If you can’t remember the definition of stupidity, events this week will refresh your memory. One popular definition of stupidity is repeating the same behaviour but expecting a different result, like pushing on a door that opens by pulling. A more current and topical one would be cutting interest rates 511 times in six years in order to raise growth and/or lower the unemployment rate.
Bloomberg ran the headline last week ‘Central banks keep easing after 511 cuts fail to spur growth’. This was a real article, not one on a satire site. After six years of responding to a credit bubble by lowering the cost of credit, central banks are almost out of rates to cut. This presents an interesting problem which we’ll try to solve over the next five days: what happens when everyone in the world has zero real interest rates?
Hold your thoughts on global ZIRP (zero interest rate policy). It’s a big week in Australia, at least if you think macro-economic data has an effect on the stock market. March housing finance figures will be released by the Australian Bureau of Statistics today. With no advance knowledge of them, we predict they will show that the Reserve Bank has failed to ignite a new housing boom in Australia.
So what? Well, poor housing figures will provide more justification for another interest rate cut between now and the Federal election in September. You’d go with sooner rather than later on the rate cut. Any rate cut too close to the election looks political. Cutting now looks apolitical.
Besides, the size of the government’s deficit in 2012–2013 should provide even more justification that the Australian economy needs cheaper credit. Treasurer Wayne Swan is set to announce that the government will return the budget to surplus in 2016–2017, about $40 billion in deficits later.
It’s an impressive achievement. In the last five years, the deficits have been $27 billion, $54.5 billion, $47.5 billion, $43.4, billion, and an estimated $15 billion for 2012–2013. That number will probably be lower tomorrow, in order to show some fake improvement. But the trend is pretty clear.
There is something vulgar in the amount of press coverage the Australian Federal Budget gets. The mainstream media furiously calculates the net dollar benefits to the average family, the same way you might calculate the net caloric benefits a pig gets when it sidles up to the trough. The handing out of taxpayer money (while running deficits) should be an occasion for public shame.
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From the Archives…
The Higher the Market, the Harder the Fall
10-05-13 – Vern Gowdie
India’s Balance of Trade — a World out of Balance
9-05-13 – Greg Canavan
How the Dow is Just Wall Street’s Marketing Tool
8-05-13 – Dan Denning
Watch Out For When Australia’s Terms of Trade Goes Back to ‘Normal’
7-05-13 – Greg Canavan
The Greatest Wealth Transfer in History
6-05-13 – Bill Bonner
- Watch out! Trouble in this debt-fuelled market could spark a worldwide financial panic: Stocks won’t be the only markets that crash as Global Financial Crisis 2.0 sweeps across the planet. There’s another, multibillion dollar credit market relied upon by companies — as well as local, state and national governments — that’s poised to collapse once the credit bubble pops. And the fallout could severely impact your wealth.
- The presidential decision that paved the way to our six decade-long debt binge: Australia — and the rest of the world — is living a lie. Debt has funded our lifestyle, NOT production and savings. Today’s global debt stands at $200 trillion. That scary number is the official debt level. The real debt tally will spin your head…
- What happens when Australia’s gigantic credit bubble goes ‘pop’: We’ve experienced two previous credit bubbles from 1880–1892 and 1925–1932. The current credit bubble has been building since 1950. A 65 year build-up. What happens when this bubble finally pops? As Vern will show you…it’s not pretty.
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