What will “The Great Reshuffle” mean for you?

Adam: [00:00:24] Hello and welcome to comedian versus economist. We demystify the world of money and help you get a handle on the bigger picture. My name's Adam, and we're joined, as always, by my little older brother and real life economist Thomas.

Thomas: [00:00:37] Yeah, g'day, Adam. How are you?

Adam: [00:00:38] you going? Very well. Thank you. Don't forget, of course, that we announced our partnership with the ASX and the rest of the Equity Mates media network to participate in the share market game with the ASX. So if you haven't done so already, really encourage you to go in and sign up and join in the fun. They'll all be kicking off very soon. But Thomas on with the show and we're going to talk about turkey inflation. And no, I don't mean putting too much stuffing in the Christmas bird. It's inflation in turkey, the country. Apparently, we're in the midst of the great reshuffle, which you know, I take from that what you will. And inflation is on the rise. So now everyone who said MMT was a good idea is now saying, Yeah, but nah, you're doing it wrong and big news. Thomas people are jacking up the prices of donkeys. That's right. That and many more donkey puns a little later in the show. But first, US inflation has come out is that it's at 7.5 per cent Thomas. Is it time to restock the bunker? Pull the kids out of school and head back underground? 

Thomas: [00:01:43] Yeah, yeah. No, it's not. It was grim, but it's it's, you know, it's about seven per cent last last month. And, you know, year on year is now up to 7.5 per cent. So pushing higher a bit bit higher than economists are expecting, they were looking for seven point three percent. So as high as now, the highest level since 1982, you've got to go back that far to to get an inflation rate like this. 

Adam: [00:02:06] This is an economist wet dream, right? This we haven't been this excited about inflation since the eighties. 

Thomas: [00:02:12] Yeah, that's it's about right, actually. I mean, I started at the Reserve Bank in 2000 2001, and my whole career inflation was a non-issue. You know, it was all waiting, waiting for inflation to happen as an inflation targeting central bank. Like, when's it coming? When's it coming? And it just never came. So it's been, you know, 20 odd years where inflation has been a non-issue and now it is the number one issue right now. So it's yeah, it's it's what everyone's watching, right?

Adam: [00:02:41] So inflation's 7.5 per cent in the US was inflation so much higher in the US than it is here?

Thomas: [00:02:47] Yes, good question. I mean, I think it's my food. Yes, good question. I don't I'm not entirely sure, and I don't know that there's a strong narrative around why we're not seeing it here in Australia. You look at what's driving us inflation. It's food, electricity and shelter. We haven't seen electricity. Fuel prices have been up. Shelter prices have been up. But I think maybe they figure differently in the Aussie CPI and then food prices. Australia is actually a very food sovereign nation like we're quite in that we're food independent. There's a few stories like when Covid first hit people worrying about, you know, running out of food and everyone panic buying in the supermarkets. But Australia is actually food quite food independent, and maybe that helps helps protect us. But again, that's a good question. I'm a bit more into that. Yeah, but food's up. Food's up seven point one per cent, the highest level in 41 years. Energy is up 4.2 per cent now, 27 per cent over the past 12 months. So, yeah, we're not we're not seeing energy spikes, anything like that. I mean, we produce a lot of energy here in Australia. Maybe that protects us as well, but we're definitely not seeing energy prices up 27 per cent year on year. That's that's massive. 

Adam: [00:03:56] It's winter in the US too, though. 

Thomas: [00:03:58] That's right. 

Adam: [00:03:58] Yeah. So there's a lot more heating bills. It's probably 27 percent colder over there. 

Speaker 1: [00:04:02] Yeah, that's right. 

Adam: [00:04:05] Yeah, that's a view. Economists tried, tried factoring in some of those numbers. 

Thomas: [00:04:10] Yeah, we should. Yeah, I don't think fans are quite as expensive to run. 

Adam: [00:04:15] That's right. Like when you talk about shelter, you know, our walls probably don't need to stick know as well. So it's safer, right? So did they.

