October 06, 2022 Edition
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In the UK the current Tory Government appears to have totally lost the plot and failed to even move to fix things – a real disaster I fear for millions.
In the US Hurricane Ian seems to have been of Biblical Scale that will take years to repair the damage.
In Europe we see the recession arriving.
In OZ we are coping with the Optus data breach, an imminent and difficult Budget and the new Integrity Commission being sorted out!
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Major Issues.
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https://www.afr.com/technology/manufacturers-turn-to-robots-as-job-ads-go-unanswered-20220920-p5bjil
How a $1m robot solved this company’s labour shortage
Tess Bennett Technology reporter
Sep 26, 2022 – 5.00am
Australia’s acute labour shortage is driving mid-sized manufacturers such as Toowoomba-based Vickery Holdings to increase their spending on automation to take advantage of strong customer demand.
Nathan Vickery’s family-owned business in regional Queensland makes steel reinforcing products for concreters and residential builders and is looking for five employees to keep up with the orders coming in.
“I’m not taking on the work that’s available because I just know I’ll let people down,” Mr Vickery said.
He said he had put ads on Seek over the past six months that had not received a single applicant. Before the pandemic, similar ads would attract 30 or 40 resumés.
In the local area, 10 Queensland manufacturers had come together to discuss ways to bring staff in from overseas to address the “dire” worker shortage, Mr Vickery said.
A survey of 181 mid-sized manufacturing businesses, commissioned by MYOB, found 39 per cent were worried about a shortage of skilled workers as a challenge for their business.
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Monetary policy is no longer fit for purpose
Economics Editor
September 26, 2022 — 5.00am
It’s an outstanding feature of the modern economy: the multitude of people who could do a far better job of running interest rates than the fool they’ve got doing it at the moment. Welcome to the inquiry into the performance of the Reserve Bank.
One small problem. About half governor Dr Philip Lowe’s critics complain he was too slow putting rates down, while the other half say he was too slow putting them up. Since interest rates are a cost to borrowers but income to savers, it’s hardly surprising that, whichever way the Reserve jumps, many will be complaining.
To be clear, it’s always a good idea to review regularly the performance of an institution with as much power over our lives as the central bank.
But equally, the inquiry needs to focus on the right question. Some critics just want someone to agree with them that the Reserve could have done a better job in recent years. Others – particularly academics specialising in monetary economics – want to argue about the mechanics.
Should we change the monetary target? Since the Reserve’s procedures aren’t identical to the US Federal Reserve’s, doesn’t that mean we’re doing it wrong? Why stack the Reserve’s board with business worthies when it would make much better decisions if you stacked it with academic experts like me and my mates?
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Uncertainty no excuse to do nothing to your investments
Slower growth, higher inflation, higher interest rates and persistent volatility leave a laundry list of opportunities.
Scott Haslem Contributor
Sep 27, 2022 – 5.00am
Inflation pressures globally and in Australia aren’t getting worse. They’re just not getting better as fast as many would like.
While it hasn’t shown up yet in reported consumer price data, there is convincing evidence across “upstream” indicators – such as commodity prices, port queues and delivery times – that inflation is on the cusp of trending lower. Indeed, freight rates on some routes, such as Shanghai-Los Angeles, have recently halved from their highs.
Still, central bankers are talking tough about getting inflation down to normal levels and their plans to raise rates until they are “confident the job is done”, to quote US Federal Reserve chairman Jerome Powell. But one suspects, given how quickly rates have risen, they’re scouring the data for any signs that inflation is ebbing, and activity is slowing enough, so they can ease the pace of increases and avoid forcing economies into recession.
We remain convinced inflation will fall noticeably in the US by year-end and will be much lower during the first half of next year in the UK, Europe, and Australia. While goods deflation is in train, some “demand destruction” (especially in services) is relatively urgently needed.
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Why timing the market could lose you 0.5pc a year
Analysis of Australian investor behaviour between 2004 and 2013 – before and after the GFC – found those chasing returns were worse off than their “buy-and-hold” peers.
Duncan Burns Contributor
Sep 27, 2022 – 5.00am
This year has generally been bad news for most Australian investors. With high inflation and interest rate increases contributing to financial market volatility, we are seeing a lot more red in our brokerage accounts than we have in quite a while.
To add to the list of worries, the fixed income component many rely on for portfolio stability seems to have temporarily come “unfixed”, with losses mounting in both bond and equity holdings.
But amid the short-term pessimistic outlook, here’s the silver lining that most people ignore. Despite the recent bumps and blips in the financial market, the Australian sharemarket has delivered an average return of about 10 per cent over long periods of time, making it a great wealth-creation machine. When paired with the miracle of compounding returns, it truly is the secret to getting rich slowly.
But here’s the catch – that 10 per cent return only measures what buy and hold investors would have earned by putting money in at the start of the period and keeping it fully invested through good times and bad.
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Half a trillion in wealth wiped from Australian households in three months
By Shane Wright
Updated September 29, 2022 — 5.31pmfirst published at 12.18pm
High interest rates and financial turmoil have wiped $500 billion in wealth from Australian households, with warnings from Treasurer Jim Chalmers the global economy has become a “pretty dangerous place” that will pull some of Australia’s key trading partners into recession.
As official data showed inflation at a 30-year high, Chalmers said it would be “foolish” to believe Australia and the federal budget could be spared from the fallout of the troubling economic conditions emerging around the world.
The Reserve Bank board meets next week, with markets and economists expecting it to lift interest rates for a record sixth consecutive month. Markets are tipping another half percentage increase in rates on their way to a peak of 4.2 per cent by the middle of next year.
Figures from the Australian Bureau of Statistics show the early impact of the interest rate rises in the three months to June, with total household net worth falling by $484.1 billion or by more than $5 billion a day.
It was the largest fall on record, although net worth still stands at $14.4 trillion.
The bureau said the drop was driven by weakness in the housing market and the superannuation sector.
The value of land and buildings dropped by almost $150 billion in the quarter while superannuation shed $294 billion in value. The biggest hit to property was in NSW and Victoria.
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https://www.afr.com/politics/how-to-lose-an-election-scomo-style-20220817-p5bai6
How to lose an election, ScoMo style
With one visually striking word, Morrison articulated and endorsed why Australians didn’t like him. AFR Magazine’s Power issue is out on Friday, September 30.
Aaron Patrick Senior correspondent
Sep 30, 2022 – 5.00am
If there was a moment when you could say Scott Morrison lost the 2022 federal election – or perhaps when it became obvious to his campaign, and maybe even himself, why he couldn’t win – it was on Friday, May 13.
There weren’t many at-risk Coalition seats where Morrison was welcome, and he was forlornly trying to protect the awkward member for Chisholm, Gladys Liu, from political annihilation. “Australians know I can be a bit of a bulldozer when it comes to issues,” Morrison said at a press conference. “I know there are things that are going to have to change with the way I do things.”
At the Liberal Party’s campaign headquarters in Brisbane, small groups had gathered around flat-screen TVs to listen to what they expected to be a predictable recitation of the Coalition’s daily talking points. What they heard was Morrison acknowledge an indifference to others. With one, visually striking word – bulldozer – Morrison articulated and endorsed why Australians didn’t like him. The room froze. “We all looked at each other and thought ‘where did that come from?’” says one person present.
At that time, campaign director Andrew Hirst had been telling people that a wavering chunk of voters could repeat the 2019 election surprise. The party’s official pollster, CT Group, had 5 to 6 per cent of the population undecided, which was, in theory, enough to save the government.
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UK is Australia’s dark alternative future
Jim Chalmers should treat the mother country’s mini-budget as a kind of dress rehearsal for how things could go here with some bad luck and three or four too many colossal policy blunders.
Steven Hamilton Economist
Sep 29, 2022 – 3.01pm
As Treasurer Jim Chalmers prepares to hand down his mini-budget next month, his counterparts in the mother country have given him a preview of just how badly a mini-budget can go in an advanced, small open economy. A kind of dress rehearsal for how things could go here with some bad luck and three or four too many colossal policy blunders.
To be clear, there’s been quite a bit of mischaracterisation and misunderstanding of exactly what new British Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng unleashed on the UK economy last week.
There’s actually a fair bit to like in the package – in particular, a big push for deregulation, including a move to relax land use restrictions, and a cut to stamp duty (the worst of all taxes). In fact, it’s hard to think of two better reforms a country (like Australia) could enact.
And you might not like the reversal of planned tax increases or the elimination of the top tax bracket, but they’re not really very controversial. The latter is similar to what the bipartisan stage 3 tax cuts will deliver in Australia in a little under two years. They’re perfectly defensible policies one might expect from a centre-right government with a set of mainstream values and economic beliefs.
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https://www.afr.com/policy/economy/inflation-hits-a-30-year-high-20220929-p5blv2
Inflation hits a 30-year high
Ronald Mizen Economics correspondent
Sep 29, 2022 – 12.33pm
Annual headline inflation jumped to 7 per cent in July, the highest level since mid-1990, driven by soaring building costs, global oil prices and a marked uptick in the price of fresh fruit and vegetables.
The pace of price rises dipped slightly in August to 6.8 per cent as petrol prices eased, however the reprieve will likely be temporary as the soaring cost of energy across the east coast begins hitting households.
Economists said the results bolstered the case for the Reserve Bank of Australia to press ahead with a fifth consecutive 0.5 percentage point increase in the official interest rate when its board meets on Tuesday.
Marcel Thieliant, senior economist at Capital Economics, said while there were signs that recent drivers of price rises – building costs and petrol prices – were easing, “price pressures elsewhere continue to strengthen”.
“We still expect a surge in utilities prices to lift inflation closer to 8 per cent this quarter,” Mr Thieliant said, noting the Australian Bureau of Statistics’ new monthly inflation data does not include electricity bills.
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Amid global tensions, Australia looks for regional friends
Penny Wong’s foreign policy is taking on an increasingly different tone from that of her Coalition predecessors, with low-key meetings to cement relationships with our closest neighbours.
Andrew Clark Senior writer
Sep 30, 2022 – 3.45pm
Russia moves to annex large swaths of Ukraine, the British pound collapses, Europe confronts a freezing winter with limited gas supplies, Wall Street goes bipolar, and Chinese fighter jets buzz US naval ships in the South China Sea.
Meanwhile, a group of current and former Australian and Thai government officials, business executives and academics hold a two-day meeting in Canberra that, given the scale of rolling international crises, is pretty much ignored.
For Foreign Minister Penny Wong, however, there’s a connection between dramatic global events and low-key regional bilateral meetings involving Australia. In such an unstable world we need as many friends as we can find, the argument goes.
The reasoning behind this view even scored an oblique reference in some Chinese calligraphy photographed at a late June meeting between Australia’s ambassador to China, Graham Fletcher, and China’s Vice Foreign Minister Xie Feng. It presaged a tentative reset now under way in China-Australian relations.
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Plenty of possible flaws to be tested in integrity commission
Despite the best intentions, there are plenty of possible weaknesses in the National Anti-Corruption Commission legislation which will need to be tested.
Laura Tingle Columnist
Sep 30, 2022 – 3.47pm
If the crossbench in the House of Representatives was to achieve nothing else, it would have proved its worth by this week’s unveiling of the proposed National Anti-Corruption Commission.
But to some extent, the crossbench’s work has just begun. Its role will now be crucial in scrutinising the details of the legislation before it is dealt with in parliament. It will also be crucial in the longer term in its role on the parliamentary committee supervising the commission.
And its role will be crucial in terms of the politics of this commission – that is, if the NACC’s role is watered down, or if flaws are found in its foundations which undermine the public’s confidence that we really have turned a corner in the debate about politicians behaving well.
The capacity of the crossbench to once again campaign on this issue at the next election will provide a powerful incentive to the major parties to ensure they are setting up a body with real teeth.
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Federal integrity commission is welcome, but three design flaws will sap its strength
Barrister
October 1, 2022 — 5.00am
Australia will finally get the critical component in its national integrity framework – a National Anti-Corruption Commission (NACC). The Attorney-General Mark Dreyfus has kept his promise and created a powerful and independent federal integrity commission.
It has been a long time coming (at least eight years late) but we got there. Resistance to the creation of a NACC has been fierce and prolonged. It’s a campaign which has revealed an uncomfortable overlap between political and self-interest.
Make no mistake, this is an important moment for those of us who value good governance.
The NACC will be an important addition to our democratic infrastructure. Bear in mind the purpose of the NACC is not primarily punitive, its objective is generally to improve integrity in the public sector. The NACC will be empowered to do this through a consultative and educative role, mainly directed at the federal bureaucracy.
The investigative role of the NACC is also important. Where governance has gone wrong, the NACC can open investigations, pursue the truth and – if necessary – conduct public hearings in accordance with procedures well-known to provide procedural fairness. The powers given to the NACC for this purpose are, subject to one matter, ample and appropriate.
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COVID-19 Information.
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30 September, 2022
Covid isolation, leave payments scrapped
The mandatory Covid-19 isolation period has been dropped following a meeting of the national cabinet, ending stay-at-home orders for people infected with the virus.
Anthony Albanese announced mandatory isolation requirements across all states and territories will end on October 14, with pandemic leave disaster payments also set to end on that date, except for people in high-risk settings, including aged care and disability care.
“We wanted to make sure that we have measures which are proportionate and that are targeted at the most vulnerable,” the Prime Minister said.
“We want to continue to promote vaccinations as being absolutely critical, including people getting booster shots. And we want a policy that promotes resilience and capacity-building and reduces a reliance on government intervention.”
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Climate Change.
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No entries in this category.
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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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Without radical tax reform, Australia faces an insoluble public finance problem
Simplifying our complex tax code of tens of thousands of pages is essential. It enables legal structuring of affairs to minimise tax liabilities
Mon 26 Sep 2022 03.30 AESTLast modified on Mon 26 Sep 2022 03.32 AEST
Australia’s social contract, framed in times of abundance and optimism, promises significant government services and financial support for citizens. But an ageing population means fewer taxpayers and greater demands on the public purse. Over the next decade, Australia’s old-age dependency ratio (the ratio of people aged 65 and over to the working-age population) will change from about four workers to three workers for every retiree.
Lower tax receipts and higher spending on pensions, health and aged care may cost around $40bn every year (about 8% of the budget).
Given concerns about debt levels and budget repair, government revenues must better align with outlays if Australians want continuation of expected benefits, cost-of-living relief and expenditure on ameliorating the rising costs of more frequent climate change induced weather events.
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Labor ‘at it again’ in surprise move on dividends
John Kehoe Economics editor
Sep 26, 2022 – 5.00am
The Albanese government has shocked investors by proposing to retrospectively stop companies paying shareholders fully franked dividends that are funded by capital raisings.
The crackdown on dividend imputation credits will affect retail investors and superannuation funds receiving special dividends outside of the usual dividend payment cycle and companies that issue new equity to fund distributions to shareholders.
Treasury forecasts the “franked distributions and capital raising” measure will raise a relatively modest $10 million a year, but investors fear the cost to them will be larger.
The government has proposed backdating the “integrity measure” to 2016 to ensure that only distributions equivalent to realised profits can be franked, alarming investors in companies that have paid special dividends or issued new shares in the past six years.
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Pinned post – 8.19AM 26 Sep, 2022
Franking credit changes ‘nothing like’ 2019
John Kehoe
Treasurer Jim Chalmers says proposed changes to dividend franking credits for capital raisings are “nothing like” the bigger shake-up Labor took to the 2019 election.
The measure was originally announced by Scott Morrison as treasurer in the 2016-17 mid-year budget.
“This is a very minor change proposed by the Liberals, [who] couldn’t get their act together on legislation. Another mess that we’ve been asked to clean up,” Chalmers said.
“It’s about capital raising and franking credits. It’s nothing like the proposal that we talked about at the 2019 election and has since been abandoned.”
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Skyrocketing interest rates carve new $120 billion hole in budget
By Shane Wright
September 26, 2022 — 5.00am
Key points
· Global interest rates will add more than $120 billion to the federal budget’s long-term interest bill.
· Total interest payments on government debt is now the fastest growing area of government spending.
· Treasurer Jim Chalmers is expected to confirm government debt will surpass $1 trillion within two years.
Soaring global interest rates will add more than $120 billion to the federal budget’s long-term interest bill, putting at risk government services and infrastructure proposals while increasing pressure on Treasurer Jim Chalmers to make early spending cuts.
The Sydney Morning Herald and The Age can reveal the rise in interest rates causing pain to millions of home buyers is punching a substantial hole in the structural integrity of the federal budget.
When Josh Frydenberg released his version of the 2022-23 budget in March, the interest rate on 10-year government bonds was around 2.3 per cent. Now, due to global inflation fears, they are about 3.8 per cent.
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https://thenewdaily.com.au/finance/2022/09/29/alan-kohler-rba-done-enough-reckless-hiking
6:00am, Sep 29, 2022 Updated: 6:45pm, Sep 28
Alan Kohler: The RBA has done enough – it would be reckless to keep hiking rates
I was watching a speech by the new far-right prime minister of Italy, Giorgia Meloni, described by some as a Mussolini-style fascist, and was settling in for the usual rant against woke left-wing elites and cancel culture, when she named a different, and surprising enemy: Financial speculators.
“I can’t define myself as Italian, Christian, woman, mother. No. I must be citizen x, gender x, parent 1, parent 2. I must be a number. Because when I am only a number, when I no longer have an identity or roots, then I will be the perfect slave at the mercy of financial speculators. The perfect consumer,” she said.
Is Italy seeing the first revolt against modern financialisation and consumerism, which is the consequence of unbound, over-active central banks?
Artificially low interest rates have enriched the already rich, deepened inequality, empowered banks and financiers, turned houses into financial assets and humans into consumers whose behaviour is to be manipulated with monetary policy.
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Scrapping of QLD land tax a ‘huge relief’, says investors council
Nila Sweeney 30 Sep, 2022
Property Investors Council of Australia chairman Ben Kingsley says the Queensland government’s decision to scrap the new land tax rule set to come into effect next year was a huge relief and should immediately restore investor confidence back in the state.
“We’re really thrilled that common sense has prevailed and it’s going to be a massive relief for all Queensland renters.
“The new land tax was going to be diabolical not only for the renters but also for economic activity in Queensland.
“So I think the greater good has been served here, now there’s confidence in wanting to invest in property in Queensland again, and that’s obviously going to be good for not only the economic development of Queensland, but also increasing the critical supply that’s needed for all those people who want to live in Queensland.
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Evidence mounts for crackdown on multinational companies
October 2, 2022 — 5.09am
The revelation that medical device companies based overseas are receiving more in Australian government subsidies than they pay in tax, according to private health insurers, further strengthens the case for the government’s planned crackdown on multinational companies.
Private Healthcare Australia says the companies, which supply devices like hip joints, screws and pacemakers, receive about $625 million a year in subsidies through the private health insurance rebate and pay about $310 million a year in tax.
The body representing the multinational companies told The Sun-Herald that its members always comply with Australia’s taxation laws. But the question is whether those laws are fit for purpose.
Labor went to the election promising to overhaul the multinational tax system and raise an extra $1.9 billion in the process. Given the growing budget debt and deficit, more revenue is clearly needed and targeting companies that are not paying their fair share of tax is a good way to get it.
That money is also needed to pursue Labor’s election promises, including higher quality aged care services and more accessible childcare, and to meet the growing cost of government programs like the National Disability Insurance Scheme.
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‘Dangerous’ international outlook will help frame budget
Tom McIlroy Political reporter
Oct 2, 2022 – 10.01am
Treasurer Jim Chalmers says the global economic environment remains dangerous and difficult before this month’s federal budget, as he takes caution from the roiling of financial markets sparked by British Prime Minister Liz Truss’s economic plan.
Ahead of a visit to Washington to meet with US Federal Reserve chairman Jerome Powell and senior members of the Biden Administration this week, Dr Chalmers said his October 25 budget would focus on cost of living improvements and delivering Labor’s election commitments.
“The global environment is a dangerous and difficult place right now. Even in the last month or so the global situation has deteriorated dramatically and in many of the major economies that we monitor most closely, the chances of a recession has edged over from possible to probable.”
Dr Chalmers told Sky he had noted the fall-out from the British government’s mini-budget and tax cuts package. Delivered by Kwasi Kwarteng, it sparked an intervention from the Bank of England and warnings of a sharp increase in interest rates in early November.
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The doctors sleeping under desks because they’re too tired to drive
September 26, 2022 — 5.00am
Almost half the trainee doctors in NSW hospitals are so overworked and exhausted that they have made medical mistakes, raising grave concerns that the burnout affecting the state’s junior medicos is putting patients at risk.
The latest Hospital Health Check survey of 1766 junior doctors found 46 per cent reported making a fatigue-induced clinical error caused by the long hours they worked in NSW hospitals. Another 7 per cent said they would rather not disclose whether they had made such an error.
The survey, conducted by the Australian Medical Association (AMA) NSW, captured close to 20 per cent of the 10,000-odd trainee doctors working in NSW hospitals this year.
Dr Sanjay Hettige, co-chair of AMA NSW’s doctors-in-training committee, said the pandemic had exacerbated the chronic understaffing and massive workloads that had pushed trainee doctors to breaking point.
“We have been overworked and overworked, dealing with complex conditions, carrying these huge mental and physical loads,” Hettige said. “Our brains can only handle so much under fatigue. Of course, this is going to have ramifications for our patients.”
Clinical mistakes included medication errors and forgetting to relay crucial information during shift handovers, forgetting to check test results, missing steps when examining patients and overlooking a critical question when taking a patient’s history, Hettige said.
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Half of GPs say staying open is financially unsustainable as Medicare rebate fails
September 28, 2022 — 5.00am
Staying in general practice is financially unsustainable for almost half of the nation’s GPs due to the increasing costs of providing healthcare and the growing numbers of patients with complex conditions.
A new report from the Royal Australian College of General Practitioners surveyed 3219 GPs across Australia and was conducted between April and May this year. It found roughly half of respondents avoided providing certain services – such as mental health consultations – or avoided claiming those rebates for fear of being accused of not complying with Medicare rules.
Just 3 per cent of GPs surveyed in the annual Health of a Nation report believed the Medicare rebate was enough to cover the cost of providing care and seven in 10 practice owners worried about the short- or long-term viability of their business as they struggled to find and retain doctors.
“Unless things change, more and more practices will face the impossible decision of hiking fees for patients or closing up shop,” college president Dr Karen Price said.
“GPs are well-placed to find other employment. The ball is in the government’s court and action is needed right away. Unless that occurs, the health of the nation will deteriorate.”
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Alzheimer’s progression slowed by drug in major trial
Robert Langreth
Sep 28, 2022 – 1.25pm
Eisai and partner Biogen say their Alzheimer’s drug has significantly slowed the disease, making it the first medicine to clearly blunt the progression of the most common type of dementia in a definitive, large-scale trial.
Lecanemab reduced the pace of cognitive decline in people with early disease by 27 per cent over 18 months when compared with a placebo, meeting the main goal of the trial, the companies said in a statement. The benefit came with side effects, including brain swelling and bleeding, though severe cases were rare.
The clear-cut positive result marks a major milestone for researchers who have been trying in vain for decades to stop the inexorable decline tied to the disease, but how much of a difference it will make for patients and families is less obvious. The medicine appears to unambiguously slow the disease, though it doesn’t restore mental capacity or completely stop its loss.
The consistent pattern of improvement “is what the field has hoped for, and should result in favourable regulatory actions,” said David Knopman, a clinical neurologist at the Mayo Clinic in Rochester, Minnesota.
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NRL 2022: Parramatta Eels legend Ray Price reveals his heartbreaking battle with dementia
Peter Badel - News Corp Australia Sports Newsroom
5:00AM October 2, 2022
He is famously known as Mr Perpetual Motion, but no man was supposed to move like this.
Ray Price stars blankly into the dark of night. It’s around 3am.
Wearing pyjamas, he is walking aimlessly, painfully, disturbingly, along a stretch of road, blood pouring from his bare feet ripped apart by a 10km soul-destroying stroll he cannot remember. Suddenly, the headlights of a passing car jolt Price into reality.
The motorist instantly recognises the rugby league legend in a place he shouldn’t be and pulls over.
“Where am I?” a confused Price asks the stranger, who replies: “I know who you are ... and I’m getting you help”.
It’s the triple-0 phone call that will forever remain a signpost in the life of rugby league’s gutsiest gladiator.
On the day of the Eels-Panthers NRL grand final at Sydney’s Accor Stadium, Price — Parramatta’s last premiership-winning captain — has revealed he has been diagnosed with dementia.
Price is the latest rugby league legend to detail his battle with the condition, joining his former Canterbury rival Steve Mortimer and Souths great Mario Fenech, who went public a fortnight ago with his heartbreaking struggle with early onset dementia.
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International Issues.
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The UK’s new treasurer is risking serious economic instability
Chancellor Kwasi Kwarteng’s largesse raises large questions about debt sustainability.
Martin Wolf Columnist
Sep 25, 2022 – 1.23pm
The UK, says Kwasi Kwarteng, chancellor of the exchequer, is now “at the beginning of a new era”. He is correct. It is new in his willingness to pour scorn on the past 12 years of Tory rule. It is new in the size of his gamble with economic stability.
It is new in his promises for a transformation in the rate of economic growth. But the question is not whether this era is new. It is whether it will be an economic success, a failure or an outright calamity.
The chancellor on Friday (late Friday AEST) announced a bonanza of tax cuts and spending measures. He says his objective is a “trend rate of growth of 2.5 per cent” a year over the medium term.
According to the Office for Budget Responsibility’s forecasts last March, the workforce should grow at some 0.5 per cent a year between the first quarter of this year and the first quarter of 2027. Between the first quarter of 2008 and first quarter of 2022, trend growth of output per worker was also 0.5 per cent a year.
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UK chancellor says ‘more to come’ after historic tax cuts
Emily Ashton
Sep 26, 2022 – 7.16am
London | UK Chancellor Kwasi Kwarteng has pledged further tax cuts in his pursuit of growth after unveiling the biggest fiscal giveaway in half a century, leaving investors braced for further market turbulence.
Mr Kwarteng’s package on Friday scrapped the top level of income tax and cut the basic rate by a percentage point, while also reversing a rise in the National Insurance payroll tax brought in earlier this year.
After that announcement, the pound dropped to its lowest point since 1985, and many Conservative MPs have privately expressed fears that sterling will take another pummelling this week. Leading economists and investors warned that the Bank of England might have to introduce emergency interest rate rises to prop up the economy.
But Mr Kwarteng vowed to double down on the tax-cutting drive. “There’s more to come,” he told the BBC on Sunday (Monday AEST). “We’ve only been here 19 days. I want to see, over the next year, people retain more of their income because I believe that it’s the British people who are going to drive this economy.”
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Why investors hate the UK PM’s biggest tax cuts in decades
The Bank of England is tapping the brake, Liz Truss is hitting the accelerator. Nobody knows which way the economy will go, and the markets want to get off.
Hans van Leeuwen Europe correspondent
Sep 25, 2022 – 10.13am
London | Britain’s new prime minister, Liz Truss, has a penchant for cosplaying Margaret Thatcher. But so far, there isn’t much policy resemblance to her fiscal disciplinarian idol.
Their main point of overlap: the British pound hasn’t sunk this low against the greenback since Thatcher was in office, back in 1985.
Whether it was traders in sterling, gilts or stocks, nobody much liked the look of Truss’ plans, which her Chancellor Kwasi Kwarteng announced on Friday, to borrow money – in a rising interest rate environment – for tax cuts worth £45 billion ($75 billion).
It’s a hefty price tag for a bunch of measures that belie the name she has given it: “Growth Plan”. Many of the signature elements will do very little to spur the economy.
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UK’s ‘going for broke’ budget needs a hell of a sell job
Margaret Thatcher had five years before facing voters, plus the wind of the Falklands war and an enfeebled opposition. Liz Truss has just two years, and a national debt already swollen to breaking point.
Jeremy Warner Columnist
Sep 25, 2022 – 11.47am
Hats off for the British Chancellor for fleshing out an unashamedly pro-enterprise agenda, perhaps the first of its kind since the transformational budgets of the 1980s.
Yet, it is also a massive gamble with the public finances that requires careful explaining to markets if it is not to stumble at the first hurdle of rising interest rates and a collapsing pound.
Nearly all governments, of whatever colour, pretend to be pro-enterprise. Few genuinely are. Normally, it’s just lip-service.
Yet unlike many of his predecessors, Kwasi Kwarteng seems to actually mean what he says. He also appears more than comfortable with the political brickbats he is getting for a seemingly pro-riches approach to economic management.
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US: Catastrophic consequences if Russia uses nuclear weapons
5:59AM September 26, 2022
Joe Biden’s top national security adviser has warned the Kremlin the US will wreak “catastrophic” consequences on Russia should it follow through with its threat to use nuclear weapons, as Ukrainian president Volodymyr Zelensky warned Vladimir Putin might not be bluffing.
Jake Sullivan, White House National Security Adviser, said Washington had been “clear and specific” in its communication with Moscow over how the US would respond to any use of nuclear weapons, a threat, he said, that needed to be “taken deadly seriously”.
“We have communicated directly, privately, at very high levels, to the Kremlin that any use of nuclear weapons will be met with catastrophic consequences for Russia, that the United States and our allies will respond decisively,” Mr Sullivan told CBS news on Sunday (Monday AEST).
Mr Sullivan spoke a day after Russian Foreign Minister Sergey Lavrov raised the stakes further, clarifying that Russian-occupied regions of Ukraine would be considered part of Russia for the purposes of triggering Russia’s nuclear deterrent.
“All of the laws, doctrines, concepts and strategies of the Russian Federation apply to all of its territory,” Mr Lavrov said at a press conference after his address to the UN General Assembly.
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https://www.afr.com/markets/currencies/sterling-collapses-as-investors-lose-faith-20220926-p5bkz2
Sterling collapses as investors lose faith
Cecile Lefort Markets reporter
Sep 26, 2022 – 1.42pm
Sterling fell to a historic low against the US dollar on Monday and UK government bonds were savaged as investors rejected Britain’s planned tax cuts.
Traders bet the Reserve Bank of Australia will have to work harder to bring down inflation, pushing the implied peak cash rate up to 4.3 per cent next year.
The pound plummeted to a record low of $US1.033, following an eye-popping 3.4 per cent drop on Friday, in the steepest plunge in two years. It tumbled nearly 5 per cent at one stage on Monday in what traders described as a “flash crash”, before steadying at around $US1.052.
“It reflects a break in confidence in policymakers, not only the central bank but the government too,” said Tony Morriss, head of Australian economics and rates strategy at Bank of America.
The Australian dollar was knocked lower to US65.09¢, its lowest level since May 2020, before paring back some losses to US65.22¢. Against the pound, it was buying 62.6 pence, a new five-year high, and the highest since the UK's post-Brexit woes.
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https://www.afr.com/world/europe/victory-to-italian-right-is-no-lurch-into-extremism-20220926-p5bl12
Victory to Italian right is no lurch into extremism
Most Italian premiers don’t last a full term. If it turns out differently for Giorgia Meloni, that might well be her biggest achievement of all.
Tony Barber Contributor
Updated Sep 26, 2022 – 2.18pm, first published at 11.42am
The victory for the Italian right in Sunday’s parliamentary elections is, in a certain sense, a landmark moment for Italy and for European democracy. But there are strong grounds for questioning the view, occasionally expressed outside Italy during the election campaign, that the result portends a lurch towards extremism.
Under the Christian Democrats, the right dominated Italy’s governments during the Cold War. From the 1990s, it continued to hold the upper hand much of the time, thanks largely to Silvio Berlusconi’s Forza Italia party. But this is the first election in which a party with neo-fascist roots, the Brothers of Italy, has emerged as the strongest force on the right and in the country as a whole.
Despite some electoral successes for similar parties in Western European democracies such as Austria and Sweden, the Brothers of Italy’s victory stands out. Giorgia Meloni, the party leader, looks likely to become prime minister, making her the first woman to hold the post since Italian unification in 1861.
Yet the fact remains that Meloni achieved her triumph on a conservative nationalist platform that owed much more to the formulas that brought success to Berlusconi’s coalitions than to any policies associated with the Italian Social Movement, the neo-fascist party of the late 1940s and 1950s from which the Brothers of Italy is indirectly descended.
“Talking of fascism is plain wrong,” says Lorenzo Codogno, a former director-general of the Italian Treasury.
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What Comes After a Week That Shook the World
The ‘Ice Age’ for bond yields is melting. The ripple effects mean that the rules most investors have learned to live by no longer apply.
By John Authers
23 September 2022 at 3:16 pm AEST
Divide and Rule
We’re living through arguably the most truly global attempt to tighten financial conditions in memory. This is shifting the tectonic plates beneath the world economy, and threatens dangerous developments in society and in politics as we all try to adapt. And yet what strikes the eye after a week of market landmarks and aggressive interventions by central banks is the continuing discord. There’s a broad acknowledgement that the future involves tighter conditions to combat inflation, and with it an elevated risk of recession; but even though these sobering things are now widely accepted, deep differences remain. This is an attempt to sum up the most important developments after an epochal week.
The Ice Age Is Over (Really)
The downward trend in 10-year Treasury yields that has persisted ever since the Fed under Paul Volcker slew inflation is over. There have been false alarms before. Dig through the archives and you’ll find I wrote at very great length about what appeared to be the end of the trend during a bond selloff as long ago as 2007. But that market seizure triggered the credit crisis, which would bring Treasury yields to previously unimaginable lows. High inflation in 2022 will make that prohibitively difficult to repeat.
There are many ways to measure a trend, and I want to resist any temptation toward pseudo-scientific technical analysis. But on any sensible approach, the trend has been broken. If Jerome Powell and the Fed succeed as they hope, and replicate Volcker, then maybe they can start another downward wave. But that will be a new trend, not a resumption of this one.
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Economic consensus is crumbling, but the BoE did not get the memo
A feature of the UK’s fiscal pivot is the emphasis on reducing the burden of tax on work and business. This is sensible. But the central bank has been behind the curve since inflation started to rise sharply in 2021.
Paul Marshall
Sep 27, 2022 – 9.39am
The UK’s new policy mix unveiled at last week’s “mini-Budget” is not only radical in a British context — it is also a rebuke to prevailing western economic orthodoxy.
Since 2010, the G7 policy framework has been one of tight fiscal and loose monetary policy. Call it Osbornomics or Draghonomics. This combination of fiscal austerity and monetary largesse has not been a success.
Austerity has not prevented government debt ratios steadily climbing to historic highs. Some may think the UK’s ratio of debt to gross domestic product is out of control, but it is still the second lowest in the G7 at 97 per cent.
Meanwhile, quantitative easing has fuelled asset inflation for the super-rich and has more or less abolished risk pricing in financial markets. And over the past two years, when combined with COVID-19 fiscal boosterism, it has produced inflation which is still out of control.
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UK’s bank-friendly tax cuts overshadowed by sterling rout
Bankers have plenty to cheer, but Kwasi Kwarteng’s unconventional economics have exacerbated business uncertainty.
The Lex Column
Sep 26, 2022 – 3.44pm
Open the throttle. Put the pedal to the metal. The £45 billion ($73 billion) of tax cuts unveiled by the UK Treasury amount to the biggest fiscal event since the 1972 budget from the government of Ted Heath. That “dash for growth” ended badly.
Once again, business is bracing for a bumpy ride.
Sterling on Monday hit historic lows, and gilt yields last week jumped at the prospect of a groaning government balance sheet.
The City will welcome the warm sentiments of tax-cutting new chancellor Kwasi Kwarteng. He has dispelled the indifference Boris Johnson’s government showed for the financial services sector. But City economists will be alarmed by the scale of his experiment in unconventional economics.
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The UK cluster bomb of tax cuts is a reckless gamble
By Ambrose Evans-Pritchard
September 26, 2022 — 7.17pm
Britain’s permanent cuts in income tax are a fatal step too far. The fiscal message of slashing property tax in these financial circumstances is scarcely better.
This unflagged largesse injects demand into an economy already running at full capacity, constrained by a labour shortage and supply-chain disruptions. It draws forward consumption in a nation living beyond its means, with a chronically low savings rate and a structural current account deficit of 4 per cent of GDP (8.3 per cent this year).
There is an elemental difference between borrowing to spend on infrastructure with a high growth multiplier - or to coax capitalists to invest - and naked borrowing to flatter an unsustainable standard of living.
The valuable theme of supply-side reform in Chancellor Kwasi Kwarteng’s “great growth gamble” has become inaudible in this festival of stimulus. The Chancellor has over-egged the pudding.
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What Giorgia Meloni wants for Italy and why she infuriates the EU
By Daniel Johnson
September 27, 2022 — 10.16am
London: It is the fate of all Italian politicians of the Right to be compared with Benito Mussolini. Giorgia Meloni, the leader of the Fratelli d’Italia (Brothers of Italy), is no exception.
Her rapid rise, at the head of a right-wing coalition that triumphed in this weekend’s elections, has appalled the European political establishment. The open accusations of fascism levelled at her, however, failed to deter over a quarter of the electorate from voting for this fresh-faced single mother with a Roman accent.
