IMF throws in the towel
Date: Wednesday, September 21, 2011
Author: Henry Thornton
The IMF Chief Economist Olivier Blanchard has thrown in the towel and downgraded the lumbering international agency's economic forecasts.
Though Blanchard still expects 4 % growth for the world, hardly shabby, his forecasts for developed countries have been edged down from 'barely acceptable' to 'bloody miserable'. (These are technical economic terms that sound far more impressive in French, ze language of love.)
As warned yesterday, expect a backflip from Madam Legarde on the question of whether developed nations should tighten their belts or send out for more pizza.
Australia's Treasurer has been made 'Finance Minister of the year', an accolade that must peeve Ms Wong. Henry recalls once being told that 9 out of ten winners of Btitain's 'entrepreneur of the year' award ended up broke withing 2, or was it three, years.
Flushed by the award, will Treasurer Swan now blame the slippage into developed nation misery as an excuse to abandon the 'return to surplus by 2013' promise. Like 'no carbon tax' and 'we will never send asylum seekers to countries who have not signed the UN protocol and dealing with refugees' this budgetary election commitment will prove to be just as firm.
In the gloaming
Amongst the fading light, the Rugby World Cup was meant to kindle light and hope, that is until Australia was choked into an all-but-impossible position by an inspired Ireland.
[Ed: We must apologise and withdraw. TP Mahar would never dring turpentine. We acknowledge that he is a lifetime single malt quaffer.]
Sunday Sanity Break, 8 September 2013
Date: Sunday, September 08, 2013
Author: Henry Thornton
It's over, and the polls were pretty well on the knocker.
Tony Abbott has had a fine win after what everyone realises was an astonishingly disciplined (three year) election campaign by a united and competent team.
Kevin 'It's all about me' Rudd seemed in his rambling concession speech to be claiming victory but at least gives his party a chance of one day again forming a government by standing down as its leader. Far better for his party if he left the parliament altogether. As one senior former pollie said at Henry's election party 'there'll be trouble'.
It will take a few days for the new parliament to be settled and sworn in, so we must enjoy a respite while we can.
Now we have the footy finals to focus on.
The AFL finals have so far produced two results that were surprising to most of us.
Freo travelled all the way to Geelong's skilled stadium and overcame the home town team. This earns Freo a home preliminary final in two week's time, and right now they are a better bet to play in the grand final even than Hawthorn, who blasted the Swans off the 'G' on Friday night.
The other surprise was the fine win by the Adelaide Magpies (as they once were) over the Collingwood Magpies. The Collingwood supporters at Henry's party were gobsmacked as their smart phones delivered the bad news, and fortunately so far as we could tell there were no persons present who were supporters of both Collingwood and Labor.
Today sees Caaaaarlton! play Richmond, also at the 'G', and we live in hope that the Blues can overcome a slick Richmond team who have played better footy this year. [Ed: An astonishing runaway win by the Blues after again looking down and out means it will be Caaaarlton! that travels to Sydney to face the Swans. This year's track record, plus home ground advantage means Sydney should win, but Mick the Merciless will have other ideas. If we beat Sydney, anything can happen.]
Caaarlton! goes to Sydney next week to what should be a good thrashing except for one thing. Sydney went into the game against Hawthorn on Friday evening with a number of star players out through injury. The mauling at the hands of Hawthorn left more of their best players sore and out of gas, and so there is just a chance one of today's combatants might sneak through.
When not discussing the election, Henry's pals were talking about the 'supplements' saga. While there were no supporters of the top three teams in the AFL present (such is the tribalism of Melbournians), all the rest of us continue to believe their players are stronger, faster and more focussed than those of the bottom 15 teams. Is this nature or nurture, gentle readers, and if the latter, what kind of nurture?
It is well past time to revive the suggestion made by Luke Griffiths at the start of the 2007 season, to test all players from both teams on grand final morning. Way back then, AFL chief Demetroiu saids in an angry letter: “To test every player in the grand final would be a logistical nightmare and under present arrangements would take up to 10-12 hours for testers to get through all 44 players which makes it neither an efficient nor a common sense approach in the continuing fight against drugs in sport.”
