Browsing articles in "Communications"
Thursday 16th July 2009 - 2:18 pm
Comments Off on The little $A battler:a new theory

The little $A battler:a new theory

by Alan Thornhill

July 17, 2009

Something odd has been happening with the Aussie dollar lately.

The little Aussie battler has been rising – and falling – with the New York stock market.

That’s not supposed to happen.

Movements  in the Dow Jones index, though erratic lately, are usually assumed to reflect perceptions of prospects for the US economy.

So if the US economy appears likely to get stronger, without any matching movement in Australia’s prospects, the $A should weaken, relatively speaking.  That’s because because money and resources usually flow to the place where prospects are brightest.

That, though, is essentially, a static analysis.

And an article, just published in  the latest Reserve Bank Bulletin, provides a tbeoretical basis, to explain what is actually happening.

It’s well worth reading, if you are involved, even indirectly, in currency trades.

The full  article can be found at

The authors argue that things change in times of “market volatility and uncertainty.”

“In periods of elevated market volatility and uncertainty….the net effect of positive news on the US economy tends to be an appreciation of the $A/$US exchange rate,” they say.

“Empirical evidence suggests that these effecrs are most evident for US data releases pertaining to growth, employment and production,” they add.

“The more pronounced effect in recent years is likely to reflect the abnormally high level of market volatility during the global economic crisis.” they say.

The Reserve Bank economists add that this has led “market participants” to be “extremely sensitive to new economic information.”

That might be something of an understatement, in today’s conditions.

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Thursday 28th May 2009 - 8:13 pm

How wealthy executives share their tax bills

by Alan Thornhill

Wealthy executives have been abusing tax breaks that were meant to encourage workers to take a stake in their bosses’


The idea behind that scheme, which the Keating government introduced in 1995, was to promote industrial harmony in Australia.

The scheme has wide support in Federal parliament, with both the Rudd government and the Coalition, led by Malcolm Turnbull, backing it.

But the  Tax Office has reported that   wealthy executives, who abused it, have produced a “very serious loss of tax revenue.”

And the Federal Treasury has estimated that the Federal government could raise an extra $200 million in tax, over the next four years, if it closed the loopholes that permit this evasion.

So that’s precisely what the government set out to do, in its budget on May 12.

But it acted hastily and clumsily.

The protests that followed forced the government to make concessions, which have still to be settled.

“We do not mind admitting that perhaps we could calibrate this measure better,” the Assistant Treasurer, Chris Bowen, told parliament.

How, though, did the rorts work?

Mr Bowen said one executive had acquired options, under an employee share scheme, in the 2004 income year.

“The taxpayer did not elect to be taxed up front,” Mr Bowen said.

Instead, he deferred that liability.

“An ATO audit found the extra tax payable from that one individual was over half a million dollars.”

This was not an isolated case.

Mr Bowen said 8 per cent of the wealthy Australians, examined under a Tax Office high wealth investigation had “tax shortfalls.”

He and the Federal Treasurer, Wayne Swan are now promising to produce an issues paper, on how this problem might be fixed.  They say they will do so within a fortnight.

We don’t know yet, exactly what that paper will say.

But we can confidently predict that the government sill take a tough line on this kind of evasion.

Thursday 9th April 2009 - 12:11 am

Australia’s banks take a risky path, holding back on rate cuts

by Alan Thornhill

Australia’s big four banks are taking a serious risk by holding out on the latest interest rate cut.

Their argument, that this is necessary, because they now face higher costs raising the money they lend, is not convincing.

Even the usually mild-mannered Treasurer, Wayne Swan, says he has seen little evidence of that.

And an independent expert supports him.

Sean Cornelius, of Infochoice, told the ABC radio program PM last night, that in  Novenber 2007, the average variable home loan interest rate charged by  Australia’s banks, was 1.82 percentage points above the Reserve Bank’s target rate.

Now, though average margin that banks charge has blown out by amost 1 percentage point, Mr Cornelius said.

The big four banks, effectively, operate as a government protected banking cartel.

That has its advantages.

Australia’s banks, after all, have remained strong and solvent, when many in the United States, England and several  other countries have not.

Mr Swan has clearly lost patience with Australia’s big banks.

So severely, in fact, that he told Fairfax radio, late yesterday, that they deserve “a good kick up the bum, occasionally.”

That’s not parliamentary language.

But it will resonate with the public.

“They (the banks)  have to justify their position in the court of public opinion,”  Mr Swan added.

There has been little sign, so far, though that the banks will step forward,  either singly or together, to explain themselves clearly to the public.

In present circumstances, keeping quiet, as the banks have been doing, is not necessarily a good idea.

The government is arguing, very strongly, that it is doing all it can, to help Australians cope, as the global economic crisis hits the nationnal economy.

It is saying, too, that the banks should be playing their part, in that national effort.

This is powerful talk.

So if the banks do, in fact, have a good case for holding back, on the benefits of the  latest rate cut, they would be wise to state it, very clearly.

So far, they are not doing so.

And no business, no matter how big or how dominant, can afford to ignore public opinion.

Sunday 1st March 2009 - 7:30 pm

Stimulus:the hidden risk

by Alan Thornhill

As we all know, visitors can sometimes reveal deep secrets.

They don’t usually mean to betray their host’s confidence.

They just don’t realise, all too often, just what they have done.

A visiting World Bank economist, Vikram Seth had just such a moment last week.

“In my experience,” Mr Seth told Private Briefing over lunch, “stimulus packages can quickly become pro-cyclical, rather than counter cyclical.”

Like all economists, Mr Nehru talks in riddles, at times.

But his meaning was clear enough, in context, at the time.

(Your correspondent had hardly touched his wine, at that stage).

Mr Nehru was saying that government spending, meant to boost a flagging economy,  all too often actually inflates an already recovering one.

Of course, as Shakespeare put it, this is “a consumation devoutly to be wished,” in the world’s present circumstances.

The US Fed chief, Alan Greenspan, has, of course,  predicted that America’s recession could be over by late this year, or early next year, if that nation’s banks can be fixed by then.

At present, though, Mr Greenspan is as a voice crying in the wilderness.

But Australia’s Treasurer, Wayne Swan, did admit in Parliament, late last week,  that the Federal government’s response to the global economic crisis, which erupted suddenly last September, had been “swift.”

And even the government’s critics admit that it has also been bold.

The main critic, Malcolm Turnbull, has also argued that an approach based on tax cuts would have been much more effective.

But the Prime Minister, Kevin Rudd, disagrees with the Opposition Leader.

Mr Nehru, though, has identified a risk that neither has said much about, at least so far.

The government’s stimulus packages does contain  substantial plans for infrastructure spending.

There has been much talk of many of  these projects being “shovel ready.”

Most, though, are not.

And if the government is still spending heavily even on, perhaps worthwhile, infrastructure projects, like new roads, bridges and rail links, that spending could well, in Mr Nehru’s words, prove to be pro-cyclical.

That is, it might well boost inflation, when the economy is already recovering.

If that happened, the consequences could well be serious.

And we all saw, last September, just how quickly an economy can turn.

Monday 16th February 2009 - 6:49 am

That package:what it’s really about

by Alan Thornhill

Wayne Swan says the Federal government’s $42  billion “nation building’ package is meant to “cushion” the impact of the global recession.

But is the Treasurer underselling it?

Even a brief  look at the background, against which the package was assembled, strongly suggests this is so.  As Wayne Swan, himself, pointed out new figures, at the weekend, showed that European economies shrunk by 1.5 per cent in the December quarter.  They came after others confirmed that  the world’s biggest  economy, that of the United States. suffered a 1 per cent set-back, over the same time.

The IMF’s top economist, Olivier Blanchard, warned back in December, that big stimulus packages, like this one, will be necessary, if the world is to avoid another Great Depression like that of the 1930s.

“It is imperative to  stifle this loss of confidence, to restart household consumption, if we are to prevent this recession developing into a Great Depression,” M. Blanchard said.

The stimulus packages, now being developed in the United States and Europe will, of course, carry more weight than Australia’s, in that vital campaign.  Australia, though, is a major world trader.  And it also has its part to play, in tackling the global economic crisis.

This need – and the huge risks we all face – are clearly not yet understood in Australia.

