Spiralling out of control ...
Date: Tuesday, February 22, 2011
Author: Henry Thornton
... The Middle East? Well yes, but this is the ABC's description of the sad situation in Alice Springs.
Apparently there is a flood of 'thugs' from the remote communities, where booze is banned and there is no work. The blokes from out-of-town add to drunkenness, crime and violence and their kids roam around looking for food and, presumably, drugs.
Meanwhile, Australia has over 1000 refugee kids in detention centres, some of whom will eventually become dissident adults prepared to wreak who knows what damage to our way of life. Labor promised to get the children out of detention but evidently cannot even get that right.
All horribly awful.
The price of oil has broken through the $US 100 barrier even though experts say any regime needs to keep the oil wells running.
But presumably oil wells can be set alight, and it is not beyond imagination that Iran and Saudi Arabia might yet catch the freedom bug.
But the best thing I can do it report the views from the global news centres.
'SEMINAL moments in revolutions do not come at nicely spaced intervals, but in a bewildering cascade. The accelerating rush of events leading to the abrupt downfall of Egypt’s president, Hosni Mubarak, came so cluttered with markers signifying radical change that their deeper implications can be hard to discern. The country’s streets have now calmed, with the army in charge of a wobbly interim government. But the smallest happenings in Cairo still reverberate with new meanings, not only for Egypt but for the surrounding region.
'One such little scene with big implications played out some 36 hours after Mr Mubarak’s exit, when two top generals from the military council now ruling Egypt hosted a chat with some of the youthful campaigners whose organisational genius, to their own surprise as much as anyone’s, finally toppled Mr Mubarak on February 11th. In a Facebook post, the visitors described the meeting as encouraging. Not only did the generals, both in their early 60s, affirm the army’s commitment to the goals of the revolution, including a swift transition to democracy under civilian rule. They also showed “unprecedented respect for the opinions of young people”.
'For Egyptians inured to rigid hierarchies of class and age, this last point was telling. Only a week before, as huge demonstrations engulfed the country, Mr Mubarak’s short-termed vice-president, the dour ex-head of intelligence, Omar Suleiman, had infuriated young Egyptians by suggesting that the protesters’ parents should tell them to go home. His prime minister, Ahmed Shafik, when pressed to apologise for a murderous attack on unarmed protesters by paid pro-Mubarak thugs, promised sarcastically to send the victims chocolates and sweets'.
Is this a Great Crisis of Capitalism?
It may be far better than that, and if you read Henry's book you will find that neither the mad mullahs and blood-crazed dictators of the Middle East nor China pose the greatest threats to the capitalist system.
(And we learn that Australians are involved in research to aid the program to create 'limitless clean energy' from fusion, 'the energy that drives the sun'. Henry, whilst being a warrior for science, wonders if this is the best use of scarce dollars for science.)
(Goods and services) inflation lower than expected.
The economics team at nab report today: 'The RBA was forecasting the CPI to be at 3 % by the end of the June quarter. That forecast has now been shot to pieces by today’s outcome of 2.5 % over the year to the March quarter. We would need to see 1 % headline CPI for the June quarter to hit 3 % after today’s print.
'The lowish inflation outcome for the CPI today confirms our view that there are downside risks to inflation forecasts for the remainder of 2013, both NAB’s and the RBA’s. While the RBA has been saying for some time it has room to cut if it needs to, in our view the RBA is now being squeezed by soft domestic demand and downside inflation risks. A rate cut cannot be far away and two more (in total) over the course of 2013 continue to look likely. ...
'In the details, it is clear that the high AUD and weak demand globally is helping the low inflation outlook. Tradeable goods and services inflation fell by 1.2 % but Non-tradeables rose by 1.3 %. So domestically generated inflation is still worryingly high'.
The trouble is that when (not if) the Australian dollar falls, traded goods inflation will rise, as sharply as the dollar falls. If domestic inflation is still strong, which is possible, the inflation target may be breached, and in a worst case, the RBA may be forced to suspend its inflation target. Perfectly understandable, but the unwashed will see it as putting egg on Glenn Stevens' face.
News on this front continues to be mixed, and therefore confusing.
Lest we forget.
Australia's holiest day is celebrated tomorrow, and we urge readers to pause to remember the brave men and women who gave their lives to protect us from various threats.
Essendon and Collingwood fight it out at the 'G', in remembrance of the battle for the Kokoda Track.
Then Sydney and St Kilda make history in New Zealand, playing 'the first game for points on foreign soil', recalling the brave ANZACS who fought in the Boer War.
Caaaarlton! makes its appearance on Saturday afternoon, versing (as Henry's youngest sprog used put it) Adelaide at the 'G'. Another must win challenge for the Mick Malthouse Blues.
Assets boom, economies struggle
Date: Tuesday, April 23, 2013
Author: Henry Thornton
'Lukas Podolski, a German football player, described the game as "like chess, only without the dice".' This was quoted by The Economist's Buttonwood in a nice article about the big fall in the price of gold, accompanied by renewed falls in bond yields and general increases in equity prices, which nevertheless fell like a stone on the same day that the price of gold was falling sharply.
Perhaps, Buttonwood opined, investors were just as confused as the German footballer.
The graph in Buttonwood's column (p 64 in this week's print edition but no link I can find) puts recent gyrations into a longish perspective, but does little to dispel confusion. The prices of both equities and gold have risen very sharply in the past decade. Equities were first to take off and reached a peak in 1999 after one of history's greatest share booms. There have been two busts since then and recently a new record has been set. Clearly equity market participants are nervous, as share prices have been virtually trendless in the decade and a bit from that 1999 peak, with large sell-offs on small bits of adverse news.
The price of gold languished until the early 2000s but rocketed up to almost US$2000 per ounce before the recent collapse. Gold bugs, however, re-entered the market to prevent further damage at US$1400 per ounce, which is bad news for Henry who had planned to buy a bit more at US$1000 per ounce.
Henry's optimism about both shares and gold comes from his study of the relationship between asset inflation and monetary policy. While often share prices and goods and services inflation fluctuate up and down with changes in monetary policy, this has not been the case in several crucial times, including the Roaring Twenties in the USA, the great Japanese asset boom of the Eighties and the equally Roaring USA Nineties.
These are all times when goods and services inflation was moderate and the relevant central banks were patting themselves on the back, in America's case with a future Fed Chairman who wrote about the 'Great Moderation' of the 1990s, which he attributed largely to the Fed's brilliant monetary policy. They were all times when the share boom was followed by the mother of economic busts. The bust of the 2000s has been moderated by near zero official interest rates (initiated by Greenspan, repeated by Bernanke, plus bail outs of failed banks and massive 'Quantitative Easing (QE)' as the US Fed sought to 'clean up' after the share boom.) Perhaps, Henry wonders, the Fed just delayed the consequences of the share boom and related poor behaviours by financiers.
Milton Friedman's famous hypothesis that 'inflation is always and everywhere a monetary phenomonon' is correct, except one needs to include asset inflation, which he did not. In fact, it is the combination of subdued goods and services inflation, apparently firm monetary policy and booming asset inflation that signals the time for central bankers to be most worried. The dice come into the picture as the timing of the reversal of the asset booms is arbitrary, due perhaps to a butterfly's wing in Brazil or an inexplicable data report from just about anywhere.
If readers are confused, you are on the pace. Now is a time for investors to be especially cautious. Henry apologises for the imprecision of this advice, but anyone who claims to be more precise is a crook or a silly boy smoking (or injecting) an illegal substance. We shall explain in more detail when Henry's academic paper is in a relevant journal.
Budget stuffed - what a surprise!
Date: Monday, April 22, 2013
Author: Henry Thornton
What a surprise. Australia's budget is in such deep trouble that the much promised budget surplus has evaporated and now we face deficits as far as the forecasters can see.
Treasurer Swan does not believe in 'mindless austerity'. Neither do us citizens, Mr Swan, but then we were also opposed to mindless spending, spending that continues to be thrown around like inebriated sailors on shore leave after a long voyage.
