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

A short, sharp recession due, but we're a safer bet

By Henry Thornton - posted Tuesday, 4 November 2008


My money is on the US recession being sharp but short. The win by Barack Obama, predicted by all the polls, would bring to the stage a new president with a message of hope and necessary change.

US monetary policy has been eased and fiscal policy is adding further stimulus. American resilience and entrepreneurial flair will do the rest.

Australian monetary and fiscal policy have already been eased. The easing is pre-emptive, in marked contrast to previous post-war experience.

Advertisement

In both the recessions of 1981-82 and 1990-91 fiscal policy and monetary policy were eased only when it was blindingly obvious that the economy was in trouble. In the mini-boom of the mid-80s, fiscal and monetary policy were tightened pre-emptively and this prevented - or at least delayed - the usual boom and bust scenario.

Monetary policy has notoriously been moved too little, too late, meaning cash rates have risen too slowly in booms and thus eventually have had to rise more than might have otherwise been necessary.

Cash rates have also been required to remain high for enough time to ensure the "recessions we have had to have" were sufficient to reduce inflation.

In the long China boom, Australian cash rates were again raised too slowly and as a result eventually went higher than they needed to.

But the subsequent easing this time was far more timely and there already has been a 125 basis point cuts from the high point of 7.25 per cent.

Today is that one day in the year when the nation stops for a horse race. In Henry's day that meant the board meeting was suspended and members and advisers adjourned to the dining room where a television set was provided so the race could be followed.

Advertisement

Nowadays, with an announcement of the board's decision required by 2.30pm, the meeting must of necessity be far brisker, with papers taken as read and only the most telling questions asked and answered.

We have all been given a pretty good idea of the thinking of the management of the Reserve Bank. I refer to the fine recent paper by Deputy-Governor Ric Battellino.

"The daily barrage of gloom and doom" makes it easy to lose perspective, a situation that Battellino sets out to remedy.

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

First published in The Australian on November 4, 2008.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

1 post 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 1 comment
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy