Light on the hill?
Date: Wednesday, July 20, 2011
Author: Henry Thornton
Wall Street surged by 200 points overnight, mainly it seems because of a new US deficit reduction plan discussed here by the Wall Street Journal.
'WASHINGTON—President Barack Obama on Tuesday backed a $3.7 trillion deficit-reduction plan as "a very significant step" after it gained fresh momentum from a bipartisan group in the Senate.
'Mr. Obama said the proposal, designed by a group of lawmakers known as the "Gang of Six," represents a balanced approach to cutting the deficit that he has pushed for all along.
"The framework that they put forward is broadly consistent with what we've been working on here in the White House," Mr. Obama said.
Compelling television is was (yawn!) but the 'we knew nothing' stonewall by Messrs Murdoch Snr and Jnr left us little the wiser. News Corporation shares recovered some ground, and Wendy Deng illustrated her martial arts expertise in dealing with a pie chucker who attempted to bespatter Mr Murdoch snr.
Apple Inc.'s third-quarter earnings more than doubled as the company reported surging sales of the iPhone and iPad device, another factor no doubt helping create the market surge.
The Eurozone crisis for a change took a lower profile, but will resurface with regularity until this problem is solved, most likely by partition into Big-Euro and Little-Euro country blocs - see yesterday's blog (below) for more on this matter.
RBA monetary policy
The biggest gamble of the career of Westpac chief economist, Bill Evans, has moved the markets, which are now betting that the next rate move will be down. Most of Mr Evans' fellow bank economists, however, have stuck with the view that the next rate move will be upward, thought perhaps taking longer to occur.
The June quarter consumer price result, available shortly, will decide the immediate outcome and if it exceeds expectations will leave Mr Evans deeply regretting his 15 minutes of fame.
The minutes of the previous Reserve Bank board meeting included the following gem: 'The extent to which these forces would strain the economy's productive capacity over time would be a key determinant of inflation. Members noted, however, that the flow of recent information suggested both that there was more time to assess the likely strength of inflationary pressures in Australia and that it would be prudent to use that time. Members noted that the CPI outcome for the June quarter, to be published later in the month, would be important in helping to shape views about inflation, and therefore the future path of interest rates. Accordingly, members considered that the current mildly restrictive setting of monetary policy remained appropriate'.
Michael Stutchbury of the Oz yesterday accurately reflected Henry's view, for what that is worth.
'Australia needs to maintain a tight ship and concentrate on lifting our economic game while all this is playing out'.
But, as we said in early June, while there is the mother of mining booms underway, most of the rest of the economy is mired in recession. Collins Street opinion leaders are inclined to be in the rate cut school, and Henry has had to offer some modest bets on the matter, some of which have been accepted.
And one should at least mention Mark Bouris and his Yellow Brick Road initiative.
'Time for the RBA to get real' is the headline, and the theme is confusion.
'I talk to a lot of business owners and I can't recall a time when there has been so much confusion. In the early 1990s, when unemployment was high and banks wouldn't lend to small businesses, the landscape was very clear. The pain was spread evenly.
'Today it's a different story'. Here is a link to my advice in the early 1990s. Mark, some more substance would be useful if you really want to change the game.
Another rate cut, but mind the gap
Date: Tuesday, May 07, 2013
Author: Henry Thornton
The Reserve is likely to cut cash rates by another 25 basis points either this month or next month. It faces an acute dilemma, however, due to failure to acknowledge (or perhaps failure to accept) that monetary policy cannot serve two masters, and thus risks a repeat of the Bank's misjudgment in the late 1980s. (Henry's view this morning.)
The problem needs again to be spelt out. The many economists I have spoken to about this matter - eg here - agree about the limitation of monetary policy, but there is no agreement about the remedy. Henry's proposed tax on capital inflow is not even mentioned by people who write about the problems of a high dollar strangling industry, fearful I suspect of being labelled as sinning against the modern economist's religion of universal free trade.
This religion of course falls short of recommending absolute free trade, just as few practicing Christians consistently obey the Ten Commandments. In particular, few economists recommend free trade in labor, witness the near hysteria about people arriving in remote locations in small boats and alleged overuse of 457 visas. Free flows of people across national borders is clearly a policy that would improve global efficiency while maximising opportunities for people in the poverty-stricken nations but, like practicing Christians, economists have their limits too.
Virtually all developed nations are operating with near zero interest rates and 'quantitative easing' (euphemism for printing money). Global investors are seeking yield. Australia is politically stable with mostly sensible economic policies, and yields among the highest in the developed world. Despite the fall in commodity prices, which previously would cause the Australian dollar to fall more or less in parallel, global investors seeking yield are pouring money into the country.
The net result is a high dollar that is making Australian industry uncompetitive. The official view is that the lack of competitiveness will be solved by firms and individuals working harder or smarter. The official view, propounded recently by RBA Deputy-governor Philip Lowe, is that what doesn't kill you makes you stronger.
One can agree with Mr Lowe and others that the pressure of a high dollar (on top of generally high costs) will make some enterprises stronger, but many others will be forced to downsize or give up. Recent news has included fruit growers bulldozing their trees as the big food retailers have sourced cheaper product overseas. A government or a central bank that endorses such outcomes is simply irresponsible, especially as agriculture is one industry that is notoriously not practising global free trade.
The RBA has at times been tempted to cut interest rates when there is what is regarded as undue pressure on the currency. This writer, whose job in the 1980s (until February 1988) was to advise the board of the RBA on monetary policy, consistently recommended tightening monetary policy (ie raising interest rates) as recovery from the mild recession of the mid-eighties proceeded. (I am unable to be more precise because I have been denied access to the papers written then.)
Every month the board seemed to agree with this advice but in fact interest rates were cut. The prevailing view of my senior officers (or the Treasurer, as the RBA was not then 'independent') apparently was that the rising dollar needed to be reined in with lower interest rates, but this was not a matter that was debated before the board.
The net result was that easy monetary policy allowed excess demand to get out of hand, leading ultimately to a massive monetary crunch, the 'recession we had to have' and much misery. Read on here.
In coming months and years, Australia risks a repeat performance. The main safeguard is that fiscal policy will need to be tightened substantially. Several weeks ago, the Treasurer said the promised surplus was undercut by a $7 billion revenue shortfall, then the PM said the number was twelve billion, overnight Penny Wong said $17 billion. Gor Blimey, comrades, whot is going on?
Laura Tingle at the AFR has said: 'The shortfall in forecast budget revenue will be between $60 billion and $80 billion from now to 2016, forcing the Gillard government to dump spending pledges, including $1.8 billion in family assistance'.
Assuming the Labor guv'mint starts the process of getting Australia's fiscal policy into good shape, and the Abbott guv'mint completes the task, there may be scope for further responsible cuts to interest rates. But why in a healthy economy cash rates below 3 % are needed is beyond Henry's paygrade to answer, and this should be explained with unusual clarity should the RBA deem it necessary.
US jobs, share prices rise, bets on Australian rate cuts.
Date: Monday, May 06, 2013
Author: Henry Thornton
American employers kept hiring at a steady pace in April and the government revised up job numbers for February and March, easing fears that the economy is suffering a 'spring slump'. Blue-chip stocks set new records as US asset inflation continues unabated, as it must with a subdued economy and massive monetary stimulus. (The money's gotta go somewhere, folks.)
Nonfarm payrolls are estimated to have risen by 165,000 in April and the jobless rate fell slightly to 7.5 %, the lowest level since December 2008. The Labor Department also significantly raised hiring estimates for the two prior months, by a combined 114,000 jobs.
Lots of discussion, as usual, in the local press about whether the RBA will cut interest rates further, with a fair bit of money on a cut this month and even more on a cut next month. (Next we shall be seeing ads for rate cut betting during the evening news reports).
David Uren seems to be in the latter camp with a long article in The Oz today.
The first quarter saw stronger global growth, though (US jobs data apart) there are some signs of weaker performance since then.
Within the Australian economy the picture is mixed, with stronger retail sales and weaker jobs performance the poster statistics for the competing views.
Henry bewails the lack of discussion on the fact that monetary policy cannot serve two masters - ie maintain a stable economy with low inflation as well as manage an exchange rate that is strangling large swathes of industry. (Background reading here.)
More here tomorrow on that crucial analytic fact.
NSW Labor continues to be regarded as toxic by voters, but there's little evidence that the Independent Commission Against Corruption's inquiry into the last ALP state government is doing any further damage to the party's already moribund standing.
The latest Newspoll shows Labor's primary support is stuck below 30 per cent, while the Coalition's support has hit a 12-month high of 48 per cent.
Saturday Sanity Break, 4 May 2013
Date: Saturday, May 04, 2013
Author: Henry Thornton
Labor is doomed, and it could be worse than Whitlam's wipeout or Keating's collapse. Even the catastrophe of 1931 is not beyond Ms Gillard's reach.
'Bad policy does not just happen' asserts Henry Ergas - it takes serious economic and political illiterates to achieve the depths plumbed by the Rudd'n'Gillard guv'mints.
I especially liked the various estimates of the 2011-12 deficit. These estimates started at almost $45 billion in the budget of 2009-10, shrank to a low pf $10 billion in the pre-election estimate in 2010, and are now again back where they started. Think about it gentle readers - can this possibly lack political influence? Shame on whichever individual or institution was responsible for this blatant fiddling.
'If the worst fears of a range of senior Labor figures across Australia are realised, then the closest comparison will be Labor's 1931 annihilation, rather than the drubbings meted out by the voters in 1996 or 1975. In other words, unless Labor's standing dramatically improves, Julia Gillard is set to lead Labor to its greatest defeat in more than 80 years. That will certainly be one for the record books.
Real house prices
Leith van Onselen of Macrobusiness fame provides a nice look at movements in real house prices in Australia since the last peak levels, which are mostly in 2010.
Another way of measuring housing values is to compare the total value of the housing stock, as measured by the Reserve Bank of Australia, against Australia’s GDP. As shown below, Australian aggregate home values increased from just under 2.0 times GDP in 1996 to a peak of just over 3.3 times GDP in March 2010 – a real increase of around 70%. Since then, values have fallen to around 2.8 times, representing a real fall from peak of nearly -15% (see next chart).
Courtesy RBA, Macrobusiness
van Onselen concludes: 'For what it is worth, my tip is that Australian housing values will ultimately revert to around 2.0 times GDP – the level that existed prior to the huge run-up in housing values from the mid-1990s – as price growth going forward fails to match growth in GDP (i.e. the “slow melt” thesis)'. More here.
Darwin's mystery disease
A freind of Henry, Dr John Hayman, has worked out the identity of the mystery disease suffered by Charles Darwin, and his solution has just been published in Genetics.
The abstract succinctly disposes of other possible causes of Darwin's quite serious symptons, which dogged him and many relatives.
The abstract concludes: 'Examination of Darwin’s maternal family history supports the contention that his illness was mitochondrial in nature; his mother and one maternal uncle had strange illnesses and the youngest maternal sibling died of an infirmity with symptoms characteristic of mitochondrial encephalomyopathy, lactic acidosis, and stroke-like episodes (MELAS syndrome), a condition rooted in mitochondrial dysfunction. Darwin’s own symptoms are described here and are in accord with the hypothesis that he had the mtDNA mutation commonly associated with the MELAS syndrome'.
A man and his wife were celebrating 50 years together. Their three kids, all very successful, all agreed to a Sunday dinner in their honour.
"Happy Anniversary Mum & Dad" gushed son number one, a surgeon, "Sorry I'm running late. I had an emergency at the hospital with a patient, you know how it is, and didn't have time to get you a gift."
"Not to worry" said the father, the important thing is that we're all together today."
Son number two, a lawyer, arrived and announced "You and Mom look great Dad".I just flew in from Los Angeles between cases and didn't have time to shop for you". "It's nothing," said the father. "We're glad you were able to come."
Just then the daughter,a marketing executive,arrived. "Hello and Happy Anniversary! I'm sorry but my boss is sending me out of town and I was really busy packing so I didn't have time to get you anything."
After they finished dessert, the father said, "There's something your mother and I have wanted to tell you for a long time. You see, we were very poor. Despite this,we were able to send each of you to university. Throughout the years your mother and I knew we loved each other very much, but we just never found the time to get married."
The three children gasped and all said, "You mean we're bastards?" "Yes," said the father, "and miserable ones at that".
Image of the week
Courtesy The Oz
Markets edge higher, nervously.
Date: Friday, May 03, 2013
Author: Henry Thornton
The ECB cut Eurozone cash interest rates in the face of increasing unemployment, now measured well above 50 % for young people in Greece and Spain, and not much better in Italy.
The new Italian Prime minister made his first visit to Germany's Angela Merkel to plead for an end to 'austerity'. It seems the lady's not for turning.
The Club Med nations of Europe should quit the Eurozone or, better still, invite the Germans to leave. Ambrose Evans-Pritchard makes the case for Spain eloquently.