Piers Ackerman, a columnist with Sydney’s biggest selling newspaper, The Daily Telegraph, for example, takes a populist position, when he dismisses the Rudd package simply as “a burden.”

A comment, taken at random from the internet, puts it even more bluntly.

“If you ask a heroin junkie what he needs for his problem, he will say “more heroin”.  No one is too surprised by that.

“When you ask Rudd what we need to cure a problem caused by too much spending and too much borrowing, we get an answer  …… “more borrowing and more spending”.

Where, though, did the last Great Depression lead us?

That’s right.  Straight to World War II.

As my father, who lived through the Great Depression, used to say;”Things never really picked up, until the war started.”

That’s one way to revive a sagging global economy. But not the best.

Much of the content of Rudd’s latest package is, certainly, counter-intuitive.  All those “plasma TV bonuses” and soon to be refurbished school halls do, indeed, seem to defy common sense.

But there are much bigger issues at stake here.  We must never forget the grim words of the American philosopher, George Santayna, who said:”Those who forget the lessons of history are condemned to repeat them.”

It is all too easy to forget that Germany, the home of Hildegard von Bingen, Gluck, Mozart and Pachelbel, as well as Goethe and Berthold Brecht, was one of the most civilised nations on earth, before jobless, people there, in the 1930s, chose to see hope in the mad policies of one Adolf Hitler,  from the  Schickelgruber family.

These are the dangers that present day political leaders sometimes hint at, by describing them as “unthinkable.”

But the time for such misplaced delicacy has passed.  The  billion dollar packages, now being developed in the United States, Europe and Australia are but a small price to pay, for a chance to avoid the repetition of such horrors, this time on a nuclear scale.

And it is time for our political leaders to say so, simply and boldly.

Monday 8th December 2008 - 7:24 am

Obama pledges “millions” of new jobs

by Alan Thornhill

Barack Obama is promising to create “millions of jobs” after he takes office on January 20.

The US President-elect has also pledged  that he won’t allow the struggling American auto-industry to collapse.

But he is also warning that it will be required to restructure.

He has given few details, so far, though on either promise, beyond saying that he will greatly expand public works.

“We will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s,” Obama said.

The job situation in the US is already grim.

Figures released on Friday showed that 533,000 American jobs were lost in November alone.

And US job losses, in 2008, already amount to almost 2 million.

“We need action – and action now,” Obama said in a call he put out both over YouTube and radio on Saturday morning.

“It is unacceptable that the United States ranks 15th in the world on broadband adoption,” he added.

“Here, in the country that invented the Internet, every child should have the chance to get online.”

So far, though, Obama has not put any price tags on his plan to reflate the US economy.

Friday 5th December 2008 - 6:55 am

Turnbull embarrassed in chaotic vote on $2 billion Future Fund grab

by Alan Thornhill

Several Coalition Senators revolted overnight as the Federal government’s critical Infrastructure Bill passed through Parliament.

Five National Party Senators voted against the bill, in the vain hope of protecting $2 billion, that the Howard government had set aside from the sale of Telstra, for regional and rural communications.

And several Liberals abstained from the vote, absenting themselves from the Senate Chamber.

These included one of the most senior Liberals, Nick Minchin.

Minchin told the ABC later:”Of course I support the Shadow Cabinet decision.”

But he spoke tersely.

The Shadow Cabinet had decided, earlier, to drop opposition amendments to  the Infrastructure Bill, which would have protected that $2 billion.

Ultimately, though, only five Liberal Senators voted in the Senate for the Shadow Cabinet’s decision.

The Government Leader in the Senate, Chris Evans, described the vote as “a massive revolt.”

“They ran out of the chamber” he said, speaking of the Liberals who, effectively,  refused to support the Shadow Cabinet’s position.

As the old saying has it, “disunity is death” in politics.

And the chaotic vote was the first major embarrassment for the new Liberal Leader, Malcolm Turnbull.

But the Nationals are still furious.

“Rural and regional Australia has been sold out with the decision early this  morning to allow the Government to siphon off the $2 billion Future Fund,” Senators John Williams and Fiona Nash said in a joint statement.

They said the money will now be spent on the Federal government’s proposed National Broadband Network.


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Alan Thornhill

Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.

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