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In the US the recovery from Hurricane Ian, which will take years is starting as nuclear war sadly seems to be coming closer – I hope this is just sabre-rattling and no more!
In China there seems to be more instability as Xi moves to term 3 of 5 years in a week or two.
Liz Truss still seems to be there!
In OZ we have more floods – again – and we are waiting for a new Budget in 2 weeks or so!
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Major Issues.
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Defence gets ready for the fight of our lives
12:00AM October 1, 2022
In March next year, the Albanese government will consider the recommendations of the most important defence review in a generation, with an interim report due on November 1 this year. The strategic review will shape the structure, capabilities and posture of the Australian Defence Force for the next decade and “outline funding needs” that could reach nearly half a trillion dollars, depending on the cost of our nuclear-powered submarines.
The key question to be answered is whether the ADF is fit for purpose. If not, what can be done to fix the force, how much time do we have, what is the threat, how serious is it and what strategy will we employ to defend ourselves?
Shorn of euphemisms and coded language, there is little doubt the government sees China’s growing military power and regional assertiveness as the paramount challenge to our national security. For defence planners, the virtue of having an identifiable adversary is that they can focus on real-world capabilities rather than contrived ones. Gone are the days when the ADF had to train against fictional “Kamarians” with imagined capabilities.
But the review needs to provide a more sophisticated appreciation of China’s likely strategy and objectives. Should we come to blows over Taiwan or the South China Sea, China’s aim would be to neutralise us by strategic encirclement.
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https://www.afr.com/policy/economy/treasurer-chalmers-fears-global-recession-20221002-p5bmiu
Treasurer Jim Chalmers fears global recession
Ronald Mizen Economics correspondent
Oct 3, 2022 – 5.00am
Treasurer Jim Chalmers says the recession risk in many major economies had tipped from “possible to probable” as leading economists said the decline in global conditions, volatility in financial markets and rapidly rising interest rates would make it harder for Australia to escape a downturn.
With markets pricing an 80 per cent chance the Reserve Bank of Australia will raise the cash rate by 50 basis points on Tuesday, economists said a recession was now a “plausible” scenario, especially if the RBA raises too far.
Australia’s central bank has already raised the cash rate from 0.1 per cent to 2.35 per cent since May as it tries to rein in inflation spurred by global factors and a booming jobs market and persistent spending at home.
“Inflation numbers with a six in front of them or even a seven are incredibly concerning,” Dr Chalmers said on Sunday, adding that the government “expected the inflation challenge to get a bit worse before it gets better”.
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Lessons for Jim Chalmers in UK market meltdown
The UK market meltdown demonstrates that it’s a bad time to do anything that suggests Canberra is now open to retrospective legislation.
Karen Maley Columnist
Oct 2, 2022 – 6.37pm
Treasurer Jim Chalmers can take a fair amount of credit for realising the importance of fiscal credibility well before last week’s meltdown in the UK bond market hammered home the point.
The new British government triggered a vicious sell-off in both the pound and UK government bonds, which are known as gilts, when it unveiled a surprise and unfunded tax cut, at a time when the Bank of England is hiking interest rates to subdue soaring inflation.
Investors were dismayed to see UK fiscal and monetary policy obviously pulling in opposite directions. It pointed to a fundamental conflict and lack of consensus between UK politicians and the country’s key institutions.
Chalmers, however, has been careful to avoid any suggestion of a similar rift. He’s dismissed countless calls to increased government spending, despite the almost $50 billion improvement in the 2021-22 budget deficit.
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Change for the fiver a cautionary tale for the republic
King Charles’ head won’t appear on the new $5 note. But timid incrementalism of this kind might struggle to clinch the broader case for constitutional change.
James Curran
Oct 2, 2022 – 12.34pm
Barely had Queen Elizabeth’s coffin been lowered into the vault at Windsor Castle than the minds of senior Australian republicans turned to the question of what to do with low-level monarchist symbols.
With the late Queen’s portrait inevitably being discarded, they demanded that King Charles III not be seen on the new fiver.
Treasurer Jim Chalmers was persuaded. He said it should neither be “beyond us” nor “especially controversial” to talk about a national icon taking over the $5 note. Who or what we might talk about he didn’t nominate. Is it to be Ned Kelly? Ashleigh Barty?
Chalmers has discussed the matter with Reserve Bank governor Philip Lowe. The change, it seems, is in motion.
It remains a curiosity that when the job of convincing Australians to make the switch to a republic remains so herculean a task, the currency is this government’s first chosen beachhead. Timid incrementalism of this kind, however, might struggle to clinch the broader case for constitutional change.
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Global turmoil to test both Reserve Bank and Albanese government
By Shane Wright
October 3, 2022 — 5.00am
Financial turmoil from London to Beijing is threatening to undermine the Reserve Bank’s efforts to achieve an economic soft landing in Australia and torpedo the plans of Treasurer Jim Chalmers to repair the federal budget.
More than a week of wild swings in global bond and currency markets has exacerbated the economic problems all countries are facing as central banks attempt to bring inflation under control through aggressive increases in interest rates.
The RBA board meets on Tuesday. Financial markets and most economists are expecting a half percentage point increase in the official cash rate, taking it to a nine-year high of 2.85 per cent. By the middle of next year, markets believe the RBA will have the cash rate at 4.2 per cent.
But the board’s plans are being made more difficult by a string of international events that have highlighted the precarious state of the global economy.
The most recent issues have played out after the mini-budget from new UK Chancellor Kwasi Kwarteng, who a week ago unveiled plans for £45 billion ($A78 billion) of unfunded income tax cuts for high earners. That was on top of a £150 billion, two-year energy subsidy and price freeze program.
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Economists fear ‘recession we shouldn’t have to have’ if rates keep rising
8:06PM October 2, 2022
Leading economists have warned the Reserve Bank risks plunging Australia into a “recession we don’t have to have’’ as it this week considers a sixth rate rise in as many months to curb inflation.
The RBA board at its Tuesday meeting is expected to deliver a fifth consecutive rate rise of 0.5 percentage points, which would take the official cash rate to 2.85 per cent from 0.1 per cent in May when the tightening cycle began.
With the official cash rate expected to move above 3 per cent by the end of the year, CBA head of Australian economics Gareth Aird said rising household debt meant mortgage repayments as a proportion of ’ disposable income would hit record highs.
The RBA board meets as rate rise fears have sparked sell offs on world markets, including the New York Stock Exchange’s Dow Jones index, which fell 1.7 per cent on Friday.
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Investing for a recession? Tread carefully
The retreat to cash rarely has a happy ending.
Mark Draper Contributor
Oct 4, 2022 – 5.00am
When there is a fall in the market, investors are bombarded by opinions from “experts” speculating on how far markets will fall. These experts are currently debating how far interest rates will rise and whether we will enter recession.
Recession is defined as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters”. Investors need to appreciate that periods of recession are a normal part of the business cycle and (for those who are reasonably positioned) are temporary in their effect.
Hugh Dive, chief investment officer at Atlas Funds Management, believes the chances of Australia slipping into recession are much lower than the United States and Europe due to the different composition of our economy, minimal direct impact from the Ukraine war (in fact several sectors are benefiting) and lower inflation which should reduce the need for the RBA to raise interest rates as hard as some expect.
Dive cites strength in the labour market as a key indicator for investors to watch, with job advertisements the strongest they’ve been in more than a decade, according to ANZ. Recessions are typically accompanied by high unemployment. During the 1982-83 recession, the unemployment rate peaked at 10.5 per cent and in the 1991-1992 recession the unemployment rate peaked at just over 11 per cent.
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https://www.afr.com/chanticleer/the-one-asset-class-that-has-dodged-rising-rates-20221004-p5bn05
The one asset class that has dodged rising rates
Chanticleer suspects super funds are hooked on the apparent ease with which they can control valuations to a much greater degree than the public markets.
Updated Oct 4, 2022 – 7.16pm, first published at 4.53pm
The world’s strongest-ever monetary tightening, including six successive rate rises by the Reserve Bank of Australia, is shaking asset markets to their foundations. But there is one glaring exception.
Alternative assets, most notably private equity, venture capital and infrastructure, have been immune to the gyrations found in equity and debt capital markets. This defies logic and raises doubts about the prices for entering and exiting superannuation funds.
Global equity markets have fallen 23.6 per cent or about $US23 trillion ($35 trillion) in value this year and fixed-interest markets have fallen 14.6 per cent or about $US11.2 trillion, according to data compiled by JP Morgan.
But Cambridge Associates, the valuation company used by the bulk of the world’s private equity managers, says the value of unlisted investments by PE managers has only fallen in value by 5 per cent in the first half of the year.
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Australia’s pitiful support for Ukraine sends the wrong message to China
Military leader and strategist
October 4, 2022 — 3.30pm
The past two weeks have seen two significant decisions that are indicative of Russia once again changing its strategy for its war against Ukraine. On September 21, President Putin announced that he would “support the proposal of the defence ministry and the general staff on partial mobilisation” for hundreds of thousands of additional troops for Ukraine. Then, on September 30, Putin proclaimed the formal annexation of four Ukrainian provinces into Russia.
Taken together, these represent a significant escalation in the war by Russia. Putin hopes that by annexing these four provinces, and mobilising more soldiers to defend them, he might seize back the strategic initiative in this war. He will also wish to prolong it in the hope that Western populations will grow tired of the conflict and force the Ukrainians into an accommodation favourable to Russia.