We told you cheques sent to consumers when the GFC struck were not needed. We said at the time that putting pink batts in the ceiling was a mistake, then it got worse - they had to be taken out again. We pleaded with you not to throw money at schools for extra rooms the schools neither needed nor wanted. The NBN was always going to be a white elephant and, unless strong remedial action is taken by Malcolm Turnbull after September 14, it will become a 100 billion dollar white elephant.
Then, you say, events beyond your control took a 'sledehammer' to revenue.
You spent a lot of Treasury's energy and your political capital introducing a carbon tax despite repeated promises not to do that. Surprise, surprise, recession in Europe destroyed the market for carbon credits you relied upon to 'compensate ' people most of whom we cannot afford to compensate, for reasons to be explained shortly.
Ditto the mining tax - handicapping our best industry with a new tax is about as foolish as it would be for a fooftball team to put rocks on their best players' jockstraps. At a rough count, about five major mining projects have been shelved - not all your fault, Mr Swan, you just forgot that squeezing the golden goose til it goes away makes no sense.
Consumers began saving, and companies began deleveraging, imposing austerity on themselves with sensible knowledge that the good times would not last. No wonder tax revenues began to dry up. Your government decided it was appropriate to introduce new spending programs, inventing vast new schemes for throwing money at schools, welfare recipients, left-biassed publications. You continued stacking government posts with Labor cronies, often well-intended but mostly incompetent. You decided to impose a new tax on those people you called 'fabulously wealthy' because by earning well and saving prudently they had removed themselves from the need for a pension provided from the public purse, which was Paul Keating's original, entirely legitimate, purpose.
Gor blimy, mate, then commodity prices fell and Treasury finally stopped assuming this time it would be different and fessed up that the budget was ... I think 'totally stuffed' is the technical term.
You, Treasurer, say its like being hit by a slegehammer.
The sense of confusion you feel is most likely due to too many drinks in the front of the aeroplane on the way to some conference of the worthies, all struggling with budget deficits as far as the eye can see. I guess you would not be totally embraced by the worthies while you were bragging about your budget surplus, but now you have been forced to fess up about that you are revealed as just another boastful colonial yoick descended, as the worthies know only too well, from some of England's finest conmen and criminals. (Did no-one tell you 'finance minister of the year' was like being selected to win a footy match by Lou Richards?)
So now we all face austerity. The budget hole will not be closed without both spending restraint and tax increases. That is why we cannot keep throwing money at worthy causes. Here is a plan. The good news is that this is not being imposed by Australia's paymasters. But if we do not stop the rot, the IMF, China Inc or some similar paymaster will.
Saturday Sanity Break, 20 April 2013
Date: Saturday, April 20, 2013
Author: Henry Thornton
A tiny twitch in China's reported GDP sent share markets, gold and other commodity prices and expectations generally south.
In other signs of the times, BHP's new chief agrees to - is said to have initiated - a 25 % cut in his base pay, and nab continues its long drawn-out cutting of its senior management ranks, with much unhappiness in Melbourne's leafy Eastern suburbs, where children are battling to find jobs while parents battle to keep them.
Sky News tried to get Penny Wong to specify how big would be the cuts to the public service, but the lady was not for turning, or even commenting.
It is a twitchy world we live in, and the AFR's editorial says: 'Black clouds are gathering on the global economic horizon but despite the many warning signs about imbalances and faltering growth in major economies, notably China, Australia seems to be sleep walking. We are stumbling along, ignoring the problems now evident in the US, as well as China, India and Brazil – the emerging economies that kept the world economy going and permitted Australia to sail through the financial crisis'.
The beating taken by the price of gold will eventually bring the price of an ounce of the 'barbarous relic' to a level where people worried about the next surge of global inflation can add to their holdings - anyway, that is Henry's plan.
Henry has been dumped from the top spot on Google, presumably because other Thornton fans have paid for this priority.
Here is a link, or simply put 'Henry Thornton' in your google search box and go check.
Henry is delighted to see this upsurge of publicity by the other Thorntons, and readers will learn a lot just by browsing among the offerings.
The antics of that 'sports scientist' who has landed Essendon in the soup seem also to have entrapped Melbourne, and no doubt further reports of substances, banned or unbanned, injected or merely taken with fruit juice, will be revealed.
Meanwhile Caaaarlton! - one hopes not a drug using club - is three zip and has flown to Perth to take on the mighty Eagles in their nest.
No team has ever made the finals with a four-zip start to the season, so the Blues need to win tonight.
One of Henry's sprogs has revealed the thought that supercoach Mick Malthouse will do the big 'clean-out' of dud players at the end of this season. Henry wishes Caaaarlton!!! still had Satanta O'hailperan running round the forward line belting blokes - and once even gave one of his own a needed kick up the bum. Too nice, the modern Blues.
WOMEN WHO KNOW THEIR PLACE - provided by one of Henry's favourite females.
Barbara Walters, of 20/20, did a story on gender roles in Kabul, Afghanistan , under the Taliban regime, several years before the Afghan conflict.
She noted that women customarily walked five paces behind their husbands.
She recently returned to Kabul and observed that women still walk behind their husbands. Despite the overthrow of the oppressive Taliban regime, the women now seem happy to maintain the old custom.
Ms Walters approached one of the Afghani women and asked, 'Why do you now seem happy with an old custom that you once tried so desperately to change?'
The woman looked Ms Walters straight in the eyes, and without hesitation said: “Land mines.”
So the moral of this story is, that where ever you go, & no matter what language you speak:
BEHIND EVERY MAN, THERE'S A SMART WOMAN (and a very surprised Mother-in-Law).
Image of the week
And, speaking of high performing females, cop this fellas.
Australia`s Asian century
Date: Thursday, April 18, 2013
Author: Henry Thornton
Australia is again at The Crossroads. This methaphor has been used before, notably by Dick Blandy and other far-sighted economists many decades ago. Either Australia's world is full of Crossroads, or Australia has stumbled into an economic policy housing estate in which crossroads are everywhere. Still , the latest 'Crossroads' warning bears repeating, and the current government's tin ear makes repitition necessary. Henry never thought he would yearn again for the orderly communication and clear thinking of the Hawke-Keating double act.
'THE nation's top CEOs have urged brave policymaking from Australia's political leaders, saying they must be prepared to lose their jobs to lift national prosperity'. That'll go down well in the Lodge, but it might get someone's attention,.
''Business Council of Australia chief Tony Shepherd today presented a new plan to advance national prosperity, calling for tax reform, workplace deregulation, the abolition of COAG, red tape cuts and a population strategy to guide infrastructure planning.
“The plan we're putting forward for Australia requires political leaders who are prepared to lose their jobs to get things done,” Tony Shepherd told the National Press Club.
“The test of reform for us is whether it advances national prosperity over the long term. Not whether it advances the attainment or retention of power.”
Representing the nation's top 100 CEOs, Mr Shepherd said decisions made over the next six months would have a critical impact on the nation's future.
He said the top priorities for policymakers should be fixing the tax system and the federation.
“If we don't get this one right, none of the rest of our actions will matter much.” Read on here.
Australia's Asian Century
Greg Sheridan has demolished the totally unhelpful 'Asian Century' White Paper.
'All resource-based economies have looked good during the last minerals boom - Australia, Indonesia, Canada, South Africa, even Russia. This is not a sign of brilliant economic management.
'Take another example. There has rarely been an official publication more fatuous than the Australia in the Asian Century white paper. Simplistic, unsophisticated, one-dimensional and bizarrely determinist in its treatment of Asia, it is almost North Korean in its propaganda distortion of Australia.
'Last week in China, Julia Gillard was once more spruiking the wholly mythical Asian language claims of the white paper. Her formulation - that every Australian child will have access to a priority Asian language including Mandarin - is a perfect example of the meaningless symbolism that is the chief coin in which the Gillard government traffics.
'It is an absurd formulation. It describes no meaningful outcome, it manages to avoid any accountability for the total collapse of Asian language study under Gillard, and it embodies weasel-word ambiguity, to be unaccountable in the future too.
'Under Gillard, Indonesian language study has become almost extinct in schools and universities. Fewer final-year high school students learn Indonesian than in the last years of the White Australia policy.
'And in some states fewer non-Chinese-background students learn Mandarin than learn Latin. On the basis of language policy, the government could more credibly publish a white paper on Australia in the Ancient Roman century (not that I'm against Latin). In nearly six years in office, Labor has done nothing to arrest these catastrophic declines. Instead it has cut funding to those programs that had some success in recruiting teachers and students to Asian languages. It has even cut funding for Australian teachers visiting Indonesian schools'.
I could go on, but readers can absorb Mr Sheridan's expose in their own screens or even in the fish'n'chips version of the Oz.
We have our own small case to put on the pile of absurdity as developed by an Australian university lead by a well-credentialled Labor warrior.
Two years ago, as part of the new 'Melbourne [university] model', our daughter had the privelege to be part of a group of geography students who spent two or three weeks investigating labor relations by interviewing business leaders and workers located on ther banks of the Yangtze River. This was lead by a Melbourne University professor of Chinese origan, and included tranlaters in case our darling and her classmates could not make themselves understood in halting Mandarin.
When the class returned home, they had to write a report, on which they were assessed. A sensational initiative.
Two years later, our number three sprog, a boy studying for the Commerce degree, decided he would like to do the same subject as one of his 'breadth' subjects. The professor welcomed him, but the administration told sprog3 'Nein' - this is not allowed for Commerce students. After a period of angry brooding, Mrs Thornton wrote to ask the Dean of the Business and Economics faculty (as 'Commerce' is now called) could this ruling be right. 'Yes' replied the Deputy-Dean, 'but it is a ruling of the Arts Faculty, not us'.
This incomprehensible decision is apparently due to some quirk of bureaucratic politics. But all is not lost - an allowable 'breadth' subject for a Commerce student is, wait for it, 'wine tasting' - practical, of course, but only loosely related to Australia's Asian Century. Can we sue the university of our lad develops an addiction to wine, that is the next question, gentle readers.
But enough of our troubles, which are far smaller than those faced by a Deputy-Dean, or a Vice-Chancellor, or a Labor Prime minister who has systematically alienated all her support base but that of left-leaning union chiefs who plan to enter parliament as their retirement job.
Greg Sheridan deserves the final say on this issue. 'The government, of course, has not the slightest interest in Asian languages, at least not as they exist in the physical universe. It is interested in them only as a declaratory symbol, a policy of ghostly announcement, shape without substance, form without weight, conjured spectrally into existence only for an election campaign.
'Even here, however, Australian society, independent of wretched government policy, comes to the aid of the government. In many ways, much of Australian society has never been more Asia-illiterate than it is today. But this is spectacularly untrue of one element of our society. Asian immigration over 45 years has given us about 10 per cent of our population who are Asian in origin. These Australians are Asia-literate. Much more than all government programs combined, they provide our people-to-people links with Asia.
'If a company needs expertise in Mandarin, Hindi or Korean, it can get this from our Chinese, Indian and Korean communities. These migrants bring language skills with them and pass these on to their children.
'So, the score for Gillard government policy in Asia-literacy? More or less zero. The score for Australian society? Not bad, because of immigration'.
And Mr Sheridan goes on, driving the stake further into the heart of the Gillard government, and providing a hint for the Abbott government.
'Education more generally demonstrates our almost complete divorce from our Asian neighbours. We are about to waste a colossal amount of money on this Gonski madness. This money will have no measurable effect on our educational quality.
'One thing we certainly won't do is learn from our successful Asian neighbours. I have spent a lot of time in schoolrooms in Japan, South Korea and Taiwan. Almost without exception, these schoolrooms are physically less well endowed than their Australian counterparts. The class sizes are bigger, the grounds smaller, the buildings tackier. But the instruction is traditional, the teacher is boss, the school day and year are much longer, kids have to learn and remember a huge amount of content.
'The result? The outcomes are vastly better than Australia's. This is a lesson official Australia never wants to learn. Asian migrants are now bringing this wisdom to Australia, which is why Asian kids do so disproportionately well in our schools. Our society is well engaged with Asia, but at most policy levels our government hasn't a clue'.
