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  • How Gillard forged a post-Rudd China trust | Business Spectator
    latter in comparative terms has enhanced the relationship Let me explain how I arrive at this counter intuitive position When Rudd became prime minister one of his first decisions as leader was to ask his then foreign minister Stephen Smith to unilaterally withdraw from the Quadrilateral Initiative involving the US Japan India and Australia while standing next to Chinese Foreign Minister Wang Jiechi In a highly symbolic gesture Rudd then broke with tradition when he visited China but not our existing security partner Japan in his first overseas trip to Asia as prime minister He also proposed other initiatives such as the Asia Pacific Community idea to reset and reorganise multilateral relations in the region which was immediately enthusiastically received by China This would implicitly have allowed China a much more equal place and standing in Asia s new security architecture vis à vis the United States The problem was that Beijing largely views winning friends and influencing regional capitals as a zero sum game with America In this respect any genuine break through or sea change improvement in relations between Canberra and Beijing is accepted as genuine and enduring by China only if it involves a corresponding distancing of our strategic relations with the US A strong supporter of the alliance with America Rudd had no such intention of improving strategic ties with Beijing at Washington s expense Having ignored Beijing s tendency to view its strategic relations with other states as a zero sum competition Rudd subsequently raised and then dashed Chinese hopes that Australia was shifting towards its sphere of influence and away from America As awkward issues emerged between the two countries for example the failure of Chinalco to buy a larger stake in Rio Tinto the subsequent arrest and jailing of Rio Tinto executive Stern Hu Beijing s displeasure at the arrival of Uighur activist Rebiya Kadeer for an Australian film festival etc the Australia China relationship under the Rudd government worsened Although disagreement over specific issues need not lead to a general deterioration of the bilateral political relationship it is now widely known that the previous Chinese leadership came to view Rudd as two faced and distrustful As far as Beijing was concerned the impressions created and words used by Rudd with the Chinese in meetings were inconsistent with impressions created and words used with counterparts in Washington and domestically Although not all the blame can be laid at Rudd s feet the former prime minister clearly created false expectations in Beijing and subsequently mismanaged a relationship with the country that he was known to be an expert about Unlike Rudd Gillard has shown the Chinese consistency in policy and mindset This has undoubtedly been aided by Gillard s fundamentally modest approach to Australia s role in the region and in our relationship with China Gillard has always taken the hard nosed political view that foreign policy successes will rarely win you an election but failures can certainly lose one for you By adopting the mindset of not rocking the boat in external affairs with large powers she has settled on the well trodden path of reaffirming the American alliance as the bed rock of Australia s security and improving relations with other countries the best that she can within a framework where ANZUS remains central Figures such as Paul Keating and Kerry Stokes deplore what they see as a lack of vision and imagination But Gillard s approach has the virtue of not artificially raising expectations in Beijing of Australia moving closer to its strategic and political orbit at America s expense While Beijing does not see Gillard as a particularly visionary leader in foreign affairs they do not see the need to second guess the true motivation and direction of Australian policy under her leadership towards China While there is no great Chinese admiration for Gillard neither is there disdain for nor distrust of this Labor leader This pragmatic and conservative Gillard approach to China has reaped rewards simply because both countries are now soberly cooperating in areas when it is in their interests to do so without attendant expectations of game changing breakthroughs Let s look at the agreements that were announced between the two countries last week From the Chinese side the Strategic Economic Dialogue makes sense because Beijing is keen to establish a forum it can use to press Australia on policies that create obstacles to Chinese investment in the country This includes lessening regulatory oversight and restrictions on foreign direct investment by Chinese companies and also reviewing the ban on Huawei in bidding for the National Broadband Network The currency deal makes sense as it reduces the transaction costs for exporters in both countries And the announcement of limited joint military exercises and naval port visits is part of an overall Chinese effort to reduce the wariness of its military rise that is evident in every major maritime capital in Asia In other