There was a minimalist response from Canberra. A media release was quietly issued by the government on Sunday. It aligned with Australia’s overall strategy for Ukraine that is best described as small and slow: we promise small amounts of assistance irregularly, and then are slow to deliver it.
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Rod Sims on why Australia is ready for higher taxes
Tom McIlroy Political reporter
Oct 6, 2022 – 12.00am
Australia has “maxed out” potential revenue from income tax and should reintroduce carbon and mining taxes to fix the federal budget, former competition watchdog chairman Rod Sims says.
Arguing the nation needs to collect more tax to pay off debt and fund essential services – including paying teachers, health and aged care workers more – Mr Sims will tell a summit at Parliament House on Thursday that changes to transfer pricing rules for multinational companies and a new way to pay for roads are badly needed.
As the Albanese government splits over the future of the stage three tax cuts, Mr Sims will offer a range of proposals to fix structural budget deficits and boost integrity in the system.
He will call for a new carbon tax, as well as rules to stop large multinationals structuring their corporate affairs to ensure subsidiaries in Australia earn little or no profit, thus limiting their tax bills.
Mr Sims is the former chairman of the Australian Competition and Consumer Commission and was an economic adviser to prime minister Bob Hawke during the reformist 1980s.
He will use the speech to a revenue summit organised by progressive think tank The Australia Institute to call for a sensible minerals resource rent tax, which would operate alongside the Petroleum Resource Rent Tax (PRRT), modified to limit deductions related to carry forward losses.
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Mammoth rises over as Reserve Bank grows wary
8:35PM October 5, 2022
The days of jumbo Reserve Bank rate rises are over, economists say, with Tuesday’s decision to scale back the pace of policy tightening the start of a more “normal” cycle over coming months as the central bank adopts a more cautious “wait-and-see” approach.
Analysts said rates would now likely end the year at 3.1 per cent – from 2.6 per cent now – albeit with the potential for further tightening in 2023.
Jarden chief economist Carlos Cacho, who correctly predicted the RBA would deliver a quarter-of-a-percentage-point increase on Tuesday, rather than the widely anticipated half-a-percentage-point move, said the board meeting minutes would reveal a “finely balanced decision”.
“My view is the RBA weighed up that the risk of inflation being slightly higher for longer was worthwhile to avoid a significant economic slowdown,” Mr Cacho said.
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A familiar, dirty old smell has returned to politics
Labor’s argument for curbing the stage three tax cuts has some merit, but it should have been made before the election.
Phillip Coorey Political editor
Oct 6, 2022 – 8.00pm
After four months of good government, marked by a return of process and the orderly implementation of an actual policy agenda, a familiar, dirty old smell has returned to politics.
The pong is the government signalling it may break a key election promise and pare back the stage three tax cuts, a move that would once more place integrity in the spotlight.
Treasurer Jim Chalmers has been given a licence by Anthony Albanese to test the waters on the basis that the tax cuts as legislated are no longer affordable.
A cynic might suggest the tactic comes straight from chapter one in Politics For Dummies: Say what you need to win an election, then claim the situation you inherited is much worse than thought, and lament that promises need to be broken.
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Storm warning: can Australia weather the next global economic crisis?
The economic and fiscal environment we face today is not just different to the picture painted in the March budget. It’s as if we are on another planet.
By Shane Wright
October 7, 2022 — 11.00am
Treasurer Jim Chalmers sounded more like a meteorologist than a politician when this week he sought to explain the issues affecting his first budget.
“The storm clouds are gathering again in the global economy,” he said in a press conference called after the Reserve Bank lifted official interest rates to a nine-year high.
Twice more he referenced the dark clouds that threatened his budget, blowing in from the United States, from China, from Ukraine, from the EU and from Britain.
At the Reserve Bank headquarters in Sydney, bank governor Philip Lowe took the storm warning to its logical end, saying the RBA was intent on “keeping the economy on an even keel”.
That the two men who will have the biggest say about the state of the Australian economy used related metaphors highlights the difficult conditions the world’s policymakers now face.
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Zombie collapse could trigger next sub-prime crisis
Previously protected by zero rates and QE-to-infinity, many companies may now be torched by inflation and expensive money where the fallout will be far-reaching.
Christopher Joye Columnist
Oct 7, 2022 – 2.00pm
For better or worse, we live in a twilight zone spanning two worlds. First there is the old world, where interest rates were to remain low-for-long, the cost of borrowing was the cheapest it had ever been, and central banks and fiscal treasuries could immediately alleviate every financial ill with ever more extreme forms of stimulus and money printing (aka quantitative easing) to bid up the value of all assets.
For years this column has argued that state interventions that manipulated financial market processes to adjust price signals so that capital and labour were allocated as the state (not the collective wisdom of the crowd) dictated undermined the very source of capitalism’s prosperity producing machine – that is, creative destruction.
There is, of course, a role for governments to intervene temporarily when markets fail because of the asymmetric information induced by extreme shocks, like the one-in-100-year pandemic. But the elixir of zero rates, endless unfunded fiscal spending and “QE-to-infinity” has been the ultimate panacea for both politicians and central banks desperate to satisfy the hedonistic masses.
All that changed when the inevitable inflation shock arrived. This brings us to the new world. The mother of all inflation pulses was definitionally unavoidable precisely because the aforementioned unconditional policy stimulus programs would be continuously rolled out to solve every conceivable economic problem, until they generated their own binding constraint in the form of unacceptably high consumer price pressures.
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A nuclear war scenario is once more gripping the world
As a cornered Russian President Vladimir Putin talks up the potential for nuclear war in Ukraine, reverberations from the conflict could have a key bearing on Australia’s future relations with China.
Andrew Clark Senior writer
Oct 7, 2022 – 10.45am
Towards the end of the film Dr. Strangelove, a rogue US bomber approaches a Russian nuclear missile site. The bomb bay is damaged, but Major T.J. “King” Kong repairs it while straddling an H-bomb.
Suddenly, the bay doors open, and the bomb is dropped. Kong hoots and hollers as he rides the falling bomb, cowboy-style, until it detonates over the target. The film ends in a montage of nuclear explosions, accompanied by the Vera Lynn song, We’ll Meet Again.
Nearly 60 years after Dr. Strangelove’s release, Australia’s foreign minister Penny Wong described nuclear war as “unthinkable.” Less than three weeks later, however, as Ukraine’s counter-offensive against the Russian invaders gathers strength and after beleaguered Russian leader Vladimir Putin twice threatened to use nuclear weapons, the “unthinkable” has become a discussion point.
“If Putin uses a nuclear weapon, how should the world respond?” asks The New York Times. “The Age of Predatory Nuclear-Weapon States Has Arrived,” headlined the Politico web-site in the US. “What if Russia Uses Nuclear Weapons in Ukraine?” is the question posed by Atlantic Magazine.
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Albanese backs Chalmers on income tax cut U-turn
Phillip Coorey Political editor
Oct 7, 2022 – 6.27pm
The nation’s highest income earners stand to lose thousands of dollars a year under changes being contemplated to the promised income-tax cuts by Labor, which were nudged along on Friday by Prime Minister Anthony Albanese.
Although the government stresses that no final decision has been taken to pare back the stage three tax cuts, Mr Albanese backed the case being made by his Treasurer Jim Chalmers that economic circumstances had changed and, therefore, “difficult decisions” need to be taken as early as the October 25 federal budget.
Mr Albanese sidestepped the issue later when asked to guarantee there would be no changes to the stage three tax cuts. “What I have said is that the government has not changed our position,” he said.
Dr Chalmers, in his most forward-leading comments yet, suggested the stage three tax cuts were unaffordable in their legislated form and needed to be skewed away from those on higher incomes.
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Albanese prepares to break his first promise: Axe tax cuts for the rich
Political and international editor
October 8, 2022 — 5.00am
The Albanese government is about to take its first really big risk. By breaking a major election promise. And Peter Dutton can’t wait.
The government formally hasn’t made a decision, but it is careering towards rewriting the stage three tax cuts. Dutton won’t have to wait long.
Otherwise, why would we even be talking about them? They are legislated to take effect on July 1, 2024. That’s one year, eight months and three weeks away. That’s half an economic cycle and three budgets hence.
As a member of Albanese’s own cabinet, Skills and Training Minister Brendan O’Connor, put it on Thursday: “Look, we’re still committed to stage three. It is a long, long way away. You know, if a week in politics is a long time, then almost two years is an eternity.”
But Treasurer Jim Chalmers wants to announce changes in his first budget in less than three weeks. He’s been adjusting public expectations accordingly.
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Home loan arrears to rise, but pain not widespread – yet
Joyce Moullakis Senior Banking Reporter
4:00AM October 8, 2022
Mortgage repayment arrears are expected to worsen next year as rate hikes and soaring living costs bite, but low levels of unemployment will keep a lid on borrowers defaulting on their home loans.
That’s the view presented by S&P Global Ratings in detailed analysis released on Friday. It flagged an expected rise in loan arrears – for mortgages that are packaged up and sold as bonds – in the third quarter, and “more advanced arrears” surfacing in 2023.
S&P highlighted, however, that the more difficult loan arrears environment had been preceded by a benign period when borrowers were in a position of strength and cushioned by higher savings levels. Its analysis showed mortgage arrears fell to a post-Global Financial Crisis low of 0.64 per cent in the second quarter of 2022.
“While mortgage stress is inevitable for some borrowers in the current environment, low unemployment will temper the transition from arrears to default, particularly with rising wage growth,” S&P said.
The S&P report showed mortgage arrears were low, but the data lags current economic reality by about three months. The RBA this week slowed its pace of rate hikes, lifting the cash rate by 25 basis points to 2.6 per cent. Still, the six rises this year mean rates are at their highest level since July 2013. S&P’s analysis also showed some pockets of mortgage weakness were already evident in a string of communities faring far worse than the national average.
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10 things to do to future proof your portfolio
After a decade in which investors could throw money at stocks and housing and have a decent chance of coming out on top, the outlook has suddenly become murky.
October 7, 2022
After a decade in which investors could throw money at stocks and housing and have a more than decent chance of coming out on top, the outlook has suddenly become a lot more murky.
Higher inflation, higher rates, deglobalisation, the green wave and a war in Europe – these structural shifts mean investing over the next decade will look very different.
But investors can take steps now to help future-proof their portfolios over the long term. The Weekend Australian has spoken to wealth experts and financial advisers to get their views on how best to generate and protect wealth in the years to come. Here’s what they had to say.
1. Keep your style biases in check
There’s a decent chance returns in equities and other risk assets will be lower going forward than what investors got used to in the era of near-zero rates. Add to this increasingly volatile markets and it’s no surprise investors are unsure of where to put their money.
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COVID-19 Information.
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Rolling the dice on COVID is the Labor government’s first real misstep
Independent federal MP for Kooyong
October 3, 2022 — 7.30pm
The Albanese government would like to pretend that the global pandemic is over. Sadly, it’s not.
In rapidly dismantling most measures to identify and limit the spread of COVID in our community, the government has chosen to leave the most vulnerable Australians behind. It has also rolled the dice on its own political fortunes, gambling there won’t be another summer like the last; one of uncontrolled spread, unavailable testing, unstocked shelves, cancelled family gatherings, anxiety and uncertainty.
The public has a right to know how and why the decisions to end mandatory isolation periods for COVID-19 were made. It appears that the only health advice considered by the national cabinet last week came from the Chief Medical Officer, Paul Kelly. It is disturbing that the new Labor government excluded the Australian Health Protection Principal Committee – our key expert body for health emergencies, the state health officers who’ve guided our COVID response in the past three years – from this crucial decision on pandemic management.
The Albanese government has generally been on point in its first four months. Other than an aborted attempt at stopping pandemic leave in July, this is its first real misstep, one which could have grave consequences.
Australians would like COVID to go away so that we could just get back to normal. The government would like COVID to go away so that our workforce and economy can recover. Healthcare workers would like COVID to go away, so they can make inroads into the massive backlogs for elective surgery and outpatient appointments. Most poignantly, the aged, chronically ill, disabled and immunocompromised would like COVID to go away, so they could safely re-join the rest of us. Many feel isolated, at risk and increasingly marginalised by the desire of mainstream Australia – and now of their government – to pretend that COVID is no longer a threat.
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https://www.afr.com/politics/federal/how-to-keep-an-open-mind-in-the-face-of-horror-20221006-p5bnl1
How to keep an open mind in the face of horror
A new book on the pandemic by one of Australia’s medical experts could provide insights into dealing with unpalatable political questions.
Laura Tingle Columnist
Oct 7, 2022 – 3.29pm
Last month, Professor Raina MacIntyre was awarded the Eureka Prize for Leadership in Science and Innovation, an award which particularly recognised her leadership in the context of the COVID-19 pandemic.
You would recognise MacIntyre if you saw her because she became one of the regular scientific and medical experts on our television screens – and elsewhere – in the past few years.
Her authoritative and fearless observations about the nature of pandemics and how to deal with them always cut through, even at a time when we are all self-confessed and instant experts in epidemiology.
COVID-19 has been a particularly extreme case of scientific debate unfolding before the eyes of a much wider than normal public – with real-life consequences for all of us – and a scientific debate supercharged by politics, both rational and extreme.
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Climate Change.
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Climate change made 2022 drought ‘at least 20 times likelier’
By Patrick Galey
AFP
4:07PM October 6, 2022
Human-caused climate change made this summer’s drought across the northern hemisphere at least 20 times more likely, according to a rapid analysis released overnight on Wednesday that warns such extreme dry periods will become increasingly common with global warming.
The three months from June-August were the hottest in Europe since records began, and the exceptionally high temperatures led to the worst drought the continent has witnessed since the Middle Ages.
Crops withered in European breadbaskets, as the historic dry spell drove record wildfire intensity and placed severe pressure on the continent’s power grid.
Successive heatwaves between June and July, which saw temperatures top 40C in Britain for the first time, saw 24,000 excess deaths in Europe.
China and North America also experienced unusually high temperatures and exceptionally low rainfall over the period.
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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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https://thenewdaily.com.au/finance/2022/10/03/tax-cuts-chalmers-alan-kohler/
6:00am, Oct 3, 2022 Updated: 9:13pm, Oct 2
Alan Kohler: Past budgets and tax cuts are a foreign country
When LP Hartley wrote “the past is a foreign country: they do things differently there”, as the first line of his novel The Go-Between, he was on about nostalgia, rather than regret or recrimination.
Leo Colston had come across a diary written when he was 13, at the bottom of a red cardboard collar box, and it stirred up memories he had long suppressed.
I’ve just come across then treasurer Scott Morrison’s 2018 budget speech which has stirred up long-suppressed memories – nostalgia washed over me, but that was tinged with regret and, to be honest, a little recrimination.
May 2018 was an optimistic time; we were oblivious to the approaching storm. The budget that Morrison brought down that month forecast a return to surplus the following year and endless surpluses thereafter, including $16.6 billion in 2021-22, the year we’ve just had.
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Rate rise could be final straw for lower income households
By Emma Koehn
October 3, 2022 — 6.58pm
Supermarket giant Coles has locked in prices on 150 more everyday products to the end of January as another interest rate rise on Tuesday threatens to put the squeeze on low-income households.
“We know it’s been a really tough year for many of our customers and they are looking for prices they can rely on,” Coles chief executive of commercial and express Leah Weckert said.
The Reserve Bank aims to finally throw cold water on consumer spending with what economists are tipping will be a 50 basis point rise in the cash rate, enough “to avoid underwhelming the market at a time of extreme nervousness”, Citi Group analysts said last week.
“The view [on the rate rise] has come from recent global events that include the extremely large amount of fiscal stimulus in the UK and upwardly revised policy rate expectations for major central banks.”
Such a rise would weigh heavily on Australian consumers at a time when retail analysts say shoppers, particularly those earning less than $50,000 a year, are tempering their intentions to spend.
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https://www.rba.gov.au/media-releases/2022/mr-22-33.html
Statement by Philip Lowe, Governor: Monetary Policy Decision
Number 2022-33
Date 4 October 2022
At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 2.60 per cent. It also increased the interest rate on Exchange Settlement balances by 25 basis points to 2.50 per cent.
The Board is committed to returning inflation to the 2–3 per cent range over time. Today’s increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead. The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.
As is the case in most countries, inflation in Australia is too high. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role.
A further increase in inflation is expected over the months ahead, before inflation then declines back towards the 2–3 per cent range. The expected moderation in inflation next year reflects the ongoing resolution of global supply-side problems, recent declines in some commodity prices and the impact of rising interest rates. Medium-term inflation expectations remain well anchored, and it is important that this remains the case. The Bank’s central forecast is for CPI inflation to be around 7¾ per cent over 2022, a little above 4 per cent over 2023 and around 3 per cent over 2024.
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https://www.afr.com/policy/economy/reserve-bank-resolves-its-inflation-strategy-20221003-p5bmwe
Don’t mistake this RBA move for weakness
The 0.25 of a percentage point rise in interest rates might seem timid, but the RBA seems to finally be transforming itself from a forecasting agency to a central bank that can articulate what is happening and what is likely to happen.
Richard Holden Economics professor
Updated Oct 4, 2022 – 4.10pm, first published at 3.48pm
Don’t mistake Tuesday’s 25 basis point increase in official interest rates for lack of resolve from the Reserve Bank. If anything, the opposite is true.
Financial markets were pricing in a four-in-five chance of a 50 basis point increase, and plenty of RBA watchers expected that outcome, too.
The simple version of the story goes like this: Inflation is still running hot at 6.8 per cent, according to monthly data produced by the Australian Bureau of Statistics. Before Tuesday’s meeting, the Australian cash rate was 2.35 per cent – clearly below the neutral interest rate. So, to burnish its inflation-fighting bona fides, the RBA needs to get the cash rate up to at least 3.5 per cent – maybe 4 per cent – pronto.
Judged against this, the RBA’s 0.25 of a percentage point move looks timid, calling into question its resolve.
But there’s an alternative story that is a better lens through which to see the latest move.
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Borrowers face buffer wipeouts from rate rises: RBA
Jonathan Shapiro and Ronald Mizen
Updated Oct 7, 2022 – 4.33pm, first published at 11.44am
The Reserve Bank of Australia has warned that tens of thousands of borrowers on variable-rate mortgages will wipe out their buffers within six months if interest rates rise in line with market forecasts, even if households dramatically cut their spending.
About 8 per cent of borrowers would completely drain their mortgage prepayments within months if the official interest rate rises to 3.6 per cent in the next year, even if they slashed their discretionary spending by 80 per cent, the RBA’s biannual Financial Stability Review shows.
