AUSTRALIAN businesses are flatly rejecting pleas from the Reserve Bank to continue spending in the face of economic downturn, with many saying they'll have to "pull in their horns" to survive.

On Wednesday in Melbourne the Bank's Governor Glenn Stevens pleaded with businesses, markets and commentators to look beyond what he called "the gloomy talk that's around" and focus on the long-term.

But

Our Treasurer can't say the 'D' word. It's getting tiresome.

Michelle Grattan, Tim Colebatch weigh in this morning.

TREASURER Wayne Swan says he has no plans to borrow in order to invest, despite an assurance from the Reserve Bank that it would be okay to do so.

The Bank's comments came in a speech to a Melbourne business audience Wednesday in which the Governor Glenn Stevens said it would be

I don't think so. As for the Minister...

SUPERANNUATION Minister Nick Sherry says he is unable to say whether the current compulsory contribution of 9% of salary is enough to enable Australians to retire in comfort.

"This is a very complex set of issues," he told the National Press Club.

"We specifically ruled out increasing the 9% employer contribution during the term of this Parliament.

New Motor Vehicle Sales, just released by the ABS:

Surely not. A global free-trade agreement within 7 weeks after 7 years of failure.

That's the task that world leaders including Kevin Rudd have set themselves, and in Washington after the G-20 meeting Mr Rudd seemed to think it actually could happen. in the remaining weeks of this year.

"This is a tough objective, but one which we have to rise to the occasion to meet," he told reporters.

"The

Right now Japan accounts for 22% of our earnings from merchandise exports. China is about 15%

Australia's biggest customer has slipped into recession.

Japan joins Germany and Italy as officially in recession, with the United States expected to follow despite co-ordinated action to boost developed economies.

The news will hit Australia especially hard as Japan as Japan provides $1 in every $5

So says Adam Carr at ICAP Securities -

"Key points:

. Australia typically has not had a recession unless we’ve had to deal with a housing inventory overhang (such as in the US currently) or a business investment glut. We’ve had neither.

. There is a structural housing underbuild and most business investment is geared toward mining. Resource sector gearing is low.

. In past recessions, policy

Perhaps because we're afraid of the Senate

THE government has cast doubt on the effectiveness of the guarantee that it proposes to offer banks undertaking overseas borrowing with the Finance Minister conceding that it would be unable to deliver on it without introducing special legislation.

The government plans to introduce no legislation prior to offering the guarantee to banks later this

How stupid
Stephen Grenville from the Lowy Institute on the East Asia Forum blog: 

Just what is World Bank President Robert Zoellick up to? 

He attended the G20 meeting in Brazil over the weekend, only to argue that this is the wrong grouping and should be replaced by a more exclusive gathering. To say the least, this is an unhelpful intervention, not just for Australia (which would be excluded

From last night's 7.30 Report

Silly silly silly. Wasn't this government going to level with the Australian people?

PRESENTER: Let me hear in plain English, that the Budget is within a hair's breadth of going into deficit. It seems silly to me that anybody would bother to argue that proposition. Will you accept going into deficit, if you have to, to maintain appropriate stimulus of the economy

Then we're set to get another

TREASURY Secretary Ken Henry has declared that the government stands ready to introduce a second fiscal stimulus package if needed in order to avoid a recession while warning against the possibility of taking ourselves into one.

Defending himself and his department against attacks by Opposition frontbenchers, Ken Henry said its forecasts were produced "with no

Another truly great and engaging speech:

Ken Henry, National Press Club, Canberra 12 November 2008 

1. My working holiday

As people all around the world quickly learned – such is the reach of the electronic media these days – I spent July with my wife, Naomi, in the Epping Forest Scientific National Park in central Queensland, helping look after what may be the last 115 northern hairy nosed

The Prime Minister says so, and it's certainly needed.

Tip for Julie Bishop: This is the right way to describe employment forecasts. You can do it too.

THE Prime Minister has declared a "war on unemployment" as business confidence falls to its lowest level on record.

Telling parliament he would "not stand idely by" as unemployment climbed, Mr Rudd said creating jobs was his highest priority.

The Reserve Bank's Statement refers to conditions in October as "disorderly".

Here's why.

This graph records the average daily trading range:

Nobel Prize winner Gary Becker says there's almost nothing much good about a recession:

"Some older theories of business cycles-usually associated with the "Austrian" school of economics- claimed that recessions and depressions were useful in helping to remove the poison from an economy that builds up during good times. For example, weaker companies are the first to go when the demand for an

If you had $6.2 billion to throw at an industry sector  over the next 13 years, would you choose cars?

PRIME MINISTER'S PRESS RELEASE: A NEW CAR PLAN FOR A GREENER FUTURE

Prime Minister Kevin Rudd today announced a $6.2 billion plan to make the automotive industry more economically and environmentally sustainable by 2020.

The Green Car Plan will feature an expanded $1.3 billion Green Car

It'll probably do well today, even though it is doing badly. It was Keivn Rudd who said, "I don't want to be Prime Minister in a country where we don't make things anymore".

The Australian car industry will find out this morning whether it will get the $2.5 billion in extra assistance over 10 years recommended by the former Victorian Premier Steve Bracks.

The government's response to the

Nice line in the Sydney Morning Herald this morning:

" It's appropriate (and desirable) for budgets to fall into deficit when the economy is entering or leaving recession (or a serious downturn), whereas it's appropriate and desirable for the budget to move into surplus when the economy recovers from recession in the expansion phase of the business cycle.

Surprisingly, considering all

Sorry 

NEW forecasts from the International Monetary Fund predict a global recession next year with the economies of the US, Europe and Japan shrinking, and Australia's outlook worse than predicted by the Treasurer just four days ago.

"This will be tough, it will be hard, it will be difficult," said Prime Minister Rudd greeting the revised forecasts. "The bottom line is the global economy has

Scott Haslam at UBS on what's at stake:

"How bad will the growth slowdown be? The debate seems to be centred around the somewhat banal question of whether Australia is going to incur a technical recession over coming quarters or not.

But regardless of whether GDP shows zero, slightly positive or slightly negative growth – none, one or two quarters of negative growth – it’s going to feel weak,

A surprise jump in employment in October masked a hollowing out in Victoria and a rapid deterioration in NSW.

The Bureau of Statistics says an extra 34,300 Australians found work in the month, bringing the total gain in employment since June to 62,000 – more than predicted in Wednesday’s budget update.

Australia’s unemployment rate remained steady at 4.3% as it has for six of the last seven

Here's what happened.

Early yesterday journalists were invited to a 10.30 am press conference with the Treasurer in the Parliament House Blue Room “on the Mid-Year Economic and Fiscal Outlook”.

The blue-covered MYEFO document is about 5mm thick (although the main points could be summarised on a couple of pages).

We turned up to the Blue Room to find no copies of the MYEFO document, and then

Declaring that the global financial crisis had knocked a $40 billion hole in future budget surpluses the Treasurer Wayne Swan signalled that a swathe of government plans including infrastructure spending and grants to the states were up for review while promising to deliver pension reform as promised.

“There are a large number of areas which we are ambitious to proceed in, in which we will have

After earlier turning them off

In a welcome development the Bureau of Statistics announced that it would reinstate the full monthly retail trade survey which it downsized as a result of Budget cuts, citing “global developments” and heightened interest in the economy.

"Key macroeconomic statistics users had indicated that more robust monthly retail trade data are their top priority at this time

Out today. New employment forecast, new growth forecast (still positive) and capital gains and company tax revenue collapsing, gutting the surplus.

I should have details early afternoon.

The Reserve Bank is set to cut interest rates by a further 0.50 percentage points within weeks after its most aggressive series of cuts since the 1991 recession.

A surprise cut of 0.75 points – the third in three months – has brought the total cut in the cash rate since September to 2.00 percentage points, undoing almost five years of rate hikes.

