by Alan Thornhill
“There is no doubt that events in the United States will put upward pressure on interest rates,” the Treasurer, Wayne Swan, said today.
“But we will just have to wait and see,” he added.
Mr Swan took care to note that he was not talking about the decision the Reserve bank is expected to take on rates, on next Tuesday.
He was speaking on ABC radio, about events associated with the collapse of share prices on Wall Street last night.
“I am certainly disappointed,” Mr Swan said, when asked for his reaction to the Republican revolt, which saw the US Congress reject President George W Bush’s call for support of a $US700 billion bail out, proposed by the US Treasury secretary, Henry Paulson.
That rejection, on a 228-205 vote, came overnight, Australian time.
“What we have to deal with now is the practical reality of that decision,” Mr Swan said.
He also spoke, once again, of the “strength” of the Australian economy.
“The Australian system is in good shape, very good shape,” Mr Swan said.
“If there is one country you would want to be in in these circumstances, it is Australia,” the Treasurer added.
But he admitted that events overseas would put “upward pressure on costs.”
by Alan Thornhill
Share prices plunged 777.68 points on Wall Street overnight, it’s biggest points fall ever.
That occurred after Republicans revolted and rejected their president’s plea for a $US700 bail out for the US financial sector.
The vote, in the US House of Representatives was 228-205.
The S&P 500 fell 106.85 points to 1,106.42.And the tech-heavy NASDAQ Composite index plunged 199.61 points to 1.983.73.
Oil futures also sank sharply, dropping $US11.43 to $US95.46.
The Republicans, who rejected the plan President Bush had urged them to accept, declared that they did not believe it would work.
But President Bush admitted his disappointment.
“We put forth a big plan, because we had a big problem,” he said.The meltdown forced theÂ US Federal Reserve to pour hundreds of billions of dollars into money markets, to bolster liquidity.
Australia, too, became more deeply involved overnight, when the Reserve Bank agreed with the Federal Reserve on a $US20 billion expansion of the previously existing swap line, to boost US dollar liquidity in Australia.
This is in addition to the $US10 billion swap line announced, ,for the same purpose, on September 24.
This was part of a world-wide protective move, involving eight other central banks, including those ofÂ Japan, England, Europe and Norway.
Meanwhile America moved closer to the Australian banking system overnight, with the imminent sale of the Wachovia bank.
Citigroup beat off its rival,Â Wells Fargo, overnight to make the purchase.
The concentration of US banks, caused by collapses in the current crisis, looks like leaving America with just three dominant players in that nation’s banking market.
They would be the Bank of America, JP MOrgan Chase and Citigroup.
by Alan Thornhill
“We’ve had 12 years of neglect on this.
“It’s about time Australia bit the bullet on maternity leave.”
That’s how the Prime Minister, Kevin Rudd, welcomed the Productivity Comission’s recommendation of a broad, new taxpayer funded maternity leave scheme, for Australian women.
Then he went on to say:”We intend to get on with the job and we will get the policy setting right once we work our way through the detail of this report.”
With a welcome like that, it’s a fair bet that the government will implement something very like the commission’s plan.
But broadly, that is:-
-18 weeks’ post natal leave, paid at the ruling minimum wage, which is presently $543.78 a week.Â The government would pick up the bill for this.
-all employees with “a reasonable attachment” to the workforce would be eligibile.
-the employer concerned would continue to pick up the bill for the absent employee’s 9 per cent superannuation contributions for this time.
Present arrangements would largely contunue, under a new name, for stay at home mothers, who are not attached to the workforce.
The commission said that as most employees have, at least, a few weeks’ annual leave up their sleeves, this scheme should allow most mothers to stay at home with their babies for six months.
It is recommending two weeks’ leave, as well, for new fathers.
The commission estimates that the cost to the government, when all items are considered, would be about $450 million a year.
It expects that business would contribute an extra $75 million a year.
Like to know more?
Go to www.pc.gov.au and follow the prompts.
Or check out the examples in our next story.
by Alan Thornhill
So how would the new maternity leave scheme work out in practice?
A glance at the circumstances of two women, that the commission gave as examples, should help us to answer that question.
The first, “Laura” is a working mother with a part time job. She earns $400 a week.
Laura is entitled to – and taks – 18 weeks leave. And she gets $543.78 a week, in that time, under the proposed scheme.
That is about $9,788, altogether.
But, by taking this leave, Laura misses out on the new maternity allowance, that would replace the present baby bonus and some other small benefits.
Once her superannuation payments are taken into account, though, Laura would get a total of about $10,436 gross, for that 18 week period.
So Laura would be $3,037 better off than she would have received, without the new scheme.
Roberta’s circumstances are quite different. She chooses to leave her $40,000 a year job, to become a full time mum.
Roberta will get a $5,000 maternity allowance and $654 in family tax benefits, a total of $5,654 for the 18 week period, after the birth of her child.
Where the father is eligible for the full two weeks paternity leave, and takes it, he would receive a gross payment of 1,088 from the government.
The commission says the maximum combined benefits, for a family taking advantage of the proposed scheme, would be $11,854,
by Alan Thornhill
Australia’s banks are still smarting.
They did not expect the Federal government to move against them as swiftly or as elegantly as it did late on Friday.
But they brought it on themselves.
By muttering that they might not pass on an interest rate cut, if there is one next week.
AsÂ any Economics I student will tell you, there are limits to monopoly power.
Or, in this case, to oligopolistic power.
We all have good reason to be grateful to Australia’s banks.
They have not, for the greater part, indulged in reckless lending, as some in the United States have done, with disastrous results.
But there is a price for everything.Â Even good behaviour.
And the good, at times, can become a little smug.
That’s why the Federal government announced late on Friday that it would inject $4 billion into the Australia’s housing loan market.
The Treasurer, Wayne Swan, said the government would be buying top quality mortgages with that money.
He was too diplomatic, of course, to say that the move was aimed directly at the banks.
But it will help their rivals, the smaller mortgage lenders, stay in business, at a time when money is particularly tight.
In short, the government moved to keep Australia’s four big banks on their toes, by reminding them that they will still face a little competition in the market.
The Labor party has learned a lot since it tried, unsuccessfully, to nationalise Australia’s banks, back in the post war era.
by Alan Thornhill
The eyes of the world will be on Australia’s stock markets when they open today.
That’s because they will be among the first to open, since the US Congress reached agreement on a $700 billion bail out for Wall Street.
The world now knows that the US Congress will approve the deal.
The US President, George W Bush, tried to sell it, by insisting that the deal was “not aimed at Wall Street, it is aimed at your street.”
Officials have been busy putting the final touches since then.
Although the deal is deeply unpopular with the US public, President Bush had a point.
US economists were predicting that three to four million Americans would have lost their jobs, over the next six months, if no deal had been struck.
However, the deal still smells bad.
Democrat negotiator, Barney Frank, acknowledged that.
“No solution to a problem can be more elegant than the problem itself,” he said.
The Republican presidential contender, John McCain, cut through most clearly, in the candidates’ debate, which was televised at the weekend,Â when he promised to hold those who had caused Wall Street’s crisis “accountable” for what had happened.
The latest Roy Morgan research also showed that his Democrat rival, Barack Obama, scored best when he promised to “restore America’s standing in the world” and to bring the war in Iraq “to a close.”
by Alan Thornhill
US legislators have set a powerful example.
Although full details have yet to emerge, the Paulson plan to patch up the US financial system, will, almost certainly,Â contain salary caps, for rogue executives.
One early thought, that went into the mix, was that executives, who asked for help under the plan, would find their own salaries capped at $US400,000 a year.
That’s what the US president earns.
Although many of usÂ might well be satisfied with that, it would be a substantial restraint on those who, till recently, regarded themselves as masters of the universe.
They have had their counterparts here.
The Australian public, like that in the US, is very angry about those executives, who have bailed out with multi-million dollar golden parachutes, after mis-managing their corporate affairs.
Investor anger, perhaps best captured in the placard of a Wall Street protester, who invited rogue CEOs to “jump,” certainly has strong echoes in Australia as well.
That could well manifest itself in public pressure for CEO salary caps here, too.
Political moves, towards this end, have already begun.
Greens Leader, Bob Brown, has already urged the Senate to introduce salary caps for Australian CEOs.
So far, his plan has been passed over, without debate.
But it is still on parliament’s books.
by Alan Thornhill
It had to happen, sometime.
Wall Street picked up, overnight.
The Dow Jones industrial index closed 196.89Â points higher at 11,022.06
The S&P 500 rose 23.31Â points to 1,209.18
And the tech- heavy NASDAQ composite index rose 30.89 points to 2,186.57.
Oil futures rose $US1.88 to $US107.61
But there was little cheering.
So, what went right, for a change?
Approaching political agreement on Hank Paulson’s $US700 billion rescue plan helped.
The US President, George W Bush, tough warnings, in his grim speech to the nation, contributed.
His address to the nation was certainly serious.
And his assurance that he is prepared to accept tougher controls, over how the proposed $US700 billion, in Hank Paulson’s rescue plan, is spent, may have provided a little comfort, too.
So, too, would rumours of a likely interest rate cut, in the US.
However it was, President Bush’s grim warning:”That our entire economy is in danger,” would, undoubtedly, have concentrated most minds.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Thursday June 20
The Dow Jones index fell 206.04 points to 15,112.20
Bernanke says Fed on Course to End Asset Buying in Mid-2014
Senate to grill corporate watchdog over inaction on information from CBA whistleblowers.
Rudd supporter Joel Fitzgibbon says Labor “Leadership is no longer an issue, it’s all behind us.”
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