On Wednesday, I briefly reviewed some of the items that caught my attention last week, and then moved back to the music section. Yesterday, the Reserve Bank of Australia raised interest rates for the sixth time since May 2022. The rate hike is 0.25%, and the current cash rate target is 2.6%. The lower-than-expected increase was hailed as the first central bank to “turn”. It tells me that the RBA is now afraid to go too far in its absurd display of power. It’s also clear that spending hasn’t really reacted to the RBA’s move, meaning they don’t really understand the impact of changes in interest rates. That’s the problem with relying on monetary policy as a destabilizing tool – it (if at all) has a long lag and by the time you see any impact it may be too late.
What does the RBA think it is doing?
inside – Statement from Governor Philip Lowe: Monetary Policy Decision (October 4, 2022) – The Reserve Bank of Australia says it will keep raising interest rates to curb inflationary pressures.
Unlike previous statements, the RBA did not explain why inflation pressures are currently present in Australia.
What we got this month is:
Global factors largely explain this high inflation, but strong domestic demand is also at play relative to the economy’s ability to meet this demand.
In previous statements, they listed the “war in Ukraine”, high energy prices due to the monopoly power of the uncompetitive OPEC cartel, and “flooding” in Australia, as well as supply constraints due to the Covid-19 pandemic.
None of these factors are sensitive to changes in interest rates.
So I guess they want to avoid a glaring error in their logic that their policy tools aren’t quite capable of what they claim to be.
So what we get this time is just “global factors” (insensitive to changes in domestic interest rates) and domestic demand.
This means they are working to reduce domestic spending.
The fact that they are not trying to break down the divide between global factors and domestic demand is problematic.
But it is clear that they want to reduce spending growth to accommodate temporary disruptions in supply.
This is not a very sensible strategy because when these temporary disruptions ease, we are left with excess capacity, unsold inventory and rising unemployment.
and then?
The problem with the RBA’s decision is that there’s evidence that rate hikes aren’t very effective by any means in dampening demand.
That means the RBA will push interest rates until the borrower becomes insolvent.
We’ve seen them do this in the late 1980s, which eventually led to a severe recession with the help of fiscal austerity.
Another problem is that the RBA doesn’t think they will cause a recession because:
Many households have also built up large financial buffers, with savings rates still higher than pre-pandemic levels.
I examine this in more detail in this blog post – The RBA has lost its way – Australia’s monetary policy is now hard to understand (July 6, 2022).
Many are “top of town” rather than low-income earners with record debt levels.
Given the risk of debt, we would expect the household savings rate to remain high as pre-pandemic levels were too low.
But the RBA also has logic problems.
Clearly, the RBA believes that the increase in household savings provides a buffer that allows them to continue spending.
However, on the other hand, they claim that they are raising interest rates in response to strong domestic demand (spending).
They clearly know that rate hikes will not weaken the aforementioned global factors.
So it’s all about reducing domestic spending.
So if the savings buffer maintains spending power, what the RBA is actually doing is destroying households’ financial wealth by forcing them to liquidate past savings buffers.
If households maintain nominal spending growth (which is not particularly strong by any means), then rate hikes will only succeed in destroying household wealth (depleting savings) and so-called domestic inflationary pressures remain.
This is the RBA’s twisted logic.
Over the past week, we’ve had a ton of data showing that spending and lending haven’t really fallen.
First, retail sales are a monthly measure of demand in the economy.
The latest figures released by the Australian Bureau of Statistics last week (28 September 2022) – Australian retail trade (August 2022).
There are two ways of looking at this situation:
1. The ABS report said, “Australian retail turnover grew by 0.6% in August 2022… the August increase was the eighth consecutive increase, following a 1.3% increase in July 2022 and a 0.2% increase in June 2022. “
The increase in spending was particularly pronounced for “cafes, restaurants and takeaway food services up 1.3% and food retail up 1.1%”.
So so far, the rate hikes have had little effect and appear to have quelled sales and demand.
2. Is spending growth high and accelerating?
The graph shows the monthly increase in turnover, which as you can see has been declining since the beginning of the year – before the RBA started its current rate hike phase.
There are some sectoral differences (department stores and cafes, restaurants and takeaway services are all higher than overall), but total spending on retail goods and services has been falling and is growing moderately.
The chart below shows the monthly increase in primary credit aggregates from January 2020 to August 2022.
These are the so-called rate-sensitive aggregates that the RBA may affect through rate hikes.
With the exception of the ongoing investment property speculation boom that has receded since the May 2022 rate hike, aggregates have not accelerated, and owner-home credit growth has been declining since May 2021, as early as the RBA moved.
The investment housing boom is due to a distortion of the tax system, with high earners receiving massive tax breaks for accumulating multiple properties.
