Yesterday we quoted an article in the Australian Financial Review which said the proposed cash for clunkers scheme would:
“[C]ut carbon dioxide emissions by 1 million tonnes and save $344 million in fuel costs in the next 10 years”.
We then wrote, “But when you compare it to Australia’s total CO2 emissions as of 2007 of 374 million tonnes, the amount saved isn’t even a drop in the ocean. In fact it’s a paltry one quarter of one per cent.”
Of course our error was that we didn’t divide the supposed CO2 savings over the ten year period. So as a proportion of Australia’s total annual CO2 emissions, the dopey cash for clunkers scheme will actually reduce CO2 by even less than we claimed.
It will be a miniscule one-tenth of one quarter of one percent each year. Or to put it another way, 0.025%.
Not only that, but according to Michael Green at The Age:
“EcoBoost-Hybrid – wow! That sounds green, right? But it neglected to mention those other – ahem – icons of fuel efficiency, the Toyota Prado 4WD, or the Hilux 4X4 ute, which are also eligible. In fact, more than half of the 1800 new models sold in this country will qualify. Far from being an ambitious target, a greenhouse rating of six equates to the average performance of the entire Australian fleet, as it stands.”
We can imagine it now, “Save the planet, buy a 4-wheel drive truck!”
Furthermore, Green confirms our thoughts that buyers of new cars tend to drive their cars more, hence cancelling out supposed ‘green savings’:
“There’s some research to suggest that scrappage schemes increase greenhouse gas emissions overall. A Dutch study, published in the journal Transportation Research in 2000, concluded that “reducing the age of the current car fleet may result in an increase of life-cycle carbon dioxide emissions”.
As your editor mentioned yesterday, from personal experience we increased our driving distance nearly ten-fold once we replaced our clunker with a shiny new car.
But anyway, onto today…
The mainstream financial journos and economists have gone jargon crazy over the past week.
All in anticipation of the latest consumer price index (CPI) number.
But they aren’t content with just saying what they think the CPI number will be. They have to tell you what it will “print”.
We have to say that it’s an even more annoying bit of jargon than the urge for financial commentators to insist on rate “hikes” rather than rate increases.
To be honest, we’ve got no idea what “print” means or where it comes from in relation to the CPI. But they’re all at it. They’re printing faster than a central bank can print money…
“There would prima facie be some downside risk to our forecast for headline CPI to print at +1.1 per cent [for the June quarter],” – Michael Turner, RBC Capital Markets
“The highlight of the week will no doubt be the eagerly awaited CPI print on Wednesday… the CPI print would be key in determining whether they looked to raise rates by 25 basis points in August.” – Ben Potter, IG Markets
“I think that offers a pretext to duck an unusually high inflation print next week” – Ray Attrill, 4Cast Capital Markets
“It maybe will take three CPI prints to get there, though.” – Stephen Roberts, Nomura Australia
“We believe an elevated print on the upcoming second quarter CPI on both the headline and core measures will be enough to trigger another rate move” – Helen Kevans, JPMorgan
In the same article, David de Garis from National Australia Bank was guilty of cliché abuse when he spoke of a “rate hike”. But back to the prints…
“That’s because Stevens has signalled he will be unflinching in jacking up rates again if underlying inflation comes in at above 3 per cent in next week’s CPI print.” – Rob Burgess, Business Spectator
But Bill Evans at Westpac wins the gold medal for Financial Clichés by using “print” seven times in one article for Business Spectator:
“It now appears likely that a 0.7 per cent quarterly print for core inflation would see policy unchanged at the August meeting… we think that a print of 0.8 per cent quarterly on underlying inflation…”
Including three times in one sentence: “If this forecast prints on the day then the annual increase in the trimmed mean will print 3 per cent – the same print as the annual rate to the March quarter.”
He rounds off with, “Despite 10 of the last 12 prints of the trimmed mean being 0.8 per cent for the quarter or higher… the possibility that the trimmed mean could print ‘only’ 0.8 per cent quarterly”
Lovely.
In case you’ve missed it, the Australian Bureau of Statistics (ABS) will announce (print) the latest quarterly CPI number (print) at 11.30am today – about the same time you receive (print) this letter.
What will the CPI number be? We’ve got no idea.
The so-called experts however, have busied themselves by not just predicting the CPI but they’ve decided to put their money on a Double by predicting what the Reserve Bank of Australia will do with interest rates next week.
But whatever the number is, the universal message from the mainstream commentators is that they’re happy with price inflation running at around the 3% level.
Remember, in Mainstreamland, rising prices good, falling prices bad. Only in the world of mainstream economists and mainstream financial commentators is it a good thing to pay higher prices for goods.
But more to the point, what we’d like to know is what are these pointy-headed economists going to do about it?
Don’t forget that the rise in prices is a direct result of the monetary inflation wrought by governments and central banks over the last eighteen months.
You’ll recall that at the time when financial markets and economies were crumbling, the universal phrase was that you shouldn’t worry about inflation. It was more important that the economy was saved – by any means necessary.
There were those that claimed inflation was dead. Some – as we recall – seemed to think it was dead forever, never to return.
Others said that inflation wasn’t a problem because there was an Output Gap. If you’re not sure what that is, it’s a completely discredited economic theory that claims inflation isn’t possible as long as actual GDP is below potential GDP.
Oh yeah, then why is inflation currently running at 3%?
We won’t go into the full details here, but you can read our debunking of the hare-brained theory here and here.
So, they thought, because there was an Output Gap, inflation wasn’t something to be concerned about.
Finally there was the argument that, well yes inflation could be a problem, but that’s something for the future. Worry about it then…
We don’t want to sound too melodramatic, but the future is here. Now it’s time for the smart guys to put their anti-inflationary plan into action. So far we’re completely underwhelmed by their response.
It seems they’ve decided that interest rates are the way to go. Well really, how ingenious. We never would have suspected.
Of course it might have been nice if they’d mentioned that a bit more while they were telling everyone to spend every dollar they owned.
What about other plans? It seems their other hope is that the unemployment rate doesn’t fall any further! That’s a bizarre one.
We’ve seen and heard several references to how the Australian unemployment rate is so low it’s creating inflationary pressures. That any unemployment rate below 5% is considered to be full employment and therefore inflationary.
I don’t know about you, but surely full employment is where everyone who wants to work can work. Surely full employment is something to strive for, not to fear. Anyway, full employment most certainly isn’t the situation now.
Just ask the 341,602 Australians that are receiving the Newstart allowance as reported by Ben Schneiders in The Age at the weekend. Although a word of warning, keep the sound down on your computer because a video of Michael Pascoe babbling on automatically starts when you load up the page.
According to the article, the number of people claiming the Newstart allowance of up to $462.80 per fortnight for a single person, has increased by 36% since November 2008.
Yet according to the financial boffins, these 341,602 people are already employed… theoretically anyway, because we are at full employment. Apparently the Treasury considers it a “long standing practice” to effectively count these people as employed when they’re not.
That’s nice of them.
So because the Australian economy is hitting on a couple of theoretical numbers – CPI at 3% and unemployment near 5% – the financial manipulators are ready to meddle again, banking on the RBA increasing interest rates.
An increase that will obviously lead to higher costs to businesses and individuals and potentially lead to higher unemployment, or greater financial hardship.
Yes, that’s right, here’s the financial consequences of the borrow-and-spend it mania. Supposedly smart men and women armed with crazy economic theories such as the Output Gap, encouraging financial novices to spend and borrow like crazy and not to worry about the consequences.
Now the same pointy-headed economists see fit to apply more of their theories, only this time they’re spreading bad news. All that money you borrowed from the bank and then spent? Well, it’s got to be repaid, and if you can’t afford to repay it they’re going to need to charge you more.
Look, as we’ve pointed out before, interest rates were manipulated to artificially low levels. Levels which they never should have gone.
All the while the central bankers and their buddies at the banks spun the line that it was crucial to save the economy. Now the central banks and their banker pals are manipulating the interest rates higher.
Not because they necessarily want to, but because they have to. They have to because higher interest rates are a direct consequence of their previous low interest rate policies.
Not that they’ll admit that. You’ll just hear the rubbish about interest rates returning to “normal” levels.
Free market economists and thinkers get plenty of flak from the mainstream for being heartless and not thinking about others. As is usually the case, the opposite is true.
Supporters of free markets oppose government intervention and central bank manipulation because we know exactly what the consequences of those actions are.
One of those consequences are 341,602 unemployed who the Keynesian economists ignore because statistically there is full employment.
And soon enough, the ranks are likely to swell as their economic plans “work” causing even higher interest rates, higher inflation, and higher unemployment.
Cheers.
Kris Sayce
For Money Morning Australia
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