If fully passed on the cuts would slash the

Here's what the Bank said:

"At its meeting today, the Board decided to reduce the cash rate by 75 basis points to 5.25 per cent, effective 5 November 2008.

World financial markets have remained turbulent over the past month. Global equity prices have been volatile and fell further in net terms, and there have been significant exchange rate movements, including a sharp depreciation of the

Guest post from Macquarie's Rory Robertson

**The financial and economic damage from the global credit crunch has been accumulating since the "music stopped" in money and credit markets in August 2007. For starters, equity markets in most countries have suffered falls of around 30-40% over 2008 so far, with many commodity prices, and property prices in many places, also having come under severe

We will know here, at 2.30pm AEDT

Australia's Reserve Bank will announce it's third successive interest rate cut minutes before the running of today's Melbourne Cup, with the betting being on whether the cut will be a cut of 0.50 percentage points or more.

A cut of 0.50 points if fully passed on would cut the standard variable mortgage rate to around 8%. A cut of 0.75 points would take it below

From a press conference a few moments ago:

"In the May Budget the Government forecast that 134,000 jobs would be lost in the next 12 months."

Er, Julie, in the May budget the Government forecast an increase in the number of jobs.

This is becoming concerning.

Jessica Irvine in the Sydney Morning Herald:

"It's the odds-on favourite for a Tuesday trifecta: an interest rate cut of half a percentage point at 2.30pm, Mad Rush to win the Melbourne Cup at 3pm and Barack Obama for US President.

But racegoers beware. Of the three bets, picking a Melbourne Cup winner has the longest odds.

"It certainly will be easier making money on interest rates than it

Diversions, let me count them: "Extreme capitalism", executive pay, "become a bank", more money for APRA, asking banks to buy funds' assets, appointing David Murray special agent...

Investors facing hardship have been thrown a lifeline as Prime Minister Kevin Rudd concedes it will be tough to avoid a recession.

The Securities and Investments Commission told mortgage funds late yesterday that,

So says the Productivity Commission in a new report. Hallelujah!

The summary is well worth reading.

Existing drought assistance measures would be swept away and no new areas drought declared under a radical new plan prepared for government that would replace drought assistance with a Centrelink payment set at the level of the dole.

The recommendation forms the centrepiece of a draft

If you’ve noticed Melbourne bread becoming more expensive, you’re not alone.

The Bureau of Statistics records the price of bread in each Australian city every three months in order to calculate the consumer price index.

It says that bread is now more expensive in Melbourne than in any other Australian city, including Darwin.

The price of a Melbourne sliced white loaf has climbed from $3.36 to

It's baaaack! In Australia

THE Australian economy is already going into reverse and could be officially in recession within months, according to alarming new assessments from leading forecasters.

In a dramatic shift of outlook, investment bank JP Morgan yesterday became the first major forecaster to say the economy will contract in this quarter and the next — satisfying one of the most common

Our Treasury is working 24/7

Deutsche Bank have just provided the following update:

"In a data flash published this morning we noted that the statement on the design and operational parameters of the deposit and wholesale funding guarantee had been removed from the Treasury's website. We speculated that there could be some amendments to the design of the guarantee. The design and operational

HT: Harry Clarke

The Reserve Bank is taking out its chequebook

The Australian dollar is fighting to stay above 60 US cents as the Reserve Bank and sellers do battle across three time zones.

The Reserve was late yesterday preparing to intervene strongly in both the US and UK markets in a bid to ensure that there were enough buyers to match sellers throughout the night.

It is only the Reserve Bank's second

History may not repeat, but it sometimes rhymes.

We might not be able to escape one, writes Professor Greg Mankiw in the weekend NYT:

"When Olivier Blanchard, the I.M.F.’s chief economist, was asked about the possibility of the world sinking into another Great Depression, he reassuringly replied that the chance was “nearly nil.” He added, “We’ve learned a few things in 80 years.”

Yes, we have.

I really like this piece by the Canberra Time's Jessica Wright:

"These are strange days and so it is fitting that one of the world's economic leaders, Wayne Swan, is starting his day with a bit of Springsteen.

And 'The Boss' is wailing loud.

It is 8am and the Treasurer's parliamentary office has been in full swing for hours. The Australian stockmarket is about to begin its wild gyrations for

It'll be an optional extra if your account is worth more than $1 million.

(I guess some will avoid it by simply splitting their bank deposits into a number of $1 million accounts.)

The Treasurer's announcement:

GOVERNMENT ANNOUNCES DETAILS OF DEPOSIT AND WHOLESALE FUNDING GUARANTEES

On 12 October 2008, the Rudd Government announced it will guarantee deposits in Australian owned banks,

An odd condition attached to approval of Westpac's takeover of St George is that Westpac will be required "to maintain all Westpac and St George retail banking brands including Bank SA".

For 3 years anyway. Apparently the appearance of competition matters.

As for the reality, the Treasurer came close in his press conference last night to saying that the takeover would be pro-competitive.

"The

Get it?

The Government may be on the ropes over its decision to guarantee bank deposits, but the Opposition is going over the top.

How’s this for an overegged claim?

“The government’s own actions have caused greater instability in the Australian financial markets than any event that has occurred overseas”.

That’s from the Opposition Treasury Spokesman Julie Bishop.

What about this from the

More details later.

The transcript of Ken Henry's grilling at the economics committee will be here in a day or two and will make great reading.

One highlight was Senator Bill Heffernan. He asks straightforward questions.

Hef: Has Australia ever been where we are going?

Henry: Excuse me Senator.

Hef: The position that we are in and the globe is in. Have we ever had to design what we are now

Mmmm...

Australian petrol prices have fallen by less than 14 cents a litre at a time when the international oil price has more than halved.

The figures, provided to The Age by Australia's petrol prices commissioner designate Joe Dimasi, suggest that Australian retailers and oil companies have been dramatically widening their margins - although the commissioner is not ready to jump to that

As today's Canberra Times puts it:

"Canberra has emphatically rejected Labor majority rule, stripping the party of two seats and turning its anger into a historic vote for the Greens.

The ACT Greens will have three seats in the next Assembly - one in each electorate. Labor is left with seven seats, equal with the Liberals. There is still a slight chance the Greens could pick up another seat at

Take a bow, Mr Rudd. Take a bow, Mr Swan. You are responsible for the extraordinary out-of-cycle rate cut by the ANZ bank, and in more ways than the ANZ cares to acknowledge.

On Sunday after crisis talks with officials the Prime Minister announced that the Government would act as a guarantor for the overseas borrowings of Australian banks and other deposit-taking institutions.

Although the

Tell us. Or maybe the truth is that no-one knows.

The Opposition and a growing body of economists are calling on the government to release the economic forecasts behind this week's $10.4 billion stimulus package as speculation swirls around what they might contain.

"This pacakge is bigger than we have ever seen before," said Professor Bob Gregory of the Australian National University. "That

Here's what he said at 6.30pm:

"Today I announced a $10.4 billion economic security strategy to help see Australia through the global financial crisis.

Many Australians have become concerned, anxious and even fearful as to the future.

The truth is that we are going through the worst financial crisis in our lifetime. I’ve described it as the economic equivalent of a national security crisis.

That's the mammoth size of the stimulus package just announced

ECONOMIC SECURITY STRATEGY

The Rudd Government today announced a $10.4 billion Economic Security Strategy to strengthen the Australian economy in the face of the worst global financial crisis since the Great Depression.

This $10.4 billion strategy will strengthen the national economy and support Australian households, given the

Stay tuned.

$5 billion plus, pensions as part of the mix.

A fierce critic of the Bush administration and a specialist in the kind of kind of financial crisis now gripping the globe has won the 2009 Nobel Prize in Economics.

Professor Paul Krugman of Princeton University has repeatedly attacked the Bush administration in his twice-weekly New York Times columns and extensively studied the so-called "liquidity trap" into which Japan fell for more than a

Had he gone ahead with his plan to legislate this week to guarantee only the first $20,000 of each bank deposit he could have sparked a run on the banks.

It's easy to see how.

When he said Friday the guarantee would protect up to 85% of depositors he was implicitly telling the other 15% they would be unprotected.

In order to get that protection a depositor with, say, $120,000 in an account

At Odd Numbers, Zubin Jelveh points out:

"It was little a little more than a year ago when the [spread between what the banks could get overnight with the Fed and what they then charged each other] blew open from its typical spread of 8 to 10 basis points to 100 basis points:

It was quite a dramatic jump which indicated that interbank lending was drying up, prompting the Fed and other

It's next Saturday, and it is likely to further change Australia's political landscape.

On The National Interest, midday Sunday on ABC Radio National Peter Mares interviews interviews both the present Chief Minister - Labor's John Stanhope and his opponent, the Liberal's Zed Seselja. They are good interviews which give a good introduction, which you might need, because you might have to vote (as

Another 100 points.

That's another complete percentage point. So says Macquarie's Rory Robertson:

"**Tuesday's 100bp cash-rate cut from 7% to 6% provided a win for pretty well everyone. Borrowers got a sizeable drop in borrowing rates (80bp off headline mortgage rates), lenders got additional support for their lending margins, and the RBA neatly side-stepped many of its critics by cutting rates

this weekend in fact

...is co-ordinated international action.

As Krugman puts it in today's column entitled Moment of Truth:

"Why do we need international cooperation? Because we have a globalized financial system."

Why this weekend? Because there happen to be two big meetings taking place in Washington: a meeting of top financial officials from the major advanced nations on Friday, then the

Literally. I mean it.

"Westpac Banking Corporation has reduced its standard variable home loan rate by 80 basis points to 8.56 per cent, passing on most of the Reserve Bank of Australia's (RBA) cut in the overnight cash rate.

Last month, Westpac passed on all of the RBA's 25 basis point rate cut that was announced on September 2, reducing its variable mortgage rate to 9.36 per cent."

Very well

Macquarie's Rory Robertson says "expect at least another 200"

Here's his note:

**My sense remains that overseeing a significant reduction in intermediary lending rates is fast becoming the Reserve Bank's policy priority. Today at 2.30pm, the RBA will cut its cash rate by 50bp (to 6.5%), if not more.

**With the US recession clearly deepening and global growth stalling under the weight of

Something to ponder this weekend

The answer is "yes". But until now we couldn't be sure.

We did know that in aggregate women get worse-paying jobs than men.

We also knew that where a woman and a man do a near-identical job, most of the time the woman gets paid less.

But until now it could have been argued that many of the men just happened to have been better workers than many of the women.

...in order punish 'Wall Street types'

David Leonhardt tells the following story in the NYT:

"In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.

A year later, as Wall Street’s problems

HT: Greg Mankiw

So says Tyler Cowen

And the worst case?

"The best case scenario: The bad banks continue to be bought up, there is no run on hedge funds next Tuesday, only mid-sized European banks fail, money market funds keep on buying commercial paper, and the Fed and Treasury continue to operate on a case-by-case basis. Since Congress doesn't have to vote for something called "a bailout," it can give Paulson

It is due out here at 11.30am eastern time (that's a few minutes ago)

Macquarie's Rory Robertson is taking up the case for synchronised global rate cuts.

He writes:

**It was observed here last week that despite growing global financial turmoil, "large cuts in policy rates by key central banks have remained conspicuously absent. ...in not cutting rates - the policy action most households and businesses most understand - in recent months, the Fed, the BOE, the ECB

And why it's good Australian politics as well

Commentator Michael S wrote

"Sorry Peter, but this is a terrible idea. I don't know how you could support it. All that will result is even higher house prices, and people requiring even more complicated financing arrangements (such as Rismark's equity finance mortgages - hmm ... who is associated with Rismark?) to buy places for living.

Anyone who