Rudd the regulator seeking reform for reform’s sake

Vic Oates says:

07:05am | 09/10/09

That’ll be Mr Rudd, the Prime Minister, will it, Mr Roberts?

The loss of billions of dollars of hard earned Australian savings is more than a tragedy. Its criminal.

As for the level of Government debt, you know perfectly well that it is in fact quite modest in size and proportion, and well-justified by the near disaster we escaped with continuing uncertainties to be faced.  And if things keep improving as they are now, it’ll be even less important. 

Time to bring us some real debate onsome real issues. And try putting em up without the dumb spin, thanks.

paul says:

07:07am | 09/10/09

Stuart, there has been a major trust and system (incompetent) failure with our banking and super industries. (Not to mention the petrol and retailing cartels) I doubt the Rudd or the Libs have the vision or the balls to stand up to these powerful corporate interests. Blame Rudd with convoluted spin but you are just as hypocritical.

Liz says:

07:47am | 09/10/09

What a none event this piece is!No Government ever stands up to the banks, in case you hadn’t noticed they think they rule the world.Perhaps you might look at other reforms in the pipe-line like Health reform which looks good on paper so far.

Bruce says:

08:05am | 09/10/09

Folks, I agree, but no need to pay much attention to this tosh.

There’s a roster of some sort and its just the Liberal member for Fadden’s turn today. They don’t care much what their posts say. They may not even be writing them themselves. Just as long as they repeat one or two of the worn-out slogans on the Liberal cheat-sheet.

This one is the fib about debt, so widely discredited by now it’s surprising to see it still being given another wobbly little trot.

The next one will slip in one of the other “usual suspects”, all equally suss:
“wasteful spending”
“socialism”, or the even more gigglesome “communism”
“union power”
yadayadayada

And all utter total tosh.  Pity they can’t talk honestly about carbon, water, schools, universities, aborigines, fair pay and the other really big issues.

But they don’t. They won’t. Maybe they simply can’t. Too much work. They’d rather you sucked up their empty spin.

Given their endless self-inflicted antics, looks like they’re going to have another 15 to 20 years to learn the lesson. Turnbull will by then be…75!

Me says:

08:26am | 09/10/09

The vast majority of Australia’s public debt is due to two things. Rising welfare payments due to the increasing number of unemployed, and a collapse in tax receipts arising from unemployment and businesses going bust. So what is the best way to reduce this debt? Ensure people stay in work, thus less welfare liabilities for the government and a less severe fall in tax receipts, and that requires spending a little money.

On the other hand, we have the shadow treasurer Joe Hockey of the supposedly superior econmic managers, the Liberal party, arguing that we should have done nothing, and that lower interest rates are prefferable to lower unemployment. If such a position wasn’t laughable enough, the interst rate argument is also a furphy. Interest rates where never going to remain at these levels, and arguing that they should stay there is in effect arguing for a prolonged weak economy.

In any case, given that the economy has not tanked as predicted in large part due to the stimulus measures, come the next budget you will see the public debt over the forward estimates dramatically reduced.

Sorry Stuart, but I will put my trust in those who took the proactive and ultimatly correct fiscal direction over those who said we should “wait and see”, who if they had gotten their way, Australia would have tipped into recession and would have been saddled with much higher unemployment and ultimatly much higher public debt than it has today.

Peter says:

10:49am | 09/10/09

Anyone who wishes to claim that the stimulus package has staved off an Australian recession needs to explain why similar policies have failed everywhere else.

Luke says:

12:21pm | 09/10/09

So then will someone explain when does Australia start to stand on it’s own 2 feet? Or do the Government just keep on stimulating for stimulation sake? We have obviously recovered and recovered better than any country in the world. All forcast so far including the May budget have been wrong. Unemployment is going down (september), against the forcast of the Government also. So the Government and their advisors have been wrong wrong wrong and wrong on their forcasting, so why would you believe them about continuing stimulas?

Me says:

01:00pm | 09/10/09

Actually Peter, they havn’t been failing all over the world. If you had been paying attention to the news you would have noticed that Japan and Germany have recently emerged from reccesion, China supported by its 700 billion yuan stimulus measures never tipped into reccession at all. just to name a few examples. When you pump such vast ammounts of money into the economy it, suprisingly, will actually do something. The US and UK still have some crap to work through, but they would have alot more crap to work through if their respective governments had just let their ecnomies going flying off into the abyss, and they will in time, recover.