Light in the tunnel
Date: Tuesday, April 16, 2013
Author: Henry Thornton
Labor is now noticably less trusted than the Coalition on the matter of Superannuation, correction 'Labor's plaything'.
The unexpected cut to university funding has enraged academics everywhere, alienating another traditional support base. A colleague of Mrs Thornton said yesterday: 'I had resolved to vote informal, because as a lifetime Labor supporter I could not vote for Tony Abbott. Now I shall vote Liberal'.
The modern Labor Party has both tin ears (Simon Crean) and no judgment about politics (Simon Crean again).
A a one-time active member of the North Carlton branch of the once-great Australian Labor Party, I have a message for Julia Gillard and Wayne Swan. Resign now and support Simon Crean as a safe pair of hands who might limit the damage. But I advise others who agree with this not to hold their breath.
We reported recently on Ross Garnaut's Lateline warnings. Having lunched yesterday with Ross, after the seminar at MU on 'monetary policy and asset inflation', which was well received, I learned that he has carried his analysis further. When (not if) the mining boom comes off the boil, as it will, the dollar will drop like a stone (obviating the need for Henry's tax on capital inflow). This will greatly boost traded goods inflation, making the RBA's job of maintaining goods and services inflation in the 2 to 3 % range impossible, unless the RBA decides that its agreement to control inflation is paramount, in which case we get the mother of all recessions, the one we did not need to have.
They will surely not do this, and thus will need to suspend inflation targeting and return to the 'check list'. (The latter point is not Garnaut's, but from Henry, whose advice to drop 'monetary projections' for a similar reason in the 1980s earned him considerable criticism at the time, and occasional sneering since.)
The old Australian central bankers who always believed in a version of Murphey's Law (called Goodhart's insight) that said any policy rule relied upon would eventually let you down will be chortling into their macrobiotic muslie, or taking their zimmer frames around the block for a brisk outing, or extending a trembling hand toward Mrs Old Central Banker.
None of this will help Miss Gillard or Mr Swan, of course.
Last week, the Economist reported that Ben Bernanke is considering whether or not to retire next January when his second term is up. Given the enormous difficulty he faces in restoring a sensible monetary policy to the USA (and therefore the world) it would not surprise Henry if he declined, assuming of course that President Obama extends the invitation.
The RBA Chief, Glenn Stevens, who raised no objection at the time to abandoning the monetary projections, and provided no alternative suggestion, has opted to stay around to see it through. He gets points for courage, or perhaps it is just that he has not yet seen the light advancing rapidly down the tunnel of hubris and insularity that is modern central banking.
Super-easy money - so what?
Date: Monday, April 15, 2013
Author: Henry Thornton
Super-easy money was not meant to last. In 2008-09, when central banks slashed short-term rates close to zero and started buying bonds to push down longer-term rates, everyone assumed these extraordinary measures would soon be unwound as economies recovered. This kept inflationary expectations low, and the old inflation response has been all but invisible.
America is printing money at a great rate and goods and services inflation remains low. Europe ditto, and ditto. Japan has just joined the ranks of major countries introducing super-easy money. Share markets are booming everywhere.
Henry's investigation of US asset inflation since 1867, broadening (to include asset inflation) and updating the data set to 2012, reveals several episodes in which money growth was 'moderate'(four percent annually, give or take a bit), goods and services inflation was low and share prices boomed. These episodes included the Roaring Twenties, the 1950s and the 1990s. Japan in the 1980s can be included in this data set, all 'aberrant' in terms established by Friedman and Schwartz in their 1963 masterpiece. The 2000s have also been aberrant in that monetary policy was moderate as measured by growth of the money stock, yet after the GFC major countries have introduced super-easy monetary policy to counter fear of deep repression, yet money growth remains moderate, economies remain in repression or growing only weakly, and share prices are booming.
The Economist reported last week that super-easy money seems here to stay: 'That has had a huge effect on financial markets. Japan’s Nikkei index is up by 40% since Mr Abe promised bold stimulus in November. America’s S&P 500 index and the Dow Jones industrial average are both at record levels. Frothiness is back as investors search for higher returns, whether in junk bonds, African government debt or the new “structured credit” products dreamt up by the same investment banks that sliced up mortgages in the bubble years'. Read on here.
One question is how will America, Europe and Japan emerge from super-easy money without inflicting the deep recession that has arguably been postponed, not overcome, by super-easy money. One can make the case that the world economy would now be in better shape if the aberrant policies that caused the global financial crisis had been allowed to run their course.
Another question is what the aberrant post-GFC behaviour by the major nations means for small, open economies like Australia, seeking to prevent an unhelpful burst of asset inflation. Australia has copped a rising exchange rate, notwithstanding lower commodity prices that are the natural partner of ongoing global recession and or slower growth, including slower growth in China.
Experts have been moaning about the ravages of a high dollar on the Australian economy, most recently David Uren in The Australian, without canvassing any solutions. Yet the RBA seems to be saying 'what doesn't kill you makes you stronger'. (See Deputy-governor Lowe's latest speech.)
Milton Friedman in that 1963 masterpiece with Anna J. Schwartz, and in private conversation with this writer at a conference in Paris in the early 1970s, said 'monetary policy cannot serve two masters'. In the extensive literature on 'Monetary policy and Asset inflation' this point has been completely lost, and current newspaper writers probably never even heard about it. (Partly this is Henry's fault - as a young economist he did not fully understand what the great man was telling him.)
But it is this dictum that has driven Henry's advocacy of a variable tax on capital inflow as a secondary arm of monetary policy for the RBA, or Treasury working in concert with the RBA, if government would prefer that less desirable approach.
Today Henry begins a campaign to win the academic community, at his almer mater, Melbourne University. Then on Wednesday we shall face the scholars at the Australian National University. Copies of the paper have been sent to some of the leading global experts on monetary policy and initial feedback has been positive.
For the usual bias against home-baked ideas, Henry expects Australia to be the last place to listen to the message of economic history and current logic. But so long as the RBA sticks to its current 'moderate' monetary policy no great harm will be done, except to inflict undesirable and unnecessary structural change on the economy, and undesirable job loss on its small business owners and their workers.
What happens when commodity prices dive and the price of imports rockets? That was the question asked by Professor Ross Garnaut, who believes the RBA will need to suspend its inflation target because sticking to such a target would generate catastropic economic instability. More here.
For he world as a whole, as the Economist concludes: 'There may not be blood, but there will almost certainly be bubbles'.
Saturday Sanity Break, 13 April 2013
Date: Saturday, April 13, 2013
Author: Henry Thornton
Busy week, not a lot of good economic news, but US Fed has kept the equity boom going so we can't be too downcast. We salute the life of Margaret Thatcher.
'Belated success in Beijing, but only a start' is Paul Kelly's summary of Julia Gillard's heady few days in the Middle Kingdom.
'The task for Australia is to build a relationship with China of such mutual self-interest and trust that Australia can conduct a tolerably effective hedging strategy against damaging contingencies that also minimises the extent of unpalatable choices we face.
'Our current relations with China are far short of this point. Whether Gillard and Abbott accept this is far from clear. They may not. A hedging strategy means we don't sign on to everything the US wants and we don't collapse in an emotional fit every time Beijing gets upset and issues thunderbolts. That requires a mature prime minister and government.
'This week Gillard opened new opportunities for Australia to rethink and improve its ties with China. That's all. What is beyond dispute is the need for our leaders to bring the public into their confidence and talk in a more honest and intelligent way about relations with China.
'Why don't they? There is a one word answer: politics.
Meanwhile, the Australian dollar rides high, and is likely to go higher, strangling lots of companies, and providing especially hard times for small businesses.
The Thornton family is downcast as it's favourite footy team Caaaarlton! is zip and three after round three, and may be zip and five in two weeks time.
In the last X decades, only three teams have made the finals after such an inauspicious start, but there is no lack of endeavour so we shall keep watching - the heartbreak is losing all three games when a bit of luck could have made those losses wins.
Essendon's travails make for a much worse start, with the famous sword hanging over the head od its previous golden boy James Hird and who is likely to be the fall guy for a culture of pushing the limits. We remember when Caaaarlton! was punished savagely for breaching the salary cap, and much as we feel sorry for Essendon and their fans, equity demands that the AFL treats the bombers with equal toughness.
Image of the week
Courtesy The Australian
Unemployment surges, jobs fall, people depart workforce. Que?
Date: Friday, April 12, 2013
Author: Henry Thornton
The official (ABS) measure of the unemployment rate rose to 5.6 % in March, its highest level since September 2009, proving correct (the two) economists who urged caution over February's stellar (apparent) jobs rise. The number of employed people in the economy fell 36,100 to 11.593 million people between February and March, pushing up the unemployment rate from 5.4 %. This was the highest jobless rate since September 2009, when unemployment reached 5.7 %. Sadly, there is more unemployment to come, gentle readers.
'Economists had expected a 10,000 fall in jobs and for the unemployment [rate] to remain steady. But today they were nevertheless doubtful that the rise in the jobless rate would prompt the Reserve Bank of Australia to cut rates.
“We don’t see today’s labour force data as changing the outlook for monetary policy in any material sense, though if anything, it confirms our view that the labour market remains subdued and the unemployment rate remains under some upward pressure,” said Annette Beacher from TD Securities.
The smart lady on the video - probably an ANU graduate in economics - said this was not much of a surprise given the (apparent) surge of employment last month. More here.
Economists were surprised by this development, and are scratching various parts of their person. Business leaders have a bit more of an idea about the cause of this situation, and reportedly fear the dollar, which has just hit a 28-year high on a trade-weighted basis, will remain close at or above parity with the US dollar for most of the decade, or maybe even rise further.
'The dollar strengthened on Wednesday to $US1.05 and ¥104.7, a five-year high against the yen which is being driven down by the Bank of Japan’s move to pump ¥7 trillion a month into its stalled economy.
'The Reserve Bank of Australia’s trade-weighted index rose to 79.9, the highest level since 1985, just before a global slump in commodity prices sent the dollar plunging.
'BHP Billiton chief financial officer Graham Kerr said he had told divisional managers to assume the dollar would remain at current highs in their two-year and five-year investment plans.
'The strong dollar has hit revenue at mining companies like BHP Billiton, Rio Tinto and Fortescue Metals Group which market their minerals in US dollars. BHP estimates that every US1¢ rise in the exchange rate results in a $US120 million hit to earnings.
A Commonwealth Bank of Australia director, Andrew Mohl [ex RBA, former AMP CEO, and one very smart cookie], warned the dollar would remain high 'because foreign central banks were printing money to keep their currencies low to stimulate exports'.
Gor Blimey comrades, business understands the problem, but no-one is suggesting a solution, not even Henry's solution - tax capital inflows.
And with the May budget being locked down as we communicate, BHP's Chairman has issued the dire prediction that 'Mining in not a bottomless pit', (though the miners are working on it).
He added the profound point that 'Australia needs to boost its international competitiveness'. Amen to that, Chairman.
Renters, young people living at home and the homeless apart, that is home owners, will be pleased to hear that 'light is creeping into the housing market'.
Samantha Hutchinson of the AFR reports that all states are set to report higher prices and rental yields over the next two years, reporting National Australia Bank’s quarterly residential property survey.
'The bank’s property index, released on Thursday, surged 8 points to 35 points, following a 0.4 per cent increase in house prices across the country.
'The report showed the outlook for the sector is improving.
'Property professionals surveyed expected house prices to grow faster over the next 12 months, gaining 2.2 per cent.
'Western Australia is expected to appreciate fastest, adding 3.8 per cent, while Victoria is expected to climb 2.4 per cent and New South Wales is predicted to grow by 2.2 per cent.
'Western Australia topped property price and income growth for the quarter, followed by Victoria and New South Wales. Queensland was the only state to slide backwards, with house prices falling by 0.4 per cent.
'Perth is now ranked as Australia’s most popular city in which to build a new house, taking the title from the liquified natural gas capital of Gladstone in Queensland’s north.
'But overall demand for new property remains relatively weak, according to NAB researchers, who blame tight lending conditions and poor affordability as the biggest constraints on housing demand growth'.