Back in May this year, I blogged that as the Federal government stared down the barrel of a revenue write down, it had two options: to maintain a steady course of economic conservatism or to throw caution to the wind and engage in heavy borrowing to finance massive countercyclical spending.
It chose the latter of course. This past week, the Treasury revealed through its Mid-Year Economic and Fiscal Outlook, that its cash position would not be as bleak as it had previously thought (in its forward estimates). Two rounds of stimulus later and experience proves that it pays to be a risk-taker at the right moment.
Having dodged a technical recession and with unemployment set to peak at a much more moderate rate of 6.75% (compared to double digits in the US), Australians are now being warned to prepare for the unintended consequences of its debt-driven growth strategy, namely urban congestion, unaffordable housing and higher inflation.
Dual pronouncements by the RBA Governor and Productivity Commission Chair have pointed to these emerging issues. If you are a homeonwer like me who kept your job during the crisis, you would have seen the value of your property go up (according to WestPac chief economist Bill Evans) and interest rates go down to 50 year lows. This has both a wealth effect and an income effect (translation: you see yourself as being more wealthy and having more money to spend).
Granted that many of us used the temporarily low rates to reduce our indebtedness as a hedge against higher interest rates in the future, but the rise in the equity value of our homes is making many of us feel smug at the moment. We might just decide to use that equity in the coming months.
Another unintended consequence is the strong Aussie dollar which is back to its pre-crisis level nearing parity with the US greenback. That is fuelling a lot of online shopping primarily for luxury goods due to the price advantage of buying from American compared to local stores for the same item. As the Financial Review reported this week, e-Bay is experiencing a surge in spending compared to last year (ironically, it copped a massive fine last year for facilitating the sale of fake brands).
It is therefore not surprising that amid all these animated spirits released by Kevin Rudd's rubbing of the stimulatory lamp (a.k.a fair shake of the sauce bottle) that the voice of reason has cautioned the government to revert back to a more prudent approach (which the Treasury seems to be seeking to do although such spending as the school building program can only be "rephased"). In the past 12 months, such a warning might have been regarded as the voice of treason rather than reason, but not this time it seems.
It chose the latter of course. This past week, the Treasury revealed through its Mid-Year Economic and Fiscal Outlook, that its cash position would not be as bleak as it had previously thought (in its forward estimates). Two rounds of stimulus later and experience proves that it pays to be a risk-taker at the right moment.
Having dodged a technical recession and with unemployment set to peak at a much more moderate rate of 6.75% (compared to double digits in the US), Australians are now being warned to prepare for the unintended consequences of its debt-driven growth strategy, namely urban congestion, unaffordable housing and higher inflation.
Dual pronouncements by the RBA Governor and Productivity Commission Chair have pointed to these emerging issues. If you are a homeonwer like me who kept your job during the crisis, you would have seen the value of your property go up (according to WestPac chief economist Bill Evans) and interest rates go down to 50 year lows. This has both a wealth effect and an income effect (translation: you see yourself as being more wealthy and having more money to spend).
Granted that many of us used the temporarily low rates to reduce our indebtedness as a hedge against higher interest rates in the future, but the rise in the equity value of our homes is making many of us feel smug at the moment. We might just decide to use that equity in the coming months.
Another unintended consequence is the strong Aussie dollar which is back to its pre-crisis level nearing parity with the US greenback. That is fuelling a lot of online shopping primarily for luxury goods due to the price advantage of buying from American compared to local stores for the same item. As the Financial Review reported this week, e-Bay is experiencing a surge in spending compared to last year (ironically, it copped a massive fine last year for facilitating the sale of fake brands).
It is therefore not surprising that amid all these animated spirits released by Kevin Rudd's rubbing of the stimulatory lamp (a.k.a fair shake of the sauce bottle) that the voice of reason has cautioned the government to revert back to a more prudent approach (which the Treasury seems to be seeking to do although such spending as the school building program can only be "rephased"). In the past 12 months, such a warning might have been regarded as the voice of treason rather than reason, but not this time it seems.
No comments:
Post a Comment