Central banks to the rescue, but urgent problems remain
Date: Friday, September 16, 2011
Author: Henry Thornton
Leading central banks have agreed to pump US dollars into Eurozone markets, helping to produce a fourth day of gains to global equity markets.
(The banks involved are The European Central Bank, the US Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, clearly a serious mob.)
A first sign of US goods and services inflation was ignored amid the general euphoria, as was an increase of initial claims for unemployment benefits and more evidence of weak manufacturing activity.
Debate continues to rage about the future of the Eurozone, with Anatole Kaletsky presenting a varient of Professor Alan Meltzer's notion discussed here yesterday. Kaletsky suggests that Germany (rather than a group of strong Eurozone countries as in Meltzer's plan) leave the Euro, allowing a defacto devaluation of other Euro currencies but without the risk of bank failure that would be inevitable if Greece leaves, followed by other weak nations. (Kaletsky's views are in today's Australian newspaper, but again without a link, like Meltzer's yesterday)
"This is the most urgent crisis facing the world today," said Zhu Min, the IMF's deputy managing director and China's voice at the institution.
"There is no room for politicians to muddle through: they have to take decisive action today. Banks must be recapitalised and made solvent."
In distant Australia, Henry has purchased some out-of-the-money puts in case the whole Euromess trashes equity markets. Meanwhile, politicians continue to trade abuse and to argue about items on the traditional pinhead.
However, the Australian Bureau of Statistics (ABS) has galloped (well, plodded actually) to the gummint's rescue by redefining the contents of the 'basket' of goods and services in the consumer price index to suggest inflation is less of a threat.
Treasurer Wayne Swan has removed from the 'independent' Reserve Bank the right to set the governor's salary. Apparently he learned of Glenn Stevens' million dollar plus salary only 18 months after the event, via the RBA's annual report.
If this is true, it almost defies reason because of the risk to a climate of low wage inflation that it posed. If Treasurer, most of us would expect it to be at least mentioned by the gov'nor in one of his regular chats. After-all the Treasurer is the representative of the parliament to whom Mr Stevens is ultimately responsible, despite the 'independence' notionally granted to the RBA by means of an exchange of letters. The Reserve Bank Act, which defines the relationship of the RBA and the people of Australia, makes it clear just who prevails in any conflict.
Former governor Bernie Fraser was on ABC radio defending (weakly Henry thought) the governor's salary, but Henry's sources say Bernie himself turned down similar largesse in his time, as reported here. (See the May 23 2011 entry of the author's Blog at GreatCrisesofCapitalism.com.)
If 'independent' salary setting can be removed at the stroke of a pen, so too can 'independent' decision making, and it would be one sure-fire way to get the Aussie dollar to depreciate.
Take care, Glenn Stevens. Mention of how much you give to charity each year (assuming it is quite a lot) might be wise about now.
Date: Wednesday, October 02, 2013
Author: Henry Thornton
Henry yesterday had the pleasure of dining with three of Australia's leading economists in one of Australia's great dining rooms.
All three felt that the best outcome for the next year or so was slow economic growth, with severe recession the realistic worst case.
The news last night included debate on whether the housing markets of Sydney and Melbourne are booming or entering bubble territory. Henry especially liked the ball-busting female Sydney estate agent who said demand is outstripping supply and while interest rates remain at record lows nothing will change. 'Get used to it, sucker' was no doubt in her mind.
The RBA declined to cut interest rates further but experts say the 'bias to ease' has been dropped. The RBA faces a weak economy, an excessive exchange rate and a booming housing market. Three targets, one weak (pop-gun) of rate moves. Not even a rising pop to worry the ball-busting female real estate agent or, on the other hand, a falling pop to reassure the near 20 % of Australians currently unemployed or underemployed. Just the sound of silence.
The economists said what was needed was now called 'macro-prudential' policy to contain house prices - 'like the old quantative lending limits' one of the economists said with a laugh. 'What about the currency?' Henry asked. 'People and businesses just have to get used to it' said one of the others. 'Glenn doesn't see there is a problem'.
Henry arrived home to find an email from Gary Morgan reporting that, in September, an estimated 1.3 million Australians (10.4% of the workforce) were unemployed. This is up 46,000 (0.3%) from last month. The Australian workforce was 12,467,000 (up 90,000) comprising 7,413,000 full-time workers (down 27,000), 3,757,000 part-time workers (up 71,000) and 1,297,000 looking for work (up 46,000) according to the Roy Morgan monthly employment estimates. These figures do not include people who have dropped out of the workforce and given up looking.
Among those who were employed 989,000 Australians (7.9% of the workforce) were under-employed, i.e. working part-time and looking for more work. This is 17,000 fewer than a month ago (down 0.2%).
In September in total an estimated 2.286 million Australians (18.3% of the workforce) were unemployed or under-employed. This is up 0.1%, or 29,000 from August, but much higher than 12 months ago in September 2012 (up 170,000, 0.9% from 2.116 million).
Of those looking for work an estimated 607,000 Australians (down 24,000) were looking for full-time work, while 690,000 (up 70,000) were looking for part-time work.
The latest Roy Morgan unemployment estimate of 10.4% is a substantial 4.6% more than currently quoted by the ABS for August 2013 (5.8%) – the Abbott Government needs to immediately establish a working committee to demand the ABS release the true and complete unemployment figures each month.
Gary Morgan said: 'When Tony Abbott took over as Prime Minister last month unemployment was 10.1%, some 4.4% higher than when Kevin Rudd took office in November 2007. At the time of the Federal Election 1,251,000 people were unemployed, more than double the Roy Morgan unemployment figure in November 2007 when there were 606,000 unemployed Australians.
'There is no good news in today’s Roy Morgan September employment estimates with unemployment continuing to rise, now at 10.4% (up 0.3% since August). In raw figures, now 1,297,000 Australians are unemployed (up 46,000 since August).
'While the overall level of employed Australians has risen to 11,170,000 (up 44,000), most worryingly full-time employment has dropped to 7,413,000 (down 27,000) – now at its lowest since January 2013 (7,196,000). Australia’s under-employment has dropped slightly to 989,000 (7.9%, down 0.2%) meaning a total of 2,286,000 (up 29,000) Australians are either unemployed or under-employed (18.3%, up 0.1%).
'With this level of real unemployment, there is no doubt the new Coalition Government will be reviewing all the 'drivers' of employment – Industrial Relations laws and practices; restoring confidence in Australian businesses and the Australian economy'.
The RBA`s struggle about what to do
Date: Monday, September 30, 2013
Author: Henry Thornton
The RBA meets tomorrow facing three objectives. Its single instrument of 'vary cash rate' will not be able to help fix the three economic problems except by accident for short periods.
The RBA has said it is watching the hot property market and some (killjoys) say higher interest rates would help to prevent a boom turning into the next bubble.
The RBA has also shed some crocodile tears about the exchange rate, and sort of let it be known that it welcomed the fall in rates that followed its rate cuts. Lately, however, the currency has rebounded with better global economic news and the lack of the US Fed's foreshadowed 'taper'.
In its real job of containing inflation and maintaining economic activity many advisors (owners of shopping centres, real estate agents) wrongly say more rate cuts may be helpful, even necessary.
The RBA is facing three economic problems, some call this a 'Trilemma', and risks doing less than well on all three fronts. (More here, comrades.)
'Monetary policy cannot serve two masters', nor can it handle three. It would be a mistake to reduce interest rates further, even if this would help to reduce, or stop further rebound of, the Aussie dollar.
While this logic seems clear, cutting rates further would presumably make the housing market even more buoyant. Messrs Abbott and Hockey have pointed out that a stronger housing market has many beneficial side effects, so the RBA can garner some brownie points from the new government by cutting rates further and boosting both economic activity and housing sales and also removing upward pressure on the aussie dollar.
'Trilemma, what trilemma?' may be the conclusion of tomorrow's meeting of the board.
But what is to be done if the Australian dollar refuses to fall to 75 cents in the US dollar, a level that would start to restore competitiveness to the non-mining parts of the Australian economy?
It is early days in the recovery of the housing markets so this factor can perhaps be put aside for the moment. However, when monetary policy is too easy and a subdued economy keeps goods inflation low, excess money goes into asset prices, and we are seeing the first effects of this in the housing markets. (Strong global asset inflation has of course been raising Australian share prices for some time.)
The stubbornly strong Australian dollar is another matter, and indeed it is partly driven by wealthy overseas buyers of Australian assets, including Agri- and Mining Companies as well as high end houses.
In the end, the Aussie dollar will only be tamed by Banana Republic #2 (unlikely with this government) or some sort of tax on capital inflows.
While there is no immediate need to slow the housing recovery, in the end the housing market will only be controlled by some regulatory changes to contain the freedom of financial institutions to lend, or by some great big new tax (gasp!) on financial transactions.
The Australian economy is in a very interesting place, and one hopes the RBA fully understands the problems it faces and is communicating effectively with the Treasurer.
However, its failure to deal effectively with illegal dealings in plastic banknotes with the late unlamented Saddam Hussein makes one wonder at its ability to handle more than one important matter at a time.
'We know how to push (or pull) the interest rate lever, Treasurer, but don't expect much else from us' may be the cry. If so, will a presumably demoralised Treasury Chief raise the matter of asset inflation at the meeting of the RBA board tomorrow, and with the Treasurer at the next opportunity?
Similar messages were conveyed, although less prominantly, by other news outlets.
All this excitement was generated by the latest example of the RBA's 'open mouth' policy, which can be accessed here.
Saturday Sanity Break, 28 September 2013
Date: Saturday, September 28, 2013
Author: Henry Thornton
Good luck to Tony Abbott and his team as they head to Indonesia to begin the process of forging a closer relationship with our potential second largest trading partner.
A closer strategic partnership would also be great news for a middle power struggling to afford effective military deterrance, with aeroplanes that don't fly and submarines that languish in dry dock.
Greg Sheridan has provided some reassurance on P 4 of the Oz when he reports: 'YESTERDAY the Indonesian government moved to help Tony Abbott over the little hump a small mistake in opposition set for the new government.
'It more or less retracted an apparent statement of criticism of Australian policy from Indonesia's Foreign Minister Marty Natalegawa after his meeting with Julie Bishop in New York'.
'The global financial crisis ain't over yet' writes Henry Ergas.
This has been a theme of the posts on this website, but Henry (Ergas, not Thornton) provides the most detailed exposition of why this is so we have yet seen.
In so doing, he traces the impact of asset inflation and hints at an understanding that 'monetary policy cannot serve two masters'.
His conclusions should chill the heart: 'It was the belief that monetary policy could be finetuned to deal with the consequences of the "tech wreck" that created the conditions for the GFC; it was a mistaken diagnosis of the crisis when it broke that led to responses whose unpredictability made it only more severe; it was the delusion that quantitative easing could be readily wound back that put central banks in their present predicament; and it is the illusion that merely telling central banks to prevent inflation will actually do so that encourages complacency about fiscal imbalances.
'In reality, the past decade shows economic policy is far better at creating systemic risk than at controlling it. Good economic performance does not come from sorcerer's apprentices fiddling with the controls; rather, it requires stable, predictable and sustainable policy settings.
'Without those settings in place, it is only a matter of time before we see the next Lehman'.
Tony Abbott and Joe Hockey have effectly echoed John Howard's statement that 'no-one complains to me about house prices'. This is fair enough, and one agrees that rising house prices do good things - encouraging house building, spreading the economic goodies and improving consumer confidence. But if a housing recovery, as now budding, turns to a full-blown boom and if the RBA continues with its apparent view that all matters of this nature can be cured by a twitch of cash rates, Australia's economic recovery will run into real trouble.
If Australia's troubles coincide with another attack of the Lehmans in the USA, all hell could break out.
The planet is still warming, or (perhaps) would be cooling if not for the effect of too many humans, is the message of the IPPC boffins.
Henry will leave it to those more expert than him to battle this out, but expects soon to be able to present a counter view from an expert group who refute every claim of those who worry about warming and related catastrophies.
Meanwhile, Kudelka illustrates a view of the cartoonists below, with thanks to the Oz.
Fiona Prior has done it again.
When this gal reports on matters kultural, it is a bit like drinking fine wine from a fire hose.
'I’ve been having a wonderful time experiencing collaborative works by some of the greatest in Australian culture ... individuals, companies, institutions and even architecture! And these ‘best of’ collaborations have taken their formula off-shore and out of the 21st Century, uniting over the works and lives of poets and composers of times past: British composer Benjamin Britten from the 20th Century, 19th century French poet Arthur Rimbaud, 18th Century French composer Jean-Philippe Rameau and a number of 16th Century Spanish and Flemish composers including Cristobel de Morales and Jacob Clemens. It has been an inspired mix'.
The climax to the footy season is here, and we can't wait for what should be the battle of the two best teams - neither we trust fortified by 'supplements' or other substances designed to make players stronger, faster and able to keep it up for longer. ('It' in this sentance refers only to running, marking and kicking, folks.)
Please note Mr. Demetriou, those of us that support teams (like Caaarlton!) whose members are weaker and run slower consistently, would like proper reassurance that the top teams really are clean. Test every grand final player on the morning of the big game is our entirely serious suggestion. We are assured that since you turned down this suggestion several years ago, testing has become far less intrusive and expensive.
But, to return to the present, Hawthorn have the best record this year, and beat West Coast in its first try for an AFL flag, way back in, was this in 1991? If Freo follows the script it will go down bravely this year and come back for a win in 2014. distract us this weekend, so its on with the television for Henry (Thornton, possibly also Ergas) this afternoon.
[Ed, Sunday: Congrats to the Hawks, Commiseration to Freo. The purple men shall be back, Henry is confident, just as West Coast were back in 1992.]
Not much cricket or netball news to
Image of the week.
Courtesy The Oz
Financial stability and economic reform
Date: Thursday, September 26, 2013
Author: Henry Thornton
Australia's financial stability is in good shape. The global economy is improving, and bond rate increases (independent of monetary policy action) seem not to have produced stresses in global financial markets.
Australia's households (and businesses) have adopted more prudent financial behaviour, and rising asset prices (especially in some housing markets) are no more than a small cloud on a distant horizon.
But this cloud must be watched, especially when it is supported by borrowing in self-managed super funds to buy property.
This is a mere summary of the RBA's latest financial stability report, and readers who need more are welcome (of course) ro read the full document here.
This issue not grappled with is this. Asset inflation will need to be controlled (when needed, which is only when there is risk of a bubble developing) with action other than changing monetary policy.
While this is not yet part of the canon of central banks, before long it will be as the profession absorbs Friedman's 'two masters' belief.
'UBS fixed income analyst Matthew Johnson said the Reserve Bank was effectively reminding people that low interest rates and strong home price growth would not last forever.
“If the current increase in prices turns into a bit of froth, they’ve got two options – one is to raise rates, which I think would be a mistake – and the other is to work with APRA to control mortgage lending,” he said.
“And given the likely appreciation of the dollar if they raise rates, that would be better for the overall economy. It does make it less likely the Reserve Bank is going to cut rates in the next couple of meetings,” he said'.
At the end of this article you will find links to several other articles on the alleged or potential property 'bubble'.
Henry's view is that we are a long way from the next property bubble. However, excessively easy monetary policy can help make asset prices rise far faster than they would otherwise do. Also, the modern global economy, with goods prices subdued by weak overall demand, is especially prone to the creation of asset bubbles. So far at least, the RBA and other central banks seem not to have understood the point, as argued here.
Interestingly, when Henry's editor presented research on this matter at Monash university earlier this week, several classy academics asserted that the point was 'obvious'. This reminded Henry that whether or not something is a tautology depends on how fast one can think.
Tax reform and all that
David Uren summarises a view shared by virtually all economists - Australia needs to rely less on income and company tax and, like most other sensible nation - more on spending on spending, especially household consumption.
'Australia has been able to maintain its peculiar mix of a high company tax rate and a low GST rate because of the resources boom. If global companies wanted to profit from China's appetite for resources, they had to do it from Australia. Like the US consumer market, if you're in the game, you've got to be on the field.
