How Your Superannuation is at the Mercy of the Government

The Reserve Bank of Australia is worried about getting caught financing a house price bubble. It’s shifted the policy stance on interest rates to ‘neutral’. That supposedly reduces the chances of further rate cuts in the foreseeable future.

The future isn’t foreseeable of course. So the central bankers just mistake the past for the future. Inflation and other economic indicators rose recently, reducing the need for future interest rate cuts. (Most people consider inflation to be a bad thing, but if you’re a central banker, it’s your job to create it.)

Foreseeing a different future from the same past, Joe Hockey didn’t appreciate the RBA’s policy change: ‘The central bank has been informed directly of Treasurer Joe Hockey’s displeasure’, reports the Australian Financial Review.

The Treasury is worried about the Australian dollar, which is surging lately. That squeezes exporter’s profits, which kills jobs, which kills votes. (The fact that importers make more money and hire more people is never mentioned.)

The solution to both a high Aussie dollar and absurd house prices is of course a recession. But you’d be burned at the stake for saying it. By the way, we’ve discovered an early warning signal for when a housing bubble-triggered recession will hit Australia in The Money for Life Letter. More on that next week.

Any recession would sink the Aussie dollar. But we doubt it was what Treasurer Joe Hockey had in mind. It’s funny how a strong currency used to be seen as a good thing. Everyone complained about how high the Deutschmark was and envied the Germans for it. Now economics says a high currency is a bad thing.

So what’s changed? Perhaps it has something to do with the relative importance of jobs and consumption. In the end, human action as far as economics is concerned is about consumption. You wake up and go to work to put food on the table. You save and invest so that you can consume in the future.

Read the rest of this article at The Daily Reckoning