Experts have told us that the relevant tests now take far less time. If the AFL is fair dinkum about cleaning up the game, this policy should be adopted for this grand final.
The economy has held up fairly well under the strain of a hotly contested election campaign. Overseas news has been more positive than negative, with the USA, Japan and the Eurozone showing signs of recovery.
At home, the RBA's decision to keep interest rates on hold was probably a (weak) anti-recession vote. But with the housing market stirring and the possibility of the election improving business and household confidence, it was also perhaps the sign of prudent wait and see economics.
The rebound of the Aussie dollar will be worrying the RBA, and their boffins should be studying the idea of finding a new way to control capital inflow, just as the government has to find a better way to control (preferably stop) people from coming here on leaky boats without documemtation.
Over to you, Mr Abbott.
Image of the week
Courtesy Herald Sun
Election 2013 - the tide in men`s affairs
Date: Friday, September 06, 2013
Author: Henry Thornton
Annabel Crabbe burnished her reputation with another fine interview. Mr Rudd waved his arms and boasted about his Meile (?) kitchen while his daughter helped in the preparation of the 'Kevlova' and other sweet 'high tea' treats. Lots of the overblown rhetoric we have come to expect, naturally.
Today on ABC radio Tania Plibersek was wittering away about lack of detail on the coalition's costings. In the fin, Laura Tingle expresses amazement that the coalition's costings do not signal 'cut, cut, cut' or even mindless austerity. 'Coalition manages to pull a swifty on savings and spending' was her headline. The Labor gals are going to be gobsmacked when a mere male (the much derided T Abbott) becomes one of Australia's great Prime ministers.
The International Monetary Fund (IMF) 'reverses stance' of the global economy. Now it is going to be the USA and Japan, and to a lesser extent Europe, that will be the global growth engines. 'Emerging economies' are mostly in some trouble, and when the US Fed finally nerves itself to pull the plug on current super-easy monetary policy these problems will intensify.
Some experts are saying the commodity boom is catching its breath and Australia may be blessed with resurgent commodity prices.
That would, of course, put renewed pressure on the exchange rate, and there appears to be no debate about policies to mitigate renewed strength on the Aussie dollar.
What a hoot it would be if the Coalition inherited a renewed commodity boom, fixed the budget in its first term and went on to run the country efficiently without vainglorious spending and windy rhetoric for decades.
According to ABC radio, every newspaper in the country except the Melbourne Age has tipped the Coalition to win. The AFR reports the verdict of the punters, which has Labor in as much trouble as the punters said it was in just before Ms Gillard got the chop.
As the great bard had Brutas declaim:
There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries. On such a full sea are we now afloat, And we must take the current when it serves, Or lose our ventures.
Election 2013 - behind the arras
Date: Thursday, September 05, 2013
Author: Henry Thornton
What a brilliant interview by Annabel Crabbe, and Mr Abbott emerged about as warm and friendly, and as plausible, as it was possible to imagine. We await tomorrow night's revelations about Kevin Rudd with eager anticipation. Here is a report, focussing on the trivia, naturally. Do not miss the video.
Gary Morgan comments: 'Sorry, Mr Rudd. You lose!'
Mr Rudd’s ‘If he wins, you lose’ television commercial is a real loser according to Australian voters. It contrasts dramatically with the Liberal’s ‘New Hope’ commercial which is positive and uplifting and scores most highly with L-NP voters but didn’t do badly with ALP and Green voters'.
GDP numbers released yesterday showed sluggish growth held up by government spending and inventory rebuilding.
Previous day's news showed extremely soggy retail sales, and the retailers are crying out for further interest rate cuts when the real issue is prudent Australians improving their balance sheets in anticipation of tough times to come. When was thrift and propensity to save a problem, Gerry Harvey and consumerist mates?
Growth is sluggish and the Australian economy is already in a growth recession, with a real recession to come. some experts think a decisive election win to either side will restore confidence, but a new government (if that is the result) may have fresh news to dampen the post-election cheer.
The presumably Labor opposition leader will claim the coming recession is Tony Abbott's fault but no-one will believe him but Bill Shorten, who will be plotting behind the arras.
As the great bard wrote:
Hamlet.Come, come, and sit you down; you shall not budge. You go not, till I set you up a glass Where you may see the inmost part of you. Queen.What wilt thou do? thou wilt not murder me? Help, help, ho! Pol. [Behind.] What, ho! help! help! help! Hamlet. [Draws.] How now! a rat? Dead, for a ducat, dead! [Makes a pass through the arras. Pol. [Behind.] O! I am slain. QueenO me! what hast thou done? Hamlet. Nay, I know not: is it the king? Queen.O! what a rash and bloody deed is this! Hamlet. A bloody deed! almost as bad, good mother, As kill a king, and marry with his brother.
No more political advertising from midnight. What a relief. Roll on the election!
RBA trilemma, correction dilemma
Date: Tuesday, September 03, 2013
Author: Henry Thornton
Our friends at the Reserve Bank meet today with their buddies from what passes as the 'real world'.
Will they or won't they - cut rates further, today or before Christmas. Them is the questions, comrades.
Australia's economists, mostly well-briefed, say 'no way Jose' to a cut today and either 'yes' or 'probably' to a cut later in the year.
Roy Morgan's shocking news that 170,000 jobs were lost in August - see report below - should tip the balance in favour of a rate cut, but Gary Morgan is known as ... careful Henry ... different, and will be ignored.
In the RBA's 'minds' the stubborn refusal of the currency to fall further should support the case for a rate cut today, but signs of a renewal of the housing boom, especially in Sydney, will be a countervailing factor. An Archbishop's palace is reportedly going for $25 Million, probably to a 30-year-old entrepreneur, and good luck to her.
Henry's views about the need to find an alternative to monetary policy as a way of taming asset inflation have, like Gary Morgan's shocking unemployment figures, so far been ignored. Henry is ... careful Henry ... different, and it is practically an iron law that he is to be ignored with the full force of gov'ner Glenn's steely eye.
The good news is Henry is not alone. The latest edition of the Economist revives the good old 'Horns of a trilemma'.
'SINCE the beginning of May the Indian rupee has plunged by 23% against the dollar. The Turkish lira fell by 15% in that time, and the Indonesian rupiah by 16%. Headlines warn of a replay of the Asian crisis of the late 1990s. Complaints from emerging-market officials that rich-world monetary experiments are to blame for the trouble look like sour grapes. But new research presented to the world’s top central bankers at their recent gathering in Jackson Hole suggests they may have a point'.
The basic point is this: 'An economy open to free movement of capital can keep a fixed exchange rate, for example, only by subjugating monetary-policy goals to its defence—by raising interest rates sharply, say, when capital outflows put downward pressure on the currency'. [Ed: Or by cutting interest rates sharply when capital inflows are too strong to be useful.]
'Yet', continues the venerable mag, 'the trilemma also implies that an economy can enjoy both free capital flows and an independent monetary policy, so long as it gives up worrying about its exchange rate'.
The obvious answer, is to impose a tax on capital inflows when it is running too strong, a variable tax across the board, as advocated in this country by dear old Henry.
'Mainstream economics is increasingly sympathetic' continues the mag. 'In late 2012 the International Monetary Fund updated its institutional view on capital controls, noting that more financially open economies did worse in the crisis of 2007-09. The IMF suggested that limited, co-ordinated policies to temper flows could be warranted, especially in economies with relatively underdeveloped financial systems. In a 2012 lecture Maurice Obstfeld, an economist who helped develop the trilemma concept, mused that the world’s financial architecture looked ill-prepared for a world of outsized financial flows. On average, he notes, newly industrialised economies in Asia maintain foreign-investment positions equal to 200% of annual GDP.
'A new paper by Hélène Rey, of London Business School, goes further. Ms Rey reckons the trilemma itself has been rendered obsolete by financial globalisation. Governments instead face a dilemma, or an “irreconcilable duo”: free capital flows may inevitably mean a loss of monetary-policy independence'.
Ms Rey's “irreconcilable duo” is another manifestation of Milton Friedman's aphorism that 'monetary policy cannot serve two masters', a point Henry has been banging on about for nearly a year now.
As Henry concluded last January: 'Our floating exchange rate with an independent, inflation fighting central bank has generally served Australia well, supported by helpful international conditions. The policy now needs the support of a direct, non-discriminatory control over capital inflow. If not resolved, this problem with cause great damage to Australian industry, as it did in the late eighties, when the correct conclusions were not drawn. A similar problem helped lead America, and then the world, into a Great Depression.
'The lesson of history is clear; and we ignore it at our peril'.
170,000 jobs lost in August.
'In August 2013 an estimated 1.25 million Australians (10.1% of the workforce) were unemployed. This is down 16,000 (0.0%) from last month. The Australian workforce* was 12,377,000 (down 186,000) comprising 7,440,000 full-time workers (up 26,000), 3,686,000 part-time workers (down 196,000) and 1,251,000 looking for work (down 16,000) 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 1,006,000 Australians (8.1% of the workforce*) were under-employed, i.e. working part-time and looking for more work. This is 125,000 fewer than a month ago (down 0.9%).
'In August an estimated 2.257 million Australians (18.2% of the workforce) were unemployed or under-employed. This is down 0.9%, or 141,000 from July, but much higher than 12 months ago in August 2012 (up 126,000, 0.9% from 2.131 million).'
Anything is possible in the last week, of course, so its too soon to start celebrating, or greiving for that matter if you are a Ruddite.
The final nail in Labor's case, fiscal rectitude, seems to have been blown away by 'economic nationalist' Rudd's failure to accept the intervention of the heads of Treasury and Finance, who denied there was any sort of 'black hole' in the Coalition's costing.
Paul Kelly, who once was a fairly harsh critic of Tony Abbott, was moved to say: 'THE Labor government is now sinking before our eyes. Largely reduced to a negative attack on Tony Abbott's costings, Kevin Rudd has made the ritualistic blunder of leaders under pressure: he has over-reached and been humiliated.
'In a collegiate decision almost certainly without precedent in an election, the heads of the Australian public service repudiated the Prime Minister and his economic ministers this week in their assault on the Coalition's main election savings. This is the biggest story of the election'.
Read on here, and do not miss the video. 'Labor continuing to fade' is the judgment of the video twins. And Labor's 'campaign launch' is yet to come.
Overseas news has generally been better. The US economy is slowly but surely improving, China seems to have stabilised (though still facing large problems) and even the Eurozone seems to be pulling out of a deep recession.
The very success of US recoverey has powered debate about how the US Fed exits from current super-easy monetary policy. Gerry Harvey, however, wants the RBA to copy the US Fed and cut short-term interest rates to US levels, presumably not realising that this would give us the US exit problems squared, or even cubed.
Would of course help the standard advertising claims of 'no interest repayments for three years' rubbish. Almost as silly (and as untrue) as a Labor government's repeated promise of 'budget surplus by 20xx'
The Business Council of Australia (BCA) has cottoned on to the view that industry is facing a large 'double-digit cost disequilibrium' (to use Henry's description. This will be harder to fix than the debt and deficit problem, but at least the business mogols are on the case. Do not miss the photo (Image of the week, below) of business leaders pondering cost disequilibrium.
Caaaarlton! plays Port Adelaide today for Essendon's place in the finals. Two presumably uninhanced teams fight it out for the opportunity to be thrashed by teams whose bodies are stronger and faster and minds more focussed, just better team selection and smarter training, or so they say.
Stop press: Caaaarlton! came from 39 points down and looking dead in the water to win a thriller by a solitary point and thus ensure their place in the finals. Was this the turning point we have been looking for all season? Next week will show and if they can continue with the level of commitment and flair finally shown under Mick the merciless they can give the better teams a fright, and perhaps grab a scalp or two.
In New York, little Lleyton showed us its not necessarily over for him either. Older he may be, slower he may be but he's a fighter. Slamming Sam Stouser needs to take whatever it is Lleyton takes with his cornflakes.
Last night Henry and Mrs T attended the second night of Rupert. Great romp through NewsCorp's history as seen by David Williamson channelling Rupert Murdoch and a variety of Murdoch family members and associates. Lots of laughs but, like Essendon's peptide saga, it aint over yet.
Henry's essay on the fun to be had by accumulating debt has chimed with a reader who sent a poem, called CHRISTMAS CHEER, which seems to us to be a modern morality tale.
Image of the week.
Courtesy The Oz
Election week 4 - Acquiring debt can be fun ...
