JC: Fellas, you better start acting

The Australian is at it again, misleading people into believing that only one side of monetary policy works – tightening monetary policy, which is always interpreted as the movement of the overnight rate.

The markets almost unanimously expect the RBA to cut interest rates at its meeting on Tuesday, but the case for a rate cut is simply not there.

Official rates now stand at 0.75 per cent, which means the impact of any cuts is diminished and whatever firepower the central bank has left should be kept for later if consumer confidence takes another dive.

UTS Business Professor Warren Hogan is one of many economists who believe the RBA should follow the US Fed’s lead and use its statement to signal intentions rather than actually cut rates.

“Its too early to take aim,” he told The Australian.

The US Fed has a more global role which means its actions can help settle global markets.’

But the RBA on its own will do little to calm fears driven globally.

It’s not just stock markets that are reacting to the news of the spread of the Coronavirus. All facets of the financial markets, be it stocks, bonds, commodities – everything that carries a publicly listed bid and offer are pointing to a material slowdown.

The 10year government US bond closed Friday at a yield of 1.13%. On 13th January this year, the closing price was 1.85% yield. That’s almost a 40% drop in yield in just over a month. More importantly, the spread between corporate and government bonds has widened to alarming levels with stress indications in the junk bond market. Issuance of corporate bonds has collapsed over the Corona period.

What’s all this mean?

It means markets are predicting a slowdown in economic activity around the world. In other words, markets are strongly implying a recession.

Scott Sumner has this to say:

Unless I’m mistaken, fed funds futures for January 2023 are down to about 0.7%, far lower than 10 days ago. Two things are very clear:

(This piece was written sometime last week. Fed Futures for Janaury 2023 actually closed at .62% on Friday, lower than Sumner found it).

  1. Increased probability of a major supply shock this year (not in 2023.) 
  2. Increased probability that monetary policymakers will not be aggressive enough to prevent a recession, and if the recession occurs then demand will still be rather sluggish in January 2023 because the Fed will be too hawkish in the recovery.

This means that while the stock and bond market’s bearishness about 2020 might be for exactly the “people won’t shop” reasons that are often cited in the media, the increased bearishness about conditions in 2023 are almost certainly due to a loss of confidence in monetary policy.

In other words, we need adequate NGDP in 2023, and if we don’t get it then it will be the Fed’s fault.

This is exactly right, and this is what ought to spook the hell out of people. Futures markets for Fed funds is predicting a loss in confidence that the Fed will act to avoid a recession and this slowdown will be with us in 2023. There’s no other way to interpret this and this is why we should be worried.

If the Fed remains docile, the odds will lift there will be a new occupant in the White House come January 2021.

People should remember this. If the natural interest rate appears to be falling and the Fed does or says nothin,  then the inflation mandate target will not be achieved and the possibility of recession increases. The Fed does not run monetary policy to cater to retirees who have bank deposits. That’s not the Fed’s mandate.

Fed, RBA, BOJ, ECB and the BOE need to cut now and signal they will do what is needed to stem the risk of a recession due to a potentially significant supply side shock. They also need to signal they will do what is required to maintain a steady course.

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66 Responses to JC: Fellas, you better start acting

  1. Entropy says:

    Asset holders always want governments to spend spend spend. It increases the value of their assets. Bugger everyone else, whose buying power is eroded.

  2. m0nty says:

    Alternate take: if JC wants something done for him, it’s probably not worth doing.

  3. Infidel Tiger says:

    The stock market ceased being a barometer of the real economy or reality after the GFC.

  4. JC says:

    Monster

    I’ve never been able to understand that argument – that I’m pushing my own barrow when you or others believe it suits my position. I’m doing this on the comments section of catallaxy or posting a thread? Are you and those others really that silly (because how much influence can I gain by posting here?)

  5. Entropy says:

    Qui bono?

  6. JC says:

    Infidel Tiger
    #3341333, posted on March 2, 2020 at 10:37 pm

    The stock market ceased being a barometer of the real economy or reality after the GFC.

    It’s just not the stock market, Artie. It’s the stock market, bonds, blow out in corporate bond spreads, blow out in junk bonds, yields being crushed in the government bond markets, commodities being clocked and fed funds futures out to 2023 indicating recession.

  7. Entropy says:

    What needs to happen is a huge root and branch reduction in red and green tape, with land mines put in place for any future government that wants it reintroduce them. That would be a lasting, real stimulus, that would actually create jobs and not line the pockets of asset holders.

  8. JC says:

    Qui bono?

    Who stands to gain is everyone who would stand to gain in a non-recessionary economy. And put this in your pipe, Ent. If the economy is in recession by the time of the election, the odds narrow the D’ratter could take it out.

  9. JC says:

    What needs to happen is a huge root and branch reduction in red and green tape, with land mines put in place for any future government that wants it reintroduce them. That would be a lasting, real stimulus, that would actually create jobs and not line the pockets of asset holders.

    Please enact enact all that. Hurry!

  10. mh says:

    People should remember this. If the natural interest rate appears to be falling and the Fed does or says nothin, then the inflation mandate target will not be achieved and the possibility of recession increases.

    What do we want – INFLATION
    When do we want it – NOW!

  11. JC says:

    You’re not going to get it, mh.

  12. mh says:

    I’ll get my coat.

  13. Neil says:

    Lots of older people tend to live off the interest they get from term deposits. Lower interest rates just makes it harder for older people to survive.

  14. mh says:

    Neil, don’t poke the bear.

  15. JC says:

    Lots of older people tend to live off the interest they get from term deposits. Lower interest rates just makes it harder for older people to survive.

    Okay Neil, then make a case and argue why and how a central bank should get off an inflation target and
    move to a geriatric interest rate mandate. Present the model you have in mind as I’d love to see it.

  16. chaamjamal says:

    Markets have a mind of their own. They are not just puppets of regulators.

    https://tambonthongchai.com/2020/02/21/brianwesbury/

  17. OldOzzie says:

    Focus on demand ignores it’s the supply side, stupid

    The Australian Editorial

    Financial markets have spoken, if not screamed. More cuts to official interest rates — now a record low 0.75 per cent — have been locked in by investors. So say overnight index swap rates, forward scouts of cash-rate movements. The markets now are expecting an extreme monetary response, given the central bank has said “unconventional” policy or quantitative easing will kick in when the cash rate hits 0.25 per cent.

    The Reserve Bank of Australia board, however, should ignore speculators when it meets on Tuesday. What’s the point of trying to juice up demand this way when monetary policy has run its race? All the RBA would do is pump up asset prices, especially housing in our largest cities. Not an ideal result. Another rate cut would send a message to consumers that things were really crook. It would be an act of self-harm.

    The coronavirus outbreak has spooked investors well before it has taken a chunk out of the real economy. Tourism and education services are in the frontline, suffering an income hit. On Wednesday, national accounts are likely to show retail has been weak for a year. Agriculture has been affected by the drought, bushfires and floods. The impact of natural disasters on export sales and employment won’t show up in official figures until later in the year. Yet anecdotal evidence is mounting that the COVID-19 epidemic is disrupting supply chains across a broad front of industries, most of which are dependent on Chinese inputs. The world’s factory is in shutdown mode, with China’s manufacturing purchasing managers’ index plummeting to a record low last month. Our building and construction industry — large and small firms — will soon experience a sharp contraction in materials supply.

    As external shocks go, the evolving crisis is about supply disruption. Unlike the global financial crisis, the issue is not liquidity. Plus there’s nothing the RBA can do to calm global fears. Again, the board should hold fire, just in case the economy tanks and confidence takes another dive in coming months.

    Scott Morrison’s language has evolved on the evaporating surplus and need for stimulus. The Prime Minister does not favour the post-GFC cash splashes used by Labor. But there is room for a swift fiscal response for the most affected industries, with Treasury developing plans for assistance that is “targeted, modest and scalable”. That means more support for businesses and workers in the tourism sector, which received a recovery package in January following the Black Summer bushfires. For now, the government is resisting additional funds to universities.

    As we have argued in this space, a budget in balance gives Canberra a decent starting position to respond. It’s just a pity that the fiscal consolidation under the Coalition — after Labor’s policy excesses and failures across two terms — has been so timid and tardy. The greater lament is that the political class as a whole has been sitting on its hands, living off the fat of the reform era of the 1980s and 90s. Of course, our capital’s elected cohort is sick of hearing about the golden days of reform by Bob Hawke, Paul Keating, John Howard and Peter Costello. The truth is we’ve become used to rising living standards via the surge in national income from the rise of China, rather than lifting our economic game. The current crisis exposes this drift.

    Nothing reveals this more starkly than a poor productivity performance. It’s what keeps even serial optimist Philip Lowe awake, although the letters QE soon may figure in the RBA governor’s nocturnal deliberations. We have lost ground in the productivity stakes through a lack of investment, skills, risk-taking and fresh ideas. Our supply side, more than demand side, needs urgent attention. That means less red tape to get projects going, more flexibility at workplaces and incentives for research, among a host of things Productivity Commission officials have listed in a reform road map. The mantra should be “doing things better” with our precious capital and labour, not flogging old tools and ill-equipped workers in the same old ways.

    Perhaps this will be the crisis that serves as the wake-up call to both sides of politics to develop game plans that look beyond one term in office or the next election. If we had more dynamic businesses, a diversified customer base for exports, a more competitive tax regime and skilled workers able to chase opportunities wherever they may emerge, we’d be hitting this challenge with revenue in the bank, fuel in the tank and policy options up our sleeve.

  18. OldOzzie says:

    Meanwhile re the above The Australian Editorial

    Coronavirus Could Be The End Of China As Global Manufacturing Hub

    The new coronavirus Covid-19 will end up being the final curtain on China’s nearly 30 year role as the world’s leading manufacturer.

    “Using China as a hub…that model died this week, I think,” says Vladimir Signorelli, head of Bretton Woods Research, a macro investment research firm.

    That China is losing its prowess as the only game in town for whatever widget one wants to make was already under way. It was moving at a panda bear’s pace, though, and mostly because companies were doing what they always do – search the world with the lowest costs of production.

    Under President Trump, that slow moving panda moved a little faster. Companies didn’t like the uncertainty of tariffs. They sourced elsewhere. Their China partners moved to Vietnam, Bangladesh and throughout southeast Asia.

    Enter the mysterious coronavirus, believed to have come from a species of bat in Wuhan, and anyone who wanted to wait out Trump is now forced to reconsider their decade long dependence on China.

    Retail pharmacies in parts of Europe reported that couldn’t get surgical masks because they’re all made in China. Can’t Albania make these things for you? Seems their labor costs are even lower than China’s, and they are closer.

    The coronavirus is China’s swan song. There is no way it can be the low-cost, world manufacturer anymore. Those days are coming to an end. If Trump wins re-election, it will only speed up this process as companies will fear what happens if the phase two trade deal fails.

    Then came the newly signed U.S. Mexico Canada Agreement, signed by Trump into law last year. Mexico is the biggest beneficiary.

    It’s Mexico’s Turn?

    According to 160 executives who participated in Foley & Lardner LLP’s 2020 International Trade and Trends in Mexico survey, released on February 25, respondents from the manufacturing, automotive and technology sectors said they intended to move business to Mexico from other countries – and they plan on doing so within the next one to five years.

    Swift says the move is due to the trade war and the passing of the USMCA.

    The phase one China trade deal is a positive, but the coronavirus – while likely temporary — shows how an over-reliance on China is bad for business.

    There will be fallout, likely in the form of foreign direct investment being redirected south of the Rio Grande.

    Mexico is the best positioned to take advantage of the long term geopolitical rift between the U.S. and China. It is the only low cost border country with a free trade deal with the United States, so there you have it.

    worth a full read

  19. Nob says:

    That China is losing its prowess as the only game in town

    That much is true, and oil & gas people who were getting have been getting steel pipe from Vietnamese and Indian mills for best part of ten years now.
    (France is still in the game somehow – subsidies ?)

