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RBA governor apologises for duping Australians – but then says we didn’t read the literature closely enough

It’s Wednesday and I am reverting to my usual pattern of discussing a few items in less detailed form and including some music to lighten the load. Today we consider the apology that the RBA governor issued to mortgage holders that the central bank duped. We also consider the question of what is ‘normal’ in a pandemic. And more.

RBA governor apology

On Monday, the RBA governor appeared before the Australian Senate Estimates Committee, which is a body that scrutinises economic matters.

The transcripts are not yet available.

But in his responses, among other things, he offered an “apology” to Australian mortgage holders who had taken his statements in 2020 and 2021 seriously enough to take out a mortgage.

The Governor regularly told the Australian people that the RBA would not lift interest rates until at least 2024 and would only do so if wages pressure became such that it was becoming an inflationary driver.

He told the Senate hearing that:

I’m certainly sorry if people listened to what we said and then acted on what we’d said and now regret what they had done.

Many people took out loans based on the governor’s statements and are now facing hardship as the RBA hikes rates.

Many are in danger of losing their homes given they were marginal borrowers at best, took out large loans at the low rates, and are now not only facing insolvency but also negative equity.

It is easy to adopt the position of caveat emptor – they are to blame for their own hardship.

But it is also clearly the case that the RBA regularly signalled they would not be raising rates.

I could report many instances where they said this.

For example, on August 6, 2021, the RBA governor told the House of Representatives Standing Committee on Economics that (Source):

Under the central scenario, the condition we have set for an increase in the cash rate is not expected to be met before 2024.

And, in the – Statement on Monetary Policy – August 2021 – the RBA told Australians that:

It will not raise the cash rate until inflation is sustainably within the target range. Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than current levels. Under the current central scenario for the economy this will not be until 2024.

More recently (December 16, 2021), even as inflationary pressures were rising, the RBA governor had this to say (Source):

… the Reserve Bank Board will not increase the cash rate until actual inflation is sustainably in the 2–3 per cent target range. We are still a fair way from that point. In our central scenario, the condition for an increase in the cash rate will not be met next year. It is likely to take time for that condition to be met and the Board is prepared to be patient.

He is now claiming that the RBA actually didn’t mean this advice to be taken literally.

He claims that:

We didn’t communicate the caveats clearly enough … they didn’t hear the conditionality, and that was partly our fault.

Most people do not read the formal statements from the RBA.

They hear him on the evening news or read his comments in the morning newspapers.

Even a person like me who does read all the formal documents did not see those ‘caveats’.

The main statement was that wages growth would have to increase significantly before they would increase interest rates.

And wages growth has not satisfied that threshold – it is no where near being a ‘cost’ problem.

And the fact that the RBA now slips into its monthly statements that justify the rate hikes that it has private evidence that wages are growing too quickly indicates that they knew well that they had linked the interest rate hikes to wages growth.

And, of course, they are claiming they have private evidence because all the publicly-available evidence on wages growth does not support their narrative.

When a key policy maker messes up this badly there is one further thing they should do.

And that is especially when we now know that inflation is abating in Australia for reasons unrelated to the interest rate hikes.

I will write about the latest data that was released today tomorrow or next week.

But we are now going to look back on this period of central bank incompetence and realise the rate hikes were unnecessary and just hurt a lot of people who were unable to protect themselves and transferred billions of dollars into the hands of the banks and their shareholders and thus increased income and wealth inequality.

Covid – Increasing excess mortality and increasing disability is not getting ‘back to normal’

Paul Krugman’s latest salvo (November 28, 2022) – How China Lost the Covid War – is another example of many of how we are ‘moving on’ and recasting what ‘normal’ means.

I won’t examine the whole article but this point is now being regularly made by commentators who like to assert there was some autocratic conspiracy by Western politicians during the early years of the pandemic.

He wrote:

At this point, however, China is flailing even as other nations are more or less getting back to normal life.

Whether China is ‘flailing’ is not something that is clear.

I don’t trust the mainstream Western media and the current commentary that is claiming that the so-called ‘unrest’ is because people are rejecting Chinese Communism is overreach for sure.

It amazes me that so-called Left progressives who often talk about the way the mainstream media distort the facts in favour of a neoliberal agenda (particularly biased towards advancing US-centric interests) suddenly start quoting that media in relation to recent ‘unrest’ in China as an authority on how people hate Covid restrictions and want to overthrow the regime.

But the point I want to focus on here is whether any of us are getting back to ‘normal life’, which is taken to mean the way we behaved pre-pandemic.

We now define ‘excess mortality’ to mean:

… a term used in epidemiology and public health that refers to the number of deaths from all causes during a crisis above and beyond what we would have expected to see under ‘normal’ conditions.

This measure was devised to overcome the problem of dying with Covid as opposed to dying from Covid.

So we work out the:

… the difference between the reported number of deaths in a given week or month (depending on the country) in 2020–2022 and an estimate of the expected deaths for that period had the COVID-19 pandemic not occurred.

Epidemiologists also calculate a ‘P-score’ to provide a more comparable measure across nations which controls for “large differences in population” size, which the raw ‘excess mortality’ level obscures.

The P-score is a percentage measure and is calculated as the difference between Reported Deaths and Projected Deaths divided by Projected Deaths.

The ‘excess deaths’ measure, in turn, is likely to seriously understate the actual situation because of underreporting and timing differences.

Here are the cumulative number of excess deaths per million people.

Countries such as New Zealand and Australia had strict restrictive policies up to 2022 while they ensured most people were vaccinated.

Japan has implicit restrictions.

One of the really interesting comparisons is that in Japan almost everyone still wears a mask everywhere – in and outside – and is mindful of the virus, whereas in Australia, that has lapsed (unfortunately).

But nations such as the US and the UK, which tried to push the ‘getting back to normal’ line earlier than most are still accumulating excessive death rates.

I don’t call that ‘normal’.

I call that a desensitisation of death.

Further, we are now observing increasing numbers of people who are afflicted with ‘long Covid’, even if that syndrome escapes precise definition.

This article summarises the data as at October 2022 – The astounding impact and reach of long Covid, in numbers and charts (October 13, 2022).

Last week (November 25, 2022), the British Office of National Statistics published their latest data on Long Covid – Coronavirus (COVID-19) latest insights: Infections.

They noted that:

An estimated 2.1 million people in private households in the UK (3.3% of the population) were experiencing self-reported long COVID as of 1 October 2022 … Half (50%) reported experiencing long COVID symptoms at least one year after their first suspected infection. Almost a quarter (24%) reported experiencing symptoms at least two years after their first suspected infection.

They were mostly in the age group 35 to 69 years – in other words, they were workers.

They were also biased towards lower paid workers and those “living in more deprived areas”.

It is clear that Covid has been worse for lower income workers.

They were given inadequate income support and forced to work on the front line to keep economies going while professionals were able to ‘work from home’ and generally protect themselves from infection more systematically.

The problem, in my view, was not the restrictions but the lack of government support to protect the most vulnerable.

In Britain, the participation rate is around 1.3 per cent lower as a result of long-term sickness.

Further, estimates for the US suggest that (Source)”

1.6 million full-time equivalent workers could be out of work due to long Covid. With 10.6 million unfilled jobs at the time, long Covid potentially accounted for 15% of the labor shortage.

The US Census Bureau found that “2 to 4 millinos are out of work due to long Covid”.

They estimated that:

… lost wages alone is around $170 billion a year (and potentially as high as $230 billion). 

So none of that looks like ‘getting back to normal’.

These figures will get worse as time passes and we allow the infection rates to generalise across the population.

The current wave in Australia is infecting those who had so far managed to avoid the disease.

In part, that is because we have ‘moved on’ and are no longer taking simple steps to retard infection.

I had to go to the supermarket after work yesterday and there were just two people (me and another) wearing a mask.

When I arrived in Sydney the other day after leaving Tokyo the contrast at the two airports was stark – almost everyone in Tokyo wore masks and almost everyone in Sydney did not.

Those who claim that mask wearing doesn’t stop the spread of infections are just lying.

Why do surgeons and their assistances always were rubber gloves and masks? Obviously.

Anyway, this attempt to normalise the abnormal annoys me.

Tomorrow, I have to fly again and I will be wearing my ‘flo mask’ and also my personalised air purifier as an additional safeguard.

These are minimal steps that everyone should take to prevent the likelihood of long-term disability arising from infection.

Not perfect but better than what most are currently doing.

And don’t write to me telling me that I am part of the authoritarian conspiracy to inflict domination and control techniques on the civilian population to advance the profit interests of the big ‘pharma’.

Or to tell me that you took ivermectin and recovered well from bad Covid.

Good for you if that is the case.

But pigs might fly!

University of Newcastle records a deficit

Yesterday, the University of Newcastle (Australia) announced it was in deficit of some $A23 million for 2022.

They claimed that the institution would have to introduce “restraint”.

For any organisation that starts performing badly, the first place to examine are the key decision makers.

So are the senior managers going to take responsibility for the ‘deficit’?

Will the senior managers of the University announce that they are taking pay cuts to their already massive salary packages as part of that restraint?

Will there be increased scrutiny on the types of appointments being made at the senior level and the packages they are paid?

I doubt it.

I noted on Twitter that last week I was awarded further ARC Discovery Grant funding with my colleague Professor Scott Baum (who is a guest blogger here and works at Griffith University).

This is a big deal for us and it allows us to continue our joint research programs.

These grants are highly competitive and have a low success rate – which makes them the elite awards in the Australian system.

In 2022, 3095 applications were received by the Australian Research Council (a federal government body) and only 587 were successful.

Funds requested overall amounted to $A1,818,835,491 but only $A258,691,272 was awarded after the cull.

So we are very fortunate to be in the successful category.

The University of Newcastle performed particularly poorly overall though.

Some years ago, when the University had many programs to support research, it regularly was just outside the Group of 8, which are the old capital city universities (Melbourne, Sydney, UNSW, ANU, UQ, Adelaide, UWA, etc).

In 2022, the University of Newcastle had slipped to 18th place in the funding and its success rate was only 14.8 per cent (below the national average of 19 per cent).

I compiled the following table to show the results of the 2022 round.

What explains this slipping in performance?

Who is going to take responsibility for it?

Are the senior managers who have responsibility for advancing research going to receive their performance bonuses this year?

It is clear that the deficit is, in part, the result of declining student numbers.

There is a demographic trend now working against student enrolments – ageing society, the mature-age education revolution has exhausted, and the international student market is becoming somewhat finite.

Why are universities building new expensive buildings when they will have to shrink over time in size?

Are these building programs contributing to deficit outcomes?

And if the education side of our institutions are going to have to be scaled back (for demographic reasons) then why are we not investing heavily in building research capacity?

The increased casualisation of university academic appointments is clearly working against that imperative.

Anyway, Scott and I are very happy to be able to access on-going funding – at least for another three years!

Music from Japan

One of the fun things I did while I was working in Japan over the last months was to play in a local band.

I reported on that in this blog post – Kyoto Report No 5 (November 8, 2022).

It was mostly a night of rock and roll and we chose songs to play that some of us might have played when we were younger (like in the 1960s and 1970s) but haven’t played since.

We ran through the songs once before the show and then ‘played’ it by ear.

The gig was at one of the oldest and best live music venues – ‘live houses’ – in Kyoto last Saturday – the famous – Jittoku – in the Kamigyo Ward.

It was an old sake brewery and the tables and chairs are recycled sake barrels.

It was a great night for sure.

Here is one of the songs we played.

I had never played ‘Get Back’ by the Beatles before and only learned the chords and melody in the afternoon prior to the gig.

I had also never played an old Telecaster guitar and if you are a guitarist you will know we are particular about the ‘setup’ of guitars and amps etc and take a long time to get a ‘sound’.

But anyway given those limitations we had a lot of fun.

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

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    This Post Has 3 Comments
    1. The drive to make people take new debt and then hike interest rates is an oldie.
      It used to be a game played by comercial banks, shadow banking and other speculative outfits, but now it’s done by central bankers.
      Maybe it’s a sign of the times, but what we have diferent here is the credibility of a governor of a central bank.
      We could call it a crime, but he’s getting away with the “sorry” excuse.
      But nobody can beat an ex-President of the Portuguese Republic, who went to the TV news and said that an already failed bank was fine and everybody could safely buy the comercial paper that bank was still selling (never mind the central bank’s regulatory obligation).
      The bank went down a few days after and everybody that followed her highness’ advice lost every dime invested.
      They can’t understand that some jobs, like central bank governor or president of a republic can’t afford to be non-credible.
      There’s no ceteris paribus in this level of responsability.
      If you’re not a statesman, you’re not fit for this kind of jobs.
      Just ask Liz Truss.

    2. For someone that doesn’t have any interest in the Beatles Bill you did a great job with the solos.
      Very enjoyable.

    3. have to be careful not to be on the wrong side of history when it comes to Chinas zero covid policy.

      when you look at the detail of what state-run apparatus is controlling and administering the policy, you start to realize that the policy is or has morphed into another tool of state political control.

      having said this, and we accept the thesis that the Chinese vaccines dont work, hence the need for covid zero, then it is the wests moral duty to provide China with vaccines that do work, without profiteering

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