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Australia Seen Needing Stimulus To Avoid Recession

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Australia could face its first recession in almost 25 years unless authorities further stimulate the economy, Morgan Stanley (MS) said.

The nation’s economy will expand just 1.9 percent in 2015, with 1.5 percentage points of that coming from higher exports, and unemployment will climb to 6.8 percent, Morgan Stanley economists led by Daniel Blake said in a research report today. They project the currency will fall to 76 U.S. cents by the end of next year from 87.37 cents at 11:10 a.m. in Sydney.

“The economic transition in Australia from the resources boom to east-coast recovery has stalled,” they said. “We revise our key forecasts downward, which in turn make future policy settings key to avoiding recession.”

Policy makers are playing a waiting game for low interest rates to gain traction beyond a surging housing market in the country’s eastern states. The Reserve Bank of Australia has kept its benchmark interest rate at a record-low 2.5 percent for the past 15 months to boost growth and hiring.

“William McChesney Martin Jr. vividly described the Fed's role as to "take away the punch bowl." In essence, the Fed was supposed to be the "adult chaperone" at an economic party that was likely to get out of hand. Thus, the Fed was supposed to allow, even induce, if necessary, the occasional recession to cleanse the excesses of the economy”

We've moved along way from this principle now the central bank role is to continually top up the punch bowl and bring in an even bigger one and keep the party going.

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