So, where do I get figures on Singapore refined petrol prices?
Crude oil has been falling, the exchange rate has stayed stable, but rising refining costs have driven up the retail price of petrol. If anyone knows where I can find the figures it would be much appreciated 😉
Following yesterday’s 100 basis point rate cut by the Reserve Bank of Australia, a statement was released that appeared to indicated that this could be the END of cuts by the RBA.
This surprised me, given that the RBNZ has stated that it is looking at cutting rates. At 3.5% our cash rate is only 25 basis points higher than the Aussie rate – implying that we might cut BELOW our neighbours, which would be very unusual. Why?
An excellent article by Stephen Kirchner of Institutional Economics on why the paradox of thrift has to be taken in context.
Key quote for me:
But recessions are not made worse via increased saving, so long as the financial system continues to put that saving to work
As long as the financial system is working (eg credit constraints are not firing up) then there is little need for rising savings to be met with rising government spending. Even in the case where there are financial issues, government intervention should focus on the market failure – rather than arbitrary fiscal spending.
One thing I would note is that there is also a role for confidence here which has been missed – if consumers and businesses lose confidence savings increases and demand for investment falls. If this decline is sufficient, and if interest rates are bounded at zero (or are interest rates, or the price of investments are too sticky) there can then be a role for increases “public investment”.
However, the appropriate role of government in the current crisis needs to be identified and defined (and quickly) before policy is determined. Doing something for the sake of doing something is nonsense – and such policy is often defended by the term “the paradox of thrift”.
The Reserve Bank of Australia cut 100 basis points last night taking the cash rate to 4.25% – well into easing territory.
A feeling that global commodity prices were in for a sustained lower period was a driving force behind this stimulus. Surprisingly the Reserve Bank of Australia did not mention to enormous decline in fuel prices – however, there suggestion that the terms of trade would fall markedly implicitly suggests that the decline in petrol prices will be dominated by other factors.
What does this mean for New Zealand – a rule of thumb stemming from cuts so far (Aussie cut + 25) would suggest 125bp. 100 is still conceivable, as is 150. My pick of 75 now seems incredibly unlikely. Note, further discussion of the decision occurs in the comments of this post 🙂
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Apparently the Aussies are blaming Fonterra’s Global Dairytrade online auction platform for lowering the price of milk.
Interesting. If the auction is simply reflecting the true value of milk then the I feel no sympathy. This quote from the manager of the auction system sums up it’s purpose
Fonterra’s global trade managing director Kelvin Wickham said the auction was all about “the international market getting a transparent price” and all global dairytrade was doing was “making it more transparent more quickly”.
As an economist that is music to my ears. On the other hand here’s the quote from the Aussies
“Given things are bleak with the economic outlook, people are holding back on purchasing to see what happens with the auction,” Ms Bills said.
“Mostly, the price doesn’t recover. It is fine to want to have a transparent price system, but why not open at the closing price? If you put a price out there for something in an auction, people see it as a reserve.
“Buyers are waiting to see the price from the auction before they make their purchase.”
So basically they want the auction setup so that it props up the price of milk, can’t say I really have much sympathy for that view….
Following today’s terrible house price figures (I don’t have to see them to know they would be bad 😛 ) I thought it would be appropriate to go back to the comparison of NZ (and Aussie) to the US – at least for housing.
Greg Mankiw links to an article in the Wall Street Journal. Read this:
When Australians borrow money to buy a house, they know that if they default and the mortgaged property doesn’t cover the debt, they will be responsible for the shortfall. And the lender will chase them for it. It’s a neat way of reminding Australians to borrow responsibly.
In America, where populist post-Depression laws in many states have mandated loans be nonrecourse, the opposite is true. Americans can take out a mortgage more or less as a one-way bet. If you can’t afford the repayments and can’t refinance, you just send the keys back to the bank. Borrowers wipe their hands of liability.
Surely hearing how moronic lending practices are in the US makes us all feel better about the relative outlook for our banking and housing sectors. Although I bet to spite me that a major Aussie bank has gone bankrupt while I’ve been out of the country 😉 (again this was written on Sunday Nov 2)