Hmmm ... not getting into the demographic issues concerning Rudd...

Hmmm ... not getting into the demographic issues concerning Rudd increasing immigration but there are a couple of general issues here.

As I have posted previously, any capital economy that drives unemployment below 5% does so at the risk of inflation and simply becomes a driver of the 'boom-bust cycle'. Even luminaries such as Keynes and Galbraith understood that if you push an economy beyond a 95% efficiency-rate that inflation became an uncontrollable consequence.

AUS unemployment at around 4.2% is technically full-employment for practical purposes and Howard's pre-election drive to 3% was pure insanity.

The BIG issue for Rudd is an anarchic Union movement gearing for an all out war on wages that will be almost impossible to contain. Employer's know it is coming and are themselves preparing strategies. (e.g. Qantas)

Global imbalances are feeding into prices at every level and a major wage breakout (based on inflation rather than productivity)has the potential to act as a major lever for restoring Union power within the Labor movement and with it the capacity to destroy the Rudd Govt credibility as economic managers big time.

There is an argument that an increase in 457 visa's could act as a circuit-breaker to these pressures and whilst not perfect as any increase in overall employment numbers will take pressure of wage inflation, it also feeds into existing stresses on housing, education and health care services already stretched to the limit.

By 2009 unemployment is forecast to move back to 4.75% meaning the economy will have stabilised at technical full-employment easing inflationary pressures as the effect of a slowing global economy kick-in.

Provided a wages break-out is contained and inflation gradually returns to Reserve Bank target 2-3% range, Glenn Stevens has indicated interest rates could be eased.

The next 12 months will be 'make or break' for the Rudd Govt ability to manage and cool an inherited 'white-hot' economy bursting at the seams just as the global economy is trying for a soft landing.


Cheers ... tight stops.


This is only my view ... read the black stuff.