The government has been lying about the strength of the economy – its lack of policy is hurting us

you would hope by now that the government is ready to face up to reality. I know this might be a rather optimistic anticipation on my part, but surely the treasurer and his predecessor and now prime minister, realise they have a problem with the economy?

One of the more amusing things this week was the government and their conservative cheerleaders try to suggest ALP backbencher Anne Aly saying on Sky News she was after more information about the Liberal Party’s proposed tax cuts because “what about the fact that our economy is now in a recession, or it looks like it is going into a recession?”

The Australian in its cute partisan manner described it as a “car crash” interview, and the finance minister Matthias Cormann suggested it was “recklessly irresponsible and wrong and they show that Labor has learnt absolutely nothing from the recent election outcome”.

Actually they are neither of those things at all.

As Aly then continued to say in her interview “it’s very obvious that the economy is not doing as well as the government would have believe. You have figures out of the RBA, you’ve got the interest rate coming down again.”

And it seems the only ones who do not find that obvious are the members of the government – mostly because they spent the entirety of the election campaign lying about the strength of the economy’s fundamentals.

This week the yield (or interest rate) for Australian government two year and three years bonds went below 1% for the first time in history. Seven months ago the rate the government was borrowing money for two years was 2%. It has taken less than seven months for that to halve.

The gap between the five years and the two year bond yields is as small as it has been since the GFC. Essentially the market is seeing very little extra return from borrowing for five years as opposed to two years because they see very little chance that things are going to get better in that time.

That does not happen when things are strong. That doesn’t even happen when things are just ok. It happens when things are bad.

At the start of December last year the general expectation was that interest rates would stay flat for this year and then start going up next year. Now not only have rates been cut, it will be shocking if there is not another two cuts before the end of the year, and a 50/50 chance of a cut to 0.5% by this time next year.

A cash rate of half a per cent. That would translate to mortgage rates lower than any recorded since World War Two.

The Reserve Bank is not doing that because the economy is abounding in sunshine and rainbows.

The head of the Reserve Banks Dr Philip Lowe gave a speech on Thursday in which he made it very clear how things were going.

He noted that the decision earlier this month to cut the cash rate to 1.25% “will support the economy through its effect on the exchange rate, lowering the cost of finance and boosting disposable incomes. In turn, this will support employment growth and inflation consistent with the target”.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

x

Check Also

Warming waters see a concerning increase in lionfish off Lebanon’s sea

Warming waters have seen a concerning increase in lionfish off the coast of Lebanon. The ...

Former Lebanon PM in Riyadh – Saudi will support Lebanon

BEIRUT (Reuters) – Saudi Arabia will “extend a hand of support to Lebanon”, Lebanese former ...