Rita says:

01:21pm | 09/10/09

Australia had one of the strongest economies in the world when the GFC hit. We have staved off a recession which Government said we were going to have, but didn’t. Our unemployment rate has hardly had a dip. So wouldn’t it make sence that Australia didn’t need the heavy handed stimulas approach the Government has taken? To go to the G20 and follow their plan to continue stimulas measures, when we in Australia aren’t in the same boat as they are?

Me says:

01:39pm | 09/10/09

And where do you suppose all that money went then Rita? It didn’t just vanish into thin air.  That Australia’s private/household debt has actually expanded over the past year would suggest that people did not save their cahs handouts, despite people saying they would do so.

Can it be merely coincidence that the government pumps billions upon billions of dollars into the economy and, funnily enough, it doesn’t tank? We are also not entering into some sort of period of hyperinflation either, as we most likely should be if the economy would have continued along just fine *plus* the billions in stimulus.

The economy was certainly heading down the toilet when these measures where brought in, and it didn’t just magically repair itself for some as yet undiagnosed reason.

What’s more, stimulus *is* being withdrawn incrementally. The First home owners grants have reverted to their original state, the small business assistance measures run out in december, the RBA lifting interest rates, etc tec (which is in fact, a withdrawl of RBA initiated stimulus.)

As private demand picks up again, public assistance will be withdrawn.

Certainly we had a strong starting point, but Howard’s surplus would have been obliterated even if the government had not spent a single cent.

Bean Counter says:

02:09pm | 09/10/09

Rita should first check her facts on employment and unemployment levels. We’ve had a narrow escape but not without pain (as she and the Liberals pretend). Try visiting the ABS site and check the numbers for yourself.

Luke must have been camping in some foreign desert with no papers, TV or radio, otherwise he’d have twigged that interest rates returning to normal *are* part of a planned wind-down of the total economic package, “stimulus” for short.

Likewise, the initial cash grants to taxpayers, pensioners: one-off spending at the height of the crisis, and so already “wound down”.

Meanwhile, with employment starting to recover and unemployment stabilising, the usual ongoing support payments (yep, “dole”) will be less than the worst-case plan built into budget forecasts.

That leaves the still-current infrastructure & schools programmes, in all a fixed amount planned to be spent over the coming year, which will produce lasting useful effects and sustained local boosts, but will then indeed wind down.

Net result: “stimulus” - the sum of monetary (interest rates) and fiscal (government spending) measures, incl regular expenditure on unemployed, is indeed winding back, and faster than the “worst case”, which we avoided by luck and fast action.  See eg the RBA or Hansard on Senate hearings.

Prof McKibbin, who the Liberals like to listen to, would have you believe that official interest rates should have fallen by another 2.5 whole percentage points to just 0.5 percent. That wouldn’t have been an emergency low - it would have been catastrophe level.

Though a member of the RBA Board, McKibbin is flat wrong, and the Reserve Bank thus kept rates at the 3.0%, the lowest for 49 years. Leaving room still to move if more cuts were needed, with plenty of warnings about the returning to normal in due course.

Most prudent home loan borrowers would have kept their payments up as rates fell, and will now feel the benefit - they’ll see no effect at all. Prof McKibbin, with an income up in the stratosphere like the member for Fadden, Mr Stuart, can well aford to advise an interest rate of 0.5%.Thank God it wasn’t needed.  What it would have implied about the economy, unemployment, or retirees dependent on interest for income is anybody’s guess.

Summary: gov’t debt and interest rates are being wildly indeed untruthfully exaggerated, for grubby political gain, by a rejected party who still pretend to be better economic managers.

pc says:

02:10pm | 09/10/09

Good on you me, and on the subject of further stimulus and unemployment, Glenn Stevens (Governor of the RBA) at the senate committee meeting on the same subject believes the removal of the stimulus now would cost 100,000 jobs.

Carl Palmer says:

02:26pm | 09/10/09

Stuart – spot on article. Our baking system is up there against the best in the world – it is rock solid. The restructuring of the banking systems started approx 20 years ago with the Hawke and Keating governments and continued to a lesser extent with the Howard government. The GFC illustrated that our banking system was sufficiently robust to withstand the questionable banking practices of the northern hemisphere institutions. Can it be improved – of course it can but I don’t support in the slightest the clap trap crap that was dished out by Mr Rudd in the neo-liberalism speech he gave some months back. That is scary stuff.

If it ain’t broke NOT TRY AND FIX IT!!! GET IT!!!

oh and another thing – sometime back the Americans refused to lend to various Asian countries until they tightened up their financial systems & practices, the Asians eventually did and guess what – they are now laughing at the US. I wonder who has the problem.

As for the debt – there is always a period in time when it is necessary to go into debt but is should always be the exception and it should be managed very very tightly and conservatively so that we can pay it back real quick. There is no doubt that the health of our economy together with the balance of our bank account was a significant factor in buffering us from the GFC. The moment the PM opened his mouth and downed played our economy was the moment he lost it for mine because it was now all about him. Just talking up the economy would have instilled – albeit a small - bit of confidence in the economy. Having a PM and his Goose yelling out doom and gloom an approaching financial tsunami got people retreating fast.

I am at a loss to understand why interest rates are going up and the government continues to spend. The key indicators are not reflecting the gloom and doom that was thrown up by our Mr. Rudd and Mr. Goose together with our illustrious treasury.  Why not haul back spending and leave inertest rates alone. We are in smooth sailing waters but we will no doubt find ourselves in dangerous waters in the years to come IF our debt – for whatever reason, continues to climb.  Remember it doesn’t matter if it is the family budget or a small partnership or a small company, BHP or the government at the end of the day it is how much cash you have in the bank - surplus and not debt is where we need to be.

Me says:

03:12pm | 09/10/09

Carl Palmer.

Debt is not going to continue to climb. It will in fact, fall from what was estimated in the May budget.

Why?

Well government stimulus will continue according to plan. No increase there. Similarly, that unemployment will not rise much further and may in fact have peaked means less welfare liabilities for the government and less fall in tax receipts, and thus, less deficit.

Running a national economy is not like running your household finances. Despite the fact that it was impossible to hold onto a surplus in this downturn without cutting off the Australian economy’s limbs, it would be pointless to do so. In an economic downturn where private investment collapses, a deficit is neccesary to support agregate demand. In good economic times, private demand keeps the economy humming along, government intervention is not needed and thus a surplus, and if it wont put the budget into structual deficit, tax cuts.

That is what a surplus is there for, to both allow for tax cuts and to be used on a rainy day.

You are also giving Rudd more credit then I do if you think that he was able to alter the fundamentals of the australian economy merely by oppening his mouth and “talking it down”. It couldn’t have been because the edifice of the entire world economy was crashing down around us could it? Rudd was nothing but realistic.

But you know who has been talking down the economy? Malcolm “generational debt, higher taxes, reckless spending blah blah blah” Turnbull, trying to convince us that the economy was going to hell in a handbasket merely for political gain.

sonya says:

03:29pm | 09/10/09

oi rudd!
stop using ‘me’ as a pseudonym

Peter Inglius says:

03:37pm | 09/10/09

I think some of you guys should have a little read of Prof Garnaut (former advisor for Labor)article in the Australian. It’s far better reading than some of the comments by people here who seem to know everything about nothing. You can find the article to the right hand side of your screen on this home page.

pc says:

04:12pm | 09/10/09

Hey me
Have you noticed how the first thing people with nothing to say, say is “You must be the PM” or “you must be an apparitchik”. Before you set your fingers typing Sonya - have something to say. You clearly dont.

Numbers Guy says:

04:18pm | 09/10/09

Unlike the largely empty, ill-informed jibes of Sonya, Carl, Rita, Luke and Peter, the other posters have it pretty well right. And most have plainly checked their facts - and pretty easy to do from public sources independent of both the Opposition and the Government.

One odd thing: the Honourable Member for Fadden, back bencher Stuart Robert (Liberal, Qld), seems to have a wee bit of an image problem. At least two good, sound posts stumbled over his name! But perhaps a touch of profile raising was the object of his rather superficial piece, though he has, by his own account,  *no* background or expertise in finance or finance regulation at all. But then, who needs that for spin?

Outta here.

Allan S says:

04:26pm | 09/10/09

An intersting article, which really highlights the Prime Minister’s obsession with control over every area of our society…...... 8398/41….. astounding! Obviously you have rattled the cages of a few Rudd supporters, but the fact they are claiming to be offended by Liberal ‘spin’ is hilarious…....the Libs would give anything to be able to ‘spin’ as well as Labor!

Malcolm says:

04:35pm | 09/10/09

You Rudd lovers are always soOOOOOOO NASTY! LOL
I read that artcile Peter sugested by Garnaut….a far more interesting read I agree Peter.

John A Neve says:

04:45pm | 09/10/09

There is one truism in all of this; You cannot get out of debt with borrowed money. Time may prove me wrong (I hope it does), but this is just a rising swell, we will hit a deep trough in about 18 months to 2 years. Rising interest rates will kill first home buyers, added to which the unemployed will place a huge strain on the budget.

Nothing has changed, we are still spending, at both personal and government levels more than we earn. Remember Mr Micawber?

Groucho says:

05:15pm | 09/10/09

Well, Prof Garnaut is right to suggest caution about the economic future - as have all the responsible Gov’t ministers, not to mention Treasury and Reserve Bank - and others of stature here and O’seas.

Interesting to see he’s in close agreement with Prof McKibbin, in thinking interest rates should have been brought far, far lower - but that argument has been played out and here we are. 

Garnaut is in fact more than somewhat a free-market guy - no surprise then that he was adviser to *two* Prime Ministers: Fraser and Hawke. Garnaut also -had P Inglius cared to read more carefully - dishes it out hot and strong to the budgetary free-booting of Messrs Howard & Costello, sending the budget into structural deficit by squandering surpluses on tax cuts (which were skewed to the well-off, as you’ll recall).

No opinion here, all matters of public record.

And by-the-by, PI, personal insult don’t cut the mustard in nutting out big issues. Waste of your time.

Chris Grealy says:

06:30pm | 09/10/09

I see you still haven’t learned to control that Liberal arrogance, Stu. Keep working on the humility, laddie.

Pierpont says:

07:59pm | 09/10/09

Speakin personally, JAN, I don’t spend more than I earn and I do carry debt, all paid off regular and in full. But kitchen table analogies don’t work nationally.

Debt looks like being much smaller than -quite properly- allowed for in making “worst case” provision.  I’m happy to see forecasts that are so conservative - though at the kitchen table it’s easy to paint such careful over-provision as “bad forecasting”.

On top of that, if employment and undemployment continue to improve, there’ll be natural rises on the revenue side (from income tax paid by the employed) and natural falls on the outlays side (less unemployed on benefit).

Beyond that, gov debt is contracted as sovereign debt at markedly lower inter-gov interest rates than the cash rate or the retail mortgage rate. On top of that,  the modest levels of inflation that are the natural accompaniment of healthy economic growth also help in covering the debt.

That is,  the kitchen table “home mortage” analogy has never been a sensible way to look at gov debt at all. Indeed, so little drama to be seen in the Aus case as to be laughable that anyone would try.

Last point, JAN: name one modern Free World economy in the last hundred years that has consistently run balanced or surplus budgets with zero gov debt, throughout a complete sequence of 2 or more business cycles. Just one will do. Good luck.

Kiner says:

09:22pm | 09/10/09

Ok if Australians think Rudd and company are doing a good job then vote them in again. I think that Rudd and company will leave us all worse off. The stimulus helped but we are now in a much weakened state should things get sour again. Not to forget health care, foreign policy, education and the environment have not progressed under the Rudd government. So vote them in again, it will be an interesting historic legacy.

Ozzie says:

07:57am | 10/10/09

By George, Kiner has got it!

About 70% of us want climate change action *now*.
About 70% of us approve of current economic policy.
And about 60% of us would vote Labor right now.

There’s quite a good chance, then, that the ALP will leave us a legacy in water, climate, education, health, the elderly, aboriginal poverty and so on that Australians will regard with pride (and relief!) for decades to come.

And that despite well over a decade now of self-interested Liberal/National delays, fibs, self-indulgent spite, spin and plain blinkered, prideful ignorance.

Lacking unity, common sense or plain honest policy or review, the conservative side is looking down the barrel of a very long, very hard lesson.

Bewdy!

John A Neve says:

08:02am | 10/10/09

Pierpoint,
I’ll answer your question in two ways.
Firstly, if you have read any of my previous post you will know I am not opposed to debt per se. What gets up my nose, is this continual whinge about government debt, when people have debt of their own. We are the government, this is a democracy, isn’t it? Goevernment debt is our debt.

On a lighter note, which would you prefer, to have money in the bank or be in debt?

Wendy Armitage says:

08:38am | 10/10/09

Rudds (AUSTRALIAN) AFC is still to come kids. Let’s see if he really is as clever as we are continually told in 18 months time, Especially when the media become sick of putting Rudd on his pedistal and bashing Turnbull to death. Will also be interesting to see if Turnbull really is the idiot he is made out to be, Turnbull isn’t as studpid as we are lead to believe. It’s only early days for Rudd and his Government and Turnbull won’t be going anywhere.

Pierpoint says:

11:39am | 10/10/09

Cripes, touch of the politicians, there JAN - managed not to answer me one little question at all! Jeez!

Happy to answer yours, but. I prefer to have both money in the bank *and* debt too. And I do. Simple really, and many people do it. Here’s how.

There’s the day-to-day acct - it coughs up for Pierpoint’s sausage sanger at lunch, milk, bread, papers. You know…bugger all interest, always in credit but not too much.

There’s the bugger it why not account: much more bikkies in that, nice interest, always well in credit. Pays in to the day to day acct for oh, well, you know - the odd splurge.

Then there’s the BedSock account: me super, mate, rolling around, keepin me pitiful life savins safe from the gnomes of Wall St. Never touch it now, after payin off the home loan. Lost some bucks in the GFC but still *more* in it than at the start. For a rainy day or real old age.

Last of all comes the plastic fantastic: the credit card. Pays for big sitdown feeds, serious cordials, serious raids on the bookshop and so on. Paid off in full, each and every month, always, from the bugger it why not acct via the day to day acct.  Given the billin cycle, always in debit!

So there ya go - money in the bank and debt too. Not tooo painful, hey? Money in banks plural, carefully spread, plus debt too, on one card. All sorted to pay minimal fees and earn max interest.

OK. So I did read both yer posts, son.

Me, like heaps of people, I’m happy to have a careful government that will spend our money and borrow money for us, to help out people worse off, in strife, or to buy us the odd hydro scheme, make schools work, or to pay for the odd jet fighter plus a few things that make v expensive bangs.  Fine with me - I call it the Australian way. Help out a mate, you know.

I also expect them to try bloody hard to get it right, and to try bloody hard to tell us straight what’s going on.  Must be oh 50 yrs since any Liberal tried to govern like that!

Carl Palmer says:

09:41am | 12/10/09

Me
Re debt – I said “IF our debt – for whatever reason, continues to climb” AND that – “surplus and not debt is where we need to be”. The fact that it is budgeted is irrelevant a loss is still a loss.

Re unemployment maybe – there are lots of people out there working less hours. I know quite a few people who are forced to work a 4 day week (20% cut) so there is no question that it is higher than “reported”. Nevertheless, I would probably agree that it has peaked though if the “experts” got the last forecast wrong your’s and mine are blind leading the blind stuff.

Re running the economy V’s household finances – the accounting principle stands, - inflows exceeding outflows is where you need to be and not having debt is better than having debt. You don’t want to be where the US finds it’s self in relation to debt – even prior to the GFC.

As the leader of the country the PM does have the influence as does for example the goose treasure or RBA governor to influence the decisions of business leaders. The economy was in significantly better shape than the US, Japan or the UK to name just a few.  The point was that he was our leader and should have led the country and not politicised the incident. The interests of the country far out weigh the interest of Mr Rudd and it is something this boke continues to do.

If Turnball was behaving as Rudd, then my comments wouldn’t change because it is irrelevant who it is, it is their actions that count.

As for Numbers Guy, “ill-informed jibes”, I wonder how many folks here have “expertise in finance or finance regulation”. You? If that’s all you’ve got, then the last sentence is spot on.

JAN – they clearly didn’t read what you said because they actually agree with you. Your “You cannot get out of DEBT with BORROWED money” statement is the same as what PIERPONT said “I don’t spend more than I earn and I do carry debt”. This clearly states that he is NOT using borrowings to fund his debt. If PIERPONT disagreed with you then his statement should have read –

I spend more than I earn and I do carry debt – which implies that he is using borrowings to fund his debt – the perfect formulae to become insolvent real fast.