Wed, 19 Apr 2017  |  

I was delighted to be on Peter Switzer’s show, Switzer Daily discussing the economy.

Click on here for the link of the discussion: 

Let's see who is more right - the optimist (Peter) or me?


Wed, 19 Apr 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: 


Housing affordability: Is axing prices the answer?

Improving household affordability does not mean that house prices have to fall. In the crescendo of noise and fury about house prices in Sydney and Melbourne (forget the rest of the Australia in this debate), too many commentators and analysts are suggesting that the only way to improve affordability is for house prices to fall.

That is wrong. Such comments miss the point about how affordability is measured.

Thankfully, the calculation of housing affordability is remarkably straight-forward.

There are three components of housing affordability – house prices, household disposable income and interest rates. The interaction of these three components and nothing else influence how hard or easy it is to buy a house. Affordability in other words.

Fri, 14 Apr 2017  |  

Despite the hoopla that greeted the labour force data which showed employment up 60,000 in March, the labour market, and with it the economy, remain entrenched in a quagmire of funk.

To be sure, the 60,000 rise in employment was welcome, but that jobs growth needs to be put in context of the prior months of disappointingly weak job creation. Annual employment growth remains under 1 per cent which is well below the run rate needed to make inroads into unemployment.

Speaking of which – the unemployment rate stayed at a high 5.9 per cent in March. It is at least 1 percentage point higher than the rate seen when the economy is running at full employment. And interestingly, 5.9 per cent is the same rate that prevailed at the peak of the global crisis!

From a macroeconomic management perspective, the 750,000 people unemployed are a huge resource, untapped and unproductive. Many have limited or depreciating skills. Yet the government wants to make it harder for people to get additional skills, training and education. It is content to have the economy slothfully meander while it focuses on fourth tier policy issues.

The social costs of unemployment are even greater.

Thu, 13 Apr 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: 


Got a massive mortgage? Rest easy, for now – you could get a rate cut

Everyone with a large mortgage can rest assured for a while, given that an interest rate hike is unlikely in the next year and if anything, the next move in rates will be a cut.

The market has been speculating about the need for an interest rate hike as the global economy improves and for reasons linked to dealing with house prices in Sydney and Melbourne. The latter point is remarkably silly and ignores one critical factor that always feeds into RBA deliberations – unemployment.

Since December 2002, the Reserve Bank of Australia has hiked interest rates on 17 occasions. Of course, there have been a series of interest rates cuts over that time as well, but it is clear that the unemployment rate is a factor of substance that feeds into the decision to tighten monetary policy.

Those 17 interest rate increases over 15 years have occurred against a range of differing backdrops – the removal of emergency stimulus, dealing with the inflation surge from the terms of trade boom and simply managing the economy in a prudent way, with an eye on keeping the inflation rate on target at between 2 and 3 per cent.

Mon, 10 Apr 2017  |  

A simple post today.

Policy makers in Australia have not done a good job managing the economy. The government’s tax and spending policies like a dog’s breakfast, achieving neither fiscal consolidation nor growth. The RBA has been distracted by Sydney and Melbourne house prices while the rest of the economy splutters and stutters.

Here are some basic facts.

Sun, 09 Apr 2017  |  

I was involved in the preparation of a letter to Prime Minister that debunked the claim that cuts to worker's penalty rates would lead to more employment. A brief summary of the findings, plus a link to the letter, are in the link below.

Full praise to Jim Stanford and John Quiggin for their drive in this project and thanks to the other signatories to the letter – the list is a powerful one.

Read the letter and think about whether wage cuts are a good thing for the economy or not. There are a lot of smart people who don’t think so.

Thu, 06 Apr 2017  |  

This article first appeared on the Yahoo 7 website at this link: 


Was that the sound of the economy hitting a brick wall?


Was that the sound of the economy hitting a brick wall?

It looks like economic conditions have deteriorated in the early months of 2017 which means the government’s efforts to ramp up its preparations for the budget on 9 May are being undermined. As Treasury works through the latest numbers on government revenue and spending, it is having to put in weak numbers into its forecasting spreadsheet that will constrain its efforts to get the budget back into surplus within the next few years.

The economic news is starting to be of such concern that perhaps the budget deficit is dropping down the order of policy concerns, particularly if, as seems likely, the looming housing slump acts as a trigger to undermine consumer spending and the economy more generally.

Of most concern has been the stalling in employment growth and rise in the unemployment rate to just below 6 per cent. Linked to that is the rise, to a record high, for the underemployment rate. Just under 2 million people are currently unemployed or underemployed which is not only a social problem, but a macroeconomic one. Not working at all or not enough hours means there is a significant part of the workforce being underutilized, not earning – and spending – their wage and in doing so, getting the perpetual motion of economic growth entrenched.

Wed, 05 Apr 2017  |  

A great speech from RBA Governor Philip Lowe last night articulated the issues that are impacting house prices. It covered all bases and was such an important and comprehensive speech that I have chosen to reproduce all aspects of his, in the order he mentioned them and I had added emphasis to highlight each factor at play.

Many media outlets covering the speech have cherry-picked their favourite causes of the house price problem, which is a pity for their readers, given the complexity of factors that have lead to the price boom.

The end point from Lowe is that "in the end addressing the supply side of the housing market is likely to prove a more durable way of dealing with the concerns that people have about debt and housing prices than detailed supervisory guidance."

Here, in order, is what RBA Governor Lowe said- my emphasis: I have added a few comments where appropriate in square brackets.

Tue, 04 Apr 2017  |  

I’ve watched RBA policy actions for close to 30 years and for the first time, I am finding it very hard to read the RBA thinking and actions right now.

For some odd reason, it is ignoring a crush of evidence on soft growth, low inflation and rising unemployment, yet it has and magnified a rise in house prices in Sydney and Melbourne when considering what to do with official interest rates.

This makes it difficult to pick the timing of future interest rate moves and the implications this will have for bond and currency markets, but suffice to say, I am delighted with the trades in place from February which are comfortably in the money (see  ) and in fact I have added a little to each position in recent times.

Mon, 03 Apr 2017  |  

This article first appeared on the Dynamic Syndications website at this link: 


Cat, dog or a racehorse? Comparing costs may surprise you

When I tell family and friends that I own a share in a couple of race horses, they are often aghast – “how much does that cost?” and “You must have heaps of spare cash” or words to that effect.

Being an economist, I know pretty much exactly how much it will cost me each month to have a high quality racehorse spelled, trained, vetted, raced and looked after as it goes through the racing cycle. And I note at the outset that the costs include the horses being trained by the wonderfully marvelous Gai Waterhouse, the Hall of Fame Champion trainer who has more accolades than I have had hot dinners – and that’s a lot!

The funny thing is that most of my friends own a cat or two, a dog or two or both cats and dogs and an array of other pets. Funny because it costs about as much to look after a cat or dog as it does owning a 5% share in a racehorse. My family own two cats and I know how much they cost to look after.

I must note and emphasise that the references below refer to the maintenance costs of horses, cats and dogs after they have been purchased. Most horses are undeniably expensive to buy into (commonly $5,000 to $10,000 or even a little more for a 5% share) which is clearly a lot more than a furry pet that sits on your lap or you take for a walk.

But read on and you’ll see what I am getting at.


As house prices fall across Australia, should we be worried for our economy?

Tue, 13 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


As house prices fall across Australia, should we be worried for our economy?

Are you a home owner?

If you are in Sydney, Perth and Darwin, you are losing money at a rapid rate.

In Melbourne and Canberra, prices are topping out and there is a growing risk that prices will fall through the course of this year. If your dwelling is in Brisbane or Adelaide, you are experiencing only gentle price increases, whilst the only city of strength is Hobart, where house prices are up over 13 per cent in the past year.

The house price data, which are compiled by Corelogic, are flashing something of a warning light on the health of the housing market and therefore the overall economy. For the moment, the drop in house prices has not been sufficient to unsettle the economy, even though consumer spending has been moderate over the past year.

The importance of house prices on the health of the economy is shown in the broad trend where the cities that have the weakest housing markets tend to have the slowest growth in consumer spending and are the worst performance for employment and the unemployment rate. The cities with the strongest house prices have strong labour markets and more robust consumer spending.

Trump could cause the next global recession: here's how

Wed, 07 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


Trump could cause the next global recession: here's how

The Trump trade wars threaten the global economy. This is not an exaggeration or headline grabbing claim, but an economic slump based on a US inspired global trade war is a distinct and growing possibility as it would dislocate global trade flows, production chains and bottom line economic growth.

Up until a few weeks ago, there was a strong enthusiasm for the economic policies of US President Donald Trump. Tax cuts and planned infrastructure spending were seen to be good for the US and world economies. US stocks and many around the rest of the world rose strongly, to a series of record highs. At the same time, bond yields (market interest rates) surged as the market priced in interest rate hikes and inflation risks from the ‘pro-growth’ policies. It was seen to be good news.

Very few, it seems, were worried about the consequences for US government debt and the budget deficit from this cash splash, especially when the US Federal Reserve was already on a well publicised path to hiking interest rates.

About a month or two ago, a few of the more enlightened and inquisitive analysts started to focus on the fact that the annual budget deficit under Trump was poised to explode above US$1 trillion with US government set to exceed 100 per cent of annual GDP.

A debt binge fuelled by tax cuts was a threat to the economy after the temporary sugar hit.