{"id":18450,"date":"2019-06-24T02:19:38","date_gmt":"2019-06-24T02:19:38","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=18450"},"modified":"2019-06-24T02:31:18","modified_gmt":"2019-06-24T02:31:18","slug":"australia-needs-to-break-the-downward-spiral","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2019\/06\/24\/australia-needs-to-break-the-downward-spiral\/","title":{"rendered":"Australia needs to break the downward spiral"},"content":{"rendered":"<p>Ross Gittins, Economics Editor at <a href=\"https:\/\/www.theage.com.au\/business\/the-economy\/poor-josh-frydenberg-caught-on-the-wrong-tram-heading-for-trouble-20190622-p520ab.html\">The Sydney Morning Herald<\/a>, sums up Australia&#8217;s predicament:<\/p>\n<blockquote><p>&#8220;The problem is, the economy seems to be running out of puff because it\u2019s caught in a vicious circle: private consumption and business investment can\u2019t grow strongly because there\u2019s no growth in real wages, but real wages will stay weak until stronger growth in consumption and investment gets them moving.<\/p><\/blockquote>\n<blockquote><p>Policy has to break this cycle. But, as [RBA governor] Lowe now warns in every speech he gives, monetary policy (lower interest rates) isn\u2019t still powerful enough to break it unaided. Rates are too close to zero, households are too heavily indebted, and it\u2019s already clear that the cost of borrowing can&#8217;t be the reason business investment is a lot weaker than it should be.<\/p><\/blockquote>\n<blockquote><p>That leaves the budget as the only other instrument available. The first stage of the tax cuts will help, but won\u2019t be nearly enough&#8230;..&#8221;<\/p><\/blockquote>\n<p>Cutting already-low interest rates is unlikely to cure faltering consumption and business investment. Low wage growth and a deteriorating jobs market are root causes of the downward spiral and not much will change until these are addressed.<\/p>\n<p>Low unemployment is misleading. Underemployment is growing. Trained barristers working as baristas may be an urban legend but there is an element of truth. The chart below shows underemployment in Australia as a percentage of total employment.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2019-06-24-aus-underemployment.png?w=525&#038;ssl=1\" alt=\"Australia: Underemployment % of Total Employment\" \/><\/p>\n<h2>How to halt the spiral<\/h2>\n<p>Tax cuts are an expensive sugar hit. The benefit does not last and may be frittered away in paying down personal debt or purchasing imported items like flat-screen TVs and smart phones. Tax cuts are also expensive because government is left with debt on its balance sheet and no assets to show for it.<\/p>\n<p>Infrastructure spending can also be wasteful &#8212; like school halls and bridges to nowhere &#8212; but if chosen wisely can create productive assets that boost employment and build a healthy portfolio of income-producing assets to offset the debt incurred.<\/p>\n<p>The RBA has already done as much as it can &#8212; and more than it should. Further rate cuts, or God forbid, quantitative easing, are not going to get us out of the present hole. What they will do is further distort price signals, leading to even greater malinvestment and damage to the long-term economy.<\/p>\n<p>What the country needs is a long-term infrastructure plan with bipartisan support. Infrastructure should be a national priority. There is too much at stake for leadership to take a short-term focus, with an eye on the next election, rather than consensus-building around a long-term strategy with buy-in from both sides of the house.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Ross Gittins, Economics Editor at The Sydney Morning Herald, sums up Australia&#8217;s predicament: &#8220;The problem is, the economy seems to be running out of puff because it\u2019s caught in a vicious circle: private consumption and business investment can\u2019t grow strongly because there\u2019s no growth in real wages, but real wages will stay weak until stronger &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2019\/06\/24\/australia-needs-to-break-the-downward-spiral\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Australia needs to break the downward spiral&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[40,31,45,46,3761],"tags":[1838,1967,4061,2853,2860,3336,3529,3531],"class_list":["post-18450","post","type-post","status-publish","format-standard","hentry","category-australia-nz-countries-regions","category-the-fed-banks-interest-rates","category-debt-levels","category-deficit-spending-employment","category-gdp-and-activity","tag-infrastructure","tag-jobs","tag-low-wage-growth","tag-rate-cuts","tag-rba","tag-tax-cuts","tag-underemployment","tag-unemployment"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Australia needs to break the downward spiral - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Australia needs to break the downward spiral - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Ross Gittins, Economics Editor at The Sydney Morning Herald, sums up Australia&#8217;s predicament: &#8220;The problem is, the economy seems to be running out of puff because it\u2019s caught in a vicious circle: private consumption and business investment can\u2019t grow strongly because there\u2019s no growth in real wages, but real wages will stay weak until stronger &hellip; 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The bellwether of the Australian economy is housing. Prices are tumbling, with annual growth now close to zero.