THE DISTILLERY: Medcraft's musings

Scribes chew over some big economic issues, with one looking at the ASIC boss' suggestions for regulatory reform and another pointing to the QE cause of market volatility.

We’ve got the typical weekend musings about the state of the Australian economy from our nation’s business scribes, but there are a few nuggets of gold in this Monday’s edition of The Distillery. However, there’s some news on the state of global financial regulation led by Australia’s very own Greg Medcraft, a succinct explanation of why the markets are volatile at the moment and some home truths about Australian manufacturing.

Not a bad way to start the week, that’s for sure.

The Australian’s John Durie explains how Greg Medcraft, as head of the Australian Securities and Investments Commission and international regulatory group IOSCO, is looking for a radical shift towards financial regulation geared more towards how consumers make decisions. The British model, driven by the Financial Conduct Authority, is a prominent potential model.

“The FCA has been running only for a couple of months and is a direct response to the perceived failure of the old model adopted by the Financial Services Authority to increase trust in the market. The IOSCO focus on behavioural economics comes ahead of opposition Treasury spokesman Joe Hockey's proposed financial services inquiry, assuming he is elected in September. The regulatory framework will be a key focus of the inquiry, including whether to maintain the existing split between the Australian Prudential Regulation Authority's regulation of banks, superannuation and insurance, and ASIC, which is focused on market integrity, companies and consumer protection. The rapid growth in super savings and use of the financial markets to raise funds underlines the blurred lines laid down after the Wallis inquiry in 1996. Potential new boundaries will be considered along with a new philosophical basis for the new model. The global financial crisis fallout and how to minimise the impact next time around still dominate regulatory debate globally.”

The Australian’s economics editor David Uren really cuts to the core of the market volatility with his opening par.

“The turmoil in world financial markets over the past two weeks is a foretaste of the risks generated by the extraordinary monetary policy of the world's major central banks. Investors are looking to this week's two-day meeting of the US Federal Open Market Committee for some reassurance about the pace at which the Federal Reserve Bank intends winding down its purchases of government and mortgage backed bonds, now running at $US85 billion ($88 billion) a month. Since chairman Ben Bernanke confirmed on May 22 that the bank was considering ‘tapering’ the program because of improvement in the US economy, there have been tidal shifts in world markets.”

Uren reminds us that experts and commentators warned us from the beginning of quantitative easing that getting out of it would be difficult.

Meanwhile, The Australian Financial Review’s economics editor Alan Mitchell enlightens his readers with the true state of Australian manufacturing, which is portrayed in the media as being in terminal decline due to the inevitable departure of the local automakers.

“Australian manufacturers are producing one and a half times the output they produced in the 1970s, and they are doing it with less government assistance. Moreover, Australian manufacturing is not made up of the generously assisted car, metal and fabricated products and textile, clothing and footwear (TCF) industries. In fact those industries account for only about 20 per cent of manufacturing’s contribution to the nation’s economic output, and about 24 per cent of manufacturing employment.”

Fairfax’s Malcolm Maiden argues that the foreign exchange market is so large that the reported investigations in London into apparent manipulation attempts are likely to come up with nothing.

In economic matters, The Herald Sun’s Terry McCrann writes that the Australian economy is beholden to the movements of China and the US, and the next six months or so will prove to be a crucial period for both these economies that we rely on.

The Australian Financial Review’s Chanticleer columnist Michael Smith explains how retailers are still struggling to get to grips with their consumers, who would normally be encouraged by low unemployment numbers and interest rate cuts, but are still perturbed by the pending election and the recent spike in petrol prices due to falling Australian dollar.

In company news, Fairfax’s Elizabeth Knight reveals that one of the first things given to Echo Entertainment boss John Redmond – fighting allegations that he fell asleep at a bar of The Star because he was drunk, not jetlagged as he protests – was a biographer of billionaire James Packer by the highly respected Paul Barry.

Fairfax’s Michael West runs through a long history of sketchy internet vehicle valuations to give context to the pending float of comparison iSelect. The key to the article is Australian tearaways like Realestate.com.au, Seek, Carsales and TradeMe might be unquestioned success stories, but they control the inventory.

iSelect is a comparison website, which is a slightly, but importantly, different beast.

And finally The Australian Financial Review’s Jennifer Hewett has a great way of describing the latest Labor leadership ructions: a “spontaneous political combustion”.