Date: Friday, August 30, 2013
Author: Henry Thornton
People or companies acquire debt for one of a number of purposes. Spending money can be fun and, if borrowed money is used productively, borrowing and spending can be glorious, as a Chinese philosopher once hinted.
Gearing - borrowing money at less than the 'risk adjusted' returns from investing the loan - can make people or companies rich.
When the cost of borrowing is tax deductable, when companies or investors borrow, and assets purchased with the borrowed money rise in value, the net benefit can be great.
If the value of assets falls greatly, of course, so that the assets must be sold at a loss, life gets uncomfortable, especially if the proceeds of the asset sale are well below the value of the loan. Many people and companies have gone broke playing this game. With luck and continued asset inflation, fortunes can be made.
In Australia, the cost of borrowing to purchase a house to live in is not tax deductable, but the value of the house is exempt from income or capital gains tax when the house is sold. With the long boom in house prices since the 1950s, many people have accumulated massive wealth, which can be released when they trade down or die.
Smart people borrow to buy successive houses to renovate and realise a tax free capital gain. Some smart people devote a lifetime to playing that gain. While house prices keep rising, they are laughing.
Borrowing to finance consumption, which happens when ones consumption spending exceeds ones income, is a mugs game, but often practiced.
At the national level, all the justifications except the last can be applied by governments going into debt. There is also the 'Keynesian' justification for stimulating an economy at risk of an economic downturn. Like spendthrift people, high-spending governments have fun planning, announcing and then spending on new projects.
'Keynesian' stimulus is of doubtful value except to a limited extend in a time of deep depression. Usually it is far better to allow the so-called 'automatic stabilisers' to work. As the economy weakens, taxes receipts fall, welfare payments rise and both effects offset the slowdown. If the tax and welfare system is designed well, the resulting budget deficit will be repaid when the economy returns to robust growth. Rather than expanding 'discretionary' spending, governments would be wise to explain to people and companies that they should work harder and smarter to offset the effects of the downturn.
In a very deep downturn, some increase in discretionary spending (financed with borrowing by government) may be justified, but only if the messages about cutting costs and working harder and smarter are delivered at the same time. Borrowing in an attempt to maintain economic activity, like any other borrowing, is borrowing from the future, and a wise government will think deeply about the short-term benefits of increased spending and borrowing, as the borrowing will create interest payments and eventually need to be repaid, and these future commitments will be a burden on future taxpayers, and tend to slow future economic activity.
Borrowing to invest for future returns often works for canny private investors, and may also work for wise governments that invest in high-return activities. Investing to improve education may boost future national productivity, but spending on high-priced and mostly unwanted schools halls will not. Putting pink batts in the ceilings of people's houses may reduce costs of heating and cooling by a small amount, but is hard to justify in terms of higher national productivity. The impact on national productivity will by definition be strongly negative if the batts later have to be taken out due to the negative effects of installation by dodgy builders. Massive spending on infrastructure may help national productivity, but governments are rarely sufficiently wise to spend in ways that boost national productivity. As a general rule, it may be far better to provide incentives for companies to build infrastructure, as they will get better value-for-money both in the building and running phases of infrastructure development.
While spending money is often fun, for individuals, companies or governments, the latter group are as a general rule is most inclined to spend money wastefully.
Please think hard about this matter in the coming week and a bit until polling day, gentle readers. Which party is more likely to spend money wisely and reform spending, taxes and welfare to stem the massive debt increases of the past six years. Fixing the fiscal mess is one vital matter. Another major challenge is to reduce the massive cost disequilibrium that has built up over the same time. The next government can help in this area by reducing red and green tape and by returning the industrial relations system to the sensible middle. But most of the heavy lifting to reduce costs will be done by companies in collaboration with their workers. The sooner that costs are reduced so that Australian companies can compete globally, and the excessive spending is checked, the sooner will Australia return to sustainable prosperity.
With the return to sensible fiscal policy, removing the cost disequilibrium is the major economic issue in this election. Sensible companies seem to be on the case, but IR laws need to support this endeavour, rather than frustrate it.
Election grinds on; Essendon given flick pass
Date: Wednesday, August 28, 2013
Author: Henry Thornton
Thank goodness. Too much longer and we'll be relocating the army to Darwin, except for the catering corps which will be sent to buy apples and other clean green food items in Tasmania.
Not that Henry's mind is as fertile as Mr Rudd's in the matter of shoring up marginal electorates. What about a weekend at the Lodge, or a week at Kirribilli House, for any voter who provides a stat dec that he or she voted successfully for a Labor candidate in a marginal electorate?
Or ... words fail me.
The coalition's $70 billion budget black hole, Mr Abbott's alleged unfitness to hold the office of Prime minister, the constant harping on coalition negativity from the man who promised a nicer political discourse. Has no-one told Mr. Rudd that he damages himself with wild and patently untrue allegations of this type? Or does he shoot those with messages such as this as well as abusing cabin stewards and other worker bees?
More at Rooty Hill tonight.
The coalition is releasing PBO costings, and will produce a set of plausible budget estimates next week. Those criticising the coalition for the lack of point estimates of the budget in four years have presumably never run a business or been a successful politician. Never make promises you cannot keep is one of Mr Abbott's ethical principles, and these principles stand in marked contrast to Labor's 'no carbon tax', promotion of the insulating value of pink batts and unneeded school halls at wildly inflated prices and delivery of a succession of 'budget surplus by 20xx' promises that have had to be progressively wound back.
If its character we want in a political party and its leader this election would be like the Martian beauty parade - we've seen the first candidate in action, and immediately award the title to the second.
Sorry folks, its all got too much for me, gotta zip.
Finally, a settlement. 'Essendon has got off pretty lightly' is the opinion of those of Henry's readers (apart from Essendon supporters) who have commented.
The AFL can justify its willingness to settle for the 'good of the game'.
But there is another possible motive. James Hird in court might have said a whole lot more about use of 'supplements' at other clubs. 'Bigger, fitter, faster' is the clear view about players in other top clubs, and we have to hope this is just the results of better recruiting and smarter training. Astute readers will be aware of the analysis of The Economist (reported here) as well as Henry's 2006 campaign against drugs in the AFL, where even facts about the frequency of drug testing had to be extracted from the AFL with pliers. On this logic, Doc Reid will be allowed to go home with his record unblemished. After all, he did share his concerns with the Essendon administration.
In response to a suggestion that the AFL test every player in the grand final in the day of the game, Mr Demetriou said: “To test every player in the grand final would be a logistical nightmare and under present arrangements would take up to 10-12 hours for testers to get through all 44 players which makes it neither an efficient nor a common sense approach in the continuing fight against drugs in sport.”
Do it this year, Mr D, not too costly or intrusive, and if everyone is clean we shall join the cheering.
See the work of Luke Griffiths, who led the charge in 2006, had an answer to that one also. Read on here.
Coalition launch, RBA talkfest
Date: Monday, August 26, 2013
Author: Henry Thornton
Tony Abbott has presented a blueprint for the restoration of Australia to its natural position as a stronger, fairer and more dynamic country.
This graphic from The Australian sets out the promised actions as 'immediate' (day one); within 100 days; within the first term; and within ten years.
An original approach, with believable actions and a sensible, conservative approach.
The promise to restore fiscal rectitude within ten years is far more sensible than presenting a set of budget projections based on unforcastable assumptions. Spending 2 per cent of GDP on defence within a decade is also a vital change from the ambivalence and inconsistency of Labor's approach to this vital aspect of national security.
And the various immediate and other near term promises are all as already advertised.
The standard plaintive journalistic cry 'but what about the details' just displays youth and inexperience, and should be forgiven.
Reforming a nation requires strong character, a sensible time frame and steady purpose, and above all realism.
Great to see that the boffins at the RBA have held another of their annual talk-fests, as reported today by Alan Mitchell, economics editor of the AFR.
Three one sentance paragraphs naturally caught my eye.
'Pennsylvania University’s Franklin Allen and the European University Institute’s Elena Carletti warn that academic researchers have only started to consider the different kinds of interventions that central banks should use when funding markets break down.
"The other aspect of central bank policy that has not fully been analysed is the effect of low interest rates and quantitative easing on asset prices,” they say.
“The effect of withdrawing these measures and returning to a normal interest rate regime is also not well understood.”
