Why Politicians Shouldn’t Meddle with the Economy

Why Politicians Shouldn’t Meddle with the Economy

Scaremongering. Instilling fear. Making up crap that will never happen.

That’s just some of the feedback I’ve received over the years, when I’ve shared my opinion on the economy.

I wasn’t out to scare people at all.

It’s just that I repeatedly pointed out the economic blind spot.

And now, it looks like everything is playing out just as I said it would…

Wasn’t everything fine?

Check out this headline on the front of The Age today…

Source: The Age

But I thought everything was fine?

That’s what we were told four months ago.

Back when the federal election was in full swing. Prime Minister Scott Morrison proudly told us that Australia had a ‘strong economy’.

What changed in four months?

Well, nothing.

The Aussie economy was shaky then. They were just hoping you wouldn’t notice.

Such positive-sounding statements from our leader mixed with doomy headlines are confusing for investors.

And for almost two years, every statement from the Reserve Bank of Australia has backed up this view that everything is fine.

For too long, the central bank has reassured us that the Aussie economy is gradually progressing.

Unemployment is fine, inflation is fine, growth is fine.

In that time, the RBA has done nothing but reassure you the economy is just fine.

Every single month.

I’ll be honest. I don’t know how the RBA gets away with being so misleading.

I mean, if that were me, I’d have ASIC knocking on my door, asking me to have a chat in a very small room, with lots of lawyers present.

Not only that, but where is the accountability from the mainstream press?

There are some very smart economic journalists out there.

Why aren’t they pushing back on the rhetoric? Why aren’t they digging through the numbers? Why aren’t they asking how and why the RBA continues to pump out fairy tales on the Australian economy?

These papers — once trusted sources of information — do nothing but argue in favour of the central bank, rather than criticise its short-sighted policy.

I guess when you’re the central bank, you can tell the people whatever you want them to hear.

And then the mainstream will repackage it into simpler words.

Whether it’s true or not doesn’t matter.

Somehow, Aussies went into the federal election believing the Aussie economy is ‘strong’.

Less than two weeks after that election, the RBA cut interest rates.

Then it did the same thing again a month later.

Cutting rates isn’t a sign that everything’s okay…

In fact, lower rates mean rough times ahead.

It’s not a recession…yet

Here we are.

Lumped with a never-before-seen cash rate of 1%.

After a long period of blindness from the mainstream press — and the RBA’s refusal to admit that the data is BS — what are investors meant to do?

Over the next couple of months, prepare yourself.

No, I’m not joking.

When I say ‘prepare yourself’, I mean assess your investments, any shares you own, and any cash you have in the bank.

Yesterday, the Aussie market tumbled 2.80% on global wobbles.

And those global market headlines are dominating our share market moves this week.

But the headline from The Age should tell you something.

The fact that Australia’s Treasurer has flagged a plan to ‘dodge a downturn’ says the economy is in for a tough time.

Back-to-back rate cuts look like a desperate attempt to avoid an Australian recession.

However, as I wrote only two months ago, those consecutive rate cuts are likely to bring a recession to Australia even quicker.

The RBA has been dishing up economic fairy tales for a couple of years now.

The Aussie government has then backed it up by declaring we have a strong economy.

But perhaps a recession is no longer avoidable.

And the Australian government is now planning for it.

Meddling politicians will make it worse

How did we go from ‘Everything is fine’ to our Treasurer planning for the worst?

That sort of shift won’t instil confidence in the Australian public.

Just this week, RBA Governor Philip Lowe said:

It’s possible that we end up at the zero lower bound. I think it’s unlikely, but it is possible. We are prepared to do unconventional things if the circumstances warranted it.[1]

Last week, I said negative interest rates were on the table for the New Zealand central bank. I also noted that the RBA wasn’t convinced by this plan.

A lot changes in a week.

The drastic actions now being planned should spook you.

While the Aussie economy is heading towards a recession, neither the central bank nor our politicians should be trying to do anything.

They should step back and stop meddling in the economy.

Whatever assistance, package or plan they dream up will only make it worse and prolong the pain for you and me.

Central bankers and politicians are trying to eliminate natural business cycles.

The ups and down of an economy are very normal; they’re meant to happen. To paraphrase a former Bill Clinton political campaigner, it’s the economy, stupid.

The ‘bust’ cycles that follow boom times need to happen in order to shake out bad debts and malinvestment in the economy.

Of course, you can prepare yourself for the recession ahead.

And given that our politicians have some absurd idea in the works, it’s best that you look after your investments and prepare for the worst.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia