The Reserve Bank will increase interest rates on Tuesday for the fourth time this year, and what's more, it will be a "hawkish hike" — that is, with suggestions of more to come.
asserted
that → increase → more
But there are now three new factors entirely outside the bank's control that are pulling in different directions:
- A new front has opened in the Iran war with dire American threats of escalation;
- AI autonomy, and therefore productivity, might now be curtailed;
- Migration will be reduced.
uncertain
Migration → be → escalation
The first will tend to increase inflation and therefore push interest rates higher — though it's likely to be short-term — while the second and third are longer-term and will tend to lower inflation and interest rates by reducing growth.
asserted
second → tend → growth
Two weeks ago, the Iran-backed Houthis launched a wave of drone and ballistic missile attacks on Saudi Arabian oil terminals and pipelines in the country's south.
asserted
Houthis → back → south
Two days later, they defeated Saudi forces on the Red Sea coast and captured the port of Mokha.
asserted
they → defeat → Mokha
As of last week, the Houthis now control the entrance to the Red Sea, the Bab el Mandeb Strait, and have severely damaged the east-west pipeline with which Saudi Arabia had been bypassing the Strait of Hormuz to get oil to the global market.
asserted
Arabia → control → market
If the Houthis and Saudis engage in a full-scale war, as seems increasingly likely, the oil price will head towards $US150 a barrel.
asserted
price → engage → US150
In any case, effective Iranian control of both the Strait of Hormuz and the Bab el Mandeb Strait fundamentally alters the world's energy supply equation, for the worse.
asserted
control → alter → worse
Meanwhile, on Tuesday last week, US President Donald Trump addressed the United Nations General Assembly and wondered aloud: "Do I annihilate the Islamic Republic and do it quickly, never giving them a chance to kill and destroy people and countries again?
asserted
I → address → people
Do I drive them into hell with no chance of survival and no hope of future greatness or generations?
asserted
I → drive → greatness
"
That got the usual rolled eyes over another comically outlandish Trump statement, but there is a serious side to this.
asserted
That → get → this
Trump and his advisers would now realise that the current stalemate that had been keeping the oil price under $US100 a barrel is no longer tenable, given a second front in the war has opened that directly engages Saudi Arabia.
asserted
that → realise → Arabia
The US must find a way to end it quickly, to prevent an economic and political disaster, and as usual Trump's opening gambit is bluster, albeit an extreme version.
asserted
gambit → find → version
But annihilation of Iran is not possible — even Trump won't do a Harry Truman and drop an atomic bomb on Tehran — and anything short of that is unlikely to work, so the only viable next step is diplomacy and negotiation.
asserted
step → drop → that
That means giving Iran, and the Houthis, what they want and probably just bringing back the Iran nuclear deal, the Joint Comprehensive Plan of Action (JCPOA), that was signed in 2015 and torn up by Trump in 2018.
asserted
that → mean → 2018
The whole point of AI is its autonomy
As for AI, everything changed last week with the revelation that an OpenAI agent hacked a Medicare data portal in July, on top of the infamous Hugging Face attack also in July, in which a swarm of 700 OpenAI agents hacked that company.
asserted
swarm → change → company
On Wednesday, as reported by AP, the heads of major artificial intelligence firms "pleaded with the United Nations … to save the world or at least its people — by somehow regulating the fast-expanding technology that they have been designing".
asserted
they → report → that
Dario Amodei, CEO of Claude developer Anthropic, said: "If managed poorly, I even believe AI could be a risk to humanity as a whole".
uncertain
AI → say → whole
Sam Altman, CEO of OpenAI, said: "We could lose control of the future to AI."
And on Thursday, Chinese President Xi Jinping said AI must "always be under human control".
Yes, but the whole point of AI and its benefits is its autonomy.
uncertain
point → say → AI
As historian and author Yuval Noah Harari said in a recent podcast: "This is the first time that we are creating agents, and not tools."
asserted
we → say → agents
"In the Industrial Revolution, you created steam engines, trains, ships, looms … but these were all tools in our hands.
asserted
these → create → hands
We still make the decisions, and we still decide how to use them," he said.
asserted
he → make → them
An agent is something that can make decisions by itself and invent new ideas by itself.
asserted
that → make → itself
It doesn't wait for us.
asserted
It → wait → us
And right now, the point that all the AI corporations are focused on is the moment of what they call recursive self-improvement, the moment when the AIs themselves can build the next generation of AIs, that build the next generation of AIs."
asserted
that → focus → AIs
Patrick Collins, CEO of cybersecurity firm Dam Secure, told me last week that the Medicare and Hugging Face hacks made it clear that only autonomous defence would eventually be able to deal with autonomous hacks.
asserted
defence → tell → hacks
That is, we are heading for a world in which autonomous AI agents slug it out in the ether on our behalf, unmonitored and uncontrolled.
asserted
agents → head → behalf
Can that future be avoided with guardrails?
asserted
future → avoid → guardrails
As Elon Musk told an interviewer recently, we're already on the rocket ship.
asserted
we → tell → ship
The main reason interest rates will go up on Tuesday is that Australia is exceeding its GDP "speed limit" — what the RBA calls potential output.
asserted
RBA → go → what
The rising oil price is only part of it.
asserted
price → rise → it
This speed limit has fallen from more than 3 per cent to about 1.8 per cent because of lower productivity, the effect of which has been masked by very high levels of immigration, on which more below.
asserted
effect → fall → which
In last week's Intergenerational Report (IGR), Treasury forecast long-term productivity growth of 1.2 per cent, up from minus 0.2 per cent in the latest 12 months.
asserted
Treasury → forecast → months
The source of that dramatic rebound in productivity, almost double what the RBA itself is forecasting for the next few years, is not revealed by Treasury, except that it has a lot to do with AI.
asserted
it → forecast → AI
No-one has worked that out yet, but it's clear that the further into the future you look, the more autonomy is a factor.
asserted
autonomy → work → future
The IGR looks 40 years into the future, but those building AI are saying it could take over, and possibly kill us all, within 10 years.
uncertain
it → look → years
You could conclude that AI makes the IGR pretty much irrelevant, which Treasury tacitly acknowledges by making the first chapter in the 2026 report about AI, but you could also conclude that the current debate about AI autonomy is crucial for any predictions of productivity growth.
uncertain
debate → conclude → growth
If AI autonomy is curtailed, assuming it even can be, then the government's forecasts of improved productivity growth and therefore an increased speed limit for the economy will be wrong.
asserted
forecasts → curtail → economy
They'll probably be wrong anyway, but they will be even more wrong if the world manages to rein in AI.
asserted
world → manage → AI
LoadingWhat will cutting migration do?
asserted
cutting → cut → migration
…and 8 more, not listed.
The Aporia
