Business

Clive correctly reads necessity to stimulate growth

OPINION: Clive Palmer has always struck me as a buffoon.

Last week I changed my mind to a degree.

I heard the man on local radio news say that the government had it all wrong: they're obsessed with cut, cut, cut, he said - which is completely the wrong way to turn around an economy that's shrinking.

He's spot on!

Australia's growth looks to have fallen to 2.5% according to the latest data released by the ABS.

Terrible when we're looking at many of our trading partners tracking somewhere between 4-8%.

The unfortunate thing is that the government and the Reserve Bank are nowhere near in lockstep.

The RBA's monetary policy is all about trying to stimulate the economy, reducing interest rates to historical lows to encourage people to open their wallets and spend.

The government on the other hand, as Clive says, is contracting fiscally and living in cuckoo land.

On Thursday I awoke to the news that our both dumb and dumber treasurer Hockey had announced that he'd make it harder for over-65s to get the age pension to encourage them to work longer - and encourage our women too.

Notwithstanding the well-documented sexism and ageism at play in Australia, where the hell are these miraculous jobs going to come from in a contracting economy?

One wonders. The economies that came through the GFC best, including Australia, were those which adopted a Keynesian approach.

They spent big with the objective of stimulating the economy and avoiding the recession bullet.

In the annals of history the Rudd government will be seen to have been far better than they are now because they did that despite the disgraceful balls-ups made in the administration of the expenditure.

The Europeans went the other way and contracted their economies by adopting austerity measures.

They've come around in Europe and things have improved; as Clive points out we're threatening to go the other way in Australia.

The US is a classic case of how central bank intervention in lockstep with government can succeed.

They ran a 0% interest regime, stimulated by releasing buckets of money into the economy to both encourage spending and reduce the value of their dollar on international currency markets (so that the costs of production are lower than in many of their trading partners, particularly Japan which now manufactures Toyotas in the US) and have got on with growing their economy to produce jobs.

China's learnt the lesson.

They cut interest rates on Wednesday and being a closed economy, their monetary and fiscal policies are in lockstep - unlike ours. Just watch their economy grow!

Bob Lamont is a director at Corporate Accountants in Gladstone. He can be contacted at boblamont1947@gmail.com.

Topics:  bob lamont clive palmer economy gladstone business opinion



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