I am thoroughly convinced that the economic world is simply irreconcilable. Here’s a summary of the week just past.
On Friday morning I was surprised to hear that the stock market in the USA had fallen due to strong jobs growth! Hang on, isn’t the USA relying on stronger employment to buoy the consumer who will spend more, lifting confidence and thereby start paying back their home loans and perhaps spark recovery in the housing market (the core of the current problems). Nope, apparently this was going to reduce the chance of the Federal Reserve printing money and thereby closing an opportunity for easy money and inflation.
But it gets worse. This week in Japan the Central Bank dramatically cut interest rates.....from 0.1% to between 0% and 0.1%. Goodness me, I doubt this will make much of a difference but who am I to argue against their collective wisdom – given that the Japanese economy has deflated for 20 years now – more of the same? Why not?
Also there was an interesting conversation this week about the banks and warnings for them not to lift interest rates outside the normal RBA increases - intimidation? Both sides of politics are guilty of this but would any of them actually take any action? Let’s imagine a “Super Profits” style tax was imposed on our banks. The most likely result of this action would be a flight of foreign capital from our shores resulting in a huge increase in banks funding costs and that would result in...oh dear... higher interest rates.
But hang on, if it’s no good for banks to increase costs to consumers why is it OK for Energy companies to increase costs without any repercussions. From 2005 to 2010 Electricity prices have increased by 61.3% in Sydney. A recent article on Business Spectator by Robert Gottliebsen suggested that power prices may actually quadruple over the next 4 years.
Directly relating to this, the State Government is set to axe its solar energy scheme. In this scheme, people that install solar panels can sell power to the grid for 60 cents per kilowatt hour and then buy it back for a quarter of that. The government is forcing Energy Companies to pay for the difference and all of us who don't have solar panels are thereby paying for this with increased BILLS. The irony is that the greatest demand for household power comes in the evening when the sun don’t shine. As a result, the Coal Fired Power Stations remain at full capacity!
It is also a regressive system as only wealthy people can afford to install the panels and poorer people end up paying for it with higher energy bills. So once again we find a government action with the best intentions being implemented with the worst outcomes. I would suggest you ain’t seen nothing yet!!!
So in conclusion it has been a crazy week. The award for the most unforgiving job in the country goes to all the Economists who predicted a rate rise this week. Forecasting is certainly a mugs game.
Julian McLaren is a Representative of the Shadforth Financial Group (AFS Licence No. 318613) Julian may be contacted on 69317488. This is general advice and readers should seek their own professional advice in regards to their individual circumstances