Thomas: [00:04:22] I think it's it's becoming a big political issue now, like it's it's people have started freak out, so wages are growing at like 5.7 per cent. So that means real wages are going backwards, so people's purchasing power is going backwards. People aren't happy about that. Obviously, energy prices up 27 per cent. That's sort of freaking people out a bit. Joe Biden declared this week prices week and saying it's all hands on deck to win this fight against inflation. 

Adam: [00:04:48] Sounds like the war on drugs that they announced in 

Thomas: [00:04:50] the 80s and 90s. 

Speaker 1: [00:04:53] This is your brain with inflation. 

Thomas: [00:04:57] But and the other interesting data point I found at Tik-tok had to do so. Budgeting hashtag budgeting is trending, so there's 41 million views over over two days around the budgeting topic. 

Adam: [00:05:09] All right. I don't what I think it was trending on Tik-tok. What's what does this mean for markets, though? 

Thomas: [00:05:13] Well, the Radler outlook could change last last month with the with higher interest, higher inflation than expected, that's now getting locked in. To now pricing in 50 basis points in March, so Deutsche Bank and Nomura are looking for 50 dips in in the March meeting. Some people still looking for 25, but now the profiles now looking more aggressive. We're going to expect stronger rate hikes out of the out of the Fed and more quicker than people were thinking one at one board member saying that they're going to need to hike 100 basis points by the end of the financial year. So by July. So that's that's pretty aggressive. 

Adam: [00:05:49] Hmm. So I'd ask again, what does it mean for the markets? So you just tell me about rate hikes, which is not not an answer to my question. So think it's going to go up or down or it's trying to dumb it down for you? 

Thomas: [00:06:06] I mean, it depends on how much markets have already digested the change to to a hike to a more aggressive rate outlook. Yeah, it's obviously not going to be strong news for for growth stocks, but we're seeing some sort of pretty patchy results. We saw that last week with Facebook versus Amazon. Facebook got smashed, Amazon got a got a bump. So it's not it's not consistent, but it just creates more volatility, I suppose. Yeah. For now, because the narrative has shifted, the narrative shifted last month. People like say, Okay, cheap money's over. We're moving to quantitative tightening. We're moving to a rate hike cycle that sort of takes some of the pop the bubble out of the growth stocks. You'd think that I think I think this might. I mean, it's interesting, you know, this month you get the highest inflation in 40 years. And markets are like, Yeah, OK, we got it. We kind of we got that last month. It's higher than it was last month, but we've kind of digested that news.

Adam: [00:07:01] It seems it seems like there's a bit of volatility in your willingness to take a position on the matter, to be honest, but we will move on. All right. Thomas Ash has sent us a link via email CV at Equity Mates dot com, which you can do as well. Or of course, you can send this message at CV podcast on Facebook and Instagram. Actually, just has a link to a New York Times article, which was a discussion about MMT modern monetary theory. And do you want to? Maybe you should take take it from here and just run us through the article 

Thomas: [00:07:37] at a high level. Yeah. So if you remember modern monetary theory, sort of a different framework for thinking about how the economy works, probably the central idea is that budget deficits don't matter in the way that we've previously thought that they mattered. That money printing and deficit financing isn't necessarily inflationary. It depends on what constraints exist within the economy. And, you know, we're sort of it was a very fringe for a long time. You know, it's been around for a while, but it was seen as really out there on the fringes and to pretty much all governments around the world started running in empty agenda with massive government deficits and money printing. And so that's what sort of the New York Times article saying is this is a time for MMT to take a victory lap because everyone's everyone's adopted it in practise, if not in theory. So does that is that mean MMT is vindicated? We have. Has MMT won the paradigm shift? 

Adam: [00:08:38] And has it? Well, I mean, because so it a Covid hit. And then there was this massive ramp up of money printing. Like, I think the US printed something like 2.6 trillion. Just, you know, one day big tractors went, Hey, you know what we need here, we just need tons of cash. So that then that then fired up the conversation around MMT. And a lot of people were talking about MMT and going, This is it. This is my time to shine. We're doing it. We're living it. This is like, Oh, it's really happening. Was really it was pretty excited. But now, of course, now we're seeing inflation, which was like everyone who was, I guess, against MMT was kind of saying, no, MMT is going to lead to inflation, and now that's happening. So where are we at? The New York Times are saying, is this, you know, time for a victory lap. A lot of other people now are also saying, absolutely not. It's it didn't work. Where are we somewhere in the middle? 

Thomas: [00:09:36] Well, yeah, I mean, still, MMT still not being taken seriously by academic economists. So Lawrence Summers, who was the Treasury secretary under Clinton, he tweeted. I'm sorry to see the New York Times taking MMT seriously as an intellectual movement. It is the equivalent of publicising fad diets, quack cancer cures or creationist theories. Right? So he's he's not down with it, but his beef is sort of that. It doesn't have enough modelling behind it. And I think I know to me it sort of misses the point like it sort of is talking about MMT as a framework for how the economy actually works. And I think it's been vindicated in the sense that. To the extent that there was an idea that money printing always creates inflation and massive deficit fundings always creates inflation, and you should never do it. I don't know that that was so much an economic idea as it was a political idea like the idea of balanced budgets back in black and all of that. That was more of a political sloganeering that we should always run budget deficits. And you saw that when Covid hit, that commitment to budget deficits was blown out. The window now in Australia got to, you know, gone from having a budget deficit to a deficit of 10 per cent of GDP is like massive. And it's kind of for the moment, it's all okay. And it is. And it's a bit unfair to say that, yes, but now there is inflation and, you know, in six months down the road and we have huge inflation, we look back and go, see, MMT was wrong. But MMT never said there would never be inflation or that there would never be consequences. MMT was saying Where you get inflation is where you have constrained sectors of the of the economy. So, you know, like if you if you ramp up demand for widgets and there's only a limited capacity to bring new widgets to markets, the price of widgets goes up and they're sort of saying that you can you can manage that depending on whether the stimulus in the spending gets focussed. If you stay away from those constrained sectors and then you can do okay. And particularly lately, talking about labour, like if you know, if you have an under utilisation of labour, then you can sort of you can you can manage that with deficit spending as long as there's a underutilisation there, slack in the economy and you're not going to get inflation. So that but that was an argument politically like practically for like three per cent, four per cent budget deficits that M.A. was never arguing for 10 per cent, right? Or like and just gushing money at the economy. The way that we have like, it's been a massive, huge amount of money printed, huge government spending both in America and Australia and pretty much everywhere. And that might lead to inflation. But that doesn't mean MMT was wrong because no one at a practical level was recommending that you kind of have that kind of spending. And theoretically, they weren't saying it was never going to happen. It's just that it's not as simple as money printing equals inflation, which is sort of what when I went to university, that was sort of taken as given. Like, it was never really questioned. 

Adam: [00:12:33] Right? And it's probably then it's too simplistic to say as well. From what I read in the article is money printing does not equal more because you often hear like people talk about MMT and they say, Well, yeah, it's it's basically money printing, almost recklessly printing money and just throwing money at whatever you want. But that's not what if you get into MMT that they're kind of arguing is that they're saying it still needs to be directed? And that was the problem. And why we're seeing inflation now is maybe there was because it was like a Covid response, like a panicked, a sort of panic situation, a panicked response that a lot of the money that was printed is just kind of injected willy nilly into the system and not caring enough about whether the supply was constrained for or not. And it wasn't for a while, whereas MMT probably argues you need to be thinking about that. And that's why, as I said at the top of the show, we're doing it wrong. I think that's that's now the the more people coming out and going, well, yeah, you kind of took the money printing money and you just blindly through to the economy. And so that's why we are where we are.

Thomas: [00:13:39] Yeah. Yeah, that's I think that's right. That's right. But it's also worth noting, like we say, one of the big. So Stephanie Kelton is the big sort of the figure of MMT. And yeah, the pop star of it. We've got a great photo we shared to the Instagram of how she she does her podcast. Yeah. And typically. So there is the sort of the theory of MMT and then this ideology and the practise of MMT. And typically, the practise of it is progressive because it allows for a role for government, allows for a bigger government that tends to be a progressive issue. Conservatives want a smaller government, so they're not necessarily aligned with MMT, but purely as a theoretical model that has no ideological bent is just trying to be a description of how the economy works. It just so happens that people who tend to view that, that you have that paradigm and like that paradigm are also progressive because they're looking for ways to justify more government intervention. 

