A few more interesting links on the economy

In All hail mighty Aussie dollar, as it's here to stay Ross Gittins looks at why the Australian dollar is likely to remain high, and the benefits it brings us.

Stephen Koukoulas wrotes of Terry McCrann's Glowing Endorsement of the Gillard Government.

Peter Martin in Stimulus programs work. We need them ready - Access reports that Chris Richardson of Deloitte Access to ignore talk back radio and not be afraid to stimulate the economy if the European debt crisis causes a GFC mark II. To quote from the article:

“Australia’s fiscal stimulus last time was a striking success,” he writes. “It simply wasn't seen as that in the court of public opinion. That gap between reality and perception threatens a poor reaction by the punters if a new stimulus is needed in 2012.”

Access says its central scenario is that Europe's leaders “muddle through in a way that doesn’t stop Europe having a recession, but does avoid a deep recession and bank failures.”

But it says the risk is “almost as high” that Europe could ‘blow’ sparking bank busts and a new global financial crisis.

If that happens Australia should abandon its commitment to a small budget surplus in 2012-13 and instead embrace a “huge” budget deficit.

“We should be willing to do what worked last time,” he told The Age. “We shouldn’t let talkback radio decide what worked and what did not.”

The cash handouts worked very well... The school building programs worked less well, but not for the reason many people think.

“The problem wasn’t waste. The real waste occurs in a recession when people lose their jobs. Someone who is out of work for two years might not ever return to the workforce. That’s waste. The problem with the Building the Education Revolution program was it took too long. It was stimulating the economy beyond the point it was needed. Speed is essential.”

I would also argue that the great thing about the cash handouts was the speed they could be given. It's why I think cash handouts were a much more effective stimulus measure than tax cuts would have been. Peter Martin also quotes Chris Richardson as saying:

“First home owner programs are the crack cocaine of fiscal stimulus. They usually work a treat. But they make young couples spend too much on their first home, making their lives miserable down the track.”

This is something I would agree with. I think first home owner grants, especially on existing housing stock, only lead to an inflated property sector.

Stephen Koukoulas in February - Bash-A-Bank Month is reporting that if the Reserve Bank doesn't reduce interest rates next month then the banks will probably need to increase rates because of higher funding costs. If the Reserve does drop official rates the banks are unlikely to pass on the full cut. He argues that the Reserve is well aware of this and will likely reduce rates for this very reason.

Stephen Koukoulas is also reporting that Inflation is a Dead Duck.

In George Calombaris – would you like penalty rates with that? Matt Cowgill puts the blow torch to George Calomabris' claims that Sunday penalty rates are making it uneconomical to open his restaurants on a Sunday.