RBA sees the light at last: Gottliebsen

Thank goodness sanity prevailed in the Reserve Bank boardroom. There is a lot of work to be done to show the Reserve Bank directors just how severe the downturn is in non-mining Australia. This is too important to leave to the Reserve Bank boffins some of whom contributed to the 2008 mistakes.

More particularly the latest Reserve Bank statement shows they have not grasped the seriousness of the situation in non-mining Australia. However, there are few words from the Reserve Bank today that indicate they may be starting to understand:

• “Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near term”. It will do more than that in non-mining Australia if the Reserve Bank lifts rates further
• “Growth in credit to households, on the other hand, has softened, as have housing prices. The exchange rate remains, in real effective terms, close to its highest level in several decades. If sustained, this could be expected to exert continued restraint on the traded sector” Reserve bank speak for saying things could get tougher instead of admitting they have already got tough in non-mining Australia.
• “After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn.” Wages will rise in mining and government enterprises but not in too many other places.

The directors themselves needs to cancel appointments and ‘hump the bluey’ around the country. They need to make sure they visit Cairns and its tourist industry and on the way back call into Noosa. In the budget papers Geelong was held up as a model town. The empty shops are now a model for suburban and regional strip shops around the country as retail gets hit by the squeeze on spending and the impact of overseas buying via the internet.

The Reserve Bank directors need to follow in my path and see leading display home builders, manufacturers who export or who can be affected by imports, Linfox and even talk with the big brewers to see the trends they are seeing.

Tertiary institutions with large numbers of foreign students are a ‘must see’ so that the Reserve Bank directors understand firsthand what an effect the higher dollar is having on that market remembering that higher interest rates contribute to the higher dollar. If they do the job properly they will take higher interest rates off the agenda unless they believe that it is absolutely necessary to throttle non-mining Australia and its standard of living so we can rush into trying to do too many mining projects at once.

If they are going to do that they need to explain this very carefully to all Australians. Of course, when they do this the politicians on both sides of parliament will need to do some hard thinking.

Tony Abbott and Julia Gillard are clashing horns over the carbon tax and both are missing the main issue.

This article first appeared on Business Spectator.