Treasurer Jim Chalmers wants you to be worried about the world, presumably because he hopes it will distract Australians from a new and serious problem at home: inflation.<\/p>\n
Dr Chalmers on Wednesday revealed that one of his daily routines is to check international commodity and currency prices. Recently, gold caught his attention as it emerged as the world\u2019s hottest investment.<\/p>\n
The precious metal, which has little practical use beyond jewellery, is one of history\u2019s great speculative assets, sensitive to perceptions about the stability of the world.<\/p>\n
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By continuing you agree to our Terms<\/a> and Privacy Policy<\/a>.<\/p>\n \u201cWe watch this with interest because,\u201d Dr Chalmers told a business group in Canberra, \u201chistorically spikes in the price of gold have been a symptom of a big event or more substantial global economic shock.\u201d<\/p>\n After recalling several international financial crises, Dr Chalmers said international counterparts he met on a recent trip overseas are worried an economic crisis might be coming \u2014 and the gold price is a warning.<\/p>\n \u201cWhat came through clearly in almost every conversation was that risks to the global economic outlook are accumulating \u2014 from every angle, all at once,\u201d he said. \u201dInvestors are cautious. Capital is jumpy. And uncertainty is more persistent. This volatility has been normalised but not neutralised.\u201d<\/p>\n Statement of the obvious<\/p>\n Dr Chalmers may have sounded profound, informed and thoughtful. But his assertions were statements of the obvious mixed with selected facts. Threats to economic growth never end. Investors are always cautions. Capital never stops moving.<\/p>\n Despite challenges, the world is in a bull market. US shares have doubled in five years. Share volatility is down. Global inflation is slowing. International trade is expanding. Despite queues outside a gold-bullion store in Sydney\u2019s Martin Place, investors are optimistic.<\/p>\n Two weeks ago, the International Monetary Fund upgraded its global growth forecasts in a report prepared for a meeting of finance ministers in Washington, including Dr Chalmers.<\/p>\n The Treasurer\u2019s warnings aren\u2019t new. What was striking was the chutzpah. As Wednesday\u2019s inflation figures for the three months ending September 30 demonstrated, the primary economic threat to Australia is domestic, not external.<\/p>\n On an annual basis inflation accelerated from 2.1 per cent to 3.2 per cent, a 52 per cent jump in three months. What looks like an inflation breakout could have serious consequences.<\/p>\n Rate rises?<\/p>\n The first and most obvious is the interest rate cut on November 4 widely anticipated a few months ago is now extremely unlikely. That cut would have saved the average property owner $1700 a year.<\/p>\n Some economists say cuts are unlikely for the foreseeable future, including those at the Commonwealth Bank of Australia. A few even predict the Reserve Bank of Australia will raise interest rates next year to stamp out inflation, a problem Governor Michele Bullock has to fix to protect her professional credibility.<\/p>\n As recently as Monday evening she expressed certainty that the central bank\u2019s three-year campaign to bring inflation under control had succeeded. \u201cI\u2019m really happy with the way that we have managed to get inflation under control,\u201d she told economists in Sydney.<\/p>\n Without advance access to statistics\u2019 bureau data, Ms Bullock did not know that inflation was far from under control.<\/p>\n The central bank\u2019s work has been made harder by Dr Chalmers\u2019 budget deficits. With deficits of $152 billion over the next four years, the government\u2019s spending \u2014 including corporate bail outs, energy subsidies and student loan forgiveness \u2014 has driven demand across the economy. The result is government-made, upward pressure on inflation.<\/p>\n \u201cHad government spent less, then interest rates would already be lower,\u201d independent economist Chris Richardson said earlier this year.<\/p>\n In Parliament on Thursday, Dr Chalmers\u2019 Liberal counterpart, Ted O\u2019Brien, said government spending was at a 40-year high outside of any recessions. Accelerating inflation is now called the \u201cJimflation Effect\u201d, Mr O\u2019Brien said in question time.<\/p>\n Claiming credit<\/p>\n Inverting reality, Dr Chalmers claims credit for the rate cuts in February, May and August. \u201cThe progress we\u2019ve made on inflation has given the bank the confidence to cut rates three times this year,\u201d he said yesterday.<\/p>\n Politically, Dr Chalmers has avoided the consequences of poor policy by projecting an aura of calm competence amid a turbulent world. If the inflation breakout persists, and the Reserve Bank starts increasing interest rates, the popular mood could shift aggressively against him.<\/p>\n Apart from the thousands they will cost regular families every year (while benefitting wealthy, debt-free retirees), rate rises would likely hit the property market, which is highly sensitive to the cost of money.<\/p>\n In a country where the average capital city house is worth $1,236,776, Australians are now be able to buy their first home with a 5 per cent deposit under Labor government subsidies.<\/p>\n Given the high cost of stamp duty in most States, even a small drop in house prices could leave owners with more debt than their properties are worth. Negative equity \u2014 every homeowners\u2019 nightmare \u2014 could sour the public mood about the economy.<\/p>\n It might also force Dr Chalmers to stop telling scary stories about a world that is in reasonably good shape and help the Reserve Bank lower inflation, rather than the opposite.<\/p>\n","protected":false},"excerpt":{"rendered":"Treasurer Jim Chalmers wants you to be worried about the world, presumably because he hopes it will distract…\n","protected":false},"author":2,"featured_media":254615,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164,1721],"class_list":["post-254614","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy","tag-opinion"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/254614","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=254614"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/254614\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/254615"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=254614"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=254614"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=254614"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}