October 21 2021 Edition
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In the US we
see the usual divisions seeming to worsen steadily with conflict on everything from
the Debt Ceiling to Abortion Rights. It becomes harder and harder to see how
the centre will hold and the implications of the ructions are important for
Australia. Also we are seeing all sorts of economic and supply chain issues
giving worrying problems. One wonders if Biden is up to all this.
In the UK a
veteran politician’s murder has dominated the news sadly.Late this week the COVID is back in the headlines as cases rise again in leaps and bounds!
In OZ ScoMo
is off to COPS26 in Glasgow but we are still wondering just what he will have
to say. How we transition to a low emissions economy is complex and hugely
difficult. Not sure if people really understand just yet just what is needed! The bickering between the Coalition about what to take to Glasgow in the way of promises has been just amazing.
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Major Issues.
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https://www.afr.com/policy/foreign-affairs/aukus-paradox-leaves-us-unprepared-20211007-p58xz9
AUKUS paradox leaves us unprepared
How will Canberra explain the capability gap when swirling strategic currents will not wait for Australia’s first nuclear submarines to hit the water in 2040?
James Curran Columnist
Oct 10, 2021 – 2.13pm
As the bunting came down following the AUKUS announcement, debate about its meaning for Australia’s strategic present and future has been robust.
Many questions remain: especially which submarine Australia chooses after an 18-month study – the US Virginia class or the British Astute – and how, in the meantime, Canberra explains the capability gap in the nation’s maritime defence and force projection.
Problems abound. A government stressing that current strategic uncertainty is akin to the geopolitical sparks of the 1930s says that its new submarines will not hit water until at least 2040. A Prime Minister who assures Defence that no funding will be taken from other areas of its portfolio to fund the new submarines requires other budget cuts if defence spending is to rise.
The AUKUS paradox is obvious: the strategic currents now swirling may not wait for Australia to be fully prepared.
Given the Prime Minister invokes the lessons of the 1930s, he will not wish historians of the future to judge that it was this era, to paraphrase Churchill, when Australia slept.
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Regulator push to recruit Google to combat academic cheating
Julie Hare Education editor
Oct 10, 2021 – 2.36pm
Online and social media platforms LinkedIn, YouTube, Gumtree and Google have been warned they may be breaching their terms of service by hosting advertising from “pernicious” and increasingly sophisticated essay mills and academic cheating sites.
The Tertiary Education Quality and Standards Agency wrote to the four sites last week requesting they delete and ban any advertising that offered services to students that constituted cheating, on the grounds it breaches federal legislation and their own terms of service.
The letter was sent just days before a win in the Federal Court for the regulator, requiring telcos to block access to the website Assignmenthelp4you.com.
TEQSA will also approach Facebook and Instagram to remove offending material, The Australian Financial Review understands.
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Fear is driving good economic policy out of the political market
Economics Editor
October 11, 2021 — 5.00am
When it comes to politicians, some are good shots and some are cheap shots. These days, the successful politicians – you wouldn’t call them leaders – have relied heavily on cheap shots. The cheapest being to spread fear.
The simple truth is that humans have evolved to continually check their environment for threats. Those who weren’t so obsessively cautious died from some misadventure before they’d managed to have kids.
One way of defining civilisation is that it’s the quest to remove all threats to life and limb. This is the largest role performed by government and the main thing our taxes pay for.
The welfare state – including universal health care and social security payments – is about removing the threat of people dying because they’re too old or sick or disabled to work, or just can’t find a job. The welfare state is a giant risk-sharing system, a massive insurance scheme.
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Financial advice a loss-making business: KPMG
Aleks Vickovich Wealth editor
Oct 12, 2021 – 5.00am
Modelling by professional services giant KPMG has found the average cost to provide financial advice exceeds the price paid for that advice by 30 per cent, reigniting calls for red tape to be stripped from the troubled sector.
Research conducted by KPMG and commissioned by the Financial Services Council, seen by The Australian Financial Review, found the average cost of providing comprehensive financial planning advice is $5335 a client, vastly exceeding the average cost charged to consumers of $3660.
“This research shows that advisers are not currently covering 100 per cent of their cost of production,” the KPMG report concluded. “The cost of advice charged to consumers is lower than the cost to produce the advice.”
KPMG’s analysis is based on a survey of and interviews with 11 financial services licensees, including two large corporates with more than 300 advisers under their control, eight medium-sized firms and one small boutique with fewer than five advisers. It tested the results against KPMG’s panel of financial advice industry experts.
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Australia must leverage nuclear subs for civilian energy too
The country cannot let dogmatism and pessimism about our abilities get in the way of maximising the expensive naval technology we are planning to adopt.
Alex Coram and Stephen Anthony
Oct 11, 2021 – 12.41pm
Regional events have sharpened Australia’s defence policies. The most obvious response of the Morrison government is committing us to an alliance with the US and the UK to share and buy nuclear submarine technology.
This has sorted out a messy procurement process that didn’t seem to be delivering worthwhile results. Prime Minister Scott Morrison deserves credit for trying to do this much.
Is the new arrangement in our best strategic interests? We don’t know. Do we need submarines? We don’t know. If we have submarines, should they be nuclear powered? Most likely.
What we know is that the decision to choose nuclear-powered submarines has brought Australia face to face with one of the most important technologies of our time. Leaving aside strategic implications, this is a commendable move.
Macroeconomics Advisory concluded when it was engaged to lead the original economic analysis for the future submarine project back in 2012 that it is far cheaper to adopt the technology of our closest allies (including the Japanese for their systems engineering skills).
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Big four lender Westpac announces another $1.3bn in writedowns and customer refunds
By Alex Druce
NCA NewsWire
October 12, 2021
Big four lender Westpac has announced another eye-watering financial blow, with the bank set to take a $1.3bn hit in its upcoming financial results.
The $95bn company – which owns the St. George, Bank of Melbourne, and BankSA brands – said its net profit and cash earnings would be significantly reduced in the second half of 2021 thanks to another run of impairments and customer refunds.
Tuesday’s update eclipses the $1.2bn hit the bank announced almost the same time last year.
Westpac – the nation’s second largest bank behind the Commonwealth Bank – says it expects a $965m writedown of software assets and goodwill in its institutional bank following its annual impairment test.
Another $172m will be lopped off the balance sheet for additional provisions for customer refunds, payments, associated costs and litigation provisions.
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Should investors trust the bears or a new economic cycle?
Investors who look through bearish signals will find companies poised to benefit from economic strength.
ST Wong Contributor
Oct 12, 2021 – 5.00am
Was it really just 18 months ago that the price of oil was negative? Oil producers had such a glut they were literally paying buyers to take barrels of oil off their hands. What has changed?
Commodities experienced a boom. Residential property, industrial property and shares boomed alongside. Was this just a trade in risk assets resulting from COVID-19, or the beginning of the next economic cycle?
Investors must navigate many mixed messages. Every economic or financial report refers to some form of slowing growth. Bearish market observers are raising the prospect of stagflation overhanging the US economy, and Evergrande’s debt problems in China.
Some near-term headwinds have emerged. Several CEOs said in the August corporate reporting period that global supply chain constraints, the stop-start approach to lockdowns and rising costs are key challenges.
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Australian sharemarket faces three challenges
Smart investors should be alert, watching whether headwinds involving government handouts, housing and China turn into cyclones.
James Weir Contributor
Oct 12, 2021 – 5.00am
The 18 months from the end of March 2020 to September 2021 will go down as one of the most astonishing periods for the Australian sharemarket. The S&P/ASX 200 Accumulation Index jumped more than 50 per cent, taking pretty much everyone by surprise after expectations had been hammered by the wholesale closure of the global economy.
The 2021 financial year saw Australian companies report 27 per cent earnings growth, the best in more than 30 years, albeit bouncing off a low prior year comparison. After companies slashed dividends the previous year, cash holdings surged to a record $211 billion and dividends bounced back ferociously, almost doubling year-on-year.
Record iron ore prices underwrote spectacular dividends from the big miners; banks were awash in capital with a surging housing market and record low funding costs, and retailers reported record years as households spent up on tech and home improvements. There’s no question that the past 18 months have been very good to Australian share investors.
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https://www.afr.com/wealth/personal-finance/why-it-pays-to-have-an-emergency-fund-20211011-p58z2m
Why it pays to have an emergency fund
A true rainy day fund should be out of daily sight and out of daily mind, so you can resist temptation to invest or spend the money.
Glen James Contributor
Oct 11, 2021 – 5.57pm
If you don’t think an emergency fund is worth having, ask someone who got laid off work in an instant because of the COVID-19 pandemic.
Having a
credit card for emergencies doesn’t stack up. If you’ve lost your job it won’t
help to replace that income. It will only help you pay some bills for a
while until you max out the card. And guess what – you’re then left with debt.
I’m talking about having cash ‘at-call’ in a dedicated online savings account, or similar, with three months’ worth of expenses in your emergency fund if you’re an employee and six months’ worth of expenses if you’re self-employed.
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Doing a PhD is like being bonded to a medieval guild
6:59PM October 12, 2021
Guess who is paid more: an apprentice plumber or somebody who is effectively doing an apprenticeship to become a leading scholar and researcher?
You probably know the answer. It’s the plumber. A first year apprentice plumber who is over 21 but who did not complete year 12 will earn nearly $42,000 a year.
Compare this with somebody doing a PhD in an Australian university. Take your pick as to their field of study. It could be artificial intelligence, gender studies, quantum computing, climate science, econometrics, evolutionary biology or English literature.
If they are one of about 3500 research degree students each year who are awarded a government-funded stipend for the duration of their degree then they probably get under $30,000 a year. This is the rate most universities offer. Under government rules, a university can pay up to nearly $45,000 but that’s rare because then fewer research students can be assisted.
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Defence strategy sunk without a clear assessment
11:00PM October 11, 2021
Nuclear-powered submarines are the biggest investment by an Australian government, yet on the information available it is not possible to know if they are the right investment. Perhaps they are, but the public is being asked to accept it on faith and jingoistic claims about addressing Chinese threats, not on the basis of careful analysis shared and debated.
The processes during the past 1½ decades leading to this decision have been embarrassing. First there was the delay in deciding on the Collins-class extension and post-Collins requirements; then came the announcement that Australia would buy Japanese subs; then, after an ill-defined competitive assessment, there was the announcement that Australia would procure French subs; and now comes this latest plan.
As federal Finance Minister Simon Birmingham admits, we don’t know the costs; neither do we know the risks. We therefore don’t know the opportunities forgone if the money were spent on other defence capabilities, or the consequences should the risks involved lead to further costs, delays and gaps in our defence capability.
The 2008 Audit of the Defence Budget led by independent consultant George Pappas set out in detail the processes required for identifying strategic requirements and translating these into procurement priorities. His recommendations were aimed at strengthening the framework espoused in Defence to maximise the capability to defend Australia from the funds available.
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Speaker who restored respect to the House will leave a gaping hole
Award-winning political commentator and author
October 14, 2021 — 5.30am
Tony Abbott probably did Tony Smith a favour by dropping him from the frontbench after he won government in 2013.
Smith didn’t think so at the time. He had every right to be bitterly disappointed. Smith had long been seen as a future cabinet minister. With a wealth of experience in politics, he had been touted as a potential deputy. Instead he was appointed chair of the joint standing committee on electoral matters.
It set him up to become the best speaker of the House of Representatives in modern times. Those who have been around federal politics for decades, including Laurie Oakes, members of Labor’s leadership team and this columnist cannot name anyone better.
When he steps down from the Speaker’s chair after serving more than six years, through three Liberal prime ministers, there will be a gaping hole, along with a huge responsibility on future prime ministers to find someone to match him.
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Academic freedom recognised but sacked scientist fails in bid to be reinstated
Consitutional lawyer
October 14, 2021 — 5.00am
At first sight, the High Court’s decision yesterday to dismiss an appeal by university professor Peter Ridd was disappointing for advocates of intellectual freedom in universities.
Professor Ridd will no doubt be frustrated that the termination of his employment by James Cook University was, in effect, upheld. But on the fundamental underlying issue – the protection of academic freedom – the decision is greatly reassuring.
Academic freedom is an ancient principle strongly protected in the great university systems of the world. The basic idea is that research and teaching flourish when researchers are allowed maximum freedom to pursue their research as they think best.
That is not to say that research is a free-for-all. On the contrary, research is disciplined by academic methods as well as ethical and other norms. But the basic point is that the quality of research and the correctness of claims made by researchers are matters for the academic community. In other words, it is for researchers to determine what is good research and not governments, university leaders or anyone else.
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https://www.afr.com/policy/foreign-affairs/why-australia-needs-a-security-rebalance-20211014-p58zwa
Why Australia needs a security rebalance
The pandemic has blown up any idea that we can easily spot the future threats to Australia. So how do we prioritise our finite security resources?
Ben Scott Contributor
Oct 15, 2021 – 12.33pm
Trailing in the wake of the AUKUS announcement that Australia will obtain nuclear-powered submarines is a key unanswered question: how are we going to meet the $100-billion-plus price tag? According to former Defence secretary Dennis Richardson it’s necessary to “grow the defence budget to 3 per cent of GDP to ensure the submarines do not cannibalise other defence capabilities”. But what of non-Defence capabilities?
So a broader question needs to be asked: how should we allocate finite resources against a widening array of national security risks? Washington is in the midst of its own rebalance. Coming on the heels of the withdrawal from Afghanistan, the AUKUS announcement may signal that the long-delayed “pivot” towards Asia, and away from the Global War on Terrorism, is under way.
How should Australia rebalance? Australia’s security environment has probably never been more complex. China and jihadist terrorism are far from the only potential threats. National security planners must weigh the risks of populist nationalism – including in the United States – and threats from right-wing terrorism. The North Korean and Iranian nuclear programs pose growing challenges. And the climate emergency is intensifying. COVID-19 should, if nothing else, have shaken any confidence we have about the sources of future threats.
Ministers should lead this discussion. The pandemic may have been the conversation starter we needed.
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Risk of conflict between China and US ‘at almost 50pc’
While lots of people talk about the risk of war without actually understanding the odds, new research sheds light on the probability of major power conflict, writes Christopher Joye.
Christopher Joye Columnist
Oct 15, 2021 – 10.52am
In 2012 this column argued that notwithstanding a wealth of data on the history of military conflicts, and the “correlates of war”, there was a staggering paucity of serious quantitative research on the actual empirical probability, or risk, of these existential events materialising.
There was a further absence of efforts to rigorously predict conflicts between specific country pairs leveraging the extraordinary array of longitudinal information that we can now access, which affords potentially powerful insights into the shifting probabilities of nations engaging in warfare.
This column observed that although “the most profound hazard [we] face is the risk of war … [and] we invest vast taxpayer resources nominally insuring against it … there is a startling dearth of quantitative research on forecasting the frequency and severity of wars … despite more than 200 conflicts since 1900, causing 35 million deaths.”
In a 2012 paper, the Swiss professor Thomas Chadefaux similarly noted: “The prediction of war has been the subject of surprisingly little interest in the literature, in marked difference to a wide range of fields, from finance to geology, which devote much of their attention to the prediction of extraordinary – black swan – events such as financial crises or earthquakes.”
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House prices to surge by 22 per cent this year, says Westpac
By Swati Pandey
October 14, 2021 — 7.45pm
Australian home prices will surge 22 per cent this year, economists at Westpac said, upgrading their forecast from a previous 18 per cent and warning it could force regulators to try to further rein in credit growth.
Prices across major cities are up 17 per cent over the year to September and are on track to jump 1.5 per cent this month, Westpac said in a research note on Thursday. That’s even as Sydney and Melbourne are only just beginning to ease lockdown restrictions and following macroprudential curbs on lending.
“We expect reopening boosts to more than offset any initial drags from recently announced macro-prudential measures,” Westpac’s Bill Evans and Matthew Hassan said.
“This strong momentum will carry into 2022. However, the pace of gains is expected to slow, levelling out over the course of next year before moving into a correction phase in 2023.”
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Coronavirus And Impacts.
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60/40 portfolios threatened by inflation: analysts
Lu Wang
Oct 13, 2021 – 6.35am
The recent synchronised sell-off in equities and Treasuries was likely just the beginning of what’s come for the popular 60/40 stock-bond portfolio strategy, a growing chorus of Wall Street strategists warn.
Bank of America called it “the end to 60/40” while Goldman Sachs said losses from such portfolios could swell to 10 per cent. Similar alarms also rang at Deutsche Bank, where strategists including Jim Reid said a shift in the stock-bond relationship may force money managers to adjust their thinking.
Underpinning all these warnings is an economy that’s now facing mounting inflationary pressures after spending years warding off the threat of deflation. During the last two decades, subdued growth boosted the allure of the 60/40 strategy, one that’s built on a negative stock/bond correlation where one serves as buffers for the other.
Now, with inflation fears raging, the worry is the Federal Reserve will seek to slow down the economy and rising rates will spell trouble for both bonds and stocks.
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Federal Treasurer Josh Frydenberg cuts GDP outlook amid Covid-19 lockdown hit
October 13, 2021
The impact of the recent Covid-19 lockdowns, particularly in NSW and Victoria, is costing the national economy some $2bn a week, Federal Treasurer Josh Frydenberg told a Citi conference on Wednesday.
Mr Frydenberg said he expected that this would see the September quarter economic growth figures show a fall of 3 per cent or more.
But he said things would turn around once the economy started opening up as Covid-19 travel restrictions eased.
The Australian economy will “bounce back” once Covid-19 travel restrictions are eased, with consumers running down some $250bn worth of savings accumulated over the past year, the Federal Treasurer said.
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https://www.afr.com/policy/economy/hopes-and-fears-for-the-global-covid-19-recovery-20211013-p58zkv
Hopes and fears for the global COVID-19 recovery
Vaccine rollouts and the economic recuperation they have brought with them are not unalloyed joys: they bring new anxieties and challenges.
Martin Wolf Columnist
Oct 13, 2021 – 11.51am
The recovery from the shock of COVID-19 was quicker and stronger than anybody expected a year-and-a-half ago. This we owe to a big scientific and organisational achievement: the development and mass production of effective vaccines.
A depressingly large proportion of humanity is suspicious of this modern miracle. Yet this success and the recovery it has brought with it are not unalloyed joys: they bring new anxieties and challenges. That is the best way to read the latest World Economic Outlook and Global Financial Stability Report from the IMF.
The biggest concern must be over the pandemic itself. As of late September, 58 per cent of the population of high-income countries was fully vaccinated, against 36 per cent in emerging economies and a miserable 4 per cent in low-income countries. More than half of the world’s countries are not on track to vaccinate 40 per cent of their populations this year.
The report assumes sufficient success with the global vaccination program to bring COVID-19 under control by the end of next year. But the slow rollout increases the risk that new variants will falsify this hope.
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‘Extraordinary’ state powers will need to end, says Frydenberg
Ronald Mizen Economics correspondent
Oct 13, 2021 – 6.05pm
Treasurer Josh Frydenberg said sweeping powers given to state leaders during the COVID-19 crisis needed to ebb away as life returns to normal, and the government expected lockdowns in Australia’s two most-populous states to wipe 3 per cent or more off the economy in the September quarter.
A 3 per cent-plus contraction on the June quarter would mean lockdowns across NSW, Victoria and the ACT wiped $5 billion a month from gross domestic product in July-September, or about $15 billion over the quarter, more than 50 per cent more than forecast just weeks ago.
Treasurer Josh Frydenberg says the economy will contract by 3 per cent or more in the September quarter.
Mr Frydenberg said state and territory leaders had given themselves an “extraordinary level of power” to control people’s lives in the pandemic, which would need to eventually come to an end.
“The pandemic’s been pretty unusual in the sense it’s elevated the role of premiers to a prominence, I suspect, they haven’t had for decades,” he said.
“It’s been a bit confusing for the public because they normally look to the federal government to make the big decisions that affect their lives, whether it’s tax policy, or national security policy or borders.
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TGA gives tick to at-home rapid Covid-19 tests
9:53PM October 14, 2021
Australia’s peak medical regulator has approved three Covid-19 rapid antigen tests for at-home use from November, granting the final tick of approval needed to allow the on-the-spot tests to be rolled out to supermarkets, petrol stations and pharmacies across the country.
The Therapeutic Goods Administration said on Thursday that the first approved test kits, all supplied by AM Diagnostics, will be available for use from November 1.
Two of the rapid tests are oral fluid, requiring the user to spit into a tube to secure a result; a third is a nasal swab.
The approval comes as the country moves away from pursuing a Covid-zero strategy towards learning to live alongside the virus, with rapid antigen testing likely to become a key tool.
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https://www.afr.com/policy/health-and-education/perrottet-ramps-up-freedom-push-20211014-p58zzf
Perrottet’s biggest pandemic gamble yet
Aaron Patrick Senior correspondent
Updated Oct 15, 2021 – 11.51am, first published at 11.10am
As an unmasked NSW Premier Dominic Perrottet stood behind a bar toasting the first day of the city’s post-pandemic opening with four other men on Monday, a female adviser desperately urged them to socially distance.
“Spread out! Spread out!” she called, sotto voce. But Perrottet, Deputy Premier Paul Toole, Treasurer Matt Kean, Finance Minister Damien Tudehope and Business NSW chief executive Daniel Hunter ignored her.
For a state that had become comfortable under the leadership of two women, Premier Gladys Berejiklian and Chief Health Officer Kerry Chant, the switch to the male-dominated, beer-swilling team was confronting.
But the libertarian-leaning Perrottet, who has acknowledged he needs more women in government, quickly demonstrated that he wasn’t going to copy Berejiklian’s cautious style.
On Friday, Perrottet, who has positioned himself as an open-up leader, said travellers and tourists arriving from overseas won’t have to quarantine from November 1 – a pivotal step towards ending Australia’s isolation from the world.
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Climate Change.
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An economic storm is brewing ahead of Glasgow and Christmas
Senior business columnist
October 11, 2021 — 11.59am
Soaring energy costs amid severely disrupted global supply chains are threatening to derail the global economic recovery from the pandemic, swell already spiking inflation rates and provide a sobering backdrop to the global climate change summit in Glasgow next month.
Oil and natural gas prices are their highest since 2014 and energy coal prices are at record levels as the UK, Europe and China experience dire energy shortages and scramble to secure supplies of gas and coal to keep the lights and heating on and factories operating.
The energy crisis – the rocketing costs and meagre reserves ahead of the northern winter – is occurring even as the bottlenecks in the global supply chain are becoming even more pronounced in the lead up to Christmas.
A shortage of containers and container ships as the global economy rebounded from the worst of the pandemic is being exacerbated by outbreaks of COVID at ports, particularly in China; by the lengthy delays caused by COVID-related health safety requirements; by labour shortages throughout the supply chain and by the impact of the pandemic on air transport. Shortages of semi-conductors are impacting production of everything from toys to cars.
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Why hydrogen – and Andrew Forrest – are stealing the limelight
6:06PM October 11, 2021
Is it a coincidence? A landmark ‘green hydrogen’ investment from billionaire Andrew Forrest came inside 24 hours of Prime Minister Scott Morrison’s equally pivotal announcement on Monday that “addressing climate change is a challenge we must all do together”.
Despite a predictable level of hype and only sketchy financial details, investors will not miss the move by the iron ore magnate – through his Fortescue Future Industries unit – to stake a claim on what might become ‘the hydrogen era’.
Investors all over the world are betting on hydrogen – particularly cleaner green hydrogen – as heavy industry seeks alternatives to fuels such as coal.
A closer look at the statement from Forrest reveals he is planning a diversified gamble on the future of alternative power where ‘green hydrogen’ just happens to the first step in a long range plan. The $US650m Queensland facility is expected to start with an $US83m investment to kickstart the manufacture of electrolyser equipment used to create hydrogen from water.
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Net zero will be a bonanza for Australian minerals, says IMF
Matthew Cranston and Ronald Mizen
Oct 13, 2021 – 12.01am
Washington | Australia is in pole position to benefit from a sixfold increase in demand for so-called “critical minerals” worth $US12.9 trillion ($17.6 trillion) over the next two decades, driven by the race to hit net zero emissions, according to analysis from the International Monetary Fund.
In its latest World Economic Outlook, the Washington-based multilateral lender projects that a steady 15 per cent increase in its metal price index will bolster Australia’s annual economic growth by 1 percentage point, further strengthening the government’s finances.
The IMF specifically selected nickel, copper, lithium and cobalt as the top four energy transition metals likely to see surges in prices and production as the world works towards net zero emissions by 2050.
The four minerals are used as key components in batteries and renewable energies that are crucial in the transition from fossil fuels to low emission electricity.
“Prices would reach historical peaks for an unprecedented, sustained period under the net zero by 2050 emissions scenario. The prices of cobalt, lithium, and nickel would rise several hundred per cent from 2020 levels,” the report said.
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Energy crisis could worsen but no ‘supercycle’: Citi’s Morse
Angela Macdonald-Smith Senior resources writer
Oct 14, 2021 – 12.00am
The growing energy price crisis could get far worse over the next few months but is unlikely to develop into a “super-cycle” of crippling oil costs, Citi’s global head of commodities Ed Morse has said.
He warned prices would rise depending on the harshness of the northern winter, but dismissed the theory of an emerging cycle that could see $US80 a barrel of oil become the new norm.
Mr Morse said $US55-$US65 a barrel is the more sustainable price, which he anticipates through to mid-decade given ample availability of oil and gas resources. He rejected warnings of under-investment in new supply to offset declining fields that could keep the market tight.
“I see [the current price crisis] as a temporary phenomenon,” Mr Morse told The Australian Financial Review from his New York base, from where he will speak by videolink to the Citi Australia Investment Conference on Thursday.
“We think that at current prices, oil and gas... are super-abundant even with the restrictions put in place around the world to exploit old-fashioned, dirty hydrocarbons.”
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RBA warns climate-conscious investors could dump Australia
October 14, 2021
Reserve Bank deputy governor Guy Debelle has warned of a growing risk that climate-conscious global investors will move to “significantly divest” from Australia, as global financial markets gravitate towards greener opportunities.
As the pressure for Australia to adopt a net zero by 2050 emissions target grows ahead of a global leaders summit on climate change in Glasgow at the end of this month, Dr Debelle also warned that “simply shutting down parts of the economy is unlikely to deliver a socially optimal transition”.
“It is not necessary today to go down such a path, though the time we have before such a path might be necessary is decreasing,” he said.
Dr Debelle said “countries and economies need to transition sustainably. Some projects that are not ‘green’ will nevertheless be needed to assist an economy transition to net zero”. “Investing in a reduction in carbon emissions can still be an important part of the transition, even if the immediate outcome is not zero emissions,” he said.
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Morrison forced to fight the last war on climate change
Rebel Nationals are complicating Scott Morrison’s ability to sell a climate change policy that will keep the lights on, costs down and jobs and investment up just in time for Glasgow.
Jennifer Hewett Columnist
Oct 14, 2021 – 4.20pm
The financial world clearly doesn’t operate on Canberra’s timetable. Guy Debelle, deputy governor of the Reserve Bank, is just the latest expert warning global investors are rapidly and dramatically adjusting their portfolios in response to climate risk.
The Morrison government, minus some Queensland Nationals, accepts the danger this poses to Australian businesses – particularly in a heavily resources-based economy.
Resistance to growing pressure on climate change policy would give a whole new meaning to the Fortress Australia approach adopted to combat COVID-19. It’s certainly not possible to combat this by closing the borders to global capital.
It’s already become difficult for many Australian companies involved in oil, gas and coal to secure funding despite currently surging prices for just these products.
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The most abject failure of leadership in living memory
Prime ministers are supposed to make the case for change and then discipline their governments. Scott Morrison does not fulfil this most basic task.
Laura Tingle Columnist
Oct 15, 2021 – 4.50pm
A couple of weeks ago, without consulting the states, the Prime Minister announced he would be re-opening the international borders in states where the vaccination rate had hit 80 per cent.
“It’s time to give Australians their lives back,” Scott Morrison said, in what appeared for all intents and purposes to be a move designed to ensure he was the bloke getting the credit for opening things up, whatever states and territories might be doing, not to mention giving the whole opening up thing a good nudge along the way.
The fact he hadn’t mentioned it to the states – despite the significant ramifications it has for them as the ones responsible for trying to manage the spread of COVID-19 and the quarantine system (offloaded by the federal government) – meant the Prime Minister could hardly complain on Friday when the new NSW Premier Dominic Perrottet returned the favour by announcing his government would be removing both quarantine requirements and caps on overseas arrivals from November 1.
Perrottet didn’t mention it to any of the other states either of course, leaving the country in an apparently ludicrous shambles of restrictions: as many people have pointed out, of being able to travel from Sydney to Paris, but not Brisbane, Perth, Tasmania, the Northern Territory or even Canberra.
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Royal Commissions And The Like.
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No entries in this category.
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National Budget Issues.
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IMF downgrades 2021 economic outlook, but 2022 rebound coming
Matthew Cranston and Ronald Mizen
Oct 13, 2021 – 12.01am
Washington| The International Monetary Fund has cut its forecast for Australia’s economic growth this year, but is forecasting a solid rebound next year as restrictions ease and the economy reopens.
The 190-country lending agency said in its latest World Economic Outlook report on Tuesday (Wednesday AEDT) that it expects the global economy to expand by 5.9 per cent this year, down slightly from its 6 per cent forecast in April. It ascribed the extra caution largely to lingering supply chain problems from COVID-19.
In Australia, where extended lockdowns and consumer and employer uncertainty have hit jobs and spending, the IMF expects growth to end up at 3.5 per cent this year, down from its earlier prediction of 5.3 per cent. But the organisation has upgraded its forecast for next year from 3 per cent to 4.1 per cent.
Treasurer Josh Frydenberg said the positive outlook for next year reaffirmed the underlying strength and resilience of the Australian economy.
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A budget reckoning: How the tax system is failing Australians
Top economists, former Treasury officials and ex-politicians are warning that Australia is fast approaching a fiscal nightmare.
By Jennifer Duke and Shane Wright
October 13, 2021
Under the Australian tax system, how much tax you pay on $100,000 in earnings is no simple matter.
Depending on how you made the money, your willingness to push tax boundaries and the ability of your accountant, the ATO’s bill on your $100,000 could be anywhere between $25,000 and a refund of $5000.
It’s complex and perverse outcomes such as these that have top economists, former Treasury officials and ex-politicians warning Australia is fast approaching a fiscal nightmare that will weigh on key services and how the country defends itself, and add to inequality.
Their urgent call for an overhaul of the nation’s tax system begins a special series from The Sydney Morning Herald and The Age on the problems facing governments and taxpayers, and possible solutions. The series is based on interviews with some of the nation’s most experienced tax experts, policymakers and those who have watched on for years as the national tax debate has become bogged down in politics.
The tax on $100,000 goes to the heart of one of the problems.
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What needs to be done to fix the tax system?
By Shane Wright and Jennifer Duke
October 14, 2021
Some of Australia’s top economists and policy experts are calling for higher taxes on capital gains, the introduction of death duties and a hike in GST as part of a major reform to help the federal budget, strengthen the economy and cut taxes on ordinary workers.
The unequal treatment of taxes and over-reliance on income tax are two major features of the system the majority of experts interviewed by The Sydney Morning Herald and The Age want changed, though there are varied opinions on how to get the treatment of income, earnings and wealth right overall.
In the past month, both the Organisation for Economic Co-operation and Development and the International Monetary Fund joined the chorus urging wide-ranging reform of the tax system.
There have been several attempts to reform Australia's 1950's-designed, overly-complex tax system, but mostly only 'bandaid' solutions. As debt levels soar, the next generation of Australians should be worried.
According to the OECD, tax reform could deliver a sustainable financial base that boosts economic growth, promotes some of the government’s own priorities and prevents income and inter-generational inequality.
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‘The hardest thing you can do’: Why there’s little progress on tax reform
Experts are warning past failures at the voting booths with tax promises and a lack of courage will keep necessary reforms off the table at the 2022 election.
By Jennifer Duke and Shane Wright
October 15, 2021
Politicians on both sides of the nation’s ideological divide are failing to demonstrate the will, ability or political clout required to overhaul the tax system, experts warn.
Unless there is bipartisan agreement on the future of the nation’s tax system, an end to scare campaigns during federal elections or an inspirational leader prepared to fight the case, some of the nation’s top economists and policy minds say necessary reform will stay off the political agenda.
The political damage suffered in the past when pushing for tax reform is why Committee for Economic Development of Australia chief economist Jarrod Ball believes it is now considered too difficult to pursue.
“I think it does require a degree of policy leadership and communication … the best leaders can do it and others may struggle,” Ball says. “The idea of big policy platforms for elections has been on the way out for a little while now.
“I think people have just realised that the political capital that you burn is not worth it.”
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Health Issues.
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International Issues.
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China’s Xi vows ‘reunification’ with Taiwan, but holds off threatening force
By Carlos Garcia and Yew Lun Tian
October 10, 2021 — 12.27pm
Beijing: Chinese President Xi Jinping has vowed to achieve “peaceful reunification” with Taiwan, and did not directly mention the use of force after a week of tensions with the Chinese-claimed island that sparked international concern.
The comments followed a sharp criticism of former prime minister Tony Abbott by the China embassy in Australia, in which it said Abbott was a “pitiful” politician, after he denounced Chinese pressure against Taiwan during a visit to the island last week.
Taiwan responded to Xi by calling on Beijing to abandon its coercion, reiterating that only Taiwan’s people could decide their future.
Democratically ruled Taiwan has come under increased military and political pressure from Beijing to accept its sovereignty, but Taipei has pledged to defend its freedom.
Speaking at Beijing’s Great Hall of the People, Xi said the Chinese people have a “glorious tradition” of opposing separatism.
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https://www.afr.com/markets/equity-markets/stagflation-fears-stalk-markets-20211010-p58yoc
Stagflation fears stalk markets
William McInnes Reporter
Oct 10, 2021 – 5.31pm
The potential for a return to 1970s-style stagflation has begun to concern some market strategists as the global energy crisis drives inflation at a time when economic growth appears to be slowing.
A global shortage of energy commodities has driven prices to multi-year highs and could begin to feed through to consumer prices, curbing economic activity through the last few months of the year.
On Friday, US non-farm payrolls for September fell well short of expectations, marking several consecutive months of sluggish jobs growth.
The poor result weighed on shares on Wall Street at the end of the week, setting the local sharemarket up for a weaker start on Monday, with ASX futures down 4 points, or 0.06 per cent, ahead of the open.
While most strategists are reluctant to call the beginning of an era of stagflation, a growing number are starting to acknowledge the energy crisis could spark fears of its return.
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Austrian Chancellor Sebastian Kurz quits amid criminal probe
Melissa Eddy
Oct 10, 2021 – 5.51pm
Berlin | Chancellor Sebastian Kurz of Austria announced at the weekend that he would resign, days after prosecutors began a criminal investigation into allegations he used public money to pay pollsters and journalists for favourable coverage.
The move came amid intense pressure from all sides, with Mr Kurz’s partners in the government, the Greens, threatening to quit the coalition unless his conservative People’s Party replaced him as chancellor. The country’s president issued a stern statement urging all players to put party politics aside in the interest of stability.
“I admit that it is not an easy step for me,” Mr Kurz told reporters at a news conference in Vienna on Saturday evening (Sunday AEDT). “My country is more important than my person. What it needs is stability.”
Mr Kurz, 35, said he would suggest Alexander Schallenberg, 52, the country’s foreign minister, as his replacement. He said he would stay on as leader of his party and head of the conservative caucus in Parliament – positions that would keep him close to the new chancellor.
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Can China contain the Evergrande crisis?
As Evergrande’s crisis ripples through China’s property market and broader economy, it will be difficult to prevent contagion spreading through global financial markets
Karen Maley Columnist
Oct 11, 2021 – 5.00am
It’s unlikely that Evergrande’s international bondholders are regular readers of the Global Times, the stridently nationalistic mouthpiece of the Chinese Communist Party.
But they probably took notice of a Global Times editorial published last Thursday that blasted US Secretary of State Antony Blinken for his comments urging China to act “responsibly” in addressing Evergrande’s liquidity crisis, which he warned could have profound ramifications for the entire world.
The Global Times was unimpressed. “China will not change its own pace of economic adjustment for the sake of external pressure or placating the market,” it shot back.
Evergrande’s problems, it said, were because of “its aggressive expansion on the back of high leverage and credit bubbles, a shared phenomenon among Chinese developers”. It was to stop this “reckless borrowing” that Chinese authorities last year unveiled the “three red lines” policy that limited how much Chinese property developers could borrow.
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My message to Taiwan: get ready to fight
11:00PM October 10, 2021
Taiwan’s Foreign Minister spoke frankly with the Australian people last week about the prospect of invasion so I will do my best to speak with equal candour.
For a retired free-world politician, there may be no more telling place to be than Taipei right now because this is where liberty and tyranny are most at odds. Taiwan is a liberal democracy of almost 25 million people, now in peril, so what Australian democrat would not rally to your cause?
We have to assume that China is preparing to take Taiwan, as President Xi Jinping himself has said, by force if necessary, even though Taiwan has never been part of communist China and hasn’t really been ruled from Beijing since 1895.
Why would China be flying ever more intimidatory sorties against this island; and why would China be building a massive amphibious assault capability; and why would it be amassing batteries of “carrier-killing” missiles, if its plan were not to force the US from the western Pacific and to have the People’s Liberation Army in charge here in Taipei?
I can hardly conceive of a more horrible prospect than a sea and air invasion of this island; preceded as it almost certainly would be, by an ultimatum to the US and its allies. Yet isn’t the alternative even worse: the subjection of a free people to a tyranny that brooks no opposition, no alternative sources of power and influence, no independent thought, just ever more complete subservience to the Red Emperor, monitored and enforced by 24/7 electronic surveillance?
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‘We won’t bow to China’, says Taiwan President Tsai Ing-wen
9:29PM October 10, 2021
Taiwan President Tsai Ing-wen has noted Australia’s rising concern for the fellow island democracy in a major speech given after Chinese President Xi Jinping pledged to bring Taiwan’s 23 million people under his control.
In an address on Sunday to mark Taiwan’s National Day, Ms Tsai declared her fellow citizens would not “bow to pressure” and would “bolster national defence … to ensure that nobody can force Taiwan to take the path China has laid out for us”. She said Taiwan’s situation was “more complex and fluid” than at any time in the past 72 years and was becoming more “tense and complex by the day”.
But she noted the increasing international support for Taiwan as it confronts Beijing’s aggression.
“In Washington, Tokyo, Canberra and Brussels, Taiwan is no longer on the margins,” Ms Tsai said.
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Companies prepare for a ‘selective decoupling’ with China
For foreign businesses operating in the Middle Kingdom, it may be best to plan for uncertainty.
Leo Lewis Contributor
Updated Oct 11, 2021 – 12.16pm, first published at 11.38am
The Asia-based managing partner of one of the world’s largest law firms last week set out what he reckoned was the prevailing story of foreign business in China in the final quarter of 2021.
Corporate clients are spooked by a range of factors, he said, adding that global supply chains established over the past two decades are in unprecedented flux and the operative word in boardrooms is “decoupling”.
Nonsense, I was told a day later by an ebullient Asia supremo of one of the world’s biggest investment banks. Whatever souring geopolitics or white-knuckle regulatory uncertainties may afflict the tech and property sectors, Beijing remains fundamentally supportive of private business.
The opportunities of a demand-driven market this buoyant remain far too huge to shun. Corporate clients, he says, are either increasing their investment in China or, for those that blenched during the 2018 opening salvos of the US-China trade war, girding themselves to “recouple” before the chance is lost.
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Evergrande crisis sits on edge of China’s growth fault line
If Beijing honours the implicit guarantee a full-on financial crisis will be avoided. But buying prosperity by putting property debt on the government tab will produce diminishing returns.
Adrian Blundell-Wignall Columnist
Oct 12, 2021 – 11.56am
The laws of economics always work. History is replete with the follies of governments trying to escape them.
And it’s not just authoritarian regimes that misallocate resources via state investment and funding, capital controls, subsidies and the corruption that always travels with these elements. Anywhere where funds are raised with an explicit or implicit guarantee, problems will follow.
This was the case with the US Savings and Loan (S&L) crisis, which attracted all sorts of investors with the implicit guarantees and promises of high returns by lending to shonky high-risk property deals.
The Evergrande crisis in China reminds me of the S&L crisis, with the difference that Evergrande is both intermediary and property developer. Double risky.
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Bond market inflation gauge set to ‘cross the Rubicon’
Liz Capo McCormick
Oct 12, 2021 – 4.59am
One of the bond market’s closest followed monitors of long-term inflation expectations is suggesting that the Federal Reserve may be at risk of losing control over rising pricing pressure.
The so-called five-year, five-year forward breakeven inflation rate, is close to a level it hasn’t consistently held above for about seven years. It’s the second time in recent months that the gauge has flashed such a warning.
In May, a similar rise prompted Brian Sack, the former head of monetary and financial market analysis at the Fed Board of Governors who had championed the use of the measure to guide policy, to join other prominent voices to warn the central bank needed to signal a policy adjustment.
While the Fed did that in June -- saying officials would begin to discuss scaling back bond purchases -- as well as last month to set the stage for a November taper announcement, an energy-price spiral and rising wages has unmoored breakevens again. With whittling down of bond-buying soon seen as a sure thing, any other hawkish Fed tilt would likely have to be around the timing of rate lift off.
“Inflation breakevens are about to cross the Rubicon,” a team of Deutsche Bank strategists including Francis Yared wrote in an October 8 note.
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https://www.afr.com/world/asia/should-south-korea-build-its-own-atomic-bomb-20211011-p58z07
Should South Korea build its own atomic bomb?
North Korea’s ability to strike American cities means that South Korea can no longer be sure of the US nuclear deterrent. It would be justified in developing nuclear weapons of its own.
Jennifer Lind and Daryl G. Press
Oct 11, 2021 – 2.48pm
The alliance between the United States and South Korea seems as if it should be stronger than ever. America is finally shifting its strategic attention to Asia, aided by the end of its “forever war” in Afghanistan. Meanwhile, the growing North Korean nuclear threat should be energising shared US and South Korean interests in denuclearisation and deterrence. At a glance, the bonds that lock Seoul and Washington together appear solid.
In fact, the alliance is in trouble – pulled apart by powerful geopolitical forces. The only way to save it might be for South Korea to move in a direction that much of Washington considers unthinkable: to develop an independent nuclear arsenal.
The Trump years certainly damaged the relationship. Former president Donald Trump made clear that he thought South Korea took advantage of the United States. But the true root of the problem lies in two long-term trends. First, the rise of China is creating a rift between American and South Korean foreign policy priorities. Managing the growth of China’s power has become America’s primary national security goal. As the costs and dangers of countering China rise, Washington increasingly expects its allies to join in this effort.
But the South Koreans never signed up for that deal. Their alliance with the US has always been about North Korea. A counterbalancing effort against China would poison South Korea’s relations with its No. 1 trading partner – which is also the most powerful country in the region. Fear of offending China partly explains South Korea’s reluctance to join the Quad, a US-led alignment that includes India, Australia and Japan. The US is an important player in East Asia right now; China, Koreans know, will be their neighbour forever.
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How Australia has shaped up to Xi’s aggression
Political and international editor
October 12, 2021 — 5.00am
Australia was told last year that it was nothing more than “chewing gum stuck to the bottom of China’s shoe”, and that “sometimes you have to find a stone to rub it off”.
In the face of this charming overture from propagandist Hu Xijin, editor of the Chinese Communist Party-owned Global Times, Australia is beginning to discover that it’s not entirely worthless or powerless in its dealings with Beijing after all. Six developments in recent days and weeks illustrate the point.
Beijing had put bans on more than $20 billion worth of Australian exports to China and then issued its list of 14 demands on Australian sovereignty. We were left to suffer and reflect on our sins. From the outset, Xi Jinping’s regime was careful in choosing the trade to be banned. It did not ban the biggest trade of all, Australian iron ore, essential for steelmaking. But Beijing calculated that it could live without Australian coal, beef, barley, wine, seafood and more.
It was wrong. In recent days we discovered that China quietly has set aside its ban on Australian coal. Bulk carriers that had anchored off China’s ports a year ago were now being called to unload their cargoes. London’s Financial Times last week reported that some 400,000 to 500,000 tonnes of Australian shipments had been discharged in the preceding month.
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Pioneering trio shares 2021 Nobel prize for economics
AP
11:02PM October 11, 2021
A US-based economist won the Nobel prize for economics on Monday for his pioneering research that showed an increase in minimum wages did not lead to less hiring and immigrants did not lower pay for native-born workers, challenging commonly held ideas.
Canadian-born David Card of the University of California, Berkeley, took half the prize for his research on how minimum wage, immigration and education affect the labour market.
The other half was shared by Joshua Angrist from the Massachusetts Institute of Technology and Dutch-born Guido Imbens from Stanford University for working out the methodological issues that allow economists to draw solid conclusions about cause and effect even where they cannot carry out studies according to strict scientific methods.
The Royal Swedish Academy of Sciences said the three had “completely reshaped empirical work in the economic sciences”.
Unlike in other sciences, economists cannot conduct rigidly controlled clinical trials. Natural experiments use real-life situations to study impacts on the world.
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Nobel Prize for economics goes for understanding when correlation is causation
David Card, Joshua Angrist, and Guido Imbens made pioneering contributions to what is now a core part of modern social sciences, not just economics.
Richard Holden Contributor
Oct 12, 2021 – 11.27am
How much does raising the minimum wage affect unemployment? How important is the rule of law in economic development? What is the effect of longer prison sentences on crime? Does media bias affect voting behaviour?
These are all fundamental questions in the social sciences, and answering them involves trying to understand not just whether two phenomena are correlated, but whether one causes the other.
This year’s Nobel Prize in Economics was awarded to three scholars who have helped us understand how to infer causal relationships from observational data. David Card of the University of California, Berkeley, Joshua Angrist of Massachusetts Institute of Technology, and Guido Imbens of Stanford University all made pioneering contributions to what is now a core part of modern social sciences, not just economics.
In physical sciences the standard method for understanding causal effects is through a “randomised controlled trial (RCT).” If we want to know whether a certain heart medication reduces cardiac events then the gold standard method is to conduct a clinical trial.
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Taiwan takes centre stage in great power rivalry
Whether the defence of Taiwan should be a red line for the United States is emerging as one of the dominant foreign policy debates in Washington.
Ishaan Tharoor
Oct 13, 2021 – 8.00am
O n both sides of the Taiwan Strait, governments marked historic anniversaries last weekend with an eye cast toward the other.