    No doubt this crisis will kick the process on a bit.

    China should still be the biggest, just not the only game.

  20. Entropy says:

    That article in the Australian is just a longer version of what I said. I might almost resubsribe again. Is the Bittered Sav still writing for it about how much she hates Tony Abbott and loves Malcolm Turnbull/Chrissy Pyne?

  21. Pyrmonter says:

    @ Entropy

    Asset holders always want governments to spend spend spend. It increases the value of their assets. Bugger everyone else, whose buying power is eroded.

    Nonsense. Firstly, monetary policy should not be made having regard to distributional consequences … that path leads to the nonsense of Kaldor, Picketty etc. Secondly, it’s not true. Few holders of assets with fixed nominal payouts (cash, bonds etc) benefit from a relaxation of fiscal policy. Those who do – the holders of low quality nominal assets, with a risk of default partly determined by the credit-worthiness of the debtor correlated to overall levels of output – have interests aligned with the population at large, whose interests lie in relatively stable growth in nominal demand/aggregate expenditures.

  22. bespoke says:

    The something I wish for but war and recession and plague has always reset people’s priorities.

  23. mundi says:

    Why does RBA get all the attention?

    Where is the push on the government to relieve the tax burden? Relieve the amount of payg stolen from productive peoples pay every day?

    RBA basically do whatever to get 2% to 3% inflation. Thats it. They then ramble a few nonsense statements on a peice of paper but in reality have no clue. The former head of the RBA even admitted this.

  24. bespoke says:

    The something I don’t wish for

  25. Struth says:

    I sit here basically on strike from being a small business operator handing over to government two thirds of my income to being a very small business owner in another field.
    Why work like a dog in the whore of China and the UN ‘s Australia?

    How many more think and act like me?

  26. m0nty says:

    Good one, John Galt.

  27. mh says:

    Magic money tree saves the day!

    Global financial ministers and central bankers will hold a conference call on Tuesday to coordinate the financial and economic response to the coronavirus.

    The teleconference call will be led by Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell on Tuesday at 7 a.m ET, CNBC’s Steve Liesman reported. Representatives of the Group of Seven industrialized nations will attend the call.

    It will be a “coordinating call” for the financial and economic response to virus, according to a source.

    A communique is scheduled for after the call, CNBC has learned.

    Stocks rallied sharply on Monday on hopes that global central banks will take action soon to offset any impact from the deadly coronavirus, which has spread into the U.S.

    The Dow Jones Industrial Average posted its biggest gain since March 2009, jumping 5.1%. The 10-year Treasury yield hit a record of 1.03%.

  28. Struth says:

    If as you say, this panic has the potential to dethrone Trump it will be business as usual for the global Socialists soon enough.
    However Coronavirus got out the Soros UN socialists and China will now use it as best they can to rid the world of a strong western economy.
    This is crunch time for them and as soon as Trump is gone it will be corruption as usual once more.
    They have now seen the results and four more years of Trump could be too much to recover from.

    The Short term pain for China now will be considered a vital act to ensure no competition though corruption continues.
    This is war………………………..

  29. Struth says:

    Monts, when I need to hear from shit, I’ll fart.

  30. feelthebern says:

    Jeez, there I was on the open thread wondering why it was so quiet.
    Bottom line, central banks have to ensure liquidity & they need to act pre-emptively.
    That is the world we live in.
    JC is 100% correct on this.

  31. HGS says:

    The natural interest rate is retarded. It may show the correct sentiment, yet central bank and government distortions should make us less sure of what might once have been reasonable guessing.

  32. m0nty says:

    Monts, when I need to hear from shit, I’ll fart.

    https://www.youtube.com/watch?v=3LAnmnS0-9g

  33. mh says:

    China farts and the globalists cough.

  34. Chris M says:

    RBA basically do whatever to get 2% to 3% inflation. Thats it.

    Well put mundi. And currently inflation is 100% government fees, charges and from government regulation of industries like energy. Rate reductions are doing more harm than good now, further reduction will improve zip.

