Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

The porridge is too hot, Goldilocks

By Henry Thornton - posted Tuesday, 1 April 2008


Helped by a drop in the value of the floating Australian dollar, crisis was averted, or at least postponed, in what Henry regards as Australia's finest set of pre-emptive economic policy actions.

By 1989, however, the CAD was again blowing out, and this time pre-emptive action was not undertaken. Monetary tightening was too little, too late and when it came was greatly overdone. The benefit was that the CAD was cut to safe levels and inflation was killed.

Throughout the 1990s there were benefits of Labor's economic reforms keeping the lid on inflation. Global inflation hit a post-World War II low. The CAD remained in deficit and international debt rose inexorably.

Advertisement

The CAD reached 6 per cent of GDP three times, in each case to pull back before a crisis erupted. Australians have come to regard the CAD as a friend and debt as sensible "gearing up" of relatively ungeared balance sheets.

Does the graph ring warning bells, gentle readers? The CAD was around 7 per cent in the December quarter of 2007.

Henry asserts that the peak to the long boom of the 1990s and 2000s was then. We are in the midst of an economic slowdown. Crisis and a severe recession can be prevented if Keating's banana republic policies are repeated on a bigger scale. Are the relevant decision-makers and advisers as focused as they were when Bob Hawke was prime minister?

The budget must be tightened substantially, wage increases must lag behind inflation and interest rates must rise until there are clear signs of overall restraint.

Henry expects the Reserve Bank to stay its hand today.

But further rate hikes will occur if fiscal policy fails to deliver, if inflation again surprises on the upside or if wages begin to blow.

  1. Pages:
  2. 1
  3. 2
  4. Page 3
  5. All

First published in The Australian on April 1, 2008.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

3 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Henry Thornton (1760-1815) was a banker, M.P., Philanthropist, and a leading figure in the influential group of Evangelicals that was known as the Clapham set. His column is provided by the writers at www.henrythornton.com.

Other articles by this Author

All articles by Henry Thornton

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Photo of Henry Thornton
Article Tools
Comment 3 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy