The Agincourt solution - how bad might it be?
Date: Friday, October 14, 2011
Author: Henry Thornton
Global economic conditions and prospects seem to be settling, although the haunting question remains 'how bad might it be?'.
A visiting American economic saleman, previously a US Fed official, Larry Meyer, has made the most sensible possible statement on the US economy.
"I don't think the US is going to have a double-dip but you have to recognise that there's a meaningful probability, maybe one in three".
Henry has long believed there is no sensible way to forecast except by stating possibilities and probabilities. Clearly Larry Meyer went to the same hard school and absorbed its messages.
Mr Meyer did say that the "recessionary risks are greater in the Euro area", showing that he also follows the economic news from non-American sources, a rare trait in an American in any field.
Australia, Mr Meyer asserted "remained in good shape" and the health of its financial system and budgets provided "unique opportunities".
China and other Asian nations have been overheating but "face a delicate task of slowing their economies down while western economies are struggling to find ways to stimulate their economies".
'Increasingly blunt warnings from central banks fail to prod bickering politicians into action' heads another press report.
Ben Bernanke: "Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the US economy ..."
Jean-Claude Trichet: "The crisis is systematic and must be tackled decisively: national governments and authorities, as well as European institutions, must rise to the challenge and act together swiftly. Further delays are only contributing to aggrevate the situation".
Mervyn King: "We're totally stuffed and I've given up". Correction, that was the Wikileaks version: "When the world changes, we change our policy response".
All this citing the authorities is as an early sanity check. It is always possible Henry might have gotten it wrong, sitting as he does in his office connected to the great and the good only by waves in cyberspace.
But no, these authorities seem to be on the same page, and that adds up to significent uncertainty.
What does it all mean for monetary policy here?
That will be decided by the result of Sunday's Rugby World cup game against New Zuland ... just joking folks, but there is little doubt that there will be a wave of hubris if the Wallabies manage to knock off the Kiwis to advance to the final.
That final will be against Wales or France and here Henry's probabilistic approach to forecasts will be of great value. Saturday's semi-final, and therefore Australia's (we hope) opponant on the weekend after this, is by no means certain.
We suspect France's great win over England in the quarter finals was their final revenge for their unexpected defeat at Agincourt and, having no equivalent enmity with Wales, they will surrender meekly. In any case, they have probably all been quaffing vin extraordinaire since belting le poms. And it must also be factored in that Wales has been playing well.
Imagine the catastrope if either Australia or NZ got belted by Wales in the final.
Assuming no catastrophic end to the Wallabies' campaign, the RBA's decision on Cup Day will depend on perceptions about the state of the local economy and the global situation.
If Mr Meyer's views still look broadly correct on November 1, there will be no rate cut.
Given the manifest uncertainties, however, and the fact that on the day that a horse race stops our nation the G20 will be about to agree (or not) on a Eurozone rescue plan, I suspect the board will give the governor approval to cut rates by up to 100 basis points in case 'or not' is the outcome and this provokes a Lehman moment for the eurozone.
But, wierd mistakes by foreigners aside, things here look not too shabby.
A massive investment boom is building strength, jobs growth has exceeded expectations (again) and retail sales have showed unexpected strength for the second month in a row.
Saturday Sanity Break, May 5 2012
Date: Saturday, May 05, 2012
Author: Henry Thornton
The budget leaks are running hotter and stronger than ever before.
Can this be a deliberate strategy, to get most of the bad news out ahead ot time? Or are some of the comrades trying to sink other comrades?
The defence cuts are seriously misjudged. Australia's defence capability is being steadily eroded, and bringing forward a new defence white paper is no substitute.
Our soldiers will hunker down behind mounds of strategic studies, and beat the invaders over the heads with rolled up copies.
Greg Sheridan said this week it was the worst day for Australia's security since the fall of Saigon in 1975.
Henry has been lying low on the subject of his favourite footy team. The thrashing of Collingwood was the cause of great joy but immediately rang alarm bells.
True to the laws of moral gravity ('what goes up must come down') the following week Caaaarlton! was duly beaten by traditional rival Essendon. Gloom was relieved a few days later when, on ANZAC day, Collingwood defeated Essendon by the narrowest possible margin.
Caaaarlton! then disposed of Freo at home, no mean feat, and the Juddanaught was back on track.
Today Caaarlton! play Great Western Sydney at our home ground, and Judd, Kreuzer and others have been rested. Any win will be acceptable (like the RBA's 50 basis point rate cut) but a big win, wot boosts the percentage (like Australian banks after a rate cut), would be totally spiffing, or 'really sick' as Henry's youngest would put it.
Image of the week
Courtesy The Australian
Wealth or self-sufficiency - the debate we have to have.
Date: Friday, May 04, 2012
Author: Henry Thornton
Henry has never attended Davos with the global movers and shakers.
Was never favoured by that bloke with the Australian Davos franchise who went bankrupt, and perhaps it is just as well. The Davos ideology is fractured, and the shape of the future world is not yet clear. Perhaps brooding in a garret in leafy Kew will turn out to be a better strategy than mixing with future bankrupts.
'Pundits haven't realized it yet, but the age of economic globalization is over', writes Michael Lind.
'Now and then there are moments that clarify major trends in politics. Such a moment occurred recently, when François Hollande, the Socialist candidate for the French presidency, agreed with the French far right on the need to further limit immigration to France: “In a period of crisis, which we are experiencing, limiting economic immigration is necessary and essential.” For his part, Hollande’s opponent Nicolas Sarkozy criticized immigration in his first electoral run and as president of France has denounced deregulated markets.
'This is not just a French phenomenon, nor is it limited to immigration policy. In most of the world’s advanced democracies, the egalitarian left and the nationalist right are growing in strength among voters. After three decades in which apostles of financial deregulation, offshoring and immigration liberalization dominated the capitals of major Western countries, the pendulum is swinging in the other direction.
'You would never know this from the prestige press, which is owned by billionaires and populated by upscale journalists, many of whom were able to begin their journalistic careers as unpaid interns thanks to affluent parents. According to the consensus in the elite media, history runs in one direction toward the merger of national economies in a single global free market, the elimination of borders for labor and the relaxation of restrictions on the free movement of capital. Any moves in the opposite direction represent dangerous backsliding that can only be motivated by racism and xenophobia and that threaten to produce new Hitlers and Mussolinis and trade wars leading to world wars'.
Clearly Mr Lind is a self-made man. He continues after another shot at the 'elites'. (Shades of J. Howard.)
'The Davos vision of a dawning post-national free market utopia was cracked by the al-Qaida attacks on Sept. 11, 2001, and then shattered by the global financial crash of 2008'.
(Henry's shot at the elites in Great Crises of Capitalism relates to what could be called 'stabilisation policy', or more accurately, 'destabilisation policy'.
* Three years ago, policy makers were running round like headless chooks throwing money at voters; now the same women and men are desperately trying to cut government debt, slashing government spending and raising taxes and imposing austerity on the voters. * Three years ago, the USA was busy bailing out all the banks but one; the failure to bail out Lehman Bros almost precipitated a global credit meltdown. * Three years ago, the USA introduced near zero rates of interest and 'quantitative easing' = printing money; now people are wondering, like Henry, if the world needs to reinvent the Gold Standard.)
Michael Lind continues: 'In the world economy, the major trend of our time is the rise of nationalist state capitalism, not the disappearance of national economic boundaries that was predicted by the prophets of globalization like Thomas Friedman following the end of the Cold War. When the world economy collapsed in 2008, leading industrial countries rushed to bail out national firms like America’s GM and Germany’s Opel, giving the lie to the claim that major corporations no longer had national identities. Instead of liberalizing its economy as it developed, China has made its state-owned companies more rather than less important. Most of the world’s energy companies, and a number of major shipping and aerospace industries, are state-controlled'.
He notes that protectionist policies have been limited during the Great Recession, compared to the Great Depression of the 1930s. 'But this arguably reflects the interests of working-class voters rather than the triumph of libertarian globalist ideology'. There are few manufacturing jobs left in the developed nations, and most service sector jobs cannot readily be exported. So the working class (=everone who works and is not a multi-millionaire) focusses its angst on immigration, as newcomers can steal their service sector jobs.
Finance is another area ripe for renewed Balkanisation. Many governments will 'choose to deploy moderate inflation to burn away much of the public and private debt built up during the Great Recession, as the alternative to politically unpopular spending cuts and tax increases. What is known as “financial repression” — forcing national banks and, through them, national savers to accept government bonds whose value is being eroded by deliberate inflation — is a policy that is helped by a degree of segregation of national banking systems from the world economy. In the future, countries pursuing debt reduction by means of moderate inflation will find it attractive to partly re-nationalize their financial systems for this purpose alone. Most retirees in advanced industrial nations depend primarily for their retirement income on inflation-adjusted public pensions like Social Security, not on private savings. As a result, financial repression will hurt economic elites the most, while doing little harm to the working-class majorities in the U.S., Canada and Europe'. (Sound familiar, folks? Refer W. Swan's forthcoming budget.)
And in conclusion: 'Capitalism in some form, partly private and partly statist, will endure. But less than a generation after the fall of the Berlin Wall, libertarian globalism has joined communism on the dust heap of history'.
To find an Australian version of the retreat from the ethos of globalisation, you need go no further than the nearest bookshop. Journalist Paul Cleary's book Too Much Luck. The Mining Boom and Australia's Future repudiates the free market, globalised future we are embracing like a much-loved mistress.
I hasten to say there is a lot of good sense in this book, especially in Cleary's call for fair taxation of the mining sector and creation of a sovereign wealth fund that builds a war chest of overseas investments, helping to restrain the rise in the dollar as it does so.
But in discussing industry policy, Cleary also attacks the doctrine of free trade that has been responsible for massive increases in Australia's wealth since it was tried in the nineteenth century and again in the from the 1980s.
'But there is one glaring weakness with this theory, which our economic experts never discuss. Comparative advantage involves narrowing a country's economic base until we eventually rely on just a few industries, or even one main industry, for export income'. (Pp 23 - 24). In effect, putting all our eggs in one basket.
A bit later: 'For Australia, one profound consequence is that the more China and India industrialise and demand our raw materials, the more our economy resembles a developing country'. (P 24).
There is much to like in this book, but it is also a local manifestation of the demise of Davos Man. What we have to decide is whether the ideas of Davos man really are bankrupt, or whether Australia can find a way to take most of the benefits of globalisation and (fairly) free global trade without becoming one large open cut mine whose young people are forced to move offshore to get jobs. In either case we should buy US-built nuclear submarines and advanced fighter-bombers and fast Isreali patrol boats, so we can close the borders if we need to. Perhaps now is the time to learn again to make most things for ourselves.
This is the debate we need to have.
Reforming global money: Help is at hand
Date: Thursday, May 03, 2012
Author: Henry Thornton
Trying to reform global monetary policy from a garret in leafy Kew is a lonely and thankless task.
Suggesting a return of the Gold Standard, or more precisely a modern version of this with a general commodity standard, has outraged the libertarian right who see this as part of a socialist plot to rule the world. (Think CO2 emission policy, think global free trade, think the bloody UN, you know the story.)
Central bankers, who might be expected to at least engage in debate on the subject, are entrapped in a world of 'flexible Taylor rules'. This system has been destroyed by Messrs Greenspan and Bernanke, both of whom saw near zero cash rates and printing money as the way to abolish risk of reprise of the Great Depression of the 1930s.
Plus, of course, small time central bankers, like those of Australia and New Zealand, dare not upset Ben 'Bubbles' Bernanke for fear of no longer being invited to Jackson Hole for the Fed's annual gabfest.
But, to be fair ("Why?" I hear you cry), the Federal Reserve Bank of New York recently hosted a meeting of critics of the Fed.
Sadly, Henry was not invited, but a keynote speech of one Jim Grant, from Grants of Wall Street, expressed Henry's views far better than Henry could have, with a focus on the US monetary system and deep knowledge of its history and a burgeoning literature.
What follows are some of the jucier paragraphs, followed by a link to the full monty.
'My friends and neighbors, I thank you for this opportunity. You know, we are friends and neighbors. Grant's makes its offices on Wall Street, overlooking Broadway, a 10-minute stroll from your imposing headquarters. For a spectacular vantage point on the next ticker-tape parade up Broadway, please drop by. We'll have the windows washed.
'You say you would like to hear my complaints, and, on the one hand, I do have a few, while on the other, I can't help but feel slightly hypocritical in dressing you down. What passes for sound doctrine in 21st-century central banking—so-called financial repression, interest-rate manipulation, stock-price levitation and money printing under the frosted-glass term "quantitative easing"—presents us at Grant's with a nearly endless supply of good copy. Our symbiotic relationship with the Fed resembles that of Fox News with the Obama administration, or—in an earlier era—that of the Chicago Tribune with the Purple Gang. Grant's needs the Fed even if the Fed doesn't need Grant's.
'In the not quite 100 years since the founding of your institution, America has exchanged central banking for a kind of central planning and the gold standard for what I will call the Ph.D. standard. I regret the changes and will propose reforms, or, I suppose, re-reforms, as my program is very much in accord with that of the founders of this institution. Have you ever read the Federal Reserve Act? The authorizing legislation projected a body "to provide for the establishment of the Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper and to establish a more effective supervision of banking in the United States, and for other purposes." By now can we identify the operative phrase? Of course: "for other purposes." ...
"In the last analysis," [American economist David A. Wells, writing in 1889] proposes, "it will appear that there is no such thing as fixed capital; there is nothing useful that is very old except the precious metals, and life consists in the conversion of forces. The only capital which is of permanent value is immaterial—the experience of generations and the development of science."
'Much the same sentiments, and much the same circumstances, apply today, but with a difference. Digital technology and a globalized labor force have brought down production costs. But, the central bankers declare, prices must not fall. On the contrary, they must rise by 2% a year. To engineer this up-creep, the Bernankes, the Kings, the Draghis—and yes, sadly, even the Dudleys—of the world monetize assets and push down interest rates. They do this to conquer deflation.
'But note, please, that the suppression of interest rates and the conjuring of liquidity set in motion waves of speculative lending and borrowing. This artificially induced activity serves to lift the prices of a favored class of asset—houses, for instance, or Mitt Romney's portfolio of leveraged companies. And when the central bank-financed bubble bursts, credit contracts, leveraged businesses teeter, inventories are liquidated and prices weaken. In short, a process is set in motion resembling a real deflation, which then calls forth a new bout of monetary intervention. By trying to forestall an imagined deflation, the Federal Reserve comes perilously close to instigating the real thing'. ...
'I commend to the Federal Reserve Bank of New York Financial History Book Club (if it doesn't exist, please organize it at once) a volume by the British scholar and central banker, Charles Goodhart. Its title is "The New York Money Market and the Finance of Trade, 1900-1913." In the pre-Fed days with which the history deals, the call money rate dove and soared. There was no stability—and a good thing, Goodhart reasons. In a society predisposed to speculate, as America was and is, he writes, unpredictable spikes in borrowing rates kept the players more or less honest. "On the basis of its record," he writes of the Second Federal Reserve District before there was a Federal Reserve, "the financial system as constituted in the years 1900-1913 must be considered successful to an extent rarely equaled in the United States." And that not withstanding the Panic of 1907.
'My reading of history accords with Goodhart's, though not with that of the Fed's front office. If Chairman Bernanke were in the room, I would respectfully ask him why this persistent harking back to the Great Depression? It is one cyclical episode, but there are many others. I myself draw more instruction from the depression of 1920-21, a slump as ugly and steep in its way as that of 1929-33, but with the simple and interesting difference that it ended. Top to bottom, spring 1920 to summer 1921, nominal GDP fell by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was inexactly measured, topped out at about 14% from a pre-bust low of as little as 2%. And how did the administration of Warren G. Harding meet this macroeconomic calamity? Why, it balanced the budget, the president declaring in 1921, as the economy seemed to be falling apart, "There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures." And the fledgling Fed, face to face with its first big slump, what did it do? Why, it tightened, pushing up short rates in mid-depression to as high as 8.13% from a business cycle peak of 6%. It was the one and only time in the history of this institution that money rates at the trough of a cycle were higher than rates at the peak, according to Allan Meltzer.
'But then something wonderful happened: Markets cleared, and a vibrant recovery began. There were plenty of bankruptcies and no few brickbats launched in the direction of the governor of the New York Fed, Benjamin Strong, for the deflation that cut an especially wide and devastating swath through the American farm economy. But in 1922, the first full year of recovery, the Fed's index of industrial production leapt by 27.3%. By 1923, the unemployment rate was back to 3.2%. The 1920s began to roar'. ...
On the subject of bank failures: 'And what makes a good banker is more than skill. It is also the fear of God, or, more specifically, accountability for the solvency of the institution that he or she owns or manages. To stay out of trouble, the general partners of Brown Brothers Harriman, Wall Street's oldest surviving general partnership, need no regulatory pep talk. Each partner is liable for the debts of the firm to the full extent of his or her net worth'. ...
'There isn't time, in these brief remarks, to persuade you of the necessity of a return to the classical gold standard. I would need another 10 minutes, at least. But I anticipate some skepticism'. ...
'Notice, I do not say the perfect monetary system or best monetary system ever dreamt up by a theoretical economist. The classical gold standard, 1879-1914, "with all its anomalies and exceptions . . . 'worked.'" The quoted words I draw from a book entitled, "The Rules of the Game: Reform and Evolution in the International Monetary System," by Kenneth W. Dam, a law professor and former provost of the University of Chicago. Dam's was a grudging admiration, a little like that of the New York Fed's own Arthur Bloomfield, whose 1959 monograph, "Monetary Policy under the International Gold Standard," was published by yourselves. No, Bloomfield points out, as does Dam, the classical gold standard was not quite automatic. But it was synchronous, it was self-correcting and it did deliver both national solvency and, over the long run, uncanny price stability. The banks were solvent, too, even the central banks, which, as Bloomfield noted, monetized no government debt'. ...
In conclusion, Jim Grant says: 'And what would I do if, following the inauguration of Ron Paul, I were sitting in the chairman's office? I would do what I could to begin the normalization of interest rates. I would invite the Wall Street Journal's Jon Hilsenrath to lunch to let him know that the Fed is now well over its deflation phobia and has put aside its Atlas complex. "It's capitalism for us, Jon," I would say. Next I would call President Dudley. "Bill," I would say, pleasantly, "we're not exactly leading from the front in the regulatory drive to reduce the ratio of assets to equity at the big American financial institutions. Do you have to be leveraged 89:1?" Finally, I would redirect the efforts of the brainiacs at the Federal Reserve Board research division. "Ladies and gentlemen," I would say, "enough with 'Bayesian Analysis of Stochastic Volatility Models with Levy Jumps: Application to Risk Analysis.' How much better it would please me if you wrote to the subject, 'Command and Control No More: A Gold Standard for the 21st Century.'" Finally, my pièce de résistance, I would commission, staff and ceremonially open the Fed's first Office of Unintended Consequences.
'Let me thank you once more for the honor that your invitation does me. Concerning little Grant's and the big Fed, I will quote in parting the opening sentences of an editorial that appeared in a provincial Irish newspaper in the fateful year 1914. It read: "We give this solemn warning to Kaiser Wilhelm: The Skibbereen Eagle has its eye on you".'
Why do so many people not like Tony Abbott?
Date: Wednesday, May 02, 2012
Author: Gary Scarrabelotti
Henry Thornton asked me some days ago to apply my mind to the question, “Why do so many people not like Tony Abbott?”
It’s a good question to ask about a man who stands a fair chance of becoming Prime Minister in perhaps as little as a few months.
Henry’s question has exercised my mind, all the more so since I know a few people who do not share my judgements about, and affections for, the man. What is it about Abbott that discomforts and riles so many people?
There are several contributing factors. Political animus. Body language. The warrior persona.
But the main reason is that Tony Abbott is a statesman in the making. And he is a statesman with a set of universal norms understood and held by most cultures and religions until comparatively recent times, and still held by most peoples and cultures in the world today if not in our own society.
Statesman in the making
Statesmanship is like the Roman toga. Serious political leaders (in any system) wrap themselves in it to acquire authority. They need it to disguise - or to justify when it cannot be disguised – the bloody nature of the work that falls to them, from time to time, to do.
Abbott, I think, has paid too little attention to wearing the toga. Not that he has ignored it entirely. His set piece speeches,given outside the gruesome arena of Federal Parliament, are studded with key principles if in undeveloped and unintegrated form: smaller government, a social safety net targeted at the genuinely needy, lower taxes and greater personal responsibility. But just how this fits together with better maternity leave provisions, national disability insurance (if we can pay for it) and a Medicare-like dental health plan (if we can pay it) has yet to be explained. Nor, indeed, should he explain it in full. No general tells his enemy in advance what his plans are, except to deceive him into a fatal move.
For all that, there are no hidden agendas with Abbott. What you see is what you get. The picture might not be complete, but the outlines are there, albeit less well defined than some of us might like. Questions arise about how he proposes to bring it together. The work, however, even if completed, will contain no surprises. Anyone that does not understand, for example, that Abbott sees the traditional family as the foundation stone of society and as the spring of new life, whose viability and freedom - within a natural moral order - public policy ought to preserve and promote, is either dim or not paying attention. And here is the central problem for Abbott.
Tony Abbott, for all his unflinching drive and aggression, works within a moral framework. What is more, we all understand what that framework is, and we all know that it is his Catholic faith that binds him to a set of universal norms understood and held by most cultures and religions until comparatively recent times, and still held by most peoples and cultures in the world today world if not in our own society.
Ours is in flight from its moral and spiritual origins. The Labor Party and its Green coalition partners represent, on the political plane, the movement of flight. They call it “progress”. There are many in Abbott’s own party, and in the Liberal ambience,who also think of themselves as “progressives” in the sense that they too belong to the exodus from the perennial things. These have shaped the brittle, glossy material of Malcolm Turnbull into an idol for themselves and not a few of them dislike Abbott every bit as much as any Labor hater.
Here I move back toward my opening theme. Both Abbott and Howard before him cleave to the great Greco-Roman-Judeo-Christian inheritance of the Western world. Howard did so instinctively, Abbott consciously and intellectually as much as by the promptings of his heart. In the end, this is what has made both of them so intensely reviled by so many, mainly among our elite cultural establishment. Animus has philosophical-theological roots.
Fortunately, for the moment, this establishment is losing its grip. The broad stream of Australian society - part drifting uncertainly in the wake of the avant-garde; part replenished by new streams of influence from more traditional societies – sense in what Howard and now Abbott stand for the sounds of the familiar, the signs of a safe harbour.
For Labor its star has gone out and the regnant influence of its anti-Abbott campaign has waxed. Now that people from Graham Richardson to Michelle Grattan pronounce judgement upon Gillard and her government for lack of integrity and serial incompetence, the fuel that feeds anti-Abbott flame has lost its combustible power. In the electorate - so polls suggest – there is a thawin its dispositions and for Abbott, personally, the tide begins to rise.
Comes the day, comes the man.
Gary Scarrabelotti is Managing Director of the Canberra-based consulting firm Aequum: Political & Business Strategies.
RBA cuts 50 basis points
Date: Tuesday, May 01, 2012
Author: Henry Thornton
Bernie Fraser joins the RBA advisory panel
Former Treasury Secretary, also former RBA governor, Bernie Fraser was on national television overnight giving his advice to the current governor Glenn Stevens. Bernie is a Labor icon and also Mr Superannuation, whose television persona is that of an affable and measured elderly uncle.'Sometimes you have to get ahead of the curve' Mr Superannuation said. 'Rates should be cut by 50 basis points'.
Bernie also said, if I recall correctly, that he had opposed the independent, inflation fighting Reserve created by Treasurer Peter Costello.
Since this is widely agreed to be the Howard government's greatest reform, I guess it shows even such an eminance as Bernie Fraser can get it wrong.
Henry concedes a 25 basis point cut, for reasons set out here. In summary, a 50 basis point cut might encourage a round of large wage claims by a demoralised labor movement concerned at its coming time in opposition.
Also, global conditions have not changed much, but the outlook is weaker and the odds on a disorderly breakup of the Eurozone have lifted. Best to leave room for further cuts if needed.
The reality of Australia's biggest mining boom is upon us, and 'home grown' inflation is rising. Whilst in the March quarter imported ('traded goods') inflation has been low and further held down by a rising Aussie dollar, and fruit and vege deflation has occurred thanks to rebound from floods, the exchange rate has more recently been falling and the flood rebound effect is fading fast.
Henry expects the RBA board to opt for a cautious 25 basis point rate cut.
A 50 basis point cut would be an admission of previous error by the board, not impossible but highly undesirable. Confidence has been shaken enough by weak government. Also, how would you feel if you received advice on national television from your former boss?
And in the event?
Curiously, Glenn Stevens and the board preferred Bernie Fraser as an advisor to Henry.
Glenn Stevens announced at 2.30 pm today: 'At its meeting today, the Board decided to lower the cash rate by 50 basis points to 3.75 per cent, effective 2 May 2012. This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated.
Rate cut demands; Gillard `on the brink`
Date: Monday, April 30, 2012
Author: Henry Thornton
Adam Creighton reports today: 'HOME builders and retailers called for a double-whammy interest rate cut tomorrow, as new home sales crashed to a 10-year low and housing lending tracked sideways.
'Australia’s inflation rate collapsed to 1.6 per cent last week, which dramatically increased the probability of interest rate cuts in coming months. The Reserve Bank of Australia strongly suggested that it would cut rates in May if inflation remained subdued.
'Harley Dale, the chief economist of the Housing Industry Association (HIA), says, however, that a quarter-percentage-point cut to 4 per cent, which is what most economists expect to happen tomorrow, was not enough.
'He said that the bank should “act boldly” and deliver an interest rate cut of 50 basis points, taking the key rate to 3.75 per cent.
"The bank needs to send a clear signal that it is back on the case of assisting an economy that is clearly weaker than it anticipated in 2012," Mr Dale said.
"Leading housing indicators such as new home sales are pointing to on-going deterioration in already very weak new home building conditions," he added. "That situation is in turn having a major negative impact on manufacturing and services sectors."
'The HIA’s survey of builders showed that new home sales fell 9.4 per cent in March to their lowest level in 10 years. Sales fell hardest in the booming resource states, Queensland (down 15.3 per cent) and Western Australia (down 12 per cent).
'Meanwhile the National Retail Association (NRA) said that the battered retail sector needed the shock treatment of a double rate-cut to boost consumer spending. Retail sales, which are a big chunk of national spending, have been growing at a paltry 0.1 per cent a month this year'.
Politics - Gillard government 'on the brink'.
The PM's backflip on Craig Thompson and Peter Slipper suggests she is not long for her presernt job.
She has made her loyal followers who have been backing her in making the case for these lovely compatriots look like dills.
She has changed a view that everyone but her and said compatriots saw as untenable from the first.
This is the last in a long line of blunders and misjudgments.
Niki Savva has done it again. She wrote last Tuesday: 'THERE is a strong element of wishful thinking attached to the rumours that have recently begun swirling around business, financial and Labor circles that Wayne Swan will quit politics.
'Well, bow out before he gets turfed out, that is.
'The rumours, which emanate from the Treasurer's own backbench, began after the Queensland election and are providing a measure of comfort to his many critics that Swan will not be there for too much longer'.
Given the mess Mr Swan has made of Australia's fiscal policy, this is both logical and to be applauded.
Wayne Swan is no Jim Cairns, but he has imposed on us all a totally unnecessary mountain of debt.
He has also peddled serious voodoo economics.
Fiscal stimulus was necessary, and effective, during the global crisis, so he says, but removal of stimulus with a lurch into (admittedly slim) surplus will not hurt an economy struggling badly except in the booming mining sector.
Large deficits did not put upward pressure on interest rates, so he said, but a lurch back to (slim) surplus will remove pressure and therefore help the struggling non-mining sector.
Today, of course, we learn that Mr Swan intends to soak the rich, now apparently defined as anyone earning over $300,000 per year, with a higher superannuation contribution rate, 30 % rather than 15 %.
Tony Abbott is planning to visit Indonesia, the US, China and India in the second half of this year reports Greg Sheridan.
'Something strange has happened to Australian politics in the past few months that has so far gone unnoticed but is a significant straw in the wind.
'Foreign governments are getting very keen to talk to Abbott and his senior colleagues. This is because they believe Abbott will be prime minister and his senior shadow ministers will form the nucleus of his cabinet'.