Meloni is hated by Eurocrats, such as Ursula von der Leyen, because - despite her party’s somewhat dubious past - a great many Italians see her as the acceptable face of the Right. Her appeal to faith, flag and family encapsulates everything that the EU sees as reactionary, backward and plebeian.
It’s hardly surprising that the likes of Emmanuel Macron and Olaf Scholz would prefer to do business with fellow elitists such as the outgoing Italian PM, Mario Draghi - a former head of the European Central Bank, who was never elected to office. This election is the first since 2008 where the voters have actually chosen who will lead their government. All of Italy’s six most recent prime ministers emerged via back-room deals.
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Is Putin, the cornered rat, bluffing on the nuclear threat?
Political and international editor
September 27, 2022 — 5.00am
Vladimir Putin tells of a formative boyhood encounter with a rat. Wielding a stick in the overcrowded block of flats where he grew up, “I spotted a huge rat and pursued it down the hall until I drove it into a corner.”
With no way of escaping, “suddenly it lashed around and threw itself at me,” he famously related in his official biography. “I got a quick and lasting lesson in the meaning of the word ‘cornered’.”
Is Vladimir Putin the cornered rat in the war against Ukraine? If so, is he about to lash out with a level of atomic violence that Penny Wong has described as “unthinkable”?
His troops have suffered embarrassing setbacks. Rather than admit any failures, he’s sought to intensify his invasion. Last week, he announced the mobilisation of 300,000 reservists. He threatened to use nuclear weapons with this televised statement: “In the event of a threat to the territorial integrity of our country and to defend Russia and our people, we will certainly make use of all weapon systems available to us.” Looking directly into the camera, he added meaningfully: “This is not a bluff.”
Hold on. Is there actually any “threat to the territorial integrity of our country”, meaning Russia? No. But Putin is busy redrawing the map to make it so. He called for immediate referenda in four areas of Ukraine currently held by Russian troops so that the inhabitants can vote to declare their regions to be part of Russia.
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https://www.theage.com.au/business/markets/the-fed-is-driving-the-world-towards-recession-or-worse-20220927-p5bl8i.html
The Fed is driving the world towards recession, or worse
Senior business columnist
September 27, 2022 — 12.12pm
The US Federal Reserve Board’s determination to bring a rampant inflation rate under control is exporting inflation, recession and turmoil in currency and other financial markets to the rest of the world.
The impact of the accelerating divergence between US monetary policy and that of the other major economies is being exacerbated by the energy crisis - particularly acute in Europe - sparked by Russia’s invasion of Ukraine.
Efforts to blunt the effects of the massive spikes in energy and agricultural commodities – driven by the combination of war and a surge in the value of the US dollar, the result of growing interest rate differentials between the US and other economies – are adding to the fiscal challenges for economies that saw massive splurges in government spending in response to the pandemic.
Adding complexity to the challenges faced by policymakers are the continuing, albeit slowly diminishing, shortages of supply and changes to long-established supply chains that the pandemic induced and which have subsequently been overlaid by the impact of the war and the heightened geopolitical tensions between the US and China.
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https://www.afr.com/world/europe/putin-s-nuclear-threats-cannot-be-ignored-20220927-p5blbx
Putin’s nuclear threats cannot be ignored
Vladimir Putin is cornered, immoral and reckless. His first choice is not to use a nuclear weapon, but it might be an option to avoid humiliation and defeat.
Gideon Rachman Columnist
Sep 27, 2022 – 12.04pm
We have now reached the point in the Ukraine war that Western policymakers have both hoped for, and worried about, for many months.
Even as they made the decision to supply Ukraine with the missiles that changed the course of the war, US officials were aware of the double-edged nature of their choice. As one of them put it back in May: “The better the Ukrainians do, the more dangerous the situation will become.”
That moment of heightened opportunity, and heightened danger, has arrived. After a series of Russian defeats, Vladimir Putin has called up more troops and once again threatened to use nuclear weapons.
Many Western pundits think Putin is bluffing. But policymakers are more cautious. This weekend Jake Sullivan, US President Joe Biden’s national security adviser, reiterated that the Kremlin’s nuclear warnings are “a matter that we have to take deadly seriously”.
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As Putin desperately mobilises, hope is not a valid option for the West
Military leader and strategist
September 28, 2022 — 5.00am
The past week has seen a deluge of images in the media which show Russians being forcefully conscripted or fleeing their nation to avoid military service. This, in the wake of the September 21 speech by Russian President Putin, might even be the beginning of the end for the Putin regime, according to some commentators.
Perhaps.
But as one Russia expert I spoke to notes, the Russian people can be remarkably quick to adapt to changed circumstances and absorb them as ‘business as usual’. It would be prudent for us to assume this will be the case, rather than leaping to assumptions about catastrophic circumstances for Putin’s regime.
Because ‘hope’, as we say in the military, is not a valid course of action. It is impossible to predict the future. Those who hope for an end of Putin as a result of the Russian mobilisation debacle rest their case on slim evidence and lots of soothsaying. Such thinking can lead to a false sense of security about a weak Russia, and the course of their war against Ukraine.
If the Russians can mobilise the hundreds of thousands of soldiers they are calling up, what does this look like?
First, they need to induct the quantity of soldiers needed. Many young Russian men are departing in a mass exodus from Russia. But millions of others will not have the means to leave Russia to escape their draft notices. These new recruits will travel to regional bases to be issued uniforms and equipment and begin their training.
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China reins in Belt and Road program, $1 trillion later
By Lingling Wei
5:26PM September 27, 2022
China has spent a trillion dollars to expand its influence across Asia, Africa and Latin America through its Belt and Road infrastructure program. Now, Beijing is working on an overhaul of the troubled initiative, according to people involved in policymaking.
A slowing global economy, combined with rising interest rates and higher inflation, have left countries struggling to repay their debts to China. Tens of billions of dollars of loans have gone sour, and numerous development projects have stalled. Western leaders have criticised China’s lending practices, which some have labelled “debt-trap diplomacy,” embarrassing Beijing. Many economists and investors have said the country’s lending practices have contributed to debt crises in places like Sri Lanka and Zambia.
After nearly a decade of pressing Chinese banks to be generous with loans, Chinese policy makers are discussing a more conservative program, dubbed Belt and Road 2.0 in internal discussions, that would more rigorously evaluate new projects for financing, the people involved said. They have also become open to accepting some losses on loans and renegotiating debt, something they had been previously unwilling to do.
Chinese President Xi Jinping once called the initiative “a project of the century,” but the overhaul exposes limits to his vision to reshape the global order. At a November meeting with senior officials, Mr. Xi noted that the international environment for Belt and Road was becoming “increasingly complex,” and stressed the need to strengthen risk controls and expand co-operation, according to state-media reports of the meeting.
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https://www.afr.com/world/europe/why-is-the-bank-of-england-buying-long-term-debt-20220929-p5bltf
Why is the Bank of England buying long-term debt?
Hans van Leeuwen Europe correspondent
Sep 29, 2022 – 5.10am
London | At first glance, the Bank of England seems to be trying to run in two different directions at the same time: raising interest rates on one hand, while buying bonds and driving down yields on the other. But all is not quite as it might appear.
True, Chancellor Kwasi Kwarteng’s stimulatory tax-cutting plans have created a monetary policy headache for the Bank of England, which is trying to de-stimulate the economy.
But the problem the Bank was trying to solve on Wednesday was not a monetary policy problem - it was a financial stability problem.
The problem also begins with Mr Kwarteng’s statement, which prompted a massive bond sell-off, driving down prices and pushing up yields at the steepest rate in decades.
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Kwarteng will struggle to succeed if he can’t get the markets onside
Hans van Leeuwen Europe correspondent
Sep 29, 2022 – 6.38am
London | British Prime Minister Liz Truss and Chancellor Kwasi Kwarteng once co-wrote a libertarian manifesto called Britannia Unchained. Now they are co-leading the country, it looks more like a case of Britannia Untethered. Or, to their more vigorous detractors, Britannia Unhinged.
Almost a week after the budget that broke the bond market, the Bank of England has had to step in and sweep up the pieces.
Its gilt-gobbling intervention on Wednesday seems to have steadied the pound and taken the heat out of the bond market.
But the Bank will pay a price: it has been forced to in effect restart quantitative easing, when it is actually trying to do the opposite.
Maintaining its credibility on inflation while protecting this government from its own debt-fuelled folly will test the Bank of England perhaps as never before.
And the Bank will get no thanks from Kwarteng - if anything, the BoE and its boss Andrew Bailey will serve as useful scapegoats if his debt-fuelled tax-cutting gamble doesn’t pay off.
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https://www.afr.com/world/north-america/why-the-strength-of-the-us-dollar-matters-20220928-p5blk2
Why the strength of the $US matters
A series of shocks has triggered a familiar upward movement in the dollar. Moreover, this has not been just against the currencies of emerging economies, but also against those of other high-income countries.
Martin Wolf Columnist
Sep 28, 2022 – 10.16am
In times of trouble, the US dollar is the world’s refuge and strength. This is true even when the US is the source of the trouble, as happened in the financial crisis of 2007-09. It is true again now.
A series of shocks, including high inflation in the US, has triggered a familiar upward movement in the US dollar. Moreover, this has not been just against the currencies of emerging economies, but also against those of other high-income countries.
Meanwhile, the general story of the dollar cycle underlies some specific ones. Messing up one’s macroeconomic policies, especially fiscal management, proves particularly dangerous when the dollar is strong, interest rates are rising and investors seek safety.
Kwasi Kwarteng, please note.
The nominal effective exchange rate of the US dollar appreciated by 12 per cent between the end of last year and Monday, JPMorgan estimates. Over the same period, the yen’s effective rate depreciated by 12 per cent, the pound’s by 9 per cent and the euro’s by 3 per cent.
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The Bank of England averts a crisis but only for a moment
Senior business columnist
September 29, 2022 — 11.56am
There was an almost audible global sigh of relief on Wednesday after the Bank of England (BoE) intervened in response to what was fast developing into a foreign exchange and bond market crisis in the UK; one that was also rippling through international equity, bond and currency markets.
Around the world, bond yields slipped back, sharemarkets edged up and currencies stabilised after days of volatile trading in response to what has been described as a “neo-Reaganite” tax cuts and spending spree announced by new UK Prime Minister Liz Truss and her chancellor, Kwasi Kwarteng, last week.
The BoE’s intervention was, at face value, peculiar. Until this week, the bank - in response to a UK inflation rate nudging 10 per cent - was pursuing an aggressive tightening of its monetary policies. It raised its benchmark interest rate 50 basis points last week and planned to start selling down the £857 billion ($1.4 trillion) hoard of government bonds it had accumulated through a quantitative easing program during the pandemic.
That “quantitative tightening” was supposed to start next Monday and shrink the bank’s balance sheet by £80 billion over the next 12 months.
Now that sell-down has been postponed (but not cancelled) for a fortnight and the bank has committed to buying UK government bonds “on whatever scale is necessary” to quiet the turbulent financial markets and avoid a financial crisis. It has resumed quantitative easing for a “time limited” period – a fortnight – despite the inflation rate.
The BoE had to act.
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‘Never known a budget to cause a crisis like this’: Truss’ big test
After a week of market turmoil, British PM Liz Truss’ backers say she had the right idea but fluffed the execution, while her opponents say Britain is in deep trouble.
Hans van Leeuwen Europe correspondent
Updated Sep 30, 2022 – 9.11am, first published at 8.25am
On Tuesday afternoon in the City of London, a helicopter circled repeatedly overhead. Perhaps it was a news chopper, waiting to capture scenes of traumatised traders tumbling out of their offices in shock and despair.
The crew would have gone away empty-handed, but the quiet streets belied the turmoil within. Markets in Britain, the world’s fifth- or sixth-largest economy, were gyrating in ways even grizzled veterans had never seen before.
The markets were on fire. The pound hit a record low, bounced back, dropped again. Long-term government bonds plummeted in value. Buyers ran for cover, and pension funds began sweating over shrinking balance sheets.
Armed with a taxpayer indemnity, on Wednesday the Bank of England turned its financial fire hose onto the “dysfunctional” market, with a £65 billion ($111 billion) bond-buying program. The first £1 billion drenching was enough to douse the gilt-market blaze.
Fiscal extravagance
Newly installed Chancellor Kwasi Kwarteng lit the tinder for this conflagration with his “mini-budget” last Friday.
It wasn’t so much the £45 billion a year of tax cuts he promised, or the £72 billion a year of extra debt needed to fund them. It was the lack of any sense of when, or how, he planned to pay for his bout of fiscal extravagance.
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https://www.afr.com/world/north-america/is-the-us-federal-reserve-braking-too-hard-20220930-p5bm6t
Is the US Federal Reserve braking too hard?
The risk that the Fed is moving too slowly to check inflation has fallen, while the risk that high rates will cause severe economic damage has gone up — a lot.
Paul Krugman
Sep 30, 2022 – 9.21am
If you’ve ever found yourself driving in stop-and-go traffic, you know that there’s a strong temptation to overreact to changes in the flow.
When the cars in front of you finally start moving, you floor the gas pedal, then you slam on the brakes when traffic slows down again, and if you’re a normal human being, you probably do this over and over.
Overreacting to traffic conditions wastes fuel and annoys your passengers. More important, it creates real dangers: Accelerate too fast and you may rear-end the car in front of you; brake too hard and you may be hit by the car behind you.
Well, setting economic policy in difficult times can be a lot like driving on a congested road. And I’m hearing growing buzz – both from economists and from businesspeople, to the effect that the Federal Reserve, which clearly kept its foot on the gas too long last year, – is now braking too hard in compensation. And the risks of an accident are growing.
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Kremlin will annex four regions of Ukraine on Friday
Jon Gambrell and Adam Schreck
Sep 29, 2022 – 9.07pm
Kyiv | Russia on Friday will formally annex parts of Ukraine where separation “referendums” received approval, the Kremlin’s spokesman said, confirming the expectations of Ukrainian and Western officials who have denounced the Moscow-managed votes as illegal, forced and rigged.
Four regions of Ukraine – Luhansk, Donetsk, Kherson and Zaporizhzhia – will be folded into Russia during a Kremlin ceremony attended by President Vladimir Putin, spokesman Dmitry Peskov told reporters on Thursday.
Peskov said the pro-Moscow administrators of those regions would sign treaties to join Russia during the ceremony at the Kremlin’s St. George’s Hall.
Ukrainian President Volodymyr Zelensky called an emergency meeting of the National Security and Defence Council for Friday, apparently in response to the Russian move.
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Monero: The currency of choice of the would-be Optus extorter
By Tim Biggs
September 30, 2022 — 11.30am
When an anonymous person posted on a message board last week, claiming to have broken into Optus’ servers and extracted a huge haul of personal information, they asked for a million dollars to make the problem go away. Specifically, they asked for a million dollars worth of the cryptocurrency monero.
For many this may have been the first time they’d heard of monero, the favourite digital coin of the nefarious denizens of the internet. That’s because monero, launched in 2014, is a secrecy-focused cryptocurrency, also known as a private coin.
Though not fundamentally illicit, and not illegal in most countries, it’s an ideal way to send and receive money for goods and services you’d rather keep hidden from law enforcement. Monero, like bitcoin, uses a public ledger. But it utilises privacy-preserving technology to make both the transaction history and the amount held by each person untraceable.
Professor Barney Tan, head of UNSW’s school of information systems and technology management, said monero’s untraceablility is based on three main capabilities.
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What really went wrong in Britain
By The WSJ Editorial Board
September 30, 2022
Everyone needs a scapegoat in an economic crisis, and much of the world has settled on blaming British Prime Minister Liz Truss’s economic plans. The International Monetary Fund and the Biden Administration have piled on, which conveniently deflects from their failed policies that produced inflation and slow growth.
Expect criticism as well from America’s big-government conservatives worried M. Truss’s program might succeed. As the blame-game continues, let’s step back and recount what has really happened in Britain:
***
It’s wrong to say Britain plunged into crisis Friday after Chancellor Kwasi Kwarteng announced a large tax-cut package, because Britain’s economy was already a mess. The pound had lost about 17% of its value against the dollar since the start of the year, borrowing costs were rising, and the economy was expected to be the slowest grower of any large country.
That malaise was the culmination of 12 years of big-government conservatism from successive Tory Prime Ministers. David Cameron came to power in 2010, in the wake of a financial panic that hit Britain hard, promising an economic revival. He and Chancellor George Osborne implemented some pro-growth policies, such as a corporate tax-rate cut and a welfare reform to encourage work.
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Post-Brexit Britain, land of my birth, is unrecognisable
Contributor
September 28, 2022 — 4.46pm
Last week, I returned to Sydney after four months in Britain, my home country.
During my relatively brief stay, the country had two prime ministers, two monarchs and four education secretaries.
Although I returned during a time of accelerated political and regal change, I was disturbed by a post-COVID, post-Brexit country I could barely recognise as the one in which I grew up.
Rule-abiding, hardworking people have been lied to and belittled – first, by a soap opera of an immature old boys’ club and their enablers, and now by a government cutting tax for the wealthiest whilst battlers struggle.
The British government is more out of touch with everyday people’s lives than I’ve ever seen.
While Australia’s feted, scrappy “fair go” is beginning to border on mythical with house ownership a distant dream for many, Britain seems either resigned to or defeated by its ruling class.
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https://www.afr.com/world/europe/putin-illegally-annexes-four-ukrainian-regions-20221001-p5bmeu
Putin illegally annexes four Ukrainian regions
Jon Gambrell and Hanna Arhirova
Oct 1, 2022 – 4.40am
Kyiv | Russian President Vladimir Putin signed treaties on Friday to illegally annex more occupied Ukrainian territory in a sharp escalation of his war.
Ukraine’s president countered with a surprise application to join the NATO military alliance.
Putin’s land-grab and President Volodymyr Zelensky’s signing of what he said is an “accelerated” NATO membership application sent the two leaders speeding faster on a collision course that is cranking up fears of a full-blown conflict between Russia and the West.
Putin vowed to protect newly annexed regions of Ukraine by “all available means,” a renewed nuclear-backed threat he made at a Kremlin signing ceremony where he also railed furiously against the West, accusing the United States and its allies of seeking Russia’s destruction.
Zelenskyy then held his own signing ceremony in Kyiv, releasing video of him putting pen to papers he said were a formal NATO membership request.
Putin has repeatedly made clear that any prospect of Ukraine joining the military alliance is one of his red lines and cited it as a justification for his invasion, now in its eighth month, in the biggest land war in Europe since World War II.
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UK outlook cut to negative by S&P amid rising fiscal risks
Maria Elena Vizcaino
Oct 1, 2022 – 8.49am
The UK’s credit outlook was lowered to negative from stable by S&P Global Ratings because of rising risks to the country’s fiscal health over the next two years.
While the slew of tax cuts announced by the UK government last week are aimed to support economic growth, those policies risk a “substantial widening” of fiscal imbalances, raising the cost of borrowing and complicating the task of bringing inflation under control, S&P said in a statement. S&P affirmed the UK’s rating of AA, the third-highest grade.
Britain’s most radical package of tax cuts since 1972, combined with plans for large-scale borrowing, sent UK markets into a tailspin, with the pound hitting the lowest-ever level against the dollar while borrowing costs soared. The Bank of England stepped in to stave off an imminent crash in the gilt market by pledging unlimited purchases of long-dated bonds.
“The outlook revision primarily reflects what we view as rising fiscal risks for the UK economy stemming from the sizable budgetary loosening announced on September 23,” according to the statement.
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A US recession appears all but inevitable
The economy, whirring back to life after the pandemic shackles came off, has defied doomsayers all year. But the gloss has finally come off.
October 1, 2022
The US economy, whirring back to life after the pandemic shackles came off, has defied its many doomsayers all year.
To be sure, it shrank slightly in the first half of the year, by a little over 2 per cent, confirmed this week by the US Bureau of Economic Analysis, meeting the much loved if little understood technical definition of a recession.
But fears of a proper, politically meaningful recession – marked by long unemployment queues – never came to fruition, as the jobless rate steadily fell to below 4 per cent, levels not seen since the halcyon 1960s, and right back to where it was in late 2019.
But the gloss has finally come off, as the toxic combination of higher interest rates, high debt, falling wealth and sagging real incomes – due to surging inflation – takes its toll amid the highest chance of a great power war in more than three decades.
“How all this plays out is at this point anybody’s guess,” Raghuram Rajan, professor of economics at the University of Chicago and former Reserve Bank of India governor, told The Weekend Australian, noting his outlook for the economy had deteriorated.
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Britain’s financial disaster is a warning to the world
By James Mackintosh
Dow Jones
11:01PM October 1, 2022
A toxic mix of politics, inflation and higher interest rates is threatening the financial system in the UK, sending a shockwave through global markets and providing a warning to governments everywhere of the dangers of the new economic era we are entering.
A surprise tax cut by the new British government just over a week ago sparked investor concern about the country’s fiscal credibility and crashed both the pound and the market for UK government bonds, known as gilts.
Superlatives are a dime a dozen in market reporting, but the ructions in the past week were truly extraordinary. As well as giant swings in the pound, the longest-dated gilts, which mature in 50 years, lost a third of their value in four days. They then leapt in value by more than a quarter in a day after emergency bond-buying by the Bank of England designed to prevent a cycle of forced selling by pension funds. For context, the previous biggest move down over four days had been half as big, and the biggest daily gain was 15%, both when pandemic lockdowns shut the economy.
Such big moves had a direct impact on world markets, pushing up the dollar and Treasury yields and hitting stocks and commodity prices. The bear market took another leg down.
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Ukraine forces entering key town in Russia-annexed region
AFP
4:24AM October 2, 2022
Ukraine said Saturday its forces were entering the key eastern town of Lyman, located in one of the four Ukrainian regions that Russia annexed despite international condemnation.
The recapture of Lyman -- which Moscow's forces pummelled for weeks to control this spring -- would mark the first Ukrainian military victory in territory that the Kremlin has claimed as its own and has vowed to defend by all possible means.
The ministry posted a video of soldiers holding up a yellow and blue Ukrainian flag near a sign with the town's name.
Chechen leader Ramzan Kadyrov said Russia should consider using low-yield nuclear weapons after Moscow's troops were forced out of a Lyman.
Kadyrov is in charge of Russia's Muslim-majority Chechnya Republic which he governs with an iron fist.
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I look forward to comments on all this!
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David.
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