Adam: [00:14:36] Right. So it's it's like any movement to that, like you always going to get someone to create the movement and then you just get all the hangers on just like jump in. Like, it's probably just like there's like a faction of people who are just like, I just want to print money. Men are just here for the money frenzy. Like, you look at the protests in Canberra over the weekend, it's like flags. But then there's all these little flags that pop up and little slogans, and there's all those sort of hangers on who are just like, Man, I'm here because there's a protest going on. And I want, like cheaper doughnuts is outrageous. And so it's no surprise that they've that maybe everybody's splintered and and fractious. There's people in it for it, just want to say what happens if we print lots of money? All right, Thomas. So everyone in the US is panicking at inflation at 7.5 percent. Turkey, the country has come out, they've said, Hold my beer. Forty eight percent. What on earth is going on in Turkey? Yeah. 

Thomas: [00:15:39] Yeah, there are Muslim countries, though it's probably hope my tea

Speaker 1: [00:15:42] party 

Adam: [00:15:43] of my chai. Yeah. 

Thomas: [00:15:44] Forty eight point six nine percent in January. I don't know why we get two decimal points in Turkey, but that's how they roll. You think we think once you get into the 40s, it doesn't matter about the second decimal, 

Adam: [00:15:53] but you could start rounding up as you as you turn into double digit inflation. It's time to start rounding. 

Thomas: [00:16:02] Yeah, yeah. Eleven point one percent in the month to give us forty eight point six nine percent over the year. 

Adam: [00:16:09] Imagine people in Turkey, just guy. If this hits forty eight point nine six per cent, we are rising. 

Thomas: [00:16:17] Inflation is off the hook in Turkey. It's pretty massive. What's been what's been really interesting about this? So inflation's been rising for a while now. What's been interesting is that the President Erdogan has been pushing for interest rate cuts, so he's cutting into inflation. So that's that's it goes against economic orthodoxy. Normally when inflation's rising, you try and break the back of it by hiking interest rates and slowing the economy down. He's gone the other route to inflation's rising and he's cutting rates. He's there's the interest rates have fallen 500 basis points since September to 14 percent. So that's quite that's quite a substantial cutting programme that's cause the the Turkish lira to tumble. The lira is down 44 percent. Yeah, since since I started slashing rates. 

Adam: [00:17:04] So what school? What school of economics is he working in? It's not. It's not a traditional economic theory. It's not your modern monetary theory. 

Thomas: [00:17:12] You know, it's kind of his own story.

Speaker 1: [00:17:14] So I think 

Adam: [00:17:16] its role, your own economic. 

Thomas: [00:17:18] Yeah, I mean this there is sort of an idea that if you're at a developing economy and you know your export sector is most of your economy is massive, that if you if you slash rates and and crash your currency, that makes your exports cheaper, your exports will, you know, you start exporting more and that export revenue starts driving your economy and things get better and you get you get a boost out of it. And so and this sort of an idea that you might be able to grow your way out of trouble. That seems there is that idea out there. And there was a period in the 2000s where China did something similar and seemed to get away with it. The problem with that idea in the in the Turkish situation is Turkey is not a developing economy. Turkey's more of a middle income economy and it's not, you know, it's not entirely export driven. And when your currency collapses like 44 per cent in a year, that makes imports really expensive. And it means all of the sectors of the economy that are reliant on imports that they start to really struggle because now they've got to pay more for their imports and they get into trouble. And so it doesn't seem like there is no one out there that I've read that says that this is the right course for Turkey's current economic situation. But that's he's a he's a populist and this seems to be, you know, he's I think if sacked the central bank governor three times in the past two years or something like 

Adam: [00:18:50] that, yeah, well, he's probably trying. It is probably just trying to do economic stuff and the president's like, Nah, man, I can't. You just can't be bringing traditional economics gear to this situation where we're we're making it up as we go along now. I'm pleased to hear that their exports going to be still still pumping, though, because they do know Turkey accounts for 75 per cent of the world's production of hazelnuts, right? Hey, you guys, 75 per cent, though, so. So man, if if that stops functioning, we run out of Nutella, that's all I'm saying. I don't know. Freak anyone out, but my kids are pretty into it.

Thomas: [00:19:26] The Nutella crisis of 

Adam: [00:19:28] 2020 to hit first. All right, let's take a break here. Grab a word from our sponsors and be back with more. Comedian versus economist right after this. Thomas, Josh Frydenberg came out and he's now talking about the great reshuffle, which sounds like a really boring poker game, what's the what's he actually talking about?

Thomas: [00:19:47] Yeah, same thing. We're not seeing a great resignation in Australia, though. There's been a bit of rumours that we might see a great resignation like we seem to have seen in the US. So that's another point of difference between us and America. But we're we're not seeing a great resignation. We are seeing a great reshuffle. So there were some Treasury analysis that showed a record 300000 workers in the December quarter had left their jobs for a new opportunity. Yeah, so, Frydenberg said, unlike some other countries, we are seeing a great reshuffle rather than the great recent resignation compares with in America, where there are 2.8 million fewer Americans in the labour force before the than before the pandemic. So it's quite a substantial drop in the labour force. We haven't seen a fall in our labour forces. It's held up. Apart from the full blow to immigration, 

Adam: [00:20:31] do they know why? Like, are people just looking for something different to do or are they kind of chasing more money? 

Thomas: [00:20:37] I would expect they're chasing more money, and there's lot opportunities like the labour market is very tight. You're hearing of some sectors, particularly tech, where there's a real labour shortage and some some tech salaries are booming. So I suspect people are going for the higher wages. It's really interesting because there is this bit of a narrative that we can be a bit more relaxed about wages in Australia because we have a stickier wages system, because we have the accord and we have a minimum wage. The Fair Work Commission looks at the minimum wage every year. It gets a slight adjustment and then that feeds through through the award system that wages in Australia tend to be sticky and a bit slow to respond to economic circumstances. So while the economy is heating up, wages tend to be a bit slow moving off. That's only true if people stay in their current jobs and get a pay rise from their current employer. If people start jumping jobs and finding new employers and finding higher wage rates, then you could see a much quicker lift in in wages than than we were expecting. 

Adam: [00:21:37] That's interesting, and I don't know if there's more investigation needed here, but. It's a pretty volatile time, you know, with Covid and everything else happening that I just imagine like I wonder how many how many of them were like voluntary. You, I mean, like people were like, Oh, you've reshuffled your job? Yeah, I had to because the place I was working at closed down because Covid. 

Thomas: [00:21:57] Yeah, I think that I think that would be captured in the survey question specifically says left their job for a new opportunity. So it's not like I lost my job, it's that they've actually left their job for a new opportunity, right? 

Adam: [00:22:09] Assuming people read the question, 

Thomas: [00:22:11] we are we are seeing you like in the vacancies data, like in the number of job ads, it's booming. There's huge number of vacancies. Job ads are at record highs. The labour market does look really tight. Unemployment at 4.2 percent. It's really tight labour market. So it's not surprising that people that wages are lifting that we're hearing a lot of firms talking about having to pay more to find secure the right talent. So it's consistent, I think, right? 

Adam: [00:22:34] So it's not because people have lost their jobs. People are just negotiating better jobs. So again, maybe you should go and talk to your boss or maybe talk to someone else's boss.

Thomas: [00:22:46] Tell them at Amazon. 

Speaker 1: [00:22:47] You know,

Adam: [00:22:49] Thomas, the price of your average donkey has gone through the roof. Massive price rises across the board, apparently. Apparently, it used to cost about six to $700 for a donkey, and now it's about two and a half thousand dollars. Can you tell us why donkeys are why the price of donkeys is increasing so much? 

Thomas: [00:23:12] Certainly more than that. So three years ago, pre-COVID, you could get 60 Dollars ahead. The donkey for a donkey is pet meat. Then apparently it's jumped up during Covid to six to $700, and now it's two thousand five hundred. That's huge. It's huge. He knew the winning trade of Covid was going long donkeys. 

Adam: [00:23:34] Oh man. Yeah, I think it's it could become it could become a big issue. Like because people, you know, obviously the cost of donkeys. And if this becomes an election issue, then we could see a lot a donkey votes on the side of 

Adam: [00:23:49] farmers, apparently that the farmers are using them more and more farmers using them to protect their livestock, to protect the 

Thomas: [00:23:54] sheep, protect against dog attacks. Apparently, they want one pharmacies that in Geraldton was saying that dog attacks were costing him $10000 a year. So we had paid 3000 appear for a pair of donkeys and figures. That's a good, good return on investment. 

Adam: [00:24:08] So a male donkey collar, a jack or a jackass? Right? Female donkey is called a Jenny. Or sometimes Karen. And. So these these donkeys that are out because I never think of a donkey as a particularly kind of aggressive animal or like even an animal that there was that survey we did last year, like which animal do you think he could be in a fight? Yeah, I would have pegged the donkey a fair way down the list, like, well, down from Bear. And if I was looking for something to protect my farm like, these mustn't be you run of the mill jackass donkeys, these must be bad arse donkeys to protect the livestock.

Adam: [00:24:57] going to be. There's going to be puns throughout this tape. Well, I have to. Because Tom, he's look so docile and boring. Like, I kind of like if a dog flies on the far right is looking to get some sheep. Hmm. I just don't imagine that there's a tough looking donkey standing in the corner. This like a dog. What are you doing? 

Thomas: [00:25:15] It's true. I think one of the one of the reasons they're selling wool is that they're very friendly with humans. That's one of the one of their selling points. Yeah. But then the dog attacks seem to be what this farmer in Geraldton was saying was that it's it's not that the dogs aren't hunting the sheep, they just come on for a play and then just end up mauling the lambs and the lambs 

Adam: [00:25:32] die as a funny image for you Wednesday morning. 

Adam: [00:25:38] All right. And so and so the donkeys, it is scaring them off. Yeah, I think kind of seeing this massive thing a big donkey. Maybe the dog thinks it's an oversized dog. Like, if we got tough donkeys, this is opens a whole new world of opportunities. We could put them in, like put them at the front of nightclubs without places to go, the donkeys at the front, checking Daisy Covid chickens down, bounce the donkey. We deal to deal with troublemakers a right. You're out with some pretty clever donkeys ourselves that we know as smart as when we say Oh. 

Thomas: [00:26:18] But apparently the reason the men's spiking is from China. So the the skins purportedly have medicinal benefit in China. And I don't know, maybe there's a Covid connexion. But yeah, Chinese people have been stocking up on donkey skins, and that's that's caused a boom in donkey demand.

Adam: [00:26:35] Yeah. So it's not just the skins in China that they're after, but the other issue they've got with donkeys is donkeys. Donkeys are pregnant for 14 months. Move, and they don't work when they're pregnant. So. So that's one of the big issues like is they can't make donkeys fast enough. And then when you get a pregnant donkey, pregnant donkey can't fight dogs, but we'll do whatever whatever you've paid, you've got the donkey before. So, yeah, I think there's a supply issue. There's a supply kind of maybe donkeys that hard to ship around the world to. But yeah, I think breeding donkeys is pretty tricky. So if you're looking forward to a to another donkey panel joke right at the end, I'm going to sit down. I don't want to mock pregnant donkeys. There are some places I won't go on the show. All right. But that's that wraps us up on that note for this week. Thank you once again for joining us. Don't forget, check out the ASX share market trading game. We hope you'll join us for that. And, of course, get your eyes around all the other great shows from Equity Mates Media Get Started Investing feed Equity Mates Investing Podcast. You're in good company. Talk money to me. And, of course, crypto curious. So yeah, thanks again for listening. We will talk to you again next week. See you!