Saturday Sanity Break, 13 August 2011
Date: Saturday, August 13, 2011
Author: Henry Thornton
'This is one of those moments of existential choice in which one wonders whether the world is a very different place than one believed just days ago. I still believe that this is a liquidity event driven by a global redemption call on hedge funds. The result will be a lot of cheap securities that will fall into the hands of pension funds, life insurers, and individuals, that is, a redistribution of wealth away from hedge funds to middle-income households'. This is one of Asia's most influential journalists ruminating on the week that was.
David Goldman continues: 'Of course, I could be wrong. The market could be telling us that the American political system is broken, that Democrats and Republicans never can achieve a consensus, and that a political catastrophe is only a matter of time. As I wrote in Asia Times Online last week, neither the traditional constituency of the Republicans–the upwardly-mobile middle class–nor the traditional constituency of the Democrats–the public-sector unions and the entitlement-receiving poor–can win in the current environment. That could spell a political disaster. And the market could be discounting the dysfunctionality of the American political system.
'I do not think that this is happening. I continue to believe that this is a popping of the last bubble in the system, namely the hedge funds'. Read on here.
The following paragraphs from the linked article are also worth pondering: 'People seem to act irrationally when they have nothing to lose. Often we observe in wars that the losing side expends more blood and treasure after its position becomes hopeless.
'The American South sustained most of its casualties in the Civil War after July 1863, when the dual defeats at Gettysburg and Vicksburg made its position untenable. Athens suffered its worst casualties in the Sicilian gamble at the end of the Peloponnesian War.
'The Spanish ruined their empire and depopulated their core provinces during the second half of the Thirty Years War of 1618-1648 rather than cede dominance to France. Germany took most of its casualties after Stalingrad. Japan was prepared to absorb an arbitrarily large number of casualties after Okinawa, and its resistance was terminated only by nuclear attack.
'Some aspects of the apparently suicidal behavior observed in great wars may be at work in the present budget stalemate in Washington, where the Republican right and the Democratic left yet may undo a compromise. I do not think this will happen - yet. But the extremes of polarization in the American body politic are different from anything I have seen in my lifetime'.
"In the past couple of weeks, the world has moved from a troubled multi-speed recovery - with emerging markets and a few economies like Australia having good growth, and developed markets struggling - to a new and more dangerous phase," Zoellick says.
"Different types of uncertainty have undermined confidence, and this can affect business decisions and consumer decisions.
"We are in the early moments of a new and different storm". ...
'The EU, [Zoellick] says, has taken a series of concerted actions, "but these fall short of what is needed. The lesson of 2008 is that the later you act, the more you have to do". ...
'Overall, Zoellick believes the European crisis has affected confidence in financial institutions internationally. In his view, Washington's budget problems are more manageable. "The US problems are more medium- and long-term. The only immediacy was created by the political crisis (of congress waiting until the last possible day to lift the US government debt ceiling)."
'Zoellick points out that the focus of US efforts to cut spending so far has been on discretionary spending rather than entitlements. But it's entitlements that are set to grow rapidly and automatically as the population ages. Therefore "that has not really convinced the markets yet".
"There is the challenge for the US of how you get back on a long-term economic growth path." ...
Sheridan outlines the various structural economic problems China is grappling with. 'And finally there is the question of inflation. Nothing would have a greater tendency to destabilise China and make life difficult for the new leadership due to take power in Beijing next year than a burst of serious inflation running into double digits'. ...
And Australia's place in all this is a promising one, and not just because of good luck.
'oellick, who is a longstanding and very good friend of Australia, sees the whole state of global flux as providing this country with unique opportunities.
"I do think Australia is in a position to punch above its weight," Zoellick says.
"It's partly geography and partly strategic. Australians saw all these changes coming decades ago and started to adjust - in trade, in immigration policy, in many areas. APEC was created 22 years ago as part of this.
"Australia is best-placed when it plays in as many leagues as it can simultaneously."
And in distant Australia - image of the week
Below is an image inspired by our predicted resurgance of the international crisis. Encouraged by Robert Zoellick's comment reported by Greg Sheridan that "We are in the early moments of a new and different storm", we present this image even though it is still a work in progress.
The Gathering Storm (work in progress)
Oil on canvas 4' x 3' Not yet signed
'A stormy day produced a stunning photo from the Swanston Bridge in Melbourne. Turning this into a painting has been my toughest artistic enterprise yet. The result is intended as a metaphor for the renewed financial crisis, cranking up as this painting nears completion in August 2011'.
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.
(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'.