  35. m0nty says:

    Stocks rallied sharply on Monday on hopes that global central banks will take action soon to offset any impact from the deadly coronavirus, which has spread into the U.S.

    They won’t. Pretty difficult to lower interest rates below zero. Not impossible, but there is a law of diminishing returns operating here. Monetary policy is exhausted.

    Perhaps they could try fixing the disease instead of concentrating on the symptoms.

  36. stevem says:

    Even if you continue to believe that a cut in interest rates will magically fix the world why would the corona scare trigger a cut. I can’t imagine a business owner, terrified of the impact of the disease suddenly deciding to spend big because of a .25% cut in interest rates.

  37. Struth says:

    Talk of interest rate cuts is done only by our socialist elite who stubbornly will not address the real issues no matter what, as for many of them the collapse cannot come soon enough, anyway.

  38. John of Mel says:

    I don’t know how they calculate the inflation. Looking in my wallet, there is less and less left before each payday, and we are actually trying to cut down on expenses. Almost everything is more expensive than a two, or even one year ago. Milk, butter, fruit and veg, eggs, electricity, gas, water, housing. What’s included in the inflation calculation? TVs and phones?

  39. Struth says:

    I don’t know how they calculate the inflation

    They subcontract it out to the council officers who value your property for rates.

  40. mh says:

    Government economic stimulus will be on the agenda soon. If ScoJosh want a sugar hit, I have an idea.

    All Australians under preservation age can take out up to $30,000 from their complying super fund – tax free! But only as a ‘one off’ transaction.

  41. PeteD says:

    If it is a supply side shock (which globally it seems to be as China shutters factories for more than a month), inflation should tick upwards.

    Interest rate cuts can’t improve the flow of goods in or out of Australia, nor make manufacturing relocate.

    However some corporate and personal tax cuts just could go in that direction.

  42. Cardimona says:

    m0nty
    #3282380, posted on January 5, 2020 at 3:13 pm

    … Did we see constant bush fires in rainforests like the Daintree before climate change? …

    Found the link to the “constant bush fires in rainforests like the Daintree” yet M0nty?

  43. mh says:

    I would rather a disruption to the supply side, than keep going to the magic money tree.

    Study: Nike, Apple, BMW Among 83 Brands Using Chinese Mus lim Slave Labor

    https://www.breitbart.com/asia/2020/03/02/study-nike-apple-bmw-among-83-brands-using-chinese-muslim-slave-labor/

  44. cohenite says:

    2SM with Marcus Paul doing the John Laws morning program is coping heaps because he dared criticise the new woke NRL ad featuring aboriginal flags and no Australian flags. Usual suspects ringing in saying usual things: aboriginals first, lived in harmony with nature etc.

    As noted many times the current mob are at best the 3rd to arrive after the little Negritos who were eaten by the Murryians who were the Anui and who were in turn eaten by the current mob who are from Ceylon/Sri Lanka.

    And all of them caused the biggest extinction event in the modern era: the killing of the Megafauna:

    https://www.researchgate.net/publication/312577659_Humans_rather_than_climate_the_primary_cause_of_Pleistocene_megafaunal_extinction_in_Australia

  45. mh says:

    Bring on the supply side shock

    Breitbart

    Study: Nike, Apple, BMW Among 83 Brands Using Chinese Mus lim Slave Labor

    A report published Sunday by an Australian think tank revealed that as many as 83 internationally known brands – including Nike, BMW, Apple, Sony, Google, Lacoste, and Nintendo – have active ties to factories where evidence suggests the Communist Party has shipped Uyghur Mus lims to engage in forced labor.

    The Australian Strategic Policy Institute (ASPI), a non-partisan think tank, revealed in its study that it had significant evidence of the Chinese communist regime shipping ethnic Uyghurs out of their native Xinjiang, or East Turkestan, to factories nationwide, where they endured long hours, barely received pay, and did not appear to be able to move freely.

    For the past two years, China has built up dozens of concentration camps in Xinjiang, its largest and westernmost province, where between 1 to 3 million Uyghurs, Kazakhs, and other Mus lim ethnic minorities were forced to live, enduring indoctrination, torture, rape, and murder. In December, the Chinese government – which always referred to the concentration camps as “vocational training centers” – announced that the concentration camp victims had “graduated” from “vocational training” and left the camps.

    ASPI concludes that the “graduates” were shipped to factories nationwide against their will to endure arduous labor manufacturing products for software companies, car parts, shoes, and other items. When their work shifts concluded, the study found evidence that the workers were then forced to endure the same sort of indoctrination they found at the Xinjiang camps – learning Mandarin (a language not native to Xinijang), memorizing Communist Party songs, and idolatry of dictator Xi Jinping.

    “The Chinese government has facilitated the mass transfer of Uyghur and other ethnic minority citizens from the far west region of Xinjiang to factories across the country,” ASPI revealed. “Under conditions that strongly suggest forced labour, Uyghurs are working in factories that are in the supply chains of at least 83 well-known global brands in the technology, clothing and automotive sectors, including Apple, BMW, Gap, Huawei, Nike, Samsung, Sony and Volkswagen.”

    The report specifically identified 27 factories outside of Xinjiang that publicly identify as building goods or parts of goods for the companies mentioned, and are thus part of the corporations’ supply chains. Most of those companies – with the notable exception of companies the U.S. has banned from business there, like Huawei – operate in the United States, meaning American consumers have access to the products in part made by Uyghur slaves.

    “Between 2017 and 2019, we estimate that at least 80,000 Uyghurs were transferred out of Xinjiang and assigned to factories through labour transfer programs under a central government policy known as ‘Xinjiang Aid,’” the report found. Under “Xinjiang Aid,” the Chinese Communist Party encouraged these companies to “hire” Uyghur slaves instead of locals. Advertisements online using racist imagery of cartoons wearing traditional Uyghur clothing promised “qualified, secure, and reliable” government “workers” for willing factories...

  46. cohenite says:

    Whoops wrong thread; sorry to steal your thunder head prefect.

  47. Old Ozzie:
    https://www.forbes.com/sites/kenrapoza/2020/03/01/coronavirus-could-be-the-end-of-china-as-global-manufacturing-hub/#7a8a61e95298
    The elephant in the room?
    Official and unofficial corruption and the state of near anarchy in large areas of Mexico.
    It has to dealt with before the growth starts because no one will move factories there if the managers are being kidnapped and murdered.

  48. mh:

    All Australians under preservation age can take out up to $30,000 from their complying super fund – tax free! But only as a ‘one off’ transaction.

    Most will go on a new car, which is of benefit only to car sellers. The price of used vehicles will drop substantially.
    No, the best thing Morrison could do is to drop PAYE tax rate by 50%.
    Many pluses for this – most expenditure on a week to week basis is spent locally.
    People will really like extra dollars on a weekly/fortnightly basis – a one off lump will disappear like snow in a furnace.
    But the best reason? He can take it to an election and win over the wukkas. And won’t there be a screech if Labour even hints they may restore the previous levels?

  49. Neil says:

    Looks like the PM is working on a stimulus package with Lowe.

    Prime Minister says stimulus on the way; views ‘highly aligned’ with RBA governor

    Matthew Cranston

    Prime Minister Scott Morrison said his views and that of the RBA governor Philip Lowe were ‘highly aligned”.
    Speaking on the impact of coronavirus, Mr Morrison said fiscal stimulus would be on the way and that Treasury was working out how to deliver this in a measured and scalable way that would not repeat the bungles of similar historical fiscal stimulus.

  50. Elderly White Man From Skipton says:

    Hard to understand why anyone is looking to central banks at this stage. The horse bolted ages ago. The debt risks are built in, whether it’s corporate debt in the US, Chinese local government, Australian and some other household sectors, European banks or the US fiscal position. Further rate cuts will only extend bad behaviour into utterly dopey risk.
    What the bond markets are saying is: it is going to go boom!