What an admission.
Readers are invited to put 'Henry Thornton Asset inflation and monetary policy' into Google's search engine and you will find some speculation from as long ago as 2004, plus leads to research-based answers.
'Closest match' is from a recent talk, and the relevant paragraph is as follows:
The final chapters of my book Great Crises of Capitalism outlined policies to combat ‘moral hazard’ as well as more conventional policies to better regulate the financial system. More recently I have been researching how monetary policy influences asset inflation - paper available here to SSRN members. This research emphasises that monetary policy indeed influences asset inflation but in a different, and somewhat surprising way than it influences goods and services inflation. This means that asset inflation must be regulated differently to goods and services inflation, a point to which I shall return.
Saturday Sanity Break, 24 August 2013
Date: Saturday, August 24, 2013
Author: Henry Thornton
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest we become bankrupt. People must again learn to work instead of living on public assistance." Cicero, 55 BC. (Quote of the era, sent by a reader.)
Kevin Rudd on the back foot amid poor polling, hostile news coverage, amid allegations of rudeness.
'A RETIRED air vice-marshal has accused Kevin Rudd of "bully standover tactics" and a make-up artist has declared he was rude as she prepared him for the people's forum debate, reviving questions about the Prime Minister's character that emerged in his first stint in the role'.
Henry's favourite snippet came from the make-up lady for the Broncos debate, which seems to have disappeared from the digital version of the newspaper in which I read it.
Paul Kelly says Tony Abbott needs a strong win for his plans to change Australia.
'Abbott's guiding stars in office are as follows: a determination to keep election commitments and shun initiatives where he lacks a mandate (the carbon tax and Work Choices lesson); an operating approach based on consultation, dialogue and consensus; a reliance upon major inquiries into spending, tax, federalism, industrial relations and competition policy to establish the policy and political pathway for reform; an approach that seeks, at each point, to link any economic reform with its social dividend, the main evidence being his focus on greater workforce participation as the desirable end from his family, indigenous and welfare policies; a pragmatic, non-ideological approach to budget and fiscal policy that will shun austerity; and an emphasis on stability, consistency and reliability in office.
'Abbott's economic team now looks along these lines: Joe Hockey as treasurer, Andrew Robb as trade and investment minister, Arthur Sinodinos likely to be finance minister. It is a stronger team than in opposition'. ...
'The great challenge, however, is the economy, with growth slowing, unemployment rising and the budget in structural deficit. Abbott as PM needs a strong economic team. He will depend on the official advisers. He will also look to the business community but Abbott won't become any patsy for business. Above all, his ability to work effectively with Hockey will make or break a Coalition government.
'The economic themes are spelled out. First, the restoration of investor confidence by measures to regain competitiveness and productivity. This involves cutting red tape, winding back regulations, simplifying environmental approvals, modest IR changes and re-creation of the building industry watchdog reforms. Robb says the Coalition, contrary to Rudd's rhetoric, will reboot the resources boom, where a potential $150 billion investment pipeline awaits. In truth, these competitiveness measures are far more difficult politically than conceded.
'Second, as Hockey has foreshadowed, the Coalition will seek a fiscal policy balance between the return-to-surplus priority on the one hand and avoidance of any austerity campaign on the other. Sensibly, Abbott and Hockey have kept their options open on the surplus timetable.
'While the Coalition says its election bottom line will show a net save over Labor, the actual fiscal difference between Labor and the Coalition is probably minor. Abbott will not repeat Rudd's serious 2008 mistake: unlike Rudd, he will conduct a review of government spending and agencies, the aim being a re-ordering of priorities to reflect Coalition values and interests'.
It seems the deal is on. Essendon will cop a sizable fine, lose all points for this year and James Hird will be suspended from coaching for a year. As a Caaaaarlton! supporter who faced the loss of draft picks for merely rorting the salary cap, a penalty which destroyed competitiveness for years, I am not happy, Mr Fitzpatrick and your fellow commissioners.
Far better (in Henry's view) to let Essendon take its chances in this year's finals series and get penalised, like Caaaarlton!, for several years.
All this makes tonight's game between these traditional rivals largely meaningless.