words China has agreed to these deals simply because it is in China s national interest to do so no more no less As prime minister Gillard s virtue is not that she has been an outstanding and imaginative deal maker when it comes to China only that she is not viewed by Beijing as a distrustful deal breaker in the way that the more cerebral Rudd came to be Finally as further evidence that the announcements of last week do not represent a sea change in our relations with China remember that the annual leader s meeting is between the Australia Prime Minister and the Chinese Premier not the latter s President Although Premier Li Keqiang has a lead role in economic policy formation and execution it is the Chinese President Xi Jinping that sits atop the Standing Committee of the Politburo China s peak political decision making body and is Chair of the Central Military Commission China s peak military decision making body It is indication that Beijing intends to pursue an economically

    Original URL path: http://www.businessspectator.com.au/article/2013/4/17/china/how-gillard-forged-post-rudd-china-trust (2014-01-12)
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  • Why the yuan is still an international pretender | Business Spectator
    But even many of these columnists will underestimate the obstacles against the true internationalisation of the yuan its emergence as a reserve currency and China s rise as Australia s and the world s most important investment market For that to occur Beijing s currency policy has to change But more than that the Chinese political economy would have to fundamentally change meaning that China would be barely recognisable from the country that it is today To be sure any decision to allow direct convertibility of the Australian dollar into the Chinese renmimbi would be a genuine win win situation for exporters and importers in both countries China conducts almost all of its trade in American dollars and a small percentage in Japanese yen This means that local currency needs to be converted to the greenback and then into yuan and vice versa when trading with China The extra cost of intermediary conversions to and from the US dollar in IOUs increases the transaction costs of trade and precludes businesses from hedging against rises or falls in the American dollar It also carries the additional risk of a liquidity crunch during trading transactions with China should American dollars be in short supply into the future even though the prospect of this is minimal for the moment To minimise transaction costs and other settlement risks the People s Bank of China has signed almost twenty currency swap memoranda of understanding or actual agreements with central banks of major trading partners such as Japan South Korea United Kingdom Indonesia Singapore and Brazil Such an agreement was also signed with the Reserve Bank of Australia in March 2012 These deals differ in the maximum amount of currency available for the swap They also vary as to whether the direct swap agreement applies to the principal or only the interest payment of any IOUs from bilateral trade But the point of these agreements besides providing central banks a buffer against possible shortages in American dollars required for trade with China is to establish a future foundation for importers and exporters to exchange yuan for local currency without having to sign IOUs that are denominated in American dollars Any future currency exchange deal between Australia and China builds on the earlier currency swap agreement Note that a direct exchange or convertibility deal is qualitatively different to a currency swap agreement The latter is really an agreement between the respective central banks to exchange local currencies up to an agreed amount in the case of short term supply problems of American dollars in settling the trading or current account A30 billion in the case of the March 2012 agreement between Canberra and Beijing But a currency exchange agreement allows direct exchange of the agreed two currencies without the greenback as an intermediary currency Moreover such an agreement opens the door for direct conversion for the purposes of the capital or investment account and not just for the settlement of trade and the potential of seamless access when it comes to currency issues to Chinese capital asset and equity markets For the moment the yuan can only be directly exchanged for American dollars and Japanese yen It is no wonder that any direct currency exchange agreement between Australia and Canberra will raise expectations that the financial and economic integration of Australia and China will be significantly accelerated with the broader expectation that the internationalisation of the yuan is only a matter of time Such expectations should be shelved for the foreseeable future for several reasons First China still maintains a de facto fixed currency regime linked to a US dollar dominated basket of currencies Until this changes there is little incentive to hold too many IOUs in yuan since the prospect of dramatic appreciation in the value of China s currency is slight Bear in mind that Beijing still places significant restrictions on the band within which conversion rates utilizing currency swap arrangements can deviate from official fixed conversion rates for the yuan into US dollars The prospect for changes in China s fixed currency regime is also poor China s two largest export markets in America and the European Union remain stagnant and the margins of its exporters are increasingly suffering from competitors in rising Asian manufacturing hubs such as Indonesia Vietnam and Cambodia To protect an export manufacturing sector that employs approximately 150 200 million people Beijing will not float the yuan and allow it to significantly appreciate in the foreseeable future Second foreign businesses are reluctant to hold too much yuan denominated cash and IOUs for the simple reason that there isn t much use for the currency outside China and Hong Kong In the event of any direct currency conversion deal Australian businesses will soon come to the same conclusion Remember that Beijing does not allow large quantities of its currency to be freely converted outside China and Hong Kong Added to this is the fact that China s capital account is tightly regulated and effectively closed Even if the capital account was eventually relaxed it would be meaningless without significant opening of Chinese financial markets and key sectors of the domestic economy which currently remain closed to outsiders and even private domestic firms Indeed there are severe limitations on foreign entities purchasing Chinese government and corporate bonds while there are significant restrictions on Chinese firms being able to issue their own freely traded bonds For example China holds about US 1 3 trillion worth of US Treasury bonds and hundreds of billions more in other agency bonds as well as over US 230 billion worth of Japanese yen denominated bonds Yet it was only after an extended period of negotiations that Tokyo was given the green light in 2012 by political officials in Beijing to purchase a mere US 10 billion worth of Chinese bonds More serious is the fact that every important and lucrative sector in the Chinese economy excluding export manufacturing is reserved for Chinese state owned enterprises to dominate

    Original URL path: http://www.businessspectator.com.au/article/2013/4/3/china/why-yuan-still-international-pretender (2014-01-12)
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  • John Lee | Business Spectator
    in his new role by John Lee 6 58am January 09 3 comments No shark fin soup for Christmas Austerity measures for China s military shows how keenly Beijing wants to be seen clamping down on corruption But proper economic rebalancing requires a far broader attack by John Lee 7 18am December 24 2 comments Will Shinzo Abe stand up to China Opinion is growing in Japan that it should no longer bow to Chinese regional assertiveness and instead stand up to its larger neighbour Many believe Shinzo Abe is the right man for the job by John Lee 6 44am December 12 5 comments China hangs tough on a problematic partnership The Trans Pacific Partnership is viewed in Beijing as an American led agreement designed to benefit regional allies while containing China s rise by John Lee 6 58am November 28 5 comments Groupthink and gridlock in China s fifth generation China s new leaders have been vested with great hopes for reform but deep factional divisions in the Politburo mean real change will be elusive by John Lee 6 40am November 14 9 comments Empty stomachs at Canberra s Asian banquet Few analysts in Asia see the region s collective rise as inevitable or even probable And underestimating labour capital and political challenges will only lead to missed opportunities for Australia by John Lee 6 44am October 30 19 comments Is Huawei listening Western governments are right to be very cautious about cyber security when it comes to firms like Huawei Until the firm commits to greater transparency the risks are too high by John Lee 7 07am October 17 8 comments Age will weary the Chinese miracle Assumptions about China dominating an Asian Century ignore its rapidly aging population It s an issue with huge ramifications for China s rebalancing and one the country is woefully unprepared for by John Lee 6 35am October 03 15 comments Beijing sizes up a stimulus tightrope China s recently announced fiscal stimulus won t be enough to achieve a soft landing but neither can the country repeat the boom of past years This time around a more nuanced response is required by John Lee 6 51am September 19 3 comments China grasps for a growth alternative As China s state dominated fixed investment model runs out of steam and Beijing looks for alternatives China forecasts will be fraught with trouble by John Lee 12 11pm September 03 6 comments The other side of Huawei Although far from a homogeneous entity the Chinese Communist Party owns and controls key sectors of the country s economy and its ties with Huawei are a strong indication it considers the telco one of its own by John Lee 9 25pm March 30 1 comment China s lopsided balancing act Yesterday s local market sell off betrayed a lack of understanding of the imbalances within China s economy and the forces shaping its response to an exports decline by John Lee 7 00am November 24 8 comments How Abbott hit the mark on China The Opposition leader s trade policy comments hit a few raw nerves but they highlight a reality those looking to sell more than minerals to China should be aware of by John Lee 2 33pm October 20 5 comments Spoiling for a US trade fight A decision by the US to label Beijing a currency manipulator could spark a trade war between the world s two largest economies and is no balm for Washington s debt problems by John Lee 6 12am October 10 5 comments Our China ties are firmly bound As another white paper on Australia s Asian strategy looms many predict it will harm our trade with China despite a plethora of factors to the contrary by John Lee 6 41am September 30 5 comments Page 2 Zhou the man with China s bandaids Central bank chief Zhou Xiaochuan has a progressive view on economic reform Why then did the conservative politburo bend the rules to postpone his retirement by John Lee 7 15am March 20 China wavers between party and progress Beijing must cede more control to move China towards a stronger and fairer economic model based on private consumption Wen Jiabao s last major speech as Premier suggested courage may still be lacking by John Lee 7 09am March 06 Mythbusting China s Indian match up Trivialisation of India s progress in favour of its huge neighbour to the north misses the real story about the countries relative freedom economic equality and political corruption by John Lee 7 28am February 20 6 comments China can t grow out of its problems Those who believe China s great rebalancing will solve its ills fail to understand the consequences of growing inequality The only consumers are the already rich funded by the bureaucratic industrial complex by John Lee 7 00am February 06 17 comments Buyers beware of Chinese data The most recent official Chinese economic data is riddled with convenient contradictions so while the outlook appears generally bright investors had better conduct thorough due diligence by John Lee 6 53am January 23 5 comments Kerry s mandate for a cyber China crackdown There are growing claims that China is via cyber espionage building its economy on the private sector secrets of America The issue looks set to lead Secretary John Kerry s priorities in his new role by John Lee 6 58am January 09 3 comments No shark fin soup for Christmas Austerity measures for China s military shows how keenly Beijing wants to be seen clamping down on corruption But proper economic rebalancing requires a far broader attack by John Lee 7 18am December 24 2 comments Will Shinzo Abe stand up to China Opinion is growing in Japan that it should no longer bow to Chinese regional assertiveness and instead stand up to its larger neighbour Many believe Shinzo Abe is the right man for the job by John Lee 6 44am December 12 5 comments

    Original URL path: http://www.businessspectator.com.au/contributor/john-lee?page=1 (2014-01-12)
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  • John Lee | Business Spectator
    s low key more economically focused strategy will be a better fit if he can sustain it by John Lee 1 47pm October 16 13 comments Prison may unlock a political opportunity for Bo Xilai China s leaders are hoping that a life sentence will solve the political problem of Bo Xilai But if things go pear shaped for the Chinese economy Bo Xilai may reemerge as a viable socialist alternative by John Lee 6 19am October 02 1 comment China s FDI obstacle course Foreigners are complaining about China s FDI approval process for good reason it s onerous arbitrary and vastly different to what Beijing seeks from Australia by John Lee 7 37am September 18 2 comments Trade numbers cut China down to size Despite assumptions to the contrary hard data on regional trade and investment activity show a China dominated Asian Century is far from inevitable by John Lee 8 40am September 04 4 comments The Pentagon s plan for an air sea battle with China The US and China both have plans in the event of conflict between them But the Pentagon s AirSea Battle strategy seems like an ill conceived deterrent by John Lee 6 58am August 21 17 comments Picking the PM If China could choose Kevin Rudd s return will be welcomed by the US but he brings baggage to the relationship with China Would foreign policy neophyte Tony Abbott fare better with Beijing by John Lee 6 40am August 06 21 comments China bears are safe to come out Major institutions like the World Bank and the Asia Development Bank have been behind the curve on China because of self censorship That kept research bullish long after cracks began to appear by John Lee 6 21am July 24 14 comments The investment test that has Beijing trailing China may be a potent force in world trade but it lags on foreign investment a far better indicator of economic integration and intimacy by John Lee 6 47am July 10 4 comments Why China s crunch is serious this time Even as a short medium term technical fix the risks of Beijing s decision to engineer a sudden liquidity tightening are considerable by John Lee 6 53am June 26 13 comments A pliant China is just California dreamin Hopes for a G2 on the back of Barack Obama and Xi Jinping s summit will be sorely disappointed The prospect of a serious conflict between the US and China is very real by John Lee 6 49am June 12 7 comments Chinese urban legends stumped Labor Julia Gillard s budget missed forecasts by miles because of misguided notions about Chinese urbanisation and iron ore consumption that are still widely accepted in Australia by John Lee 7 26am May 29 15 comments China s pragmatic Middle Eastern surprise China shocked many when it reached out to get involved in Middle Eastern politics but its strategic interests in the region are too big for it to keep a low profile any longer by John Lee 7 52am May 14 7 comments Can Australia and China speak the same language Regular open leadership discussions have worked well for Australia US relations but with China there are unique difficulties by John Lee 7 33am May 01 1 comment How Gillard forged a post Rudd China trust Julia Gillard s deals with Beijing are not ground breaking but her approach has made Australia s relations with China better than under Kevin Rudd by John Lee 7 10am April 17 4 comments Why the yuan is still an international pretender Any idea that a currency conversion deal between Australia and China heralds the yuan s genuine internationalisation is overblown and will remain so until Beijing drastically liberalises its markets by John Lee 6 59am April 03 1 comment Page 1 The political rot in Mao s sugar coated legacy There is a great chasm between China s modern leaders who implicitly reject Maoism and the nation s official history which tends to remember Mao fondly Bridging the gap would strengthen the Party s legitimacy with its people by John Lee 6 39am January 02 11 comments China s self serving moon shot On Saturday China became only the third country to land a module safely on the moon With half a billion impoverished citizens this expensive project makes little sense except as a geopolitical power play by John Lee 8 54am December 18 23 comments Counting on a Chinese olive branch While there are concerns that tensions between Australia and China could impact the free trade agreement process escalating regional disputes may compel Beijing to ratify the agreement sooner by John Lee 8 27am December 04 3 comments China s salami slicing is dicey diplomacy China is making a series of small but aggressive moves to change the regional maritime and territorial status quo by stealth It s a strategy that could result in disastrous diplomatic consequences by John Lee 11 58am November 27 5 comments A long march for China s national champions The Chinese Communist Party is keen to see its SOEs emerge as world class multinational players and still determined to grow the sector in the only way it knows how by John Lee 7 15am November 13 6 comments Ambitious China goes land roving Beijing s determination to create inland Eurasian commerce and trade zones is as formidable as its maritime push and has economic and political consequences for the entire region by John Lee 10 48am October 30 3 comments Keep it simple Sinophiles China didn t appreciate being taken for a ride by Kevin Rudd even unintentionally Tony Abbott s low key more economically focused strategy will be a better fit if he can sustain it by John Lee 1 47pm October 16 13 comments Prison may unlock a political opportunity for Bo Xilai China s leaders are hoping that a life sentence will solve the political problem of Bo Xilai But if things go

    Original URL path: http://www.businessspectator.com.au/contributor/john-lee?destination=taxonomy/term/3204 (2014-01-12)
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  • A super swindle of our own making | Business Spectator
    longer than they hoped to retire with the same amount So where to now That s the 1 5 trillion dollar question The Fed s decision last week to continue pumping money into the US economy means shares are off to a rocking start for 2013 14 up 12 per cent in just under three months Eventually the US will have to turn the monetary taps off but Ben Bernanke has made it clear he wants the world s biggest economy to be in full recovery mode by then Most analysts expect shares to consolidate their gains this year or go higher still At the moment apart from opening your own self managed fund there s not a lot you can do to avoid the sharemarket s influence But every super fund member should do two things when they get their statement this year First make sure you know where your money is invested Are you in the balanced option Most people are If you re younger you could think about moving to a higher growth option More of your money will be invested in shares which over the longer term yield a higher return If shares do take a turn for the worst you ll have time to ride it out If however you are very close to retirement the choice is harder Perhaps you want to take a punt on the share market recovery But perhaps you need to be more conservative Either way you need to know which option you are currently in Second everyone should compare how their fund performed against the average The average balanced fund may have returned 14 7 per cent in 2012 13 But some funds returned a paltry 10 per cent while others earned their members 20 per cent plus And that can make a huge difference to your retirement funds So check your statement against these industry averages High growth 20 4 per cent Growth 17 1 per cent Balanced 14 7 per cent Australian shares 21 1 per cent International shares 26 1 per cent Property 11 0 per cent Fixed interest 4 7 per cent Cash 2 9 per cent Super funds make a good living extracting fees and charges from your hard earned cash And we re all so lazy they can get away with it We like to assume they are doing a good job But it is possible to be in a dud fund One year of below average performance is not necessarily an indication you should switch funds But if you find your fund underperforms the market for several years you should be asking serious questions why Either way you won t know until you look closely at the figures Jessica Irvine is News Corp Australia s economics editor View more articles at www jessicairvine com au Print this page More from Jessica Irvine 19 Sep Abbott s building bonanza must bridge the gaps 16 Sep Toil and trouble but no housing bubble 12 Sep Ten top tips for Treasurer Joe 18 Jun Testing times in the tapering camp 14 Jun The recession we want to have Related articles 12 Jan Aust stocks set for flat start 12 Jan NZ dollar to pass Aussie HSBC 11 Jan Wall Street mixed after jobs data 10 Jan Asian stocks end mixed 10 Jan European stocks close higher More from Business Spectator Technology Adapt or die Commercial The Future of Energy Family Business Alan Kohler s Family Business China China Spectator Please log in or register to post comments Comments on this article Comments Policy John Tozer Mon 2013 09 23 09 01 Impeccable timing Jessica David Doyle Mon 2013 09 23 10 06 My god this is so basic It adds zero value added to a site like BS Send this to a tabloid for page 10 so the brickies laborers can digest it over their lunch time pie shoots James lastName Mon 2013 09 23 10 40 Another rude comment from David Doyle First he didn t like Robert G s article on the JSF now he s moved on to denigrating Australia laborers I particularly like the shoots signature Yeah shoots rude little comments from the safety of his anonymity I wonder if he d shoot his snide comment in front of one of those pie eating brickies or would just wet his pants instead I R Mon 2013 09 23 11 35 Are you new to this site Mr James lastName This is Doyle s schtick He is amusing and well informed As for attacking him from the safety of anonymity errr pot please meet kettle Tim Marsh Mon 2013 09 23 12 13 I agree with James Denigrating labourers is stupid and if it s sarcasm or some other shtick well the humour is lost on me I know plenty of smart labourers who eat very healthily and read the AFR I m one of them The comments section of BS starting to looks like a load of BS Tim Marsh Mon 2013 09 23 12 14 I agree with James Denigrating labourers is stupid and if it s sarcasm or some other shtick well the humour is lost on me I know plenty of smart labourers who eat very healthily and read the AFR I m one of them The comments section of BS starting to look like a load of BS David Doyle Mon 2013 09 23 13 01 So it s denigrating to rely on observation a women get pregnant men don t I think that s a fact b Laborers have less healthy diets as observed by surveys and health outcomes yes some eat sprouts I suppose There is more pie eating in camp than in the boardroom c Most laborers would not be interested in a hedge fund strategy The long lost son of John Paul Getty II who is slumming it as a laborer possibly might d telling a website dedicated to business and mostly small

    Original URL path: http://www.businessspectator.com.au/article/2013/9/23/markets/super-swindle-our-own-making (2014-01-12)
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  • Testing times in the tapering camp | Business Spectator
    night amid the market sell off saying Glad people are reading my Fed preview I ve been in the September taper camp for a while and I d stick with that This was followed shortly by another tweet But people need to chill out The Fed does not leak anything to any journalist to steer markets especially during blackout The Australian Reserve Bank has introduced a similar blackout period where it will not speak to journalists one week before board meetings Hilsenrath s column last week made a similar point to Harding s last night that the US Federal Reserve needs to communicate more clearly that any tapering of its asset purchase program does not necessarily mean rate rises around the corner Concerns about tapering have led markets to also pull forward their expectation of rate hikes Bond yields have risen as traders expect rate hikes to come as soon as next year Both Harding and Hilsenrath make the point that this is misguided The Fed is committed to a rule publicly stated last December that it will keep short term interest rates near zero until the jobless rate reaches 6 5 per cent or inflation rises faster than 2 5 per cent The job market is not expected to hit that point until 2015 It is this nexus between tapering and rate hikes that Fed Chairman Ben Bernanke must break in his post meeting press conference later this week US monetary policy remains heavily stimulatory And tapering is not nearly the same thing as turning the hose off just turning down the flow Even if the Fed buys US65 billion of assets a month rather than US85 billion this is still stimulatory Conceivably the Fed could turn the tap down to US65 billion but keep it on for longer meaning it would over time purchase more bonds than if it kept the hose on at US85 billion but for a shorter period Neither of those options implies anything about when the Fed will take the next step which is to raise interest rates from close to zero currently Both Harding and Hilsenrath agree that the taper is coming But the point both men are making is that the time between the taper and any rate rises could be long And this timing will be entirely determined by the already stated rule that rates won t rise until the jobless rate falls to 6 5 per cent Skittish markets are displaying all the rationality of a cocaine addict scared his dealer will soon cut their supply And that s despite assurances from the dealer that it will keep dealing albeit smaller amounts Weening the market s monetary stimulus addicts could prove more difficult than the Fed first thought Print this page More from Jessica Irvine 23 Sep A super swindle of our own making 19 Sep Abbott s building bonanza must bridge the gaps 16 Sep Toil and trouble but no housing bubble 12 Sep Ten top tips for Treasurer

    Original URL path: http://www.businessspectator.com.au/article/2013/6/18/economy/testing-times-tapering-camp (2014-01-12)
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  • Regrets? The IMF has few | Business Spectator
    difficult to argue that adjustment should have been attempted more slowly the report authors conclude Doing so would have meant a more costly bailout bill or that Greek debt would not have been on a sustainable reduction path a precondition for IMF funding The IMF does berate itself for its forecasts In a relatively closed economy with no independent exchange rate the shock from fiscal contraction was likely to be more concentrated than first assumed The assumed fiscal multiplier of 0 5 was too low the IMF now accepts A lack of liquidity for households and a lack of effective monetary policy meant a fiscal multiplier of nearly double that was appropriate While the IMF is still happy with the size of austerity it now thinks it should have been achieved through harsher spending cuts rather than revenue measures like tax hikes In the event the contribution from both was about 50 50 The IMF wishes there had been more public sector sackings instead of just wage cuts and the agreement to replace only one fifth of retiring public servants This lack of action on public sector jobs meant more lay offs in the private sector The IMF thinks this is evidence that The burden of adjustment was not shared evenly across society The IMF would also have preferred a liberalisation of wages setting in the private sector so that wages fell more sharply More could also have been done to crack down on tax evasion by high income earners the Fund concedes At the end of the day however the Fund s biggest regret seems to have been the failure to have a bigger haircut on Greece s debts to private sector lenders But this argues the Fund was not its fault but that of the European Commission An upfront debt restructure would have been better for Greece although this was not acceptable to the Euro partners It s hard to argue with that Ultimately European countries like Germany and France acted to protect their investors against large scale write downs Perhaps that was legitimate given the widespread risk of financial contagion and concerns about bank collapses that a haircut would have created in the early days But that bank haircuts were eventually accepted by all parties was a sign they should have been attempted more from the start reducing the need for harsh austerity So is this report an admission of a failed austerity program as some overnight headlines would suggest Hardly The IMF report ends with a pat on the back that the bailout was successful in giving the Euro area time to build a firewall to protect other vulnerable members The IMF is critical of the decision not to pursue debt haircuts sooner But it blames this on the European leaders refusing to accept any responsibility for not pushing that avenue more aggressively itself So would they do it all again In a heartbeat The bailout was necessary and the austerity measures were necessary too Fiscal

    Original URL path: http://www.businessspectator.com.au/article/2013/6/7/european-crisis/regrets-imf-has-few (2014-01-12)
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  • Consumers wave the keys to a recovery vehicle | Business Spectator
    s consumer spending that must recover And fingers crossed that s exactly what we re seeing Those looking for a return to the heady debt fuelled consumption days before the GFC will always be disappointed But a return to growth in consumer spending is indeed underway Retail sales are up 3 1 per cent over the year to April Sure it s not the 8 per cent plus growth we saw back in 2007 But such growth was unsustainable fuelled by the halving of nominal interest rates That was a boom which is permanently at an end And bricks and mortar retail stores have never captured all consumer spending Retail spending does not capture all the money we spend on services like haircuts doctor s appointments dog walkers and nannies Tomorrow s GDP report will give us a more accurate picture on that We already know that sales of new motor vehicles are growing by a slightly faster clip of 3 3 per cent a year Even so retail sales growth of 3 1 per cent is now entirely in line with wages growth of 3 1 per cent on the latest March quarter wage price index Consumer confidence may have slumped in the wake of the May federal budget But consumers have been twitchy for a while When it comes to Aussie consumers it s a case of ignore what I say see what I do And despite our new debt shy ways there are signs of life in home borrowing too According to the Reserve Bank s own figures housing credit appears to have bottomed out at 4 5 per cent growth over the year to April Sure that s nothing compared to the 20 per cent plus growth seen during the early to mid 2000s But that s not the point We re not looking for the next highly leveraged housing boom only that borrowing should increase in line with wages and population growth And despite falls in April and May house prices are up a respectable 2 9 per cent over the year according to RP Data Rismark giving a median value of 491 000 Some confidence also appears to be returning to new home approvals up 27 3 per cent over the past year Of course a small base means big percentage gains are possible We are still building only half the number of homes needed to house population growth of 300 000 a year What we really need is a home construction boom not a home price boom So far so good A look at the broader economic dashboard also reveals an economy remarkable in its unremarkableness Inflation at 2 5 per cent Unemployment rate at 5 5 per cent And tomorrow s national accounts are predicted to show gross domestic product grew by 2 7 per cent over the year a little below its long term average of around 3 per cent Could this be the new normal we have been looking for After so much excitement we should be glad to return to such a boring world as retail spending and borrowing growing in line with incomes Meanwhile the six cent fall in the Australian dollar has removed yet another remarkable feature of the economy Indeed it s steady as she goes Today s meeting of the Reserve Bank looks like being a central bankers dream boring Print this page More from Jessica Irvine 23 Sep A super swindle of our own making 19 Sep Abbott s building bonanza must bridge the gaps 16 Sep Toil and trouble but no housing bubble 12 Sep Ten top tips for Treasurer Joe 18 Jun Testing times in the tapering camp Related articles 12 Jan Obama picks Fed vice chair 11 Jan US jobs growth slows sharply 10 Jan Korea China jostle for Aust resources 10 Jan China trade balance contracts 10 Jan New home sales lift in November More from Business Spectator Technology Adapt or die Commercial The Future of Energy Family Business Alan Kohler s Family Business China China Spectator Please log in or register to post comments Comments on this article Comments Policy Bruce 55 Tue 2013 06 04 09 04 Jessica how much of our extra retail spending goes overseas on imports Frans Kuiper Tue 2013 06 04 11 33 Low interest rates are hurting consumers with savings Savers are being forced to save harder and that means less discretionary spending in the shops for non essentials Low interest rates are sending a clear message to consumers that bad economic times are heading our way Don t be surprised if people are reluctant to spend money they do not have People will be afraid to borrow money even at low interest rates if job security is a worry Jan Harrison Tue 2013 06 04 12 29 well said Frans And don t forget those people whose income is dependent on interest rates ie retirees They also contribute to retail spending and are I read somewhere more numerous than those with mortgages Ken not available Tue 2013 06 04 12 35 Frans is totally correct Jessica It appears from what you are saying that Australia is on a Magic carpet ride Yeah sure how will we create jobs for 300 000 new Aussies this year The bottom line is energy costs All business activity and SMEs have the cost of energy in common Exports are hit hard by the cost of transport So whats the answer Spend money on energy research lets talk about quantum physics Afterall when you talk about energy you are talking about quantum physics This is real geek stuff Many of the population delude themselves into thinking that energy is what you get when you flip a switch to turn your power on Or that energy problems are what you get when when your electricity and gas bill arrive It s just a smidgin more complex than that It s like looking at the period between feudalism and

    Original URL path: http://www.businessspectator.com.au/article/2013/6/4/economy/consumers-wave-keys-recovery-vehicle (2014-01-12)
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