'The mix of a high tax rate and big resource profits bankrolled the Howard government, with company taxes reaching a peak of 6.9 per cent of GDP, almost double the global average, in 2007.
'Falling profits across the economy and the big investment deductions that the resource companies can now claim have eroded company tax receipts, which have fallen to 4.8 per cent of GDP. As new OECD research shows, this has delivered a bigger hit to total tax revenue in Australia than any other advanced country since the financial crisis. Even now, Australia is getting more tax from its companies than any other advanced country, with the exceptions of Norway and Korea.
'As resource prices drift lower, the competitive standing of Australia's non-resource industries will come into sharper focus. Tax rates that are punitive by global standards will starve them of investment'.
One has the distinct impression that the government will proceed slowly on matters like tax reform and returning the budget to surplus.
Hard to fix the budget quickly when a key objective is (necessary) infrastructure investment. There is also the fact of declining mining investment and slow improvement in non-mining investment, meaning an economy in worse shape than Treasury and Treasurers Swan and Bowen understood.
This makes the case for hastening slowly on matters fiscal. Like the Abbott government's measured response generally, this will ultimately benefit Australia far more than the hasty over-reach of its precedessors.
Central banks in confusion
Date: Tuesday, September 24, 2013
Author: Henry Thornton
The US Fed, and perhaps also the RBA, is mired in confusion.
The US Fed has failed to communicate clearly about its 'taper', though it would say market participants failed to understand the nuances in its various carefully crafted ((or is it craftily careful?) public utterances.
Its presumed new Chief, Janet Yelland, has been hailed as a paradigm of all the virtues, but today's press says she drives her staff mad on detailed issues. More importantly for all of us, she is said to be a dove on monetary policy and is therefore less likely than Larry Summers would have been quickly to restore sensible monetary policy for the US, but also the global, economy.
Whether US policy of Greenspan and Bernanke for near zero/zero rates in crises saved the world from a depression or created the next round of global goods and services inflation, (or somewhere in between) will only be sorted by the historians. But what is certain is that both Greenspan and Bernanke created powerful asset price inflation. With the excessive and foolish 'financial deregulation' of the Clinton administration (attributed to, wait for it, Larry Summers), this created the GFC, so there will be a lot of evidence to sift and make judgments about.
Henry's reading whilst overseas included a nice exposition of the state of financial reform and re-regulation. The bottom line is 'nothing much has yet been done' and while this is the case the world is still at great risk, mediated only by what one presumes is new caution by those who run the major global banks. As Henry said in 2012, 'The response of regulators to the global financial crisis has been partial, fragmented and ineffective'.
Henry's recent trip to the USA and Uk confirmed that slow recovery is taking place in these two economies. Crucially, house prices are recovering in both places, more evidence of asset inflation. Germany is also doing well, and Chancellor Merkel seems set for another term in office. A summary comment from a feature article in the AFR says: 'As frustratingly gradual and tempered as Merkel's conservative revolution has been, it has helped make Germany more modern and more powerful'. One hopes (and expects) that a similar judgment is made about Australia's economy when Tony Abbott is returned for a third term in 2019.
Even China is perking up, and these various favourable trends have restored some strength to the Australian dollar. Australia's housing market is also stirring. Like housing markets in the USA and UK, we are in Henry's view a long way from the next bubble, but easy money if not soon reversed will create inflation of one sort or another.
The message that monetary policy cannot serve two masters and is best left to maintain overall financial stability, including low goods and services inflation, has apparently not penetrated into the bunker at the top of Martin Place. Is the old lady of Martin Place asleep at the wheel, confident that all will be well or deeply confused about a key issue in monetary economics?
The good news is that, in all probability there is no great rush, and one hopes the relevant people have understood the issue and are planning a sensible response. Please, dear gnomes, reread the following article, and apply the logic to house prices as well as to the Australian dollar.
Weekend Sanity Break, 21 & 22 September 2013
Date: Sunday, September 22, 2013
Author: Henry Thornton
Janet Yellend seems set to be the first woman to run the US Fed. 'Is she tough enough?' is the only negative comment that Henry has heard or read, but why not. After all, she has flourished as an economist and wife to a husband, Nobel prize winning George Akerlof.
Other comments say she is an extraordinarily talented and good natured lady, who will do a tough job with grace and dedication.
This week, Ben Bernanke is being castigated for failing to begin the 'taper' widely anticipated. So although equity markets surged and bond rates fell, the smarties of Wall Street were disgruntled.
If Ms Yellend is unlucky, Bene will keep delating the taper until he leaves office, when we shall find out just how tough she really is.
In the land of the pommie bastards (just joking dear Englishpersons) there is much talk of a coming housing bubble. 'The Bank of England will be forced to raise interest rates' is the cry of those who do not understand that attempting to control asset inflation with monetary policy is inefficient and likely to fail, with higher interest rates spreading gloom to those forced to rent a place to lay their heads.
Interesting ststistic: recently over one third of houses have been purchased with cash - a record.
Of course, it is mainly London and environs that suffer from rising house prices. Prices are flat-lining elsewhare and about 25 % below the peak before the GFC.
Like sensitive Americans, nice pommies worry about disparities of income. It's a democratic scourge, apparently.
Henry is about to climb onto QF 10 for the long ride home. He has had a wonderful few days restarting his career as a model builder, working with former co-author Clifford Wymer to prove (or disprove, or fail to prove) hypotheses about asset inflation and monetary policy.
England's economy seems to be slowly recovering, but no-one except land owners in London seem to be celebrating.
The pommie newspapers seen just as eclectic as ever. 'Guide dog pushes baby's pram from path of runaway car' caught Henry's eye, as did the many frenzied tales such as that of the call girl who is taking legal action action to claim a title from the father who conceived her during a brief fling in the 1970s, the football players who are leaving, or failing to leave, various more or less successful soccer clubs, and the hi-jinks in the Labor party, that make Rudd'n'Gillard look like amateurs in the bastardry department.
Mrs Thornton reports that Tony Abbott continues to make steady progress forming a government and instructing officials to begin producing legislation to anable him to implement his promises.
Only a couple of surprises in his ministry, and nice to see Josh F becoming a junior minister. Pity room was not made for Kelly O'D, but then Josh has the ghosts of Menzies and Howard working for him.
Grovelling apology by leading journalist - in case you missed it.
No, this is not the Age apologising to Henry for its nasty article, nor is it someone from the financial press apologising for misleading australians so badly about the state of the economy, or the ABC for its relentless attempted bucketing of Tony Abbott and his team.
Date: Wednesday, September 18, 2013
Author: Henry Thornton
No, this is not the Age apologising to Henry for its nasty article all those years ago, nor is it someone from the financial press apologising for misleading Australians so badly about the state of the economy, or the ABC for its relentless attempted bucketing of Tony Abbott and his team.
Rather it is Ambrose Evans-Pritchard responding to the German Wayne Swan. I have picked just a few of the gems to pass on to you, my loyal readers.
* 'German Finance Minister Wolfgang Schäuble has been vindicated.
* 'For my part, I have been wrong about everything. German discipline policies for the eurozone have been a tremendous success. I am ashamed for suggesting otherwise.
* 'As the wise, patient, and always self-effacing Mr Schäuble writes today in The Financial Times, the Euro-sceptics talk and write relentless drivel.
* 'Ignore the doomsayers: Europe is being fixed” is the headline: ...'
Issues that Mr Evans-Pritchard feels the need to grovel about include just about everything:
* 'I apologise for mentioning that unemployment is 27.8pc in Greece, 26.3pc in Spain, 17.3pc in Cyprus, and 16.5pc in Portugal, or for pointing that it would be far worse had it not been for a mass exodus of EMU refugees. Nor was is proper to mention that Greek youth unemployment in 62.9pc. These are trivial details.
* 'I apologise for mentioning that the debt trajectories of Spain, Greece, Italy, and Ireland have accelerated upwards under the austerity plans, and therefore that the policy has been self-defeating.
* 'I apologise for mentioning IMF studies showing that the fiscal multiplier is three times higher than first thought by EU officials in EMU crisis states, and therefore that the contractionary effects of belt-tightening are far greater than first calculated.
* 'How could any of in the eurosceptic camp have stooped to the historical pornography of the 1930s, suggesting for one moment that EMU replicates the worst errors of the interwar Gold Standard, or that the German-led creditor bloc is doing to Spain exactly what the US-led creditor bloc did to Germany from 1928-1933? Just sheer smut.
* 'I apologise personally to Mr Schäuble for calling him a dangerous mediocrity: arrogant, shallow, narrow-minded, provincial, and unscientific in equal degree. This was shockingly rude. It brings shame to Fleet Street'.
Wow! What a shame our leading journos are not capable of being so wrong, or so honest at fessing up and so generous of spirit in apologising. Full article linked here
RBA apparently baffled
Date: Tuesday, September 17, 2013
Author: Henry Thornton
Isolated in its bunker at the top of Martin Place, the RBA apparently fails to understand some key isues for monetary policy.
Fails to understand that monetary policy cannot serve to masters. (M Friedman, 1975)
Fails to understand that asset inflation needs to be subdued by some seperate policy than monetary policy, whose mandate involves low goods and services inflation and macroeconomic stability - one target, incidentally, not two as a superficial look might suggest.
The RBNZ is apparently on the case, reminding one of PP McGuinness' dictum that Australia and New Zealand should have one government, with everything except monetary policy run from Australia. The RBNZ gets it, Mr Stevens, and is Paddy's, and Henry's, candidate to run Australasion monetary policy when (and if) political union takes place.
In the mean time, we struggle on with an insular and arrogant central bank, now with its most dangerous confusion since 'fighting inflation first' became its mandate.
The revival of the housing market coincides with a recovery of the exchange rate. The RBA's interest rate cuts have been defied by the currency maket and applauded by the housing market. If you do not feel even slightly confused, Governor Stevens, you should do some hard thinking.
This is an unpalatable message to send from the BA/Qantas lounge at LA airport, but that is where Henry finds himself after a few days getting updated on the movie business. Glenn Stevens, please note, this is a far more transparent business than monetary policy, despite your efforts to improve things.
Larry Summers has pulled out of the race to replace Ben Bernanke as US Fed Chief, leaving Janet Yellen as the front-runner. Summers is the more controversial figure, being allegedly a tougher cookie and more inclined to fight inflation than promote jobs. More here. (Shades of 1996 in Australia, gentle readers?)
Ron Paul, monetary maverick, continues his campaign against the US Fed's inflationary monetary policy, read on here.
Henry's taxi driver, Silas, was an immigrant from Albania in 1988. With a large family group he has established a family beachhead with doctors and lawyers and bankers in the next generation. Silas lost the family business in 2009 but has gone back to driving cabs and has not given up on the American dream. 'So far, there is no recovery' was his summary. But there are wonderful bargains in real estate. Silas' son John, the banker, purchased a two bedroom house for 470 K a year or so ago, financed by a loan at 3.1 % for 30 years! Already it is valued at $650 K, interest payments are $900 per month and rental income (John and family live with Silas) $1500 per month.
Gor Blimey, Ben Bernanke, do you really think this will not cause real problems once you are safely retired?
Great to read about Tony Abbott's new cabinet and its focus on trade and business. Go for it, mate, we need relief after six years of Labor misrule. So what else is new?
Anyone who wants to see the endpoint of current illegal refugee pressures should see Elysium, an ordinary-standard movie with a serious message,
Saturday Sanity Break, 14 Sept 2013
Date: Saturday, September 14, 2013
Author: Henry Thornton
The American economy is improving, although economic activity is rising only slowly and young adults especially are having trouble finding jobs. A theme noticed even in Wayne Swan's 'miracle economy'.
Locals I have spoken to include taxi drivers whoseem mainly immigrants (mostly having arrived many years ago) or successful business persons. A surprising theme from some of the latter group is the problem of inequality. 'Most of the new jobs are a very poorly jobs and yet people say they cannot understand why retail sales remain sluggish'.
This person and others (from the top 10 % of income if not higher) wondered if the current sttretching of income relativities is sustainable.
The cabbies seem resigned to tough times. Cabbies and staff in shops, restaurents and my hotel are uniformly polite and apparently cheerful - presumably rude or grumpy cabbies or shop and restaurent staff do not keep their jobs. Cab charges and items in shops and the cheaper restaurents Hentry patronises seem cheap relative to those in Australia, confirming expectations of a far more competitive cost base.
China has reported solid recent gains in industrial output, electricity production and exports. This has eased fears that China will suffer like smaller emerging economies such as Brazil as the expected 'taper' of the US Fed's monetary stimulus begins.
China's premier, speaking at the World Economic Formun said: 'When the economy is slowing, using short-term stimulus is one measure, but we think that doesn't help solve deep-seated problems. So we chose a strategy that is good for today, and has long-term benefits, maintaining stability of macroeconomic policy'.
The main American news and opinion channels are focussed on the Syrian crisis, and the way President Putin is doing President like a dinner. The WSJ claims elite Syrian military unit is working hard to scatter Syria's chemical arms stockpile.
A report on one fan's response to Caaaarlton's surprise win over Richmond is here. One from the highly successful 'Downfall' series.
If the hotel alarm clock works tonight Henry shall watch the Caaaarrlton! vrs Sydney game tonight
[In the event, the Swans belted Caaarlton!, despite aging stars out and more lost early in the game.
Mr Abbott takes charge
Date: Wednesday, September 11, 2013
Author: Henry Thornton
The election is all over bar the counting, with the Coalition having around thirty seat majority in the House. Still unclear about the Senate, but some experts think the Labor-Green alliance will not have a blocking majority, which may allow long-suffering voters to avoid a double-dissolution election.
Business confidence has lifted from disasterous to simply awful, and household confidence has been rising slowly for some time now. So, for the time being, the economic slide may be arrested. But there is still unsustainable cost disequilibrium and out-of-control budget deficits to be dealt with. Mr Abbott is advocating slow and steady progress on all fronts, which will be a great and welcome change from the opportunism and haste of Mr Rudd's governments.
The business community has been advocating a strong and immediate attack on the fiscal disequilibrium. There is no public advocacy of policies to reduce the cost disequilibrium, although there is a lot of private sector 'cut, cut cutting' which will impact on household confidence in coming weeks.
Mr Abbott has already spoken by telephone to the Indonesian President, Susilo Bambang Yudhoyono, and is committed to elevating Indonesia to the status among Australia's most important national friends.
Tiresias of Canberra writes on the Syrian situation, including the wider issue of the state of American foreign policy and Australia's dependance on our great traditional ally.
'The election is over. Foreign affairs and defence scarcely figured in public debate. Neither side acknowledged the obvious: what is our ally and protector of the last 80 years really up to? Is America sincere in its aims for the war on terror, is it using the war as a means of spreading instability across Eurasia in order to impose strategic uncertainty on rivals like China and Russia or is it callously playing with the lives of hundreds of millions across Western Asia and beyond in pursuance of aims drawn from naïve, grad-school, fantasies of world-improvement? Until recently the first remained plausible. Now it is certain that the truth lies somewhere in the murky space between the second and third options'.
Within Australia, the once great Australian Labor Party is again tearing itself apart, Kevin Rudd, who was removed from office while still a first term Prime minister, then rubbished as a psycopath by members of his cabinet, then resurrected to 'save the furniture' three months ago, is now being advised to quit Parliament on the grounds he will be unable to avoid destabilising whomever is the (hapless) new leader. A hardened veteran was heard to mutter: 'Gor blimey, comrades, have we learned nothing?'
A note to our readers.
Henry is about to catch an aeroplane to L.A., and will be away for ten days or so. Please excuse intermittant transmission, gentle readers, although it will be interesting to soak up the economic and political news as perceived in the mighty USA, and internet cafes and hotel wi-fi systems will surely facilitate the occasional message.
(Mrs Thornton is trying to keep Henry's smart phone on the grounds it will outsmart Henry and create a monster phone bill like 'the partner from XYZ consultancy' and other worthies who took their smart phones to America.).