The male Aussie cricketers finally won the toss and batted first on a pitch made for the poms, who played two spinners, one who was kind enough to help Shane Watson's redemption. With Steven Smith, also a big (and not out) centurian, he put the poms to the sword. Sadly, The old enemy are on to the fact that Captain Clarke can no longer dodge the bouncers effectively, and there have been mutterings of 'Bodyline'!
Anyway, the English batters are battling, like Kevin Rudd, to salvage something less than a good thrashing, and are said to have summoned the rain dancers used to such good effect earlier in the series.
Sid Mahar has reported a Labor MP who said that the Retread PM is 'not Kevin07'.
"He's been off the paddock for too long and is not match fit", while Tony Abbott has been working out with the Army.
Election week 3 - `release your costings, Mr Abbott!`
Date: Friday, August 23, 2013
Author: Henry Thornton
This was the week when the the Ruddanaught was shown to be stuck in the sand on a beach somewhere in Northern Australia.
Like a large ship stranded when the water draws back prior to returning in the form of a very large wave, the SS Ruddanaught lies stranded.
It seems the initial poll bounce for Rudd Labor was largely in the Labor heartland, and the positions in the marginal electorates, if not as dire in the last days of Ms Gillard's leadership, are pretty dire.
Peter Beattie was recorded in one poll as lagging 40/60 behind the coalition candidate and Mr Rudd himself is said to be lagging 48/52 behind the good Dr Glasson.
Henry agrees that the debate at the Brisbane Broncos Leagues club (where does one put the apostraphe(s), comrades?) was far livelier than the first such event at the National Press club, but no knockout blow was delivered.
Labor has shown real cheek in demanding the opposition's costings when: (a) it released its costings last time on the Friday before the election; and (b) its own track record of budgetary prediction is so horrendous. Henry hopes that Joe Hockey refuses to provide three-and-four-year-ahead estimates, as those provided by Treasury are based on ridiculous 'return-to-normal' economic predictions.
Of course, realistic predictions might just show an even worse outlook than the shocking budget numbers revealed by the current government's current official forecasts, despite the optimism of the assumed return to normality.
Mr Rudd's blather about a '$70 billion black hole' in the Coalition's budget does him no credit, and will be seen by all but the loyalists of Rudd Labor as simply bullshit.
Economist Saul Eslake has said today the Coalition has a $30 billion hole to fill, but the Coalition's campaign spokesman, Mathias Cormann, says Mr Eslake has got his sums wrong.
"He doesn't have access to the numbers and the sums we have been working through with the Parliamentary Budget Office (PBO)," he told ABC News 24.
"The Parliamentary Budget Office are aware of the all the detail in our policies but have access to relevant Treasury data, which Mr Eslake doesn't.
"There are some pretty fundamental errors in the calculations that he has made."
'But', the relevant journalist says, 'Labor has seized on Mr Eslake's analysis, saying there would be savage cuts under a Coalition government in order to pay for its promises'.
Hissink: 'True to form, the social policies adopted by all the Western economies since World War II and encapsulated in their welfare state systems, are doing what Stalin couldn't – destroying capitalism; not in the communist sense of violent overthrow and mass murder, but by the slow replacement of capitalism with social democratic welfarism which, due to its principles and inherent contradictions, its intrinsic inability to generate wealth, will finally result in economic collapse.
'Our saving grace is that this slow progress into socialism can still be reversed, but only if we have the political will. This is the reason we need to throw out the ALP from government – not because they are mean-spirited or inhuman, but because they are socialists who simply do not understand how wealth is created'.
Tiresias: 'As for Oz, the fix is in and there will be no socialism to be had in any of it. Oz will be transformed into a continent sized Galt’s Gulch for the aspirational classes of the Third World (especially South and East Asia), a giant bed-sit to service an economy owned by overseas investors. We shall have capitalism all right. Plenty of it, complete with Confucian values, Shariah finance and open borders to keep the housewives of Warringah supplied with cheap gardeners, maids and nannies. I could go on, but it is all too depressing for words.
'You should tell Hissink (with whom I passionately agree about the necessity of savings and the stupidity of morbidly low interest rates), this simple truth: an optimist thinks that the world is going to ruin, but a pessimist suspects that it is actually perfecting itself'.