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Finger poised above rates button

THE Reserve Bank of Australian has chosen to leave interest rates as they are. Foreign exchange traders immediately sold the Australian dollar below US53 cents, demonstrating that they have the attention span of labrador puppies.

The great and good Ian Macfarlane has many weighty matters to ponder before he pulls the lever to lift the cost of money off its 29-year lows. He needs to decide if our bouncy economy is creating too much money chasing too few goods and services, and how soon this needs to be reined in. Higher interest rates work best on curbing demand-pull inflation, like runaway consumer spending and a housing boom. They hardly work at all on cost-push inflation, like rising prices for petrol, and health and other insurance premiums.

The latest imponderable is the oil price jump through $US27 a barrel. On one hand that is inflationary, on the other, it threatens to crimp the nascent global recovery that has been putting mild upward pressure on interest rates.

Asia depends on the Middle East for nearly 75 per cent of its oil. Prices sustained at current levels, or worse, a supply embargo, would have a grave effect on all Asian countries, save Indonesia and Malaysia, which are energy producers. The hike in Australian interest rates has merely been postponed, but when it comes, it will be modest.

The RBA will need to sniff the March-quarter inflation figures due out on April 27 before considering a move.

The February trade deficit of $604 million was driven by a nasty jump in consumer imports as retailers restocked their shelves for the shop-’til-you-drop brigade. But there were some good imports – a bit like good cholesterol. Capital goods are growing at an annualised 15 per cent. This represents machinery and equipment needed for the coming big jump in business investment.

A precipitate move to sharply tighten money, just because our economy is growing at 4 per cent plus, would dent confidence and scupper good news on job creation.



Japanese urged to work hard on procreation

A RECENT headline in the Financial Times trumpeted the fact that Japan now has a lower credit rating than Botswana. Prime minister Junichiro Koizumi is clearly running out of policy options. His latest wheeze is exhorting Japanese workers to have more babies.

It seems Koizumi was shocked at the results of a Lifestyle White Paper commissioned by his office, which found that 40 per cent of young men, and 52 per cent of women, were not interested in getting married, still less in having kids. The birthrate in Japan has sagged to 1.35 a couple. The population is expected to peak at 127 million in 2005, and nearly 18 per cent are 65 or older, signalling a demographic disaster. Unless young people get cracking soon, health insurance and pension schemes for all these grey heads will be near collapse.

The crux of the problem is well known. A Tokyo white-collar worker is expected to put in 14-hour days, followed by lengthy drinking sessions with his superiors. After a long commute home, he is too bent out of shape to respond to Koizumi’s rallying call – even if he had a wife or girlfriend waiting for him. The percentage of full-time housewives has dropped from 37 per cent in the dimly remembered boom of the 1980s to 26 per cent. Money has won out over matrimony.

The government wants the Japanese to work less. It is getting that right. Industrial production dived 8 per cent last year. Unemployment is 5.6 per cent and climbing. Those who have ample time to procreate cannot afford to.

When George W Bush visited a few weeks ago, he absurdly hailed Koizumi as a “great reformer” – an endorsement that gave him another excuse for almost total inertia.

The only thing the government has done could get us locked up in Australia. It banned short selling of shares on the Tokyo exchange and then vigorously manipulated the market upward using public sector pension funds.

This provided a temporary band-aid for the stricken banking system, which has a significant proportion of its dwindling assets in stocks. As for rigorous measures to tackle the $640 billion in bad bank loans – still too hard.

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