False Profits: Confusion At RBA And Treasury

8 Mar

March 2, 2012:

RESERVE Bank of Australia board member John Edwards today said the country’s mining boom will burn bright for the next decade, but will then slow to more average rates of growth.

A decade, you say?

February 23, 2010:

[RBA Deputy Governor] Mr Battellino was uncertain about how long the current boom would last, but said past booms had lasted around 15 years.

“On this occasion, the growth potential of countries such as China and India suggests that the expansion in resource demand could continue for an extended period…

15 years, you say?

February 17, 2010:

I am quite optimistic that story has some decades to run and that underlies much of the positives for the Australian economy,” [RBA Assistant Governor Phillip] Lowe told an economic development forum in Sydney.

“It is going to be a good 20 years for China and us,” he said.

20 years, you say?

Well, what sayeth our Treasury department, the massively overpaid public servants that teach their trained parrot, pollie Wayne Swan how to repeat his daily lines?

October 23, 2009:

[Now former] TREASURY chief Ken Henry has outlined a golden age for the Australian economy lasting to 2050 and beyond, as rapid population growth and Asian demand for resources bring a sustained surge of global investment.

“While the global financial crisis has taken some of the heat out of our export prices, we should get used to the idea that we could have structurally higher terms of trade for some time, possibly for several decades,” he said.

In a speech at the Brisbane University of Technology, Henry said Australia’s population will grow as the mining boom, fuelled by demand from China and India, will continue to bring in immigrant workers. Handled correctly, he said, this could provide a “period of unprecedented prosperity”.

Henry pointed to growth in several Asian countries, which he said will give a boost to the mining boom that will see it last for several more decades into 2050.

40 years, you say?

What sayeth the new Treasury secretary, Martin “Mini-me” Parkinson?

June 3, 2011:

New Treasury secretary Martin Parkinson says only revolutions or mass war across the globe will stop the mining boom.

Under questioning from WA Liberal Mathias Cormann about Budget forecasts for the terms of trade, Dr Parkinson said the Federal Treasury was being “conservative” in its assumptions of a gradual fall over the next 15 to 20 years.

The Treasury boss conceded the department had erred in not accurately predicting the pick-up in commodity prices from 2003. But the department was now convinced that a transformation was occurring that would benefit Australia in the long term.

Only a major global event could prevent prices remaining high.

Good call Martin. Had a look at the RBA’s Chart Pack, showing the +30% fall in commodity prices that began just 3 months after your “conservative” prediction?:

So, which one is it, O High and Mighty Ones?

40 years?

20 years?

15 years?

10 years?

Until there are “revolutions or a mass war across the globe”?

Or, have the benefits of the boom peaked and begun to fall already … and you have all missed it, again, in exactly the same way that you missed the pick up in commodity prices from 2003?

November 10, 2011:

THE benefits of the mining boom have peaked, with the industry no longer boosting growth or improving the lot of Australians, a new study says.

Prepared by former Reserve Bank board member Bob Gregory and Peter Sheehan, a former head of the Victorian Treasury, the report calls on the government to abandon its promise of a budget surplus next year and calls on the bank to cut interest rates several more times.

During its first eight years, the mining boom delivered increasing net benefits, the Victoria University study said.

The rise in the exchange rate lifted household buying power 18 per cent as the price of imported goods fell.

But the dollar had since stopped rising, removing the downward pressure on prices.

[TBI: this remains true; the AUD:USD x-rate rate has not returned to the $1.10 level reached in late July 2011]

During the first five years, mining share gains pushed up real estate prices and lifted household wealth at three times the usual rate. But share prices were now well down, house prices were falling and many of the big new mining projects are completely foreign owned. Always present, the negative impacts are now dominating. Professor Sheehan told The Age neither Treasury nor the Reserve Bank should be blamed for missing the slowdown at the time of the May budget. But circumstances had changed.

#JAFA’s.

What more can one say?

P.S. If you found this blog interesting, you may also enjoy these:

Why Would Any Sane Person Believe Treasury’s Carbon Tax Modelling When Its Budget Forecasting Record Is This Bad?

The Pricing Carbon Choir – Why Should *Any* Sane Person Trust Economists After The GFC?

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4 Responses to “False Profits: Confusion At RBA And Treasury”

  1. Richo March 8, 2012 at 10:07 am #

    On a related note, there is an article in the Aus today

    http://www.theaustralian.com.au/national-affairs/opinion/company-tax-slump-threatens-surplus-plan/story-e6frgd0x-1226292583552

    IF company tax receipts perform as poorly in the June half year as they did in the December half, the government will face a deficit this year approaching $50 billion.
    It would be beyond the reach of the creative accounting evident in last November’s budget update to turn this into a 2012-13 surplus.
    .

    Err.. Swannie we have a problem.

  2. anon March 8, 2012 at 12:03 pm #

    The Afghanistan, Iraq and Libyan Wars were all started on or a couple of days after Purim (Jewish Holiday).

    Since Purim 2012 is now (March 7) should we be expecting ‘a major global event’?

    • Kevin Moore March 10, 2012 at 12:45 pm #

      Fast of Esther – Mar 7, 2012
      Adar 13 – A day of fasting in remembrance of the fast of Queen Esther prior to her attempt to save the Jewish people of ancient Persia.

      Purim – Mar 8, 2012
      Adar 14 – Purim commemorates the annulment of the decree against the Jewish people in ancient Persia (Late 6th century B.C.E.).

  3. Gowest March 10, 2012 at 8:09 pm #

    The surplus is doomed if the companies being carbon taxed refuse to pay and go to court until the Lib/Nats get in.

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