will continue as planned.

Adjusting to reality

As it is, much of Australian business is having difficulty adjusting to reality instead of listening to politicians' promises and scare campaigns. Apparently it has become accepted wisdom that the retail industry is in dire straits as a result of higher electricity charges and more costly bananas allegedly overwhelming households. The hard numbers are a little different.

Reprinted above is a graph of retail sales volumes back to 1985 circulated by Morgan Stanley's Gerard Minack. The graph indicates Australian retailers are having trouble adjusting to more normal sales volume growth after being spoilt by the 2003-08 boom – a boom that was getting out of control with consumption built upon a blowout in household debt.

In any boom, money becomes easier to make as the good times roll. Standards and disciplines fall. When harder times, even more normal times return, there is pain readjusting. We very quickly get used to those good times.

The retailing readjustment has been made harder by deflation of traded goods – while volumes are up, prices aren't, meaning retailers have to run twice as hard to stand still. But that's business. The number of customers in Australia with higher disposable incomes continues to grow – there are many more now than there were in that 2003-8 boom period, they just need the right offer to be convinced to part with their money.

There could be few easier examples of how pedestrian much of the retail offer is than the immediate success of the Zara chain's launch in Sydney and Melbourne. Zara is a well-run Spanish version of Sportsgirl. They're not even trying very hard with the Sydney and Melbourne stores compared with some of their most recent European shops simply because they don't have to – the local competition isn't much good.

So don't be taken in by politicians and tabloid media furiously trying to convince us that things are crook. Some industries and regions inevitably do it much harder than others when faced by a major disruption such as the rise and rise of the Australian dollar. Some good businesses fail, but many more adapt and get better. That's what is making us a more wealthy country – as long as silly macro policies don't stuff it up.

Michael Pascoe is a BusinessDay contributing editor.

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Oil trades higher as US supplies fall

June 29, 2011 - 12:43PM

 

http://www.smh.com.au/business/markets/oil-trades-higher-as-us-supplies-fall-20110629-1gq2z.html 

Oil traded near the highest in four days in New York on speculation US crude supplies dropped for a fourth week and steps by the Greek government to prevent a debt default will bolster Europe's economy. London's Brent declined 0.6 per cent.
Crude for August delivery was at $US92.83, down 6 cents, in electronic trading on the New York Mercantile Exchange at 12:13 p.m. Sydney time. The contract yesterday gained $US2.28, or 2.5 per cent, to $US92.89, the highest close since June 22. Prices are 22 per cent higher the past year and down 13 per cent in the second quarter.
Futures fluctuated after climbing the most in six weeks yesterday. Energy Department data today may show US inventories fell 1.5 million barrels last week, according to a Bloomberg News survey. Stockpiles shrank 2.7 million barrels, an industry report indicated. Greek Prime Minister George Papandreou's plan to cut spending and sell assets is set for a vote in parliament today.

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"It's very much a market that's waiting for more information around the European situation," said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicts oil will average $US113 a barrel in the third quarter. "As far as the Greek situation goes it still seems to be a major determinant of movements in these markets."
Brent oil for August settlement slid as much as 68 cents to $US108.10 a barrel on the London-based ICE Futures Europe exchange. The contract yesterday climbed $US2.79, or 2.6 per cent, to $US108.78. The European benchmark traded at a premium of $US15.60 to West Texas Intermediate, the US benchmark grade. The spread reached a record $US22.29 a barrel on June 15.
Greeks Vote
Germany's biggest banks and insurers will meet with the Finance Ministry in Berlin today as they seek to reach an agreement on their contribution to a Greek aid package, two people with knowledge of the matter said.
Greek lawmakers vote first on the austerity package and again later on a measure implementing it. Greek police fired tear gas to disperse protesters in Athens as labor unions shut down government services before the vote on the budget cuts.
An Energy Department report today may show US crude inventories fell 1.5 million barrels in the seven days to June 24 as refiners boosted gasoline output before the Fourth of July holiday, according to the median estimate of 12 analysts surveyed by Bloomberg News.
The industry-funded American Petroleum Institute reported that US crude-oil stockpiles slipped 2.7 million barrels to 360.3 million, the lowest in 10 weeks.
Tropical Storm
The National Hurricane Center said the first tropical storm of the Atlantic hurricane season, Arlene, has formed in the southwestern Gulf of Mexico and could cause "life-threatening flash floods and mudslides."
Petroleos Mexicanos, Mexico's state-owned oil company and Latin America's largest crude producer, has wells in the bay. Mexico is the second-largest oil exporter to the US and provided 1.19 million barrels a day in March, the latest month for which US Energy Department figures are available.
Arlene is moving west-northwest near 7 miles an hour, with a turn toward the west forecasted today, the center said in a bulletin posted at about 8 p.m. New York time on June 28.
BLOOMBERG

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