  51. Chris M says:

    83 Brands Using Chinese Mus lim Slave Labor

    Even our shoes are halal now!

  52. Neil says:

    RB has lowered interest rates again? Is this good?

    I think it is changing peoples investment plans. Rather than leave your money in a term deposit earning not much people are investing their money in rental properties most probably increasing house prices. Good if you own property. And so people are choosing more risky options for investment.

  53. Archivist says:

    Prime Minister says stimulus on the way; views ‘highly aligned’ with RBA governor

    Please, Scott, no. We can’t afford a “stimulus”.

    The best stimulus is to cut red tape. You can start by throwing out the entire award system. Oh, that’s too extreme? Well, this is an extreme situation.

  54. JC says:

    Neil

    People also buy stocks and invest in overseas funds. It’s not all property, but even if it was then we should advocate for deregulation in the real estate sector.

    Lower interest rates do exactly what they are supposed to, which is move money around either for consumption or investment.

    We shouldn’t also be talking about term deposits. Credit, obtaining credit is expensive.

  55. Archivist says:

    Rather than leave your money in a term deposit earning not much people are investing their money in rental properties most probably increasing house prices.

    Previously yes, but not this time. Anyone who owns “investment property” is about to get smashed.

    The silver lining about government interventions this time around is that they’re not going to get soaked up by the construction industry. The downside of that is that there is no way for the government to save that particular sector.

  56. Neil says:

    We shouldn’t also be talking about term deposits

    Millions of people live off the income from term deposits. Lower interest rates help some people and perhaps the country. But lots of older people like to have money in term deposits and live off the interest

    And I think it is altering peoples investment plans. Maybe even to take more risky options and risk lose everything

  57. JC says:

    Neil

    I asked you before to put up a model explaining why the Reserve Bank should depart the inflation target and move to a retirees term deposit target.

  58. Neil says:

    I don’t think inflation has anything to do with the current drop. I think it is to stimulate the economy. I don’t think it will work.

  59. BorisG says:

    RBA has acted on JC’s advice.

  60. m0nty says:

    Millions of people live off the income from term deposits.

    Millions? You think there are a million trustafarians in Australia? Nup.

    Boomers of that ilk are dragons hoarding piles of gold at this point. Stuff what people like that think, to be honest.

  61. Squirrel says:

    “The Fed does not run monetary policy to cater to retirees who have bank deposits.”

    The virus apparently has a much higher mortality rate for that group, so it might help to solve that “problem” – but what it won’t do is make it any easier for younger savers (typically overlooked in the glib narative about winners and losers from rate cuts) who are chasing after increasingly insane housing prices with slow-moving (at best) incomes and sub-CPI interest on their savings, which is then taxed at the top marginal rate.

    People who think that asset prices can never be too high, and that asset price speculation is the basis for a sustainable economy, will be rubbing their hands together at the emergence of yet another excuse for even cheaper, easier, credit.

    People who care about the longer term, including stuff like the impact of real estate prices on family formation, and on cost structures in a small, not-very-competitive economy, will be less pleased.

  62. RobK says:

    The RBA thinks it’s in with a chance in the tussle “RBA vs worldwide pandemic “.
    Amazing stupidity.

  63. Zulu Kilo Two Alpha says:

    Boomers of that ilk are dragons hoarding piles of gold at this point. Stuff what people like that think, to be honest.

    Jealous, much?

  64. Neil says:

    I asked you before to put up a model explaining why the Reserve Bank should depart the inflation target and move to a retirees term deposit target.

    I don’t think the current cut has much to do with an inflation target. It all about the virus and the recession it may cause

    https://www.rba.gov.au/media-releases/2020/mr-20-06.html

    At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.50 per cent. The Board took this decision to support the economy as it responds to the global coronavirus outbreak.
    The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected. Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end. It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path. Policy measures have been announced in several countries, including China, which will help support growth. Inflation remains low almost everywhere and unemployment rates are at multi-decade lows in many countries.

  65. PeteD says:

    Fed drops 50pts out of cycle.

    Wow.

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