Twenty per cent of homeowners are facing an increase in mortgage payments to 30 per cent of their income.
Low-income households and recent first home buyers are the most at risk of mortgage stress as they are the most likely to have smaller prepayment buffers and less discretionary spending to draw down on.
The RBA on Tuesday raised the cash rate by a quarter percentage point, its sixth, consecutive increase, taking it to 2.6 per cent since May. Financial markets are betting it will peak at 3.6 per cent in June next year.
The 250 basis point, or 2.5 percentage point, increase since early May is important as it was the mandated serviceability buffer used for almost 200,000 first home buyers between September 2020 and October 2021.
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Health Issues.
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NSW minister backs pharmacist prescribing as patients struggle to get GP appointments
By Dana Daniel
October 5, 2022 — 5.00am
Pharmacists in NSW may soon be able to prescribe antibiotics for urinary tract infections, eliminating the need for a GP visit, as part of wider reforms being considered by the state government to ease pressure on the health system.
The Queensland government now allows pharmacists to prescribe for uncomplicated UTIs after an 18-month trial of the system, and will now run a trial of pharmacists diagnosing other conditions. NSW Health Minister Brad Hazzard has asked his department to explore a similar trial.
“There’s a very clear message from COVID that is that pharmacists have been able to step up where needed to fill gaps,” the minister told The Sydney Morning Herald.
“There are parts of the state where it is extremely tough to get in to see a GP and there are some conditions, like UTIs, that I think lend themselves to the possibility of pharmacists having an expanded scope of practice.”
Pharmacy Guild President Trent Twomey, who lobbied for the change, said patients should also be able to access care from pharmacists for colds and skin infections, along with prescriptions for the contraceptive pill, blood pressure and cholesterol tablets.
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International Issues.
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What would really happen if Russia dropped a tactical nuclear bomb?
Hans van Leeuwen Europe correspondent
Oct 2, 2022 – 11.24am
When Russia attacked Ukraine in February, President Vladimir Putin said his country’s nuclear forces had been placed on “high alert”. In the past fortnight – both when calling for the mobilisation of reservists to bolster his forces, and also when formally annexing parts of Ukraine – he made new threats about deploying those nuclear weapons.
But what kind of nuclear weapons would Putin actually deploy and just how destructive are they? And how would the West respond if he were to follow through on his threat?
How many nuclear weapons does Russia have?
The number of nuclear weapons now held by the US and Russia is a fraction of what it was in the Cold War, although Russia has spent the past couple of decades modernising its nuclear arsenal – including its tactical warheads and delivery systems.
Russia has an estimated nuclear stockpile of 5977 warheads, says the Federation of American Scientists’ Nuclear Information Project (NIP).
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Xi warns of ‘great struggles’ on the road to respected global power
Michael Smith North Asia correspondent
Oct 2, 2022 – 4.50pm
Tokyo | Xi Jinping has told Communist Party members to prepare for “great struggles” to achieve China’s dream of being a truly global power, a goal he says has never been closer.
In an article published on China’s National Day, which marks the anniversary of Communist Party rule, Mr Xi said the party must be prepared to make “harder efforts” to achieve its goal of national rejuvenation.
This is a term the party uses to describe a long-term goal of building China into a respected global power, but also includes bringing Taiwan under Beijing’s control.
“Today, we are closer, more confident and capable of realising the goal of the great rejuvenation of the Chinese nation than at any time in history.
“The great rejuvenation of the Chinese nation is by no means something that can be achieved easily ... the Party must be prepared to make arduous, more difficult efforts,” Mr Xi said in a speech published in the party journal Qiushi on Saturday.
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Bond markets are terrifyingly intimidating again
Jonathan Shapiro Senior reporter
Oct 3, 2022 – 9.31am
This columnist is as guilty as anyone for overusing the famous comment by US president Bill Clinton’s adviser James Carville that if he could be reincarnated as anything it would be the bond market - because it could intimidate anyone.
That quip was made after he experienced first hand the power of the bond market to force the hand of Clinton. Any hints or suggestions of increased spending were met with rising yields to the point where Clinton was guided into deficit reduction.
While that Carville comment has been wheeled out ad nauseam since, there has perhaps never been a more precise analogue than the reaction of the UK gilt market to the mini budget that led to Bank of England intervention.
The extraordinary spike in bond yields and the plunge in the British pound was in effect the bond (and currency) markets way of telling UK chancellor Kwasi Kwarteng where he can stick his tax cut plan.
Earlier in the week Australia’s treasurer Jim Chalmers announced he’d found an extra $50 billion. In the newsroom we debated whether this might have a positive effect on the value of our sovereign debt (if we have less debt, we need to sell less bonds so less supply should lead to higher prices).
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https://www.afr.com/wealth/investing/kwarteng-crashes-the-bond-market-love-in-20221002-p5bmkd
Kwarteng crashes the bond market love-in
The UK chancellor last week showed how the path towards higher interest rates around the world will be fraught with danger.
Katie Martin Contributor
Oct 2, 2022 – 2.35pm
Just over a week ago, many international bond investors had barely heard of Kwasi Kwarteng. But the new UK chancellor has crashed into a rekindling romance between asset managers and debt markets all around the world in impressive style.
In the process, Kwarteng has demonstrated how the path for central banks towards higher interest rates and lighter support for bond markets will be fraught with danger.
Before the meltdown in UK markets over the past week or so, investors were rapidly falling for the charms of an asset class that had been unusually cruel to them all year.
“Bonds are back,” proclaimed Amundi’s chief investment officer Vincent Mortier at a presentation in mid-September. “I’m convinced that bonds are back.” Debt had delivered a horrible blow to investors’ portfolios up to that point in 2022, as they were eaten up first by inflation and then by an aggressive response from central banks.
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https://www.afr.com/world/europe/britain-is-not-an-emerging-market-yet-20220929-p5bly1
Britain is not an emerging market – yet
While talk of an outright UK default is overblown, it is not unreasonable to anticipate a painful reckoning just short of that outcome.
Kenneth Rogoff Columnist
Oct 2, 2022 – 2.27pm
Following British Prime Minister Liz Truss’ “mini-budget” – a mishmash of policies ranging from Reaganomics-style tax cuts for corporations and the wealthy to an old-style socialist cap on energy prices – commentators have reacted with increasingly florid hyperbole. Many now wonder whether the United Kingdom is coming to resemble less an advanced economy than a wayward emerging market.
True, financial markets have sent the pound spinning to its lowest level ever (against the US dollar), with no bottom in sight. The pound’s reserve-currency status, the last remaining vestige of Britain’s once-vaunted position at the center of the international monetary system, is being called into question. While talk of an outright UK default is overblown, it is not unreasonable to anticipate a painful reckoning just short of that outcome.
And it is worth remembering that the UK repeatedly took bailouts from the International Monetary Fund from the 1950s through the 1970s (making it the IMF’s most loyal customer). It would be naive to think that this could not happen again, especially if global long-term interest rates continue to return to their (very) long-run trend. No wonder the IMF is already pushing back against the UK’s half-baked economic package, just as it does for potential emerging-market claimants on its resources.
But the sky is not falling – at least not yet. Notably, as of the end of September, the UK government’s 10-year borrowing rate is roughly half a percentage point above US Treasury rates. It is thus still well below that of emerging markets such as Indonesia, Mexico and Brazil, whose government borrowing rates exceed those of the United States by three, five, and eight percentage points, respectively.
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Alarm bells are ringing with global markets in growing disarray
Investors are bracing for a worsening market rout as liquidity evaporates and soaring interest rates cause financial strategies to unravel.
Karen Maley Columnist
Oct 2, 2022 – 4.51pm
Investors are bracing for further financial market ructions this week, as rising interest rates and slowing economic activity collide with global debt levels that are at record highs.
As we’ve witnessed so often in the past, the odds of a major financial blow-up – such as the global financial crisis, the collapse of the dotcom bubble and the collapse of the US hedge fund Long-Term Capital Management – are magnified in the period immediately following a US Federal Reserve tightening cycle.
Investors have been deeply rattled after last week’s turmoil in the UK bond market, in which supposedly staid pension and insurance funds played a central role.
The UK episode has served to highlight the extreme vulnerability of financial markets, after more than a decade of ultra-loose monetary policy.
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Truss says British economy ‘needs a reset’ after market sell-off
Jasmine Cameron-Chileshe
Oct 2, 2022 – 3.38pm
London | UK Prime Minister Liz Truss says “Britain’s economy needs a reset” and has pledged to prioritise “aspiration, enterprise and growth” as the Conservative Party prepares to gather for its annual conference after a week of market turmoil.
MPs and party members were scheduled to convene on Sunday in Birmingham, and Ms Truss was expected to seek to rally their support for her political vision.
The prime minister faces rising discontent over the government’s £45 billion ($78.7 billion) “mini” budget last week, after which the pound fell to a record low against the dollar, gilts sold off sharply, banks pulled thousands of mortgage products and the Bank of England launched a £65 billion bond-buying scheme to stabilise government debt markets.
Ms Truss said on Saturday night (Sunday AEST) that the Conservatives were “the party of aspiration, enterprise and growth”.
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Truss digs in on fiscal plan despite mounting unrest
Edward Malnick
Oct 2, 2022 – 12.40pm
London | UK Prime Minister Liz Truss on Sunday said that only her plan to transform Britain into a low-tax, high-growth economy would reverse the “current trajectory of managed decline”.