\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"Australia: Consumer Sentiment","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-12-09-aus-sentiment.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":17863,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/02\/11\/why-the-rba-shouldnt-cut-interest-rates\/","url_meta":{"origin":18450,"position":1},"title":"Why the RBA shouldn&#8217;t cut interest rates","author":"Colin Twiggs","date":"February 11, 2019","format":false,"excerpt":"There are growing cries in local media for the RBA to cut interest rates in order to avoid a recession. House prices are falling and shrinking finance commitments point to further price falls. Declining housing values are likely to lead to a negative wealth effect, with falling consumption as household\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":48609,"url":"https:\/\/thepatientinvestor.com\/index.php\/2024\/02\/20\/will-the-rba-cut-first\/","url_meta":{"origin":18450,"position":2},"title":"Will the RBA cut first?","author":"Colin Twiggs","date":"February 20, 2024","format":false,"excerpt":"Recent articles in Macrobusiness and the ABC suggest that the RBA is likely to cut interest rates early, ahead of the Fed. Their conclusions are based on a February 16 research note by Gareth Aird at Commbank Divergence between the Australian and US consumer which provides some excellent charts: The\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"Fed Funds Rate & RBA Cash Rate","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-02-20-ffr-rba.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-02-20-ffr-rba.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-02-20-ffr-rba.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":18830,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/09\/06\/australia-the-elephant-in-the-room\/","url_meta":{"origin":18450,"position":3},"title":"Australia: The elephant in the room","author":"Colin Twiggs","date":"September 6, 2019","format":false,"excerpt":"June quarter real GDP growth slowed to an annual 1.4%, the lowest since the 2008 global financial crisis (GFC). Major contributors to growth are household consumption, public demand and exports; while the biggest handbrake is investment. A quick look at the RBA chart shows that consumption is slowing but at\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":45717,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/11\/28\/australia-more-rate-hikes-or-tighter-liquidity\/","url_meta":{"origin":18450,"position":4},"title":"Australia: More rate hikes or tighter liquidity","author":"Colin Twiggs","date":"November 28, 2023","format":false,"excerpt":"The media focused on a passing \"dentists and hairdressers\" comment instead of the key message from Michele Bullock's address to Australian Business Economists. The new RBA governor highlighted three elements that point to inflation becoming increasingly demand-driven. First, inflation is broadly-based. Trimmed mean inflation remains too high at 5.4% p.a.\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"CPI Monthly","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-27-aus-monthly-cpi.gif?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-27-aus-monthly-cpi.gif?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-27-aus-monthly-cpi.gif?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-27-aus-monthly-cpi.gif?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":22504,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/11\/07\/asx-and-the-long-run\/","url_meta":{"origin":18450,"position":5},"title":"ASX and the long run","author":"Colin Twiggs","date":"November 7, 2020","format":false,"excerpt":"The ASX 200 is testing resistance at 6200 but declining Money Flow continues to warn of selling pressure. There is a lot of \"noise\" in the market at present -- due to COVID-19 easing, government stimulus, RBA rate cuts and political turmoil in the USA -- so we are wary\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18450","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=18450"}],"version-history":[{"count":4,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18450\/revisions"}],"predecessor-version":[{"id":18455,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18450\/revisions\/18455"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=18450"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=18450"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=18450"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}