As readers of this blog will know, I am not a great fan of the actions of the RBA (Reserve Bank of Australia) or the current government when it comes to dealing with the events of this year. First of all we had the RBA raise rates too far (as I mentioned earlier this year) and then we had Rudd and Swan talking down the economy, then talking it up and now they are talking it down sort of, while about to pump money into it to stop growth from slowing.
Remember that these are the same chaps who were all about fighting inflation and cooling growth earlier in the year, (remember that deflationary budget!) and now they have realised they were way off the mark and should have been focused on maintaining growth in the face of a global slowdown.
So since the RBA and the government seem to have no idea what to do, I suggest we outsource their jobs to a Hobbit, who we shall send out into the world to find a Wizard to help us through trouble times. If we had done that earlier this year I suspect the discussion between the Hobbit and the Wizard would have gone something like this:
Hobbit “Oh wise Wizard, I have been sent here to find out how Australia should deal with the economy in 2008.”
Wizard “Well let’s see, at the moment the Australian economy is growing so that is a good thing. But there are serious problems in the U.S and Europe looks to be slowing. Would you say Hobbit that a slowing economy in the U.S and Europe would have a positive or negative impact on growth in Asia?”
Hobbit “A negative impact?”
Wizard “Correct little Hobbit. And in addition to the U.S and Europe, where are many of Australia’s major trading partners located?”
Hobbit “In Asia.”
Wizard “Correct. So Australia will see all it’s major trading partners enter a period of declining economic activity, and so do you feel there will be a greater demand for our commodities and other exports or less?”
Hobbit “Less of course.”
Wizard “Correct again. Then you know what they must do in Australia. Maintain growth, keep interest rates as low as possible and brace for a downturn in export demand.”
The Hobbit would then pass on his gratitude to the Wizard, have a quick snack and head back to Australia to deliver the Wizard’s advice. Back in Australia the government and RBA would listen to what the Hobbit conveyed from the Wizard and would set about maintaining growth and not doing anything silly like talk down the economy (which would undermine consumer and business confidence) or raise interest rates.
Oh..if it was only that simple….