'The great Spanish nation can end its crucifixion at will by leaving EMU.
'The mind goes numb. Spanish unemployment jumped by yet another 237,000 people in the first quarter to 6.2 million, or 27.2pc.
'This is equivalent to roughly 8.3 million in Britain, or 39 million in the United States. The country is losing 3,581 jobs a day. There are 1.9m households where no member of the family has a job.
'As you can see from this graphic, the rate has reached 36.8pc in Andalusia, Spain's most populous region'.
Eurozone stocks rose, demonstrating yet again that equity markets have absolutely no social conscience.
Wall Street joined in, buoyed by the ECB interest rate cut and a US jobless claims report that was better-than-expected. The DOW up by 0.9 %, the S&P500 by 0.9 %, the NASDAQ 1.3 % and the Russell 2000 +1.7 %. US 10-Yr Treasuries were flat yielding 1.63 %.
'The number of Americans seeking unemployment aid fell last week to seasonally adjusted 324,000, the lowest since January 2008.
'The drop points to fewer layoffs and possibly more hiring.
'The US Labor Department says weekly applications fell 18,000, the second straight sharp drop.
'The four-week average, a less volatile measure, plummeted 16,000 to 342,250.
'Applications are a proxy for layoffs. But fewer job cuts are only one side of the equation: Companies also need to be confident enough to add workers for job growth to pick up and lower the unemployment rate'. More here.
China's factory production, perversely, fell again to a point just above 'neutral. More on China's travails here.
Local news included more wretched budget slippage, which should make government ministers cringe at the fiscal waste but probably will not.
Henry's satiric persona took over re the budget mess on Wednesday. But the general outlook is not so flash either. We are being told to brace ourselves for a major fall in the (grossly overvalued) dollar and cut in our cost of living.
As Ross Garnaut put it on the 7.30 Report when Leigh Sales asked if we were headed for recession: 'That depends on policy. It depends on how the Reserve Bank manages monetary policy, it depends on how the Government handles fiscal policy, it depends on the community's preparedness to join governments in productivity-raising reform. It depends on whether we can accept restraint all round in the interests of avoiding a recession and avoiding high unemployment'.
Weaker housing starts data yesterday took away some of the Aussie dollar's overvaluation as it raised the odds on a rate cut next week.
Henry will report here, and in the Oz, on Tuesday next week. Previous reports available here.
The party`s (nearly) over ...
Date: Wednesday, May 01, 2013
Author: Henry Thornton
'Bloody Gary Morgan', Swannie grumbles as he takes his first sip of the Grange. 'I always thought he'd come through for us at the end'.
He reads from his Smart phone, symbol of Australia's smartest Treasurer. 'Last weekend’s multi-mode Morgan Poll shows support for the L-NP jumping to 58 % (up 3.5 % since April 18-21, 2013) cf. ALP 42 % (down 3.5 %) on a two-party preferred basis.
'The L-NP primary vote is 48 % (up 4%) easily ahead of the ALP 30.5 % (down 2%). Among the minor parties Greens support is 11 % (up 0.5 %) and Independents/ Others are 10.5 % (down 2.5 %)'.
'It's over, Boss', Swannie tells Julia. 'The party's over.' The occasion was notionally to celebrate May Day, but curiously other members of cabinet were otherwise occupied, working to save their seats, or find another career.
"Now Wayne, don't be so defeatist', the Boss replies. 'I'm a feisty wumun and we will prevail. You agree, Tim, dontcha?'.
Australia's first bloke makes an ambiguous noise, then buries his nose in the Grange.
'It gets worse', Swannie comments, nothing if not dogged. He reads again from his Smart phone. 'The weekly Roy Morgan Consumer Confidence Rating shows Consumer Confidence falling to 118.9 pts (down 4.9 pts since April 20/21, 2013). .... This week’s fall in Consumer Confidence has been driven by decreasing confidence in across all components of the survey.
'Fewer Australians 33 % (down 4 %) expect ‘good times’ economically over the next twelve months for the Australian economy compared to 27 % (up 3 %) that expect ‘bad times’.
'Bloody bastards, voters, after all we've done for them, saving them from the global crisis, insulating their roofs, improving their kiddies' schools, wiring their homes for high-speed porn downloads, the list is endless'.
'Don't be silly, Wayne', replies Australia's feistiest politician. 'People are never grateful for what you've done for them, only what they think you're gunna do for them'. Julia sips her Grange, still largely untouched. "And they know you've run out of money, Wayne, and we can't afford too much more largesse'.
'Me run out of money', spluttered the world's greatest Treasurer. 'You suggested most of those things'.
He took a large swallow of Grange. Inspired, he asked: 'Whose idea was it to take the money off the unis?. According to the bloody Australian today, one thousand professors have writen demanding you rescind the cut to their money'.
'Haven't seen the mail yet', Julia responds. 'Tim, didja see anything with a nice Melbourne Uni crest on it when ya sorted the mail today?'
'Used it to start the fire', Australia's first bloke replies. 'That bastard Glyn David has turned on us too'.
'Davis, his name is Davis', Julie rebukes her man. 'He is a mate of Kevin, he's never supported us'.
'And what's Professor Garnaut up to?' asks Julia of no-one in particular. 'We gave him a seat on the climate committee, but now he says the economy's firked. Has he no sense of loyalty?'
'Well, you'd better do something Boss, or we'll all be rooned' was Swannie's contribution. 'Even the bloody accountants have turned on us. They've written a book - accountants writin' a book! Called From Lucky Country to Competitive country. I'll give 'em competitive. I'll fix the tax act so people can do their own bloody returns, that'll fix the bloody CPAs.'
Tim threw another log on the fire, plus a copy of a Murdoch biography. 'Noticed the Business Council have got stuck into us again', Wayne started to say, but he was cut off by a visibly angry Boss. 'They say you, Wayne, have lost control of the budget. I sometimes think I should have made Simon Crean Treasurer. He has a way of soothing the Captains of industry'.
'I'll show the bastards. It's not too late to double the company tax, that'd fix the bloody budget'.
'Now Wayne, don't panic. Tim, why dontcha get another bottle of Grange from the cellar. They tell me '87 was a good year. No point in leavin' it for Tony Abbott to drink with his boofy blokey ministers and their frumpy wives' ...
'Oh, I nearly forgot', Australia's first bloke said as he poked the fire. 'Bill Kelty wants to see you. Says its urgent.'
'Put him in for morning tea - and save a half bottle of the Grange'.
The strategic scheming sputtered into silence, and the kitchen cabinet stared morosely into the embers of the dying fire. All were thinking the party's over, but none was yet willing to confess to belief in evidence based analysis.
Thanks to Bill Leake for his post-budget illustration.
More frantic budget back-peddling
Date: Tuesday, April 30, 2013
Author: Henry Thornton
A number of institutions and individuals seem determined to hold the government's feet to the fires of its own making on fiscal policy.
Our slightly intemperate comments on Monday last week seem to have been at least a sign of better intemperate comment to come when we wrote: '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'.
But last night Herself entered the fray, and it gets worse. A few short weeks ago, Treasurer Swan said tax receipts were now $7.5 billion below the most recent estimate. Now Herself says the number is $12 billion - relative to what being unclear, but Henry is often confused by complicated technical matters, which is where today's offering by the editorialist at the Oz reaches new heights of intemperation - assuming that is indeed a word - and helps to explain why these estimates are moving so quickly.
'A WORKING knowledge of Einstein's theory of relativity might be needed to discern a Wayne Swan budget strategy during the past six years. Time and space, mass and energy, surplus and deficit seem to diverge at the speed of light as the government's fiscal narrative struggles to keep up with its changing imperatives.
'Just a year ago, the Treasurer rose to his feet on budget night and said: "The four years of surpluses I announce tonight are a powerful endorsement of the strength of our economy." Transported through time and space to last weekend, Mr Swan braced the nation for deficits as far as the eye can see: "We reject the heartless philosophy of mindless austerity." If fiscal rectitude could be delivered by rhetoric and promises, Australia would be the world's banker. Instead, the challenge is to preserve our standing - and AAA credit ratings.
'The missed opportunity (global financial crisis notwithstanding) has been clear for at least six years. The Australian hosted its first Making the Boom Pay conference in November 2006, where a range of speakers urged both major parties to ensure the revenue windfalls of the mining boom were not squandered. Then treasury secretary Ken Henry warned that if government took the "soft option" of spending the proceeds rather than investing them we would see an "intergenerational tragedy" imposing an unnecessary burden on future generations. Well, here we are'. More in this vein here.
Henry's pal Ross Garnaut has been promoted to the 7.30 Report, after spreading gloom so well on Lateline.
LEIGH SALES: Professor Garnaut, the Prime Minister has described the situation facing the budget as "urgent" and "grave". How would you describe it?
ROSS GARNAUT, ECONOMIST: Oh, it's certainly grave, Leigh. We've been spending the temporary largesse from the resources boom since it began in 2003. That has led to expenditure levels and cost levels in Australia substantially higher than is sustainable in the long-term. In 2004 I described the situation we were in as the salad days. I said that we should be saving two or three per cent more of GDP in budget surpluses or we'd end up in the dog days when the resources boom ended.
LEIGH SALES: Are we headed for a recession?
ROSS GARNAUT: That depends on policy. It depends on how the Reserve Bank manages monetary policy, it depends on how the Government handles fiscal policy, it depends on the community's preparedness to join governments in productivity-raising reform. It depends on whether we can accept restraint all round in the interests of avoiding a recession and avoiding high unemployment.
LEIGH SALES: What do you think are the fiscal policy levers that the Government should pull?
ROSS GARNAUT: The most important levers are actually economic levers. Our cost level is far too high in the aftermath of the resources boom. Our exports of everything other than resources have actually been falling in real terms for a number of years after a very good period of growth before the resources boom. We're not getting any investment worth speaking of in the export industries other than resources. Now that resources is coming off the boil, we've got to get those other engines going again. Amongst other things, that's going to require a big improvement in competitiveness.
LEIGH SALES: We keep hearing about the pressure that the high Australian dollar is putting on the economy. Is there anything that can be done about that?
ROSS GARNAUT: Yes. That's an important part of the story. What matters is the real exchange rate - the value of the dollar and what's happened to our inflation compared with other countries. Taking those two things together, our real exchange rate is way too high. The resources boom did that, or rather spending the income from the resources boom over the past decade did that and then it's been taken to new heights by the exceptional monetary policy in other developed countries as they've sought to drag themselves out of recession themselves.
(Henry adds: Sadly, gentle readers, no mention of Henry's plan to tax capital inflow, covered here in comments in the 2013 articles in this series. Henry detects an inflationist bias in his old mate - dropping interest rates to restore competitiveness is like undoing the belt to allow a second helping of dessert.)
LEIGH SALES: They've done that by having interest rates at extremely low levels. Does Australia need to follow suit in your view?
ROSS GARNAUT: Well, interest rates at extremely low levels and that's been augmented over the last couple of years in the United States and over the last six months in Japan by what's called quantitative easing, special policies to push out into the economy huge amounts of money, which has had the effect of reducing their exchange rates. I think our interest rates need to be lower in current circumstances. That needs to be part of a broad-base strategy to improve our competitiveness.
And in conclusion:
LEIGH SALES: Do Australians need to anticipate a fall in their standards of living, and if so, practically, what does that actually mean?
ROSS GARNAUT: Well I didn't think that we are going to experience a large depreciation of the currency; that's part of what's necessary to improve our competitiveness. But you don't get an improvement of competitiveness - in competitiveness if the dollar falls and incomes rise to allow us to spend in the same ways as before. So we need to all accept that a lower dollar shouldn't be fully compensated in nominal expenditure in the budget or the nominal incomes that we receive. That sort of restraint is very difficult and it's only ever possible if the community as a whole accepts restraint all-round, including recognition that disadvantaged parts of the community need to be considered in that adjustment.
HENRY: We have all been warned, and nothing is 'off the table' on policy, and this from a guv'mint that a few short months ago delivered its 500 th promise of a return to surplus in 2012-13.
Australia - becoming a global food provider
Date: Monday, April 29, 2013
Author: Mervyn Bendle
Australia faces an epoch-defining challenge. With the global population projected to exceed 9 billion by 2050, our country is well placed to become a major food supplier for the world, doubling or even quadrupling agricultural production, and generating an additional $1.7 trillion in aggregate export earnings over the next four decades. Estimates vary, but global food supply will have to increase by between 60 per cent and 100 per cent by 2050 to satisfy requirements. Much of the demand will be in Asia, including from an increasingly massive middle class with ever more discerning tastes and evolving consumption patterns that will respond to the efforts of a sophisticated agricultural industry.
Australia has a potentially major role to play in meeting this challenge, capitalising on its geographical position, expanding its agricultural sector, improving its crop yields and productivity, adopting new technologies, developing its infrastructure, and bringing virgin lands under cultivation. It is in the unique position of being a developed economy that nevertheless possesses large-scale under-utilised land and water resources located in northern Australia in close proximity to these emerging markets.
At the economic level the outlook for this initiative is positive and Australia is well placed to take advantage of this stupendous opportunity. While it will be a major task to mobilise the trillion dollars required between now and 2050 to finance the project, it appears there are vast funds available internationally. Foreign investors, pension funds, international corporations and foreign governments are already buying Australian farm land to capitalise on the growing Asian demand.
However, at the cultural level the situation is different, as Australia is afflicted with deeply entrenched anti-development forces. It must therefore re-affirm its national identity as a frontier society, ready to engage in nation-building projects on a continental scale, and prepared systematically to harness the natural and human resources required to develop a thriving, highly productive society. This is a battle that must be won in the realm of culture, and it can no more be ignored than the financial or physical infrastructure requirements of this gigantic project can be ignored. Indeed, it can be seen as involving the installation of the essential cultural infrastructure necessary to support the expansion of Australia’s primary industries as this unfolds over the decades to come.
After all, even a trillion dollars of capital will be of little use in developing our agricultural potential if the cultural and political environment remains unfavourable to the types of massive development that will be required to realise the vision of Australia as a world-class food producer. Ominously, this is a country where radical environmentalists have had a free ride for decades, shutting down innumerable worthwhile projects and strangling many others in “green tape” designed to make their successful completion uneconomical or even impossible. International investors will quickly retreat once they realise that their complex, capital-intensive projects will be slandered, stymied, suffocated and sabotaged by a well-resourced cadre of cosseted vandals (“protesters”) aided and protected by an array of political, legal, judicial, academic and media supporters.
Therefore, in order to play the global role that lies before us, Australia must comprehensively strip away this crippling ideological overburden and return to the self-confident and optimistic frontier society ethos and nation-building activism that was sustained for nearly two centuries into the 1980s, as previous generations fought to harness our continent’s natural resources. The alternative is to continue our decline into the depths of de-industrialisation, economic retrenchment, demographic torpor, self-hatred and authoritarianism that has been so successfully promoted by the Greens, much of the ALP, and their academic and media supporters.
Jobs are being lost at a scary rate, our children are finding it extremely hard to find jobs and even the highly deficient 'official' (ABS) estimates of unemployment and underemployment are beginning to reflect the true situation. Worse news is to come.
Monetary policy has performed well, aided by a high and mostly rising currency that keeps prices of traded goods low, although matters could have been managed better if the RB had the power (and willingness) to impose a tax on capital inflow, to prevent an excessive Aussie dollar. Failure to take such action is akin to the US Fed's failure to prevent the excessive boom in US shares in the late 1920s, which readers will know led to a massive asset bust and great depression.
When, (not if) Australia's currency falls, as it must, inflation will exceed the RBA's target range and Glenn Stevens and the RBA will have some explaining to do. It will be not unlike the time when 'monetary projections' had to be abandoned in favour of a 'check list' that failed to satisfy the commentariat. One assumes the RBA will have learned from that episode and will begin its explanation soon so all the RBA trusties are primed with the right story. Paul Kelly, channeling Ross Garnaut, covers this point also.
We have experienced the greatest lift in national wealth and private prosperity (for most) that we are likely to experience for several generations, and now we need to cope with a dose of austerity. The onset of difficult times will test our character as a nation, and provide the next government - likely to be headed by Prime minister Abbott - with the sternest peacetime test since the Great Depression of the 1930s. A great opportunity as well as a great challenge.
Apologies, gentle readers, for this gloomy message, but forewarned is forearmed.
The humble Bumblebee
'TO MOST people', says the Economist, 'bumblebees are charming, slightly absurd creatures that blunder through garden and meadow with neither the steely determination of the honeybee nor the malevolent intention of the wasp. If you are a plant, though, things look rather different—for from the point of view of some flowering plants many bumblebees are nothing more than thieves. They rob them of their nectar and give nothing in return'.
Great win to Essendon over Collingwood on ANZAC Day, but is this club's result untainted by the developing drug crisis that is engulfing Australian sport? That is the question whose answer will support Australia's greatest game or give it a blow from which it will struggle to survive.
A gallant Richmond went down by a point against Freo last night, proving yet again they are top eight quality.
Caaaarlton! - we hope untainted - faces Adelaide this afternoon, in another must win encounter.
The national cricket selectors have opted for experience over yoof, including a 35 year old who has played only one test and who has sinned against the unwritten code by commenting publicly on the shortcomings of his young competitors. A bit like Henry and the RBA really.
Image of the week
Courtesy The Oz
The blighted generation
Date: Friday, April 26, 2013
Author: Henry Thornton
Henry's kids, and his friends' kids, are finding it hard to get jobs, despite living in Australia's 'miracle economy' and having, or confident of having, one or two degrees by the end of this year.
Yet to get a plumber or a handyman to visit ones home to fix things requires a long lead time and much negotiation.
The Economist, it seems, has found the answer, but it is an answer that cannot easily be applied.
Firstly the facts: 'Around the world almost 300m 15- to 24-year-olds are not working. What has caused this epidemic of joblessness? And what can abate it?
'Official figures assembled by the International Labour Organisation say that 75m young people are unemployed, or 6% of all 15- to 24-year-olds. But going by youth inactivity, which includes all those who are neither in work nor education, things look even worse. The OECD, an intergovernmental think-tank, counts 26m young people in the rich world as “NEETS”: not in employment, education or training. A World Bank database compiled from households shows more than 260m young people in developing economies are similarly “inactive”. The Economist calculates that, all told, almost 290m are neither working nor studying: almost a quarter of the planet’s youth (see chart one).
'If the figures did not include young women in countries where they are rarely part of the workforce, the rate would be lower; South Asian women account for over a quarter of the world’s inactive youth, though in much of the rich world young women are doing better in the labour force than men.
'On the other hand, many of the “employed” young have only informal and intermittent jobs. In rich countries more than a third, on average, are on temporary contracts which make it hard to gain skills. In poorer ones, according to the World Bank, a fifth are unpaid family labourers or work in the informal economy. All in all, nearly half of the world’s young people are either outside the formal economy or contributing less productively than they could'.
The venerable mag points out that young people have long had a raw deal in the labour market. Two things make the problem more pressing now. The financial crisis and its aftermath had an unusually big effect on them. Many employers sack the newest hires first, so a recession raises youth joblessness disproportionately. In Greece and Spain over a sixth of the young population are without a job. The number of young people out of work in the OECD is almost a third higher than in 2007.
Second, the emerging economies that have the largest and fastest-growing populations of young people also have the worst-run labour markets. Almost half of the world’s young people live in South Asia, the Middle East and Africa. They also have the highest share of young people out of work or in the informal sector. The population of 15- to 24-year-olds in Africa is expected to rise by more than a third, to 275m, by 2025.
'Economists are now emphasising a third problem: the mismatch between the skills that young people offer and the ones that employees need. Employers are awash with applications—but complain that they cannot find candidates with the right abilities. McKinsey, a consultancy, reports that only 43% of the employers in the nine countries that it has studied in depth (America, Brazil, Britain, Germany, India, Mexico, Morocco, Saudi Arabia and Turkey) think that they can find enough skilled entry-level workers. Middle-sized firms (between 50 and 500 workers) have an average of 13 entry-level jobs empty.
'The most obvious reason for the mismatch is poor basic education. In most advanced economies (whether growing or shrinking) the jobless rate for people with less than a secondary-school education is twice as high as for those with university degrees. But two more subtle reasons deserve attention, too.
'Countries with the lowest youth jobless rates have a close relationship between education and work. Germany has a long tradition of high-quality vocational education and apprenticeships, which in recent years have helped it reduce youth unemployment despite only modest growth. Countries with high youth unemployment are short of such links. In France few high-school leavers have any real experience of work. In north Africa universities focus on preparing their students to fill civil-service jobs even as companies complain about the shortage of technical skills. The unemployment rate in Morocco is five times as high for graduates as it is for people with only a primary education. The legacy of apartheid means that young black South Africans often live and go to school many miles from where there are jobs.
'Companies used to try to bridge that gap themselves by investing in training; today they do so less'.
Read on here if you wish to regain some sense of optimism. But if your kids have trained to be doctors and lawyers and stuff, they are qualified for oversupplied careers that increasingly offer glittering prizes only to the few who climb high up the professional poles.
It a bit hard to tell a kid with two degrees, and a moderate bill owing to the government, that he or she should become a professional nanny or a handyman, or begin again as an apprentice plumber.
Lest we forget
Date: Thursday, April 25, 2013
Author: Henry Thornton
With only two years until the centenary of the invasion at Gallipoli, forgetting is very unlikely.