In a speech Saturday commemorating 110 years since the overthrow of China’s last imperial dynasty, Chinese President Xi Jinping reiterated his desire to preside over what he has called the inevitable “unification” of Taiwan with China. Those who want to see the island return to mainland control, Xi said, “stand on the right side of history.” Xi wished for a “peaceful” reunification with Taiwan.
Beijing still considers the island part of its own sovereign territory – no matter that it has maintained a form of de facto independence since 1949, when China’s defeated nationalists fled there from the Communist-controlled mainland.
In his speech, the Chinese president issued a clear warning to Taiwan’s political leadership: “Those who forget their heritage, betray their country and seek to break up their country will come to no good end,” he said.
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Rise in US inflation fires up rate hike talk
Matthew Cranston United States correspondent
Updated Oct 14, 2021 – 8.02am, first published at 2.56am
Washington | Economists are pricing in a rate hike as early as next year following higher than expected inflation in the United States, which could start undermining corporate profits in coming months.
The consumer price index rose 0.4 per cent in September, pushing annual inflation back up to 5.4 per cent, the largest annual gain since 2008, according to Labor Department data released on Wednesday (Thursday AEDT).
The pick-up in price growth reflected higher food, energy and housing costs. Rents jumped the most in 20 years.
While measures of used cars, trucks and airfares cooled, these are expected to rebound. Economists now think inflation data will be “sequentially firm in the months ahead”.
“The positive surprise in persistent inflation suggests we remain in a hot economy, which could prompt the Fed to move sooner,” Bank of America’s Alexander Lin said.
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Why we should worry about Fed instability
Karen Maley Columnist
Oct 13, 2021 – 5.26pm
At a time when Jerome Powell should focus on how to execute the tricky manoeuvre of winding back monetary stimulus without triggering a major US share market sell-off, the US Federal Reserve chief has something else on his mind: whether he can hang on to his own job.
Powell’s four-year term as Fed chairman expires early next year, and the general expectation was that President Joe Biden would reappoint him.
After all, the White House appreciated the Fed’s muscular monetary response in March 2020, during the worst of the economic and financial chaos caused by the pandemic.
And it has applauded the increased emphasis that Powell has placed on the health of the US jobs market.
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Britain faces empty shelves at Christmas
By David Brown, Ashley Armstrong and Oliver Wright
The Times
5:27AM October 14, 2021
Ministers are being warned that Britain faces gaps on the shelves at Christmas as shipping containers carrying toys and electrical goods were diverted from the country’s biggest port on Tuesday.
Shipping companies are directing boats away from Felixstowe after it ran out of storage capacity. The port, on the Suffolk coast, normally handles about 36 per cent of Britain’s container imports and exports, much of it toys and furniture.
The problem was described as a “perfect storm” caused by a shortage of truck drivers to move the containers, restrictions at ports because of Covid-19, and a surge in imports. One shipping boss said: “I don’t want to sound like a Grinch but there are going to be gaps on shelves this Christmas.”
The delay threatens to become the latest emergency to hit Britain after fuel shortages at the pumps and rising gas prices. It came a day after Prime Minister Boris Johnson backed a multimillion-pound bailout for energy intensive industries.
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Spectre of 1970s-style stagflation haunts global economy
Is stagflation - low growth and high prices - really something to start worrying about?
Matthew Cranston United States correspondent
Oct 14, 2021 – 11.45am
Washington| Surprisingly high consumer price readings in the US and a softening economic outlook have given rise to debate about stagflation and a return to 1973, when Middle Eastern oil exporters embargoed shipments to the West, sending energy costs and inflation soaring.
Now, like then, economists remain divided about whether this year’s inflationary breakout is driven by post-pandemic supply-side shocks that should iron themselves out once global output and the supply chains it relies on return to equilibrium.
Federal Reserve vice-chairman Richard Clarida this week reminded us that he lived through the so-called “Great Stagflation” of the 1970s, when the oil embargo strangled US economic growth just as it drove the price of most things through the roof.
He noted that there were some faint similarities.
“My baseline case is not for stagflation over the medium-run horizon,” he said, but added: “It sort of has a flavour of that right now,” he said.
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Geopolitics is winning, economics is losing
The win-win liberal international order created by economists after World War II is being overtaken by the zero-sum strategic rivalry between the US and China.
Jean Pisani-Ferry
Oct 14, 2021 – 11.05am
From the Huawei affair to the AUKUS spat and beyond, a new reality is shaking up the global economy: the takeover, usually hostile, of international economics by geopolitics. This process is probably only just beginning, and the challenge now is learning how to live with it.
Of course, economics and geopolitics have never been completely separate domains. The post-World War II liberal economic order was designed by economists, but on the basis of a master plan conceived by foreign-policy strategists.
Post-war US policymakers knew what they wanted: what a 1950 National Security Council report called a “world environment in which the American system can survive and flourish.” From their perspective, the free world’s prosperity was the (ultimately successful) conduit to containing and possibly defeating Soviet communism, and the liberal order was the conduit to that prosperity.
But although the ultimate objective was geopolitical, international economic relations were shaped for 70 years by their own rules. On occasion, concrete decisions were skewed by geopolitics: for the United States, providing International Monetary Fund financial assistance to Mexico was never equivalent to providing it to Indonesia. The principles governing trade or exchange-rate policy, however, were strictly economic.
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Britain is about to wake up to the mess it’s in
The Times
9:39PM October 16, 2021
Britain is going to the dogs. We haven’t quite woken up to the mess we’re in yet, but we will. In the unconscious mind of the nation the dots are all there, waiting to be joined up. When the connections are made, and as his Marbella tan begins to peel, the aimless occupant of 10 Downing Street will be in for a shock.
Let me identify some of the dots. There is no other way but to hit you with a sample, but before I do, please understand this: I’m very well aware that at almost any point in the political cycle of almost any government, it would be possible to compile a depressing list of things going wrong. Things do. Some will be random, unrelated. Some will be, by any reasonable judgment, beyond the power of any prime minister to predict or control. Others will be trivial when taken in isolation. Many may be transient. But accumulated they paint a worrying picture. We’ve all of us in the sleepless hours made lists of problems and begun to feel overwhelmed by their weight. So may a nation. We add things up.
The first skill demanded of any effective leader is the talent to stop people adding things up; to raise our eyes to the longer term; a place we’re aiming for, a plan for getting there. Thatcher had it: bearings. Johnson lacks them.
Try this next time you’re in a lurching railway carriage: meander down the aisle - you’ll find yourself jolted off your balance. Now try striding fast, your eye fixed on the carriage’s end. The faster you walk, the straighter you’ll be able to go. It’s all about the stabilising force of momentum. It’s a truth of Newtonian physics.
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I look forward to comments on all this!
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David.
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