Last month, the Reserve Bank of Australia (RBA) held its policy rate unchanged at 4.5 per cent contrary to what the bank economists expected. I said at the time in this blog – RBA confounds the market economists – but that’s easy – that RBA made the correct decision. It reflected the fact that the world economy is still in trouble as the fiscal austerity in various places starts to bite. It also reflected the fact that the trends in the local economy are far from clear and solid evidence is available to suggest that despite the boom in primary commodity prices (from Asia) our economy is still fragile. The labour market has considerable slack (12.5 per cent underutilisation rates) and housing and sales are flat or in decline. Most importantly (for the RBA) inflation is moderating in Australia. Nothing much has changed in the meantime and I was expecting (along with all my bank economist friends) for the RBA to hold its line again. Yesterday, the RBA confounded us all and pushed rates up by 25 basis points. But even more stark was the decision by the formerly public bank (privatised by the neo-liberals) – the CBA – to push its standard mortgage rate up by 45 basis points after announcing a huge and increasing profit earlier in the week. The RBA made the wrong decision yesterday.
The day after the Reserve Bank of Australia hiked interest rates again, the Australian Bureau of Statistics released the latest data on – Building Approvals, Australia – for September. The trends in this data is one of the indicators we use to assess the heat of the housing construction market.
What is the story? Answer: Deteriorating!
The ABS report that:
The seasonally adjusted estimate for total dwellings approved fell 6.6% and has fallen for six months.
The seasonally adjusted estimate for private sector houses approved fell 2.2% and has fallen for four months.
The seasonally adjusted estimate for private sector other dwellings approved fell 15.7% following a rise in the previous month.
The seasonally adjusted estimate for the value of total building approved fell 3.2% in September. The seasonally adjusted estimate for the value of new residential building fell 5.4% and the value of residential alterations and additions rose 1.0%. The seasonally adjusted estimate for the value of non-residential building fell 0.7%.
The following graph (using the ABS data release today) shows you clearly which way this market is heading.
There is no hint of a building head of inflation steam heading from this source.
The ABC National News said this of the data:
Total dwelling approvals are now at their lowest level since June 2009 … The annualised pace of new dwelling construction dropped to 146,000 homes in September, well below the 200,000 homes many economists believe are needed annually to keep up with demand from a growing population … [they quoted a bank economist] … “the fall is a natural outcome of stimulus being withdrawn … The housing recovery in 2009/10 was entirely due to both monetary and fiscal policy being squarely aimed at this sector during the worst of the global financial crisis” …
First, the stimulus worked and was instrumental in providing some growth in dwellings to ease the shortage. Stifling that growth will add inflationary pressures! If you want output to keep pace with demand you have to stimulate capacity. Our central bank doesn’t seem to understand that as it goes in search of the future (sometime out there in the haze) inflation bogey.
Second, there is significant capacity potential that can be developed and real resources available to build it should demand rise. The economic growth that would follow would be non-inflationary. But the RBA seems to think that growth has to be curtailed now. More on that later.
In the light of today’s data release the Housing Industry Association declared war on the RBA saying that:
The weak housing outlook is compounded by yesterday’s interest rate hike by the Reserve Bank which, due to the additional independent 20 basis point increase by the Commonwealth Bank, will act like a sledgehammer on confidence and economic activity in the non-resource sectors.
This total 45 basis point increase in home-lending rates will seriously dent new home demand and confidence, and is worrying as it follows the removal of the First Home Owners Boost and the impact of previous rate hikes.
Expect to hear that message over and over as the unelected RBA continue to think they can “experiment” with the economy and apply their NAIRU-obsessed mentality on all sectors whether they are growing or not.
The RBA decision
Yesterday, the RBA surprised everyone (including me) and increased interest rates. In the formal statement from the RBA Governor announcing the decision to increase interest rates by 25 basis points we read that:
… The prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s …
Public spending was prominent in driving aggregate demand for several quarters but this impact is now lessening. While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment.
… the moderation in inflation that has been under way for the past two years is probably now close to ending … Inflation is likely to rise over the next few years …
the economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity. Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today’s meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent.
This is what they are worried about. The following graph shows quarterly movements in the RBA Index of Commodity Prices – G5 (since July 1982). It is clear that primary commodity prices are rising again and will probably get back up to where they were before the crisis hit as long as China keeps growing. Australia is a primary commodity exporter and thus enjoys these strong terms of trade.
The reality though is that the export sector remains a negative net contributor to overall national income. However, the RBA is signalling that they think the resources tied up in servicing the growing export market at present (principally in mining) will strain our capacity and inflation will be the result.
The Theory and the reality
Mainstream monetary theorists – the type that become central bankers or who the central bankers read – argue that inflation targeting provides the central bank with a framework or structure which allows it to promote understanding and dialogue with the public such that inflation expectations are purged and lower interest rates sustained.
They believe that inflation targeting eliminates inflationary biases in an economy because the central bank has a strong motive to maintain the policy stance.
They claim that it promotes transparency, accountability and credibility – the explicit announcement of price stability as the major focus of monetary policy makes it transparent and credible. The setting of known inflation targets places a discipline on monetary authorities to avoid so-called non-optimal policy shifts.
Credibility thus suggests that the public trust the central bank to maintain its nerve and act consistently to achieve price stability. Central bank credibility is considered by supporters of inflation targeting to a principle mechanism by which the economy purges inflationary expectations and risk premiums on interest rates
The problem is that the RBA’s behaviour now has become totally unpredictable.
They do have a formal inflation target and tell us more or less which data series they use to measure inflation.
So they say they desire to keep the annual inflation rate between 2 per cent and 3 per cent. They use two major indicators of inflation which are purged of outlier tendencies: a) “the 15 per cent trimmed mean (which trims away the 15 per cent of items with both the smallest and largest price changes)”; and (b) “the weighted median (which is the price change at the 50th percentile by weight of the distribution of price changes)”.
Please read this article – Measures of Underlying Inflation – for more information.
Further, please read last week’s blog (October 28th, 2010) – Not only smokeless, but looking rusty and unusable – which coincided with the ABS release of the latest inflation data for more information about these inflation measures and how the RBA claims they use them.
So you would think that if the desirable inflation measures were within the targeted band and falling (and related measures which feed into the inflation process) were benign or also falling then the RBA would conclude it should maintain a stable monetary policy stance. That would be the transparent and accountable behaviour.
But you would be wrong. In fact, they do not behave transparently at all. They achieve total opaqueness by defining the 2-3 per cent inflation target in terms of “future” inflation – a medium-term outlook. The trouble is that the medium-term is not specified in any sensible way. It is somewhere out there …
The conclusion you reach is that there is no precision in this process at all. They somehow have an in-built inflation bias that sees exploding prices everywhere even when all the current indicators are soft. Apparently we will experience strong investment in the coming 2 years and that will drive inflation up.
Why will it? Answer: apparently we are close to full capacity.
In its – February Monetary Policy Statement – the RBA produced this graph.
They concluded in relation to that graph that:
From around mid 2009, measures of capacity utilisation began to recover, and are now back above long-run average levels … these measures suggest that the economy starts the cyclical upswing with considerably less spare capacity than earlier thought likely.
If you believe that you would believe anything.
First, comparison with long-run averages conditioned by the data of the last two decades doesn’t tell us all that much because the government deliberately ran the economy at a below full-capacity level. They fell prey to the NAIRU concept (see below). The upshot was that we started to consider that the economy was “fully employed” when the reality was that there was huge volumes of labour resources lying idle for want of work.
So I don’t see that we are running out of capacity any time soon although I acknowledge that the relatively small mining sector might be growing fast at present.
Second, manufacturing remains in decline and will decline further in the coming months as a result of the appreciating exchange rate which is being exacerbated by the RBA pushing interest rates up further.
Third, construction is slowing as a result of the withdrawal of the fiscal stimulus. The major contribution of growth in construction in the last 18 months was the large public infrastructure projects. With housing and investment property approvals in trend decline (see data above) the outlook for construction is not strong at present.
Fourth, the services sector case is interesting. What capacity are we talking about in a largely labour intensive sector? Labour right!
Well this graph is the latest from the latest ABS Labour Force data. The blue line is the ABS measure of broad labour underutilisation (the sum of underemployment and unemployment), the red line is the underemployment rate and the green line is the unemployment rate.
At present, the broad wastage of labour is 12.5 per cent with the underemployment rate being 7.4 per cent and the unemployment rate being the difference. Even at the height of the last boom the broad wastage was around 8.8 per cent.
These are conservative measures of the amount of labour that is being wasted because it excludes the hidden unemployed (who exited the labour force) and the other categories of marginal workers who could work if there were the right set of conditions.
But the 12.5 per cent represent idle work hours available from workers who are active, ready and willing. There is nothing marginal about that wastage.
It is often claimed that these workers (1.2 million odd) are not skilled enough to take the jobs that are emerging. This is the NAIRU nonsense that tries to claim that most unemployment is structural and therefore imposes an inflation constraint beyond which growth in nominal aggregate demand cannot be met with real output and employment increases.
Please read my blog – The dreaded NAIRU is still about! – to disabuse yourself of this sort of argument.
The NAIRU concept does not stack up theoretically or empirically. It is well established that changing labour market imbalances reflect cyclical adjustment processes which render any estimated macroequilibrium unemployment rate to be cyclically sensitive and therefore not the basis of an inflation constraint.
The NAIRU hypothesis suggests that any aggregate policy attempt to permanently reduce the unemployment rate below the current natural rate inevitably is futile and leads to ever-accelerating inflation. The vertical Phillips curve is accepted by most economists, monetarists and Keynesians alike.
However, the empirical world supports the notion that imbalances reverse when aggregate demand regains strength. The last thing we should be doing at present is to abandon job creation policies and start thinking that training programs and worker-attitude-correction strategies will produce any jobs.
Please read my blog – The structural mismatch propaganda is spreading … again! – for more discussion on this point.
I remind you of this insight from Michael Piore (1979: 10) which remains true today:
Presumably, there is an irreducible residual level of unemployment composed of people who don’t want to work, who are moving between jobs, or who are unqualified. If there is in fact some such residual level of unemployment, it is not one we have encountered in the United States. Never in the post war period has the government been unsuccessful when it has made a sustained effort to reduce unemployment. (emphasis in original) [Unemployment and Inflation, Institutionalist and Structuralist Views, M.E. Sharpe, Inc., White Plains]
But think about the service sector capacity. These jobs are mostly low-paid, low-skilled positions which require minimal training. So even if the 12.5 per cent of idle workers cannot drive a complicated piece of mining equipment (and I even would contest that claim) they can certainly flip a few burgers or whatever. So the claims about the service sector being close to exhausting its capacity have to be seen as ludicrous.
In this context, the central bank is captive to the following basic propositions which represent a “consensus” position among mainstream monetary economists (taken from Masson et al.(1997) ‘The Scope for Inflation Targeting in Developing Countries’, Working Paper 97/130, International Monetary Fund):
(1) An increase in the money supply is neutral in the medium to long run; i.e., a monetary expansion has lasting effects only on the price level, not on output or unemployment.
(2) Inflation is costly, either in terms of resource allocation (efficiency costs) or in terms of long-run output growth (breakdown of ‘superneutrality’), or both.
(3) Money is not neutral in the short run; i.e., monetary policy has important transitory effects on a number of real variables such as output and unemployment. There is, however, at best an imperfect understanding of the nature and/or size of these effects, of the horizon over which they manifest themselves and of the mechanisms through which monetary impulses are transmitted to the rest of the economy. And, a corollary of (3).
(4) Monetary policy affects the rate of inflation with lags of uncertain duration and with variable strength, which undermine the central bank’s ability to control inflation on a period-by-period basis.”
So in turn:
(1) They believe that monetary policy influences the money supply and it has no medium to long run on real output or employment. That is, the NAIRU nonsense. They deny that there are any lasting real effects of scorching aggregate demand.
Please read my blog – Inflation targeting spells bad fiscal policy – for more discussion on this point.
(2) They consider inflation to be more costly than persistent unemployment even though the latter costs economies millions of dollars of lost income every day and damages peoples lives irretrievably when the duration is long. There has never been credible evidence that modest inflation is costly.
(3) Monetary policy does suppress real output and employment in the short-run but they haven’t got a clue about these impacts – they do not know:
- The magnitude of the impacts.
- They do not know the duration.
- They have no idea of the path-dependencies involved – that is, the damage caused to potential growth rates by restricting capacity augmentation.
- They have no idea of how many bankruptcies they cause among households who are carrying record levels of debt;
- They have no idea of the impact on housing capacity development which as noted above is likely to be inflationary should they restrict supply when there is an obvious excess demand for low-cost housing in Australia at present.
- They do not really know how their policy changes work – through which channels.
(4) They do not have a clue of the relationship between interest rate changes and the inflation dynamics. This leads to risk averse behaviour where they act as they did yesterday – pushing rates up even though all the indicators are benign or falling – so it becomes a “just in case” approach – no precision – just guesswork.
The IMF paper quoted above says:
Inflation targeting in principle helps to redress this asymmetry by making inflation, not output or some other target variable, the explicit goal of monetary policy and by providing the central bank a forward-looking framework to undertake a pre-emptive tightening of policies before inflationary pressures become visible (emphasis in original).
The problem is that if aggregate demand is sensitive to their policy changes – and they surely believe it is – then they are deliberately damaging economic growth well before we are close to full capacity. They deliberately adopt a recession-biased approach where unemployment is seen as a policy tool rather than a policy target.
Given we cannot vote them out at any election – I find this intervention into our lives deplorable.
I have noted before – Inflation targeting spells bad fiscal policy – that the credible studies of inflation targetting which cut through all the mainstream ideology and confront the theory with the facts conclude that:
- On average, there is no evidence that inflation targeting improves performance as measured by the behaviour of inflation, output, or interest rates.
- Average inflation fell for non-targetters and targetters between the pre-targeting and targeting periods, but the targeters did not experience lower inflation rates.
The problem is that the rise of inflation-obsessed monetary policy coincided with the eschewal of discretionary fiscal policy and this imparted a recession-bias into the advanced economies. The stagnant nature of the European labour markets over the 1990s and beyond is a strong indicator of this sort of bias.
Even Franco Modigliani (who was one of the inventors of the term NAIRU) saw the light a bit later in life and pointed out in 2000:
Unemployment is primarily due to lack of aggregate demand. This is mainly the outcome of erroneous macroeconomic policies … [the decisions of Central Banks] … inspired by an obsessive fear of inflation … coupled with a benign neglect for unemployment … have resulted in systematically over tight monetary policy decisions, apparently based on an objectionable use of the so-called NAIRU approach. The contractive effects of these policies have been reinforced by common, very tight fiscal policies (emphasis in original) – ‘Europe’s Economic Problems’, Carpe Oeconomiam Papers in Economics, 3rd Monetary and Finance Lecture, Freiburg, April 6.
One of the other spurious claims made for inflation targeting is that central bank independence and the alleged credibility bonus that this brings should encourage faster adjustment of inflationary expectations to the policy announcements.
In terms of inflation expectations, the RBA continually claims that the inflation psychology has been expunged from the Australian economy as a result of their targetting regime. This is one of their consistent arguments that by acting ahead of any evidence of inflation they are keeping expectations of inflation at bay.
In the 1970s and 1980s this was a principle mainstream argument to justify using tighter monetary policy. The claim was the inflation has a life of its own even after the fundamental excess demand drivers are rendered benign. Allegedly, price setting agents (firms, trade unions etc) continue to make nominal demands based on their expectations of persistent inflation.
But if you consult the following graph it is hard to see any wave of inflationary expectation. At present the RBA definitely cannot be taken serious if they think we think inflation is just about to break out and so these expectations have to be expunged.
The following graph shows the NAB inflation expectations series which is derived from “the National Australia Bank Quarterly Business Survey respondents’ average expected increase in the price of final products in the next three months”. You can download this data from the RBA – Other Price Indicators – G4. The downward sloping black line is the simple linear regression (that is, the trend).
But what about their claim that inflation targetting did expunge inflationary expectations from the economy in the 1990s? As usual, the mainstream economics claim does not reflect the reality.
The next graph shows the median expected inflation rate for the year ahead (blue line) (from Melbourne Institute series) along with the annual inflation rate (green line) and the longer time span allows us to make some important observations.
First, inflationary expectations were not expunged by inflation targetting in Australia which began in 1994. The major recession of 1991 did the trick and had nothing to do with inflation targetting.
In fact, there were no inflationary pressures in the economy (GST period apart) after the 1991-2 recession. So it is hard to attribute the improved inflationary performance to the conduct of monetary policy at all.
Second, how does the mainstream explain the fact that the inflation expectations series (from Westpac/Melbourne Institute) which records price change sentiments in percent for a year ahead were consistently above the evolution of the actual inflation rate measured as the annualised change in the quarterly Consumer Price Index since inflation targetting was introduced?
If the inflationary expectations series is a valid indicator of underlying sentiment in the economy, then consumers are persistently erring in their forecasts, that is, failing to learn. How long does it take them to learn? What are the implications of this stupidity?
In a speech made in 2003, the RBA Governor – claimed that:
One reason for this is that there continues to be a significant proportion of households who anticipate inflation of 10 per cent or more even after a decade of inflation of 21/2 per cent. Presumably our message has yet to filter through completely.
It seems that the message still isn’t getting through completely.
Why this matters is because the underlying theory that the mainstream use (including central banks) is that households and individuals are rational, optimising decision-makers who have the capacity to form their expectations rationally. The Ricardian households are assumed to have perfect foresight. Many mainstream models that purport to inform the economic policy debate assume individuals have rational expectations – that is, they cannot be wrong consistently.
The reality – as is usually the case – tell us that these mainstream economic models are totally wrong.
Does the decision really matter?
As I note every time I discuss changes in interest rates I am always in two minds.
There are two important questions regarding the role of monetary policy. First, how sensitive is the real economy to interest rates movements? During recessions, monetary policy has little proven effects in activating an economy. In bad times lower interest rates do not induce consumer expenditure. And likewise, lower interest rates do not induce more investment (by making borrowing cheaper) as during these periods there tends to be excess capacity and output is not being sold.
Empirical evidence suggests that the interest elasticity of investment is at best low, non-linear, and asymmetric. While an increase in interest rates might moderately reduce investment during economic booms (when the economy is at or above capacity), the reverse is not true. In general, it is the outlook for profitability, rather than the price of credit, that influences investment.
For this reason, direct credit control is a more effective instrument of monetary policy than the interest rate. If monetary policy includes direct credit controls it may be reasonable to assume that there will be some effect on aggregate demand.
Further, the mainstream think that monetary policy changes are the appropriate vehicle for pricking asset price bubbles. What evidence do they have for that? Answer: no credible evidence. it is likely that if the central bank keeps increasing interest rates it will stop the bubble but at that point the central bank induces a collapse in the overall real economy.
For monetary policy to be “effective” it has to really damage the real economy in a significant way because it is such a non-targetted tool – it impacts broadly across the spending stream. It is far better to address specific sector price movements using fiscal policy which can zero in on the basics driving the bubble without damaging the rest of the economy.
The probable best conclusion is that monetary policy is mostly a very ineffective means of managing aggregate demand. It is subject to complex distributional impacts (for example, creditors and those on fixed incomes gain while debtors lose) which no-one is really sure about. It cannot be regionally targeted. It cannot be enriched with offsets to suit equity goals.
The regional issue is important. In cases like this, when, say a major city (for example, Sydney) is booming and housing prices are escalating, increasing interest rates impacts severely on the stagnant areas of the country.
In Australia at present the evidence is clear – mining is booming and the rest of the economy is moving along much more moderately. If the RBA policy changes are to be effective they would have to damage the weaker sectors as well as stifle the booming sector. The RBA claimed yesterday that:
The Board is also cognisant of differences in the degree of economic strength by industry and by region.
But they really have no idea of how their decision will impact on the weaker sectors and regions. And when they eventually ascertain the impact it will be too late.
This would not be the case using a well-targetted fiscal instrument – mostly in the form of specific taxation measures that can discriminate by region and demographic-income-property cohorts. You can never get that richness in policy design using monetary policy.
Further, if public housing is considered undesirable as a solution the federal government (with some constitutional reforms) could set up a fund to allow access to cheap mortgage instruments to low-income families and allow them to purchase housing (publicly- or privately-provided) with minimal distortion to the price distribution. MMT tells us that the federal government can always afford to do this.
Conversely, fiscal policy (when properly designed and implemented) is a much better vehicle for counter-stabilisation.
However, the impact of monetary policy also has to be considered in relation to the levels of debt that households are currently holding.
Australian households have record levels of debt and in the financial crisis lost a large slab of their nominal wealth. The RBA has always claimed that the debt was manageable because asset values were rising at a faster rate.
I always found the argument to be dubious given that a rising proportion of the “assets” being purchased with the increased debt were subject to significant private volatility (for example, margin loans to buy shares). But even more troublesome was the direct link between the debt-binge and the real estate booms which have pushed “investment” funds into unproductive areas at the expense of other areas of economic activity which would have generated more employment.
When the private sector is carrying very large debt burdens, the number of households and firms who are on the margins of insolvency increases.
Their capacity to make compositional changes to their expenditure to maintain their nominal contractual commitments declined dramatically in situations such as that.
At that point, interest rate rises can quickly accelerate the bankruptcy rates and lead to further real output falls.
This is especially important given our earlier point that the impacts of using monetary policy (interest rate variations) as the principle counter-stabilisation tool are unclear.
In the current situation, the RBA cannot know what the commercial banks are going to do. So when the RBA tightened by 25 basis points yesterday as an expression of where they wanted rates to sit they could not have known that the CBA (Commonwealth Bank) would immediately increase the standard mortgage rate by 0.45 basis points.
A 45 basis point rise given the oligopolistic (anti-competitive) nature of our big 4 banks is a significantly larger tightening of “monetary policy” than the RBA intended. That is, if the impacts are as the RBA predicts then there will be more real damage than their actual policy announcement would have estimated.
What sort of policy precision does this imply? How do they know that the overall impact won’t push the economy back into real decline? Answer: The RBA does not know and that is the problem of using monetary policy in this way.
Further, what is the impact of interest rates on inflation anyway? Increases in interest rates might be effective when inflation is caused by demand pressures. However, interest is a cost of doing business, and tends to be included in price. For this reason, raising interest rates will reduce inflation only if the effects on interest-sensitive spending (lowering aggregate demand) are greater than the effects on costs and prices. When inflation comes from the supply side, it is quite unlikely that higher interest rates will do anything to lower prices, indeed, they will probably add to supply-side induced inflation by raising costs.
Some believe that increases in interest rates allows a nation to avoid importing inflation due to currency depreciation. The down side is that higher interest rates may dampen investment prospects and the higher currency value may negatively affect exports. Likewise, higher interest rates will increase costs and thus induce higher prices. History is full of many examples of countries trying to use higher interest rates to protect the currency, only to find that the policy was impotent.
Raising interest rates by hundreds of basis points cannot compensate investors for losses due to large currency depreciations. Indeed, the higher rates can stoke a run out of the currency as currency speculators bet that the monetary policy will fail to stabilise the currency.
Further, it is clear that the RBA decision is exacerbating the exchange rate appreciation being driven by the rising commodity prices. The RBA’s decision will certainly damage the competitiveness of traded-goods industries that do not enjoy the bouyancy of demand conditions in world markets. So in the case of Australia this is manufacturing and agriculture.
The interest rate rises reinforce the impact on the exchange rate of the strong primary commodity prices. What will be the impact? Answer: The RBA does not know and that is the problem of using monetary policy in this way.
The bottom line is that this is all seat of the pants stuff at a time when there is no credible inflation threat. If the policy works as the RBA thinks then they are just damaging our change to eat into the huge pool of idle labour. They are damaging the chance to push closer to full employment. That is vandalism.
I could have embarked on a major bank bash today but decided against it. The behaviour of the CBA is appalling and I hope the Federal government is serious when it says it will legislate to make it much easier for consumers to shift banks and take their loans elsewhere. I recommend all existing customers of the big-four banks ring up the Newcastle Permanent Building Society and shift your accounts to them. It is a much more civilised institution.
Overall, yesterday’s RBA decision was a mis-use of its power.
Aside: the US Democrats get what they deserve
I note that the latest news tells us that the Republicans sweep Democrats from House in the mid-term elections in the US and that the manic Tea Party lot has become influential.
The soon to be speaker of the House, conservative John Boehner was quoted as saying:
Our new majority will be prepared to do things differently … It starts with cutting spending instead of increasing it, reducing the size of government instead of increasing it, and reforming the way Congress works. It’s clear tonight who the winners really are and that’s the American people.
I am sorry to disagree. The Democrats got what they deserved – they have been appalling given that two years ago they had a clean sweep to really do something good with America. But the American people are not the winners out of this.
Cutting public spending right now is the worst thing that the US government should do. Both sides of the English-speaking Atlantic are now headed in the same direction – back into the economic malaise.
The alleged 40 per cent of voters who claimed they supported the Tea Party tells me the US education system has failed.
So all my pals in the US – sorry! We have a spare room at our house. You know the address!
That is enough for today!