It should be addressed through tax reform.
Indeed, while the rate of change for most categories may level off, the absolute level may be too high. There is evidence that overall credit growth is currently higher than before the pandemic.
Reining in housing credit will do little to address headline inflation driven largely by energy and food prices.
If housing is excluded, credit growth is even more subdued.
If the RBA further curbs non-housing credit growth, it will affect already weak retail sales and push Australia into recession.
Monthly growth in total credit
I am currently working in Kyoto, Japan for a few months.
The Bank of Japan has yet to change its still negative policy rate.
The Treasury is providing financial assistance to households to ease cost of living pressures.
Inflation is only 3%.
to find out.
The rest of the world is once again in a “neoliberal” frenzy with its central bankers out of control.
trickle
All the talk right now in the UK about a new PM/Chairman revive the infamous “trickle down” theory – you know the “tax cuts for the rich and make them richer ultimately make the poor richer” line – and as part of the In the research I’m doing for my new book, I’m interested in tracing the origins of this idea.
The idea of a “trickle down” appears to have been first coined in 1896 by Democratic presidential candidate William Jennings Bryan, who criticized Republicans for arguing that the government should make the rich more prosperous so that some generosity would be “leaked out”. go out”. the ones below’.
to here – Bryan’s ‘Golden Cross’ speech: Enchanting the crowd — Read the full text of the speech delivered on July 9, 1896.
Later, on November 26, 1932, the St. Louis Star and The Times published a regular joint column by American columnist Will Rogers— Will Rogers explains that unlike water, money is always a tricklewhich included comments about the 1932 US presidential election, in which Franklin D. Roosevelt won by a landslide to Herbert Hoover.
Will Rogers joked:
…the election was lost four or five or six years ago, not this year. It wasn’t until they started their electoral tour that they started thinking about the common man. The money was all allocated to the upper echelons, in the hope that it would go to those in need. Mr. Hoover is an engineer. He knew the water would flow down…but he didn’t know the money would flow down. Give it to the people on the bottom, and the people on the top will get it before night anyway. But it will at least get through the poor guy’s hands.
The concept was flouted long before the likes of Dave Stockman (Reagan’s “budget” chief) started implementing an idea that had become an outlandish conservative belief — a way to sacrifice already money human cost strategy. everyone else.
chess scandal
The only game I actually play is chess.
There is an excellent and powerful chess machine available for the iPhone (Stockfish), and while it will drain the phone’s battery very quickly, it is a great tool for learning and playing chess.
So I’ve used it a lot, and over the years it’s given me a dramatic improvement on the great strategies that the best players in history deploy and the way those strategies change over time.
However, chess engines are a curse in the hands of rogues.
I read what I just read- Hans Niemann report – Published yesterday by Chess.com, which documents (and speculates) how Mr. Niemann “cheated at a chess match”.
While the report estimated that “less than 0.14% of players” on the Chess.com platform cheated, it found that “Hans may be cheating online much more than his public statements suggest.”
If you follow chess news and study international competitions (like me), you know that current world champion Magnus Carlsen essentially accused Niemann of cheating in major tournaments, causing Carlsen to quit the tournament.
Considering his age, Neiman has risen in the world rankings very fast (too fast?) and admits to cheating in the past.
Chess.com compared Neiman’s moves in past games to those of the supercomputer and concluded: “Hans may have cheated in more than 100 online chess games, including several bonus events. … he was 17 when he could be cheating on some of those games and games. He also streamed 25 of those games.”
Facts have proved- Chess Chess – Very common, especially in the digital age of chess engines and online games.
It’s really a shame that such a good game is open to such aspirations.
Music – Chet Baker in Tokyo
Given that I’m currently working in Japan, I think it’s a good album to drag out.
This song broken wing From the June 1987 album – Chet Baker (King Records) in Tokyo – great trumpet player – Chet Baker.
Definitely a good album.
The song was composed by an American jazz pianist— Rich Bellach.
The song was taken from a concert, just 11 months after he died at the age of 58, lying on the streets of Amsterdam after falling from his hotel room. He was a lifelong heroin addict.
Gloomy and fluid. When the concert was held, his body was already disabled, but he could still play very delicately.
In addition to Chet Baker, the musicians in the quartet are:
Harold Danko – piano
Hein van der Gein – Bass
John Engels – drum
You can hear the whole live concert — here.
The songs on the album are in chronological order:
00:00 Stella Starlight
10:50 Minors only
18:31 almost blue
26:26 Black and white portrait
42:13 My funny valentine
55:26 Four
01:02:56 Arborway
01:16:57 I’m a fool who wants you
01:28:22 The seven steps to heaven
01:36:19 As far as we know
01:45:17 Broken wings
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