In her first newspaper interview since becoming prime minister, Ms Truss told The Sunday Telegraph that “tough decisions” were needed to boost growth in order to increase wages, investment and employment.
She insists that the public is more concerned with jobs and education than with “what the polls were last year”, warning that voters “feel that there has been a failure to address some of the fundamental issues that affect our country”.
Unveiling reforms to cut red tape for small businesses, the prime minister said that she wants to combat Britain’s “lack of dynamism”.
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MPs warned against tax cut rebellion as Truss concedes ‘communication mistakes’
October 3, 2022 — 10.45am
Birmingham: Supporters of Liz Truss have warned Conservative MPs that they could be booted from the party room if they vote against her tax cuts for the rich, despite the Prime Minister conceding she had failed to communicate the shock policy properly.
Late on Sunday, the London Telegraph, the paper most closely aligned with Truss, reported she would delay a vote on cutting the top tax rate.
Earlier, she told the BBC that she should have laid the ground better before Chancellor Kwasi Kwarteng announced the abolition of the 45p tax rate for those on the highest incomes.
“I have learned from that,” Truss told the BBC. “I will make sure in future we do a better job of laying the ground.”
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Exposed: Putin’s deadly, unhinged desperation
In labelling the collapse of Western hegemony as ‘religion in reverse – pure Satanism’, the Russian President has set the scene for a prolonged and potentially dangerous war.
By Paul Dibb
October 2, 2022
Yet again, Russia’s President, Vladimir Putin, is threatening to use nuclear weapons. First it was his speech on September 21 about the partial mobilisation of 300,000 Russian troops. Then on Friday he repeated his threats in the context of declaring that “Donetsk, Luhansk, Zaporizhzhia and Kherson” are now formally part of the territory of the Russian Federation, with the implicit threat that they are now sovereign Russian territory, which will be defended by “all available means”.
Putin’s implicit threat on September 30 was as follows: “I want the Kyiv authorities and their real masters in the West to hear me, so that everyone remembers this: people living in Luhansk and Donetsk, Kherson and Zaporiz`hzhia have become our citizens forever.” He went on to assert that Kyiv’s authorities “should respect this free expression of the people’s will; there is no other way. This is the only way to peace”. In other words, Russia’s unilateral claim to 15 per cent of Ukraine’s territory with 7.5 million people is not negotiable.
I interpret this to mean we are in for a prolonged and potentially very dangerous war in Europe and the prospects of a negotiated ceasefire are remote.
As British historian Lawrence Freedman has noted, there was a more ominous explicit hint, when Putin referred to the US as “the only country in the world that twice used nuclear weapons, destroying the Japanese cities of Hiroshima and Nagasaki. And they created a precedent”. It is this latter sentence that carries the threat that the US has already used nuclear weapons and, therefore, if Russia decides to use them it will not be the first to break the precedent about the non-use of nuclear weapons.
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This prime minister must be dispatched now
1:13PM October 2, 2022
She’s finished. Risky (you may think) to say this so early? But she is. The parliamentary Conservative Party must urgently cut itself free of what will soon be the political corpse of its leadership.
An almost unknown prime minister and her almost unknown chancellor have trashed a golden opportunity to reach out to all sides in their party and consult and reflect during weeks of national mourning - and instead blundered straight into a massively ill-considered move that has almost literally scared the country out of its wits. This prime minister must be dispatched. Sacking her chancellor (though she should) won’t save her now. Her own removal is not a matter of “if” but when, how and by whom.
By whom? That’s entirely in the hands of her own MPs.
They should ask themselves this: do they salvage their honour by moving swiftly to remove the horror their activists’ choice of leader has inflicted on them and their constituents? Or do they hang back, wringing their hands like helpless onlookers, until the inevitable accidents, reverses and obloquy destroy, perhaps for a generation, any Tory claim to responsible government? As a way of saving their seats, how does that sound?
This column argues not just the necessity but the opportunity for Tory MPs to be seen to deal decisively, and at once, with the person their grassroots party forced upon them.
But how? The body through which (at least nominally) they operate is the 1922 Committee of all backbench Conservative MPs. The ’22 makes the rules and the ’22 can change them almost overnight. Water will always find a way to run downhill, so forget anything you may have read about the rules. A vote will happen if the ’22 wants it; the ’22 will want it if backbenchers overwhelmingly demand it; and if a leader expects to lose such a vote, they’ll resign before it happens. As much a threat as a process, the mechanism may never need to be invoked.
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What Putin’s ‘outcrazy your opponent’ strategy means for the world
It’s a North Korean specialty, but now the Russian leader has adopted it in a country spread over 11 time zones with thousands of nuclear warheads.
Thomas Friedman Contributor
Oct 3, 2022 – 11.02am
With his annexation of parts of Ukraine, Vladimir Putin has set in motion forces that are turning Russia into a giant North Korea.
It will be a paranoid, angry, isolated state, but unlike North Korea, the Russian version will be spread over 11 time zones – from the Arctic Sea to the Black Sea and from the edge of free Europe to the edge of Alaska – with thousands of nuclear warheads.
I have known a Russia that was strong, menacing, but stable – called the Soviet Union. I have known a Russia that was hopeful, potentially transitioning to democracy under Mikhail Gorbachev, Boris Yeltsin and even the younger Putin. I have known a Russia that was a “bad boy” under an older Putin, hacking America, poisoning opposition figures, but still a stable, reliable oil exporter and occasional security partner with the US when we needed Moscow’s help in a pinch.
But none of us have ever known the Russia that a now desperate, back-against-the-wall Putin seems hellbent on delivering – a pariah Russia, a big, humiliated Russia, a Russia that has sent many of its most talented engineers, programmers and scientists fleeing through any exit they can find. This would be a Russia that has already lost so many trading partners that it can survive only as an oil and natural gas colony of China, a Russia that is a failed state, spewing out instability from every pore.
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https://www.afr.com/chanticleer/credit-suisse-rumour-mill-a-sign-of-dangerous-times-20221003-p5bmpx
Credit Suisse rumour mill a sign of dangerous times
Speculation that Credit Suisse is to this crisis what Lehman Bros was to the financial crisis has got completely out of control, thanks to fearful markets and social media.
Updated Oct 3, 2022 – 12.57pm, first published at 11.31am
It’s no surprise that experts and amateurs are spending an awful lot of time right now comparing the state of financial markets to those of 2008, when the collapse of US investment bank Lehman Brothers sparked the global financial crisis.
Thanks to countless articles, research papers and books, and even films such as The Big Short, the events of 2008 are so burnt into our collective brains that similarities are easy to spot: the build-up of debt across the global economy; the sudden shocks in unexpected, unexplored parts of the market like we saw in British bond markets last week; and the sudden unwinding of house prices.
Of course, there are plenty of ways the current state of markets is very different to 2008. Some of these differences are positive, such as the rules put in place following the GFC around the capital buffers the world’s biggest banks have to hold.
And some of them are negative, such as the way social media can turn rumour into fact, or something that looks like it. Credit Suisse is a case in both points.
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Ministers slept as Truss woke up to the reality of tax cut
Gordon Rayner and Ben Riley-Smith
Oct 4, 2022 – 9.03am
In Liz Truss’ suite at the Hyatt hotel in Birmingham, the mood was grim.
Even a late-night snack of Mexican food served up to revive weary aides could not lift the spirits as everyone present realised they had run out of options.
As the hour approached midnight on Sunday, the prime minister and the chancellor compared notes on the feedback they had received from MPs on the 45 per cent tax cut, and agreed the game was up.
Only hours after Kwasi Kwarteng had sent out a preview of his conference speech, in which he was to insist he would “stay the course”, he agreed to the most humiliating about-turn of recent times.
“It wasn’t worth the pain of keeping it”, admitted one No. 10 source familiar with the discussion in the hotel suite. “The view from a political and communications point of view was that we just had to lance the boil.”
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‘Please, no more crises’: British business pleas for calm
Hans van Leeuwen Europe correspondent
Oct 4, 2022 – 5.41am
Birmingham | Britain’s financial services sector has told the government it wants regulatory certainty and political stability rather than a bonfire of red tape, as Chancellor Kwasi Kwarteng readies an overhaul that he calls “Big Bang 2.0”.
“What the business world wants above all is stability,” said Nicky Morgan, a former Conservative cabinet minister who now chairs the Association of British Insurers, after Mr Kwarteng presided over a chaotic week of market turmoil and policy U-turns.
“Please, no more crises – just a period of calm, competent government would be much appreciated in the business world.”
Britain’s government has vowed to rewrite the rule book to take advantage of leaving the European Union, hoping to create a more permissive post-Brexit regime that will reassert London’s pre-eminence as an attractive financial centre.
The new triumvirate of Prime Minister Liz Truss, Mr Kwarteng and Business Secretary Jacob Rees-Mogg have signalled a desire to make an impactful assault on red tape reminiscent of former Tory leader Margaret Thatcher’s first “big bang” in the 1980s.
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https://www.afr.com/policy/economy/the-fed-is-failing-as-a-monetary-policy-anchor-20221003-p5bmrl
The Fed is failing as a monetary policy anchor
A tardy US Fed has been forced to tighten harder than it might. That means everyone else has to as well.
Mohamed El-Erian Global financial commentator
Oct 3, 2022 – 1.53pm
Financial markets’ reaction to the US Federal Reserve’s latest policy move was reminiscent more of developing countries than of the world’s most powerful economy.
Given that the Fed is the world’s most systemically important central bank, this is more than just a curiosity. It has implications for America’s economic well-being – and that of the rest of the world.
On September 21, the Fed reinforced its two-month-old approach of pushing interest rates higher, faster, and for a longer duration than previously anticipated.
It implemented an unprecedented, third, successive 0.75 of a percentage point rate increase and sent a strong signal that increases totaling another 125 basis points are on tap for the year’s last two policy meetings. It also signalled the possibility of a “pivot” to lower rates is unlikely before 2023.
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Investors are learning to love industry again
Those of us that grew up in such places always knew this. Investors are now learning it too. As the tech bubble deflates, I predict market interest in industrials will grow.
Rana Foroohar Contributor
Oct 3, 2022 – 4.50pm
Industry is back. For the last several decades, the sector has been overlooked and suffered underinvested, as Wall Street embraced Silicon Valley, services and all things technology-related.
Manufacturing, particularly in rich countries such as the US, was regarded as a “has-been” business. Fewer and fewer wanted to invest or work in it. The inevitable decline of factory jobs became an economic truism.
Now, in our post-neoliberal, deglobalising world, things are changing. As resilience replaces efficiency as a business mantra, countries and companies are bolstering industrial capacity in strategic sectors such as semiconductors, electric vehicles, clean technology and agriculture, even as a changing global wage landscape and energy arbitrage are bringing the production of lower margin goods such as textiles or furniture closer to home.
But in the US, an even broader post-COVID-19 resurgence in manufacturing is under way. While US manufacturers cut 1.36 million jobs in the pandemic, August data shows they’ve now added back 1.43 million, an increase of 67,000 workers. And the gains are spread widely across geographies and sectors.
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Tories ‘completely lost’ after Truss tax U-turn, says Alexander Downer
October 4, 2022 — 6.59am
Birmingham: Britain’s new prime minister Liz Truss will lead the Tories to a loss because she has turned her back on conservative economics and the party has lost its way, Alexander Downer says.
In an interview with The Sydney Morning Herald and The Age on the sidelines of the Conservative Party conference in Birmingham, Australia’s longest-serving foreign minister said he could see no path to victory for Truss following her humiliating backdown on granting the country’s wealthiest a huge tax cut.
“She’s only been the leader for three weeks, and already she’s done a major U-turn. Personally, I think that’s hugely damaging because it undermines public confidence in you; that you didn’t really think this through, did you?” he said.
“This is a sign that after just three weeks she is going to find it perilously difficult to manage the party.”
Truss was forced to back down, despite declaring less than 24 hours earlier that she was absolutely committed to the tax cut, because she faced a rebellion on the floor of the House of Commons, where ex-cabinet ministers had warned enough Tory MPs would vote with Labour to scuttle the tax cut.
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‘We get it’: Britain’s PM forced into humiliating backdown over plan to cut tax for the rich
Updated October 4, 2022 — 4.59amfirst published October 3, 2022 — 8.49pm
Birmingham: Britain’s new Prime Minister Liz Truss has been forced to drop her plan to cut tax for the rich, after MPs defied threats that they could be kicked out of the party room and warned they would vote against her plan.
Truss, who models herself on former prime minister Margaret Thatcher, confirmed the backdown on social media, just 24 hours after she went on television before her debut at the Conservative Party conference in Birmingham.
“We get it and we have listened,” she said.
“The abolition of the 45 per cent rate had become a distraction from our mission to get Britain moving.
“Our focus now is on building a high-growth economy that funds world-class public services, boosts wages, and creates opportunities across the country.”
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The end of Vladimir Putin? It might come sooner than you think
By Matthew Sussex
October 4, 2022 — 11.09am
Vladimir Putin’s bizarre ceremonies formalising Russia’s annexation of some 15 per cent of Ukraine once again revealed the yawning chasm between Kremlin triumphalism and reality.
Never mind Russian forces didn’t even fully control the territories Putin brought under the Russian flag. Never mind Russia’s “referendums” were a blatant fabrication – with voting often held at gunpoint.
Never mind that by now more people have fled Russia than the 300,000 extra troops to be “partially mobilised” in support of Putin’s flagging war effort.
And never mind that Russian forces are retreating in many of their newly-acquired lands, with the key city of Lyman liberated by Ukraine less than 24 hours after its annexation was announced.
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Putin’s nuclear threat is real
October 4, 2022
Even as poorly trained, poorly led and poorly supplied Russian forces retreat on the battlefield, the danger that the war in Ukraine will erupt into a wider conflict continues to grow. Vladimir Putin has responded to the weakening of his military position by “annexing” four contested regions inside Ukraine, declaring that the conflict in Ukraine is a war for the survival of Russia, and raising the spectre of a nuclear strike. The West is taking note of these moves and the sabotage of Baltic pipelines connecting European consumers to Russian gas. National security adviser Jake Sullivan has warned Russia that any use of nuclear weapons would have catastrophic consequences for Russian forces, and Jens Stoltenberg, secretary-general of the North Atlantic Treaty Organisation, repeated that message Sunday morning.
As the Biden administration scrambles to manage the most dangerous international confrontation since the 1962 Cuban missile crisis, it must see the world through Mr. Putin’s eyes. Only then can officials know how seriously to take the nuclear sabre-rattling and develop an appropriate response.
While American presidents going back to George W. Bush have failed to appreciate the depth and passion of Mr. Putin’s hostility to the U.S., the Russian president isn’t that hard to read. Like a movie supervillain who can’t resist sharing the details of his plans for world conquest with the captured hero, Mr. Putin makes no secret of his agenda. At Friday’s ceremony marking Russia’s illegal and invalid “annexation” of four Ukrainian regions, he laid out his worldview and ambitions in a chilling and extraordinary speech that every American policy maker should read.
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‘Weapon of the apocalypse’: Vladimir Putin lines up his nuclear options
By Larisa Brown and George Grylls
The Times
October 4, 2022
President Putin is set to demonstrate his willingness to use weapons of mass destruction with a nuclear test on Ukraine’s borders, NATO is believed to have warned its members.
The Kremlin has been signalling its readiness for a significant escalation as Russia loses ground on the battlefield.
Fears over Putin’s earlier hints that he might resort to such tactics heightened yesterday with claims that a train operated by the secretive nuclear division was destined for Ukraine.
Konrad Muzyka, a Poland-based defence analyst, said the train, spotted in central Russia, was linked to the 12th main directorate of the Russian ministry of defence and that it was “responsible for nuclear munitions, their storage, maintenance, transport, and issuance to units”.
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This is what happens when conspiracy theorists run countries
Conspiracy theorists have moved from the streets to the suites, and the most dangerous of them all is Vladimir Putin, who is threatening the world with nuclear war.
Gideon Rachman Columnist
Oct 4, 2022 – 2.24pm
I used to think conspiracy theories were the refuge of the powerless and the uneducated. The conviction that dark and secretive forces are manipulating world events was the mark of an outsider, surfing the internet or shouting in the streets. In the corridors of power they knew better.
As British civil servants like to murmur, when things go wrong, it’s usually “a cock-up, not a conspiracy”.
But conspiracy theorists have moved from the streets to the suites. They have become presidents of countries, including Turkey and Brazil. In the US, Donald Trump – who sees plots against him everywhere – is planning his political comeback.
The most dangerous conspiracy theorist of them all is Vladimir Putin, who is threatening the world with nuclear war.
His speech last week, announcing the illegal annexation of parts of Ukraine, was stuffed full of conspiratorial thinking. According to Putin, the collective West doesn’t “want us to be free; they want us to be a colony ... They want to steal from us.”
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https://www.afr.com/world/europe/why-truss-will-struggle-to-repair-budget-damage-20221004-p5bmzr
Why Truss will struggle to repair budget damage
Britain’s leader seems to live in a fantasy world and is oblivious to concerns about social solidarity. But it’s hard to govern effectively when you’ve angered most of your nation.
Paul Krugman
Oct 4, 2022 – 10.07am
Liz Truss, who became Britain’s prime minister less than a month ago, may have set a political speed record. She certainly isn’t the first leader who has been forced to make a policy U-turn in the face of adverse market reactions. But announcing an economic program and then abandoning its central plank just 10 days later is something special.
And those of us on the centre-left can, I think, be forgiven for feeling a bit of Schadenfreude. Conservatives constantly warn that progressive policies will be punished by the “bond vigilantes”, who, they claim, will drive up interest rates at the prospect of any increase in public spending.
Such warnings usually are proved wrong. In Britain, however, the bond vigilantes actually did make an appearance: Interest rates shot up after the Truss government announced its economic plans. But the market wasn’t reacting to excessive spending; it was reacting to irresponsible tax cuts.
That said, the simple story –– Truss proposed policies that would increase the budget deficit and feed inflation, and markets reacted by pushing interest rates up and the pound down – misses much of what really happened. This was both more and less than a matter of dollars and cents (or, I guess, pounds and pence). It was instead largely about a government squandering its intellectual and moral credibility.
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‘Doing things differently’: Truss struggles to control fractious govt
Hans van Leeuwen Europe correspondent
Updated Oct 5, 2022 – 10.13am, first published at 6.46am
Birmingham | British Prime Minister Liz Truss will on Wednesday double down on her reformist zeal, even as her ministers descended into a public slanging match over her policies.
Ms Truss will use a keynote speech to the Conservative Party conference in Birmingham to try and get her beleaguered month-old premiership back on track, saying there is no room for “drift and delay” in the face of global economic challenges.
“We need to do things differently. Whenever there is change, there is disruption. Not everyone will be in favour,” she will say. “But everyone will benefit from the result – a growing economy and a better future.”
Ms Truss plans to excoriate an “anti-growth coalition” standing in her way: the opposition parties, trade unions, anti-Brexit ‘Remainers’, think tanks, commentators, and Extinction Rebellion.
“They peddle the same old answers ... more taxes, more regulation and more meddling. Wrong, wrong, wrong,” she will say, in a phrase with overtones of her idol Margaret Thatcher.
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Folding at the first sign of jeopardy will provoke rebellion
By Chris Smyth
The Times
2:55PM October 4, 2022
Liz Truss’s U-turn on the abolition of the 45p tax rate makes her far more likely to survive as prime minister until the general election, but has also revealed why she will struggle to win it.
Tory MPs were in sulphurous mood about the chaotic fallout from Kwasi Kwarteng’s mini-budget, and it is telling that not many backbenchers made the trip to the party’s conference in Birmingham, with most of those who did seemingly intent on causing trouble.
Just three weeks into Ms Truss’s time in No.10 there was widespread talk about removing her, with discussion of changing the 1922 Committee’s rules and speculation about whether the party could find anyone to crown as a unity candidate without a new leadership election (probably not was the consensus).
The British government will not go ahead with its planned tax cut for higher income earners after widespread backlash…
The U-turn on the 45p rate has taken the heat out of those discussions because it blunts the most potent political attack against the Tories: that they are handing tax cuts to the rich while cutting services and benefits to the poor.
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The tragedy of Liz Truss is that she had a serious point
The supply side reforms that she has now managed to make toxic are what a low-growth Britain actually needs.
Janan Ganesh Contributor
Oct 5, 2022 – 1.22pm
Does a phrase exist for the exact opposite of a Pyrrhic victory? That is, a loss that turns out to bring success in the long run.
One contender, from the annals of the United States rather than antiquity, is a “Goldwater loss”. The rout of the libertarian Republican Barry Goldwater in the 1964 presidential election was total.
But it also seeded what became the New Right and the Reagan reforms. A small-state creed that was wrong for its time inspired those who would take Leviathan down a peg or two a generation later.
Liz Truss doesn’t have Goldwater’s outlaw charisma. I’m not sure she has Dan Quayle’s outlaw charisma. Still, as the waters threaten to close over someone who was never fit to be UK prime minister, liberals must hope that something of her worldview lives on. It is one with few enough champions as it is.
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https://www.afr.com/world/asia/xi-jinping-s-third-term-is-a-tragic-error-20221005-p5bnd2
Xi Jinping’s third term is a tragic error
China’s macroeconomic, microeconomic and environmental difficulties remain largely unaddressed.
Martin Wolf Columnist
Oct 5, 2022 – 12.31pm
Xi Jinping will shortly be confirmed for a third term as general secretary of the Communist party and head of the military. So, is his achievement of such unchallengeable power good for China or for the world? No. It is dangerous for both.
It would be dangerous even if he had proven himself a ruler of matchless competence. But he has not done so. As it is, the risks are those of ossification at home and increasing friction abroad.
Ten years is always enough. Even a first-rate leader decays after that long in office. One with unchallengeable power tends to decay more quickly. Surrounded by people he has chosen and protective of the legacy he has created, the despot will become increasingly isolated and defensive, even paranoid.
Reform halts. Decision-making slows. Foolish decisions go unchallenged and so remain unchanged. The zero-COVID policy is an example. If one wishes to look outside China, one can see the madness induced by prolonged power in Putin’s Russia.
In Mao Zedong, China has its own example. Indeed, Mao was why Deng Xiaoping, a genius of common sense, introduced the system of term limits Xi is now overthrowing.
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https://thenewdaily.com.au/finance/2022/10/06/bad-thinking-epidemic-kohler/
6:00am, Oct 6, 2022 Updated: 7:09pm, Oct 5
Alan Kohler: A global epidemic of bad thinking
Harper’s Magazine’s Index is always a treasure trove of American wackiness.
Here’s a sample from this month: “Percentage of Democrats that Republicans believe are atheist or agnostic: 36. Percentage that are: Nine.”
And this one from July: “Proportion of Republicans who believe high-level Democrats run a child sex-trafficking ring: Half.”
Half of American Republicans think Democrat leaders are paedophiles! Good grief.
This thinking is not just wacky, it’s bad thinking. And it is not just in the United States. For example, the new British Prime Minister Liz Truss believed that borrowing money to provide rich people with a tax cut was a good idea; in fact, it was bad thinking, which backfired quickly and spectacularly.
In Australia, only 81 per cent of people believe climate change is happening and 8 per cent of the rest actively deny it – twice the global average of deniers. And a lot of those 8 per cent are in positions of power or influence.
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https://www.afr.com/work-and-careers/education/how-men-lost-their-ambition-20220930-p5bm7g
How men lost their ambition
Masculinity has reached a crisis point, with many men citing lack of ambition, deteriorated relationships and crumbing job prospects.
David Brooks
Oct 6, 2022 – 12.00am
If you’ve been paying attention to the social trends, you probably have some inkling that boys and men are struggling, in the US and across the globe.
They are struggling in the classroom. American girls are 14 percentage points more likely to be “school ready” than boys at age 5, controlling for parental characteristics.
By high school two-thirds of the students in the top 10 per cent of the class, ranked by grade point average, are girls, while roughly two-thirds of the students at the lowest decile are boys. In 2020, at the 16 top US law schools, not a single one of the flagship law reviews had a man as editor-in-chief.
Men are also struggling in the workplace. One in three American men with only a high school diploma – 5 million men – is now out of the labour force.
The biggest drop in employment is among young men ages 25 to 34. Men who entered the workforce in 1983 will earn about 10 per cent less in real terms in their lifetimes than those who started a generation earlier.
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Under-fire UK PM Truss fails to calm markets with growth pledge
AFP
October 6, 2022
Prime Minister Liz Truss vowed to steer the UK "through the tempest" as she closed her party's tumultuous annual conference on Wednesday, making an unapologetic pitch for economic "growth, growth, growth".
Since succeeding Boris Johnson, Truss has alienated voters, financial markets and many in the ruling Conservative party with a crash programme of debt-fuelled tax cuts to boost Britain's stagnant economy.
"In these tough times, we need to step up," she told delegates, taking aim at what she said was an "anti-growth coalition" holding back attempts to revive the economy.
But her failure to flesh out her economic plan did not calm the jittery markets, and the pound slid 2.01 percent against the dollar, falling to as low as $1.1241. Early Thursday it traded at 1.1336.
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IMF warns global recession risks are rising
Jill Disis
Updated Oct 7, 2022 – 7.44am, first published at 7.36am
Hong Kong | The global economy is at increasing risk of recession and it could lose $US4 trillion ($6.2 trillion) in output through 2026, a “massive setback” roughly equivalent to the size of Germany’s economy, IMF managing director Kristalina Georgieva said.
The situation is “more likely to get worse than to get better,” she said in comments prepared for delivery at an International Monetary Fund event on Thursday (Friday AEDT) in Washington.
She cited uncertainty that remains “extremely high” after Russia’s invasion of Ukraine and the pandemic, and warned that “there could be even more economic shocks.”
Ms Georgieva spoke ahead of the IMB’s annual meetings of finance ministers and central bankers next week when they will examine solutions for challenges such as inflation, record debt that emerging developing nations struggle to service, climate change and food security.
The IMF estimates countries accounting for about a third of the global economy will experience at least two consecutive quarters of contraction this or next year, Ms Georgieva said.
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https://www.afr.com/world/europe/take-the-right-lessons-from-trussonomics-20221005-p5bngu
Take the right lessons from Trussonomics
The Financial Review’s take on the principles at stake in major domestic and global stories.
Oct 6, 2022 – 8.03pm
It was always meant to be unorthodox and radical. A cut-through mini-budget from a month-old government to blast Britain into a new growth track with incentive-boosting tax cuts to be funded upfront with a borrowed $75 billion.
The payback, said Prime Minister Liz Truss and her Chancellor of the Exchequer Kwasi Kwarteng, would be the UK’s economic growth – sub-par for years, reliant on a tightening tap of cheap money and beset with poor productivity – lifted back to a steady 2.5 per cent a year.
But the volatile financial markets expected to swallow the huge new borrowing were just left shocked and appalled by Truss’s shock and awe.
The numbers were not so outlandish. British debt to GDP would still have been among the lowest in the G7, and its top rates of tax would still have been above the US.
But markets just did not buy the story that the debt could repay itself in new growth, leaving the Bank of England to worry about the inflationary spillovers. Bond yields soared and the pound collapsed towards unheard-of parity with the US dollar.
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Vladimir Putin says war to ‘stabilise’ while Ukraine presses counterattack
By Emmanuel Peuchot
AFP
5:03PM October 6, 2022
Russian President Vladimir Putin has said he expected the situation to “stabilise” in Ukrainian regions annexed by the Kremlin after Moscow suffered military setbacks and lost several key towns to Kyiv.
He also ordered his government to seize control of Europe’s largest nuclear power plant in the Russian-controlled region of Zaporizhzhia, with International Atomic Energy Agency head Rafael Grossi en route to Kyiv for consultations on the facility.
Ukraine earlier claimed victories over Russian troops in the eastern region of Luhansk, as the Kremlin vowed to recapture territory lost in a lightning Ukrainian counter-offensive. In recent weeks, Ukraine’s forces – bolstered by Western weapons – have wrested Russian troops out of a string of towns and villages in the southern Kherson region and the eastern separatist strongholds of Luhansk and Donetsk.
And Ukrainian President Volodymyr Zelensky late on Wednesday said his forces had recaptured three villages in the Kherson region from Russian troops.
“We are working on the assumption that the situation in the new territories will stabilise,” Mr Putin told Russian teachers during a televised video call.
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https://www.afr.com/world/europe/britain-told-to-brace-for-winter-blackouts-20221007-p5bo26
Britain told to brace for winter blackouts
Joe Barnes and James Crisp
Oct 7, 2022 – 3.30pm
London | Britain faces blackouts for up to three hours a day this northern winter if the country is unable to import enough energy, the National Grid warned on Thursday (Friday AEDT).
Prime Minister Liz Truss refused to rule out the prospect of widespread blackouts after the country’s electricity system operator said households and businesses were at risk of being cut off.
The National Grid said a worst-case scenario could include “load shedding”, in which power was restricted to different areas at different times to prevent uncontrolled outages.
Homeowners will be asked to use their washing machines and other appliances at night to help avert potential disruption during peak hours. Under other contingency plans, households and businesses could be handed £10 ($17) a day to stop using electricity when needed.
Britain may need to import gas from continental Europe to meet demand if it is a cold winter, but these supplies could be at risk because of Russia’s invasion of Ukraine.
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https://www.afr.com/world/europe/is-nostalgia-killing-conservatism-20221005-p5bnf1
Is nostalgia killing conservatism?
The libertarian policies of Liz Truss look weirdly out of step. Until you consider the failings of both centrists and right-wing populists in Europe.
Ross Douthat Contributor
Oct 7, 2022 – 10.41am
Liz Truss, the new prime minister of Britain who may not be the prime minister for long, is by general agreement out of touch with reality.
Her big gambit upon succeeding Boris Johnson, a mini-budget crowded with tax cuts, looks like a policy debacle, recklessly inflationary and fiscally destabilising. As politics, the mini-budget looks even dafter.
At the moment, the electoral sweet spot for right-of-centre governments in the Western world is a mixture of cultural (not religious) conservatism and relative economic moderation — an anti-libertarian right-wing politics, favourable to the welfare state and sceptical of immigration, that appeals to constituencies buffeted by globalisation and anxious about national identity.
This is the style of politics that just elevated Giorgia Meloni’s populist movement in Italy and that has brought right-wing populism into the mainstream of Swedish politics. It’s also the politics that the Republican Party is perpetually groping toward without quite getting there.
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https://www.afr.com/world/middle-east/iranian-students-fuel-anti-regime-protests-20221007-p5bo3u
Iranian students fuel anti-regime protests
Najmeh Bozorgmehr
Oct 7, 2022 – 4.59pm
Tehran | Twenty-year-old Melina is one of a new generation of Iranian students eager for change, and she says nothing, not even a crackdown on anti-regime demonstrations, will stop her going out on the streets to protest.
The protests would continue until “we have the freedom to choose a democratic, secular system under which there will be no discrimination”, said Melina, an electrical engineering student in Tehran.
For the first time in years, Iran’s universities have re-emerged as a central focus of protests following the death in custody of a woman arrested for allegedly violating the Islamic dress code. These protests have spread across the country and, despite crackdowns, are continuing.
With many students refusing to go to class, universities nationwide have only partially reopened at the start of the academic year. Students in one institution, Ferdowsi University in the city of Mashhad, have called for a referendum on whether Iran should be run by an Islamic establishment.
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World’s central bankers the real culprits of economic crisis
The Times
2:08PM October 7, 2022
Democrats in the US and Conservatives in Britain are presumably about to relearn, once again, the cost of economic failure in government. Inflation, rising mortgage rates, recession: in a democratic system all these tend to get laid at the feet of elected politicians and, properly, we exercise our right to kick them out.
Yet what do we do when bureaucrats with vastly more influence over our economic fortunes fail us? How do we hold accountable the people who, more than any other, bear responsibility for the dire condition we find ourselves in – the unelected officials who really control the value of the world’s money?
The Australian’s Contributing Economics Editor Judith Sloan says there’s a “tremendous amount of pressure” on… RBA Governor Philip Lowe to get the balance right on interest rates so the economy doesn’t tip into recession. “This is the narrow path where the Reserve Bank jacks up the cash rate, More
For all the fiscal follies of governments on both sides of the Atlantic, there’s a much more obvious prime suspect in the mauling of the global economy that is destroying the value of our homes and pensions, sending the world on an emetic rollercoaster of inflation and slump, and immiserating the lives of hundreds of millions around the globe.
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Two overwhelming forces mean the era of high rates must end
The downward trends in demographics and technological innovation mean the current spike in global interest rates simply cannot last.
Paul Krugman
Oct 5, 2022 – 8.21am
From a financial point of view, 2022 has, above all, been the year of rising interest rates. True, the US Federal Reserve didn’t begin raising the short-term interest rates it controls until March, and its counterparts abroad acted even later. But long-term interest rates, which are what matter most for the real economy, have been rising since the beginning of the year in anticipation of central bank moves.
These rising rates correspond, by definition, to a fall in bond prices, but they have also helped drive down the prices of many other assets, from stocks to cryptocurrencies to, according to early indications, housing.
So what will the Fed do next? How high will rates go? Well, there’s a whole industry of financial analysts dedicated to answering those questions, and I don’t think I have anything useful to add. What I want to talk about instead is what is likely to happen to interest rates in the longer run.
Many commentators have asserted that the era of low interest rates is over. They insist that we’re never going back to the historically low rates that prevailed in late 2019 and early 2020, just before the pandemic – rates that were actually negative in many countries.
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Russia blames truck bomb for Crimea bridge blast
Updated Oct 9, 2022 – 8.18am, first published at 7.24am
Associated Press
Kyiv | An explosion caused the partial collapse of a bridge linking the Crimean Peninsula with Russia, damaging an important supply artery for the Kremlin’s faltering war effort in southern Ukraine and hitting a towering symbol of Russian power in the region.
Nobody immediately claimed responsibility for the blast, which killed three people on Saturday. The speaker of the Russian-backed regional parliament in Crimea accused Ukraine, but Moscow didn’t apportion blame. Ukrainian officials have repeatedly threatened to strike the bridge and some lauded the destruction on Saturday, but Kyiv stopped short of claiming responsibility.
The explosion, which Russian authorities said was caused by a truck bomb, risked a sharp escalation in Russia’s eight-month war, with some Russian lawmakers calling for President Vladimir Putin to declare a “counterterrorism operation,” shedding the term “special military operation” that had downplayed the scope of fighting to ordinary Russians.
Putin signed a decree late on Saturday tightening security for the bridge and for energy infrastructure between Crimea and Russia, and put Russia’s federal security service, the FSB, in charge of the effort.
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After a disastrous start as Britain’s PM, Liz Truss is already on borrowed time
October 8, 2022 — 12.12pm
Birmingham/Liverpool: There’s the 80-20 joke doing the rounds of Conservative MPs that goes like this: Boris won us 80 seats but could have won us more, so Conservative Campaign Headquarters (CCHQ’s) plan is how to hold the 80 and add 20.
However, the fear is that Liz Truss has totally misunderstood the 80-20 strategy and is aiming to take the number of MPs to between 80 and 20.
That the joke was relayed to this masthead by a government MP underlines the internal and public crises surrounding Britain’s new prime minister and her re-election hopes. This is despite Boris Johnson delivering the party 365 seats - a majority of 80 seats and the highest since 1987 - just two years ago.
So disastrous has Truss’ first 30 days been in the job, there is already talk she could face a challenge to her leadership by Christmas.
The 47-year-old was never the MPs’ choice to replace Johnson, but she managed to edge out leadership rival Rishi Sunak by a margin of fewer than 21,000 votes.
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Biden’s ‘Armageddon’ comment shows he’s trying to give Putin an ‘off-ramp’
By David E. Sanger
October 8, 2022 — 3.45pm
US President Joe Biden’s declaration Thursday night that the world may be facing “the prospect of Armageddon” if President Vladimir Putin uses a tactical nuclear weapon in Ukraine included a revealing side note: that Biden has been looking to help the Russian president find an “off-ramp” that might avert the worst outcome.
His logic came right out of the Cuban missile crisis, to which Biden referred twice in his comments at a Democratic fundraiser in New York, a good indication of what is on his mind. In that famous case – the closest the world came to a full nuclear exchange, 60 years ago this month – President John F. Kennedy struck a secret bargain with Nikita Khrushchev, the Soviet premier, to remove US missiles from Turkey.
With that deal, which only came to light later, a disaster that could have killed tens of millions of Americans and Soviet citizens was averted.
For weeks now, Biden’s aides have been debating whether there might be an analogous understanding, a way for the wounded Russian leader to find an out. They have offered no details, knowing that secrecy may be the key to seeking any successful exit and avoiding the conditions in which a cornered Putin reaches for his battlefield nuclear weapons. Karine Jean-Pierre, the White House press secretary, reiterated Friday that Biden had no new intelligence about nuclear weapons use and said she “saw no indications” the Russians were preparing to use them.
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I look forward to comments on all this!
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David.