Henry heard Mr Abbott on ABC radio explaining that he'd tell the Indonesian President that, just as Indonesia objects to Australians smuggling drugs into Indonesia, Australia objects to Indonesian people in Indonesian boats smuggling illegal immigrants into Australia.
Union rort crackdown
Tony Abbott is planning to impose the same duties and potential penalities on union leaders as on company directors.
'UNION officials who breach their legal duties face up to five years' imprisonment and $200,000 personal fines under an Abbott government as the Liberal leader moves to exploit the Health Services Union scandal.
'Promising to give union members the same protections as shareholders, Tony Abbott will today pledge to significantly increase the financial penalties that can be imposed on union officials by overhauling the federal rules applying to unions and employer organisations'.
Lying government crackdown
If Tony Abbott really wants to reform Australia, lies by candidates for office should be subjected to the rigours of the corporations law.
Directors spend a lot of time trying to decide just when to announce an initiative. Those of us who issue the occasional prospectus need to step very carefully about the promises we make.
No complaints from Henry, but why should politicians be exempt from similar strictures?
No longer Mr No?
How can the scandal-wracked, wasteful and economic-only-with-the-truth-government of Julia Gillard and Wayne Swan go on?
They have the hide to accuse Tony Abbott of being negative, when all he has done is oppose their dud government.
Roll on the polls, let us people have our say. Remember 'no extra taxation without adequate representation'.
Image of the week
Courtesy The Australian
Hawkes and doves of monetary policy
Date: Friday, April 27, 2012
Author: Henry Thornton
Ben Bernanke is not for turning. US interest rates are going to stay virtually at zero until 2014. Big Bird Ben Bernanke is the super-dove of global monetary policy.
US inflation is already creeping up. While the US recovery is likely to slow for a time, when it picks up again it is likely to be seriously inflationary.
By then, the Fed will be in a real bind. It will need either to raise cash rates quickly and be blamed for creating a recession, or raise rates slowly and see inflation far stronger than it (and global anti-inflation hawks) wishes.
Downunder, where the global crisis has hardly been noticed, the much-travelled Peter Slipper is causing angst within the ruling Labor-Green coalition government, and men from the cross-benches are wavering in their support.
Just about everyone says the 'East branch' of the HSU should be wound up and criminal charges laid.
Graham Richardson has said the Prime minister might be able to survive one scandal but not both.
The RBA meets next Tuesday and the debate, say the smarties, will be about one rate cut or two.
It is time for bold action. If the RBA has overestimated non-mining activity, and therefore overpredicted Australian growth and inflation, it is time to fess up and move on.
A fifty basis point cut should be recognised as an apology, whereas a more conservative 25 basis point cut should be seen as fine tuning an already highly tuned national economy.
The basic point is the home grown inflation is rising and a combination of low global inflation and a rising exchange rate kept 'traded goods inflation' low in the March quarter.
The exchange rate is again flirting with parity from the upside and US (and Chinese) inflation is rising (re-rising in the case of China.)
Glenn Stevens is temperamentally a hawk and will not want to fly with a 50 basis point cut, although the doves on his board might prefer that. New Deputy-governor Phillip Lowe will still be finding his feet, and in any case is no match for his predecessor Ric Battellino as an anti-inflation hawk.
What fun, betting on two sets of birdies in the boardroom. Meanwhile Big Bird Ben Bernanke is busy spreading inflation globally.
Some home truths on economic policy
Date: Thursday, April 26, 2012
Author: Henry Thornton
It is timely to remember a few home truths in the ongoing global battle for prosperity.
The Dutch government has fallen for lack of support for its proposed austerity program.
The whole eurozone is now said to be at risk, not before time, we hasten to add.
While mad countries deserve a budgetary straitjacket, at least until they get their debt situation under control, wealthy, fiscally responsible nations have a good case to avoid the big disruption that adherence to Eurozone protocols requires.
A single currency area for countries with greatly different economies is utter madness itself. 'Crucified on a cross of Euros', as someone brave might have said.
The Eurozone experiment is over. The main beneficiary is Germany. Germany maintains control over its costs and simultaneously gets the benefit of a low Euro, held down by Club Med member countries, making German industries highly competitive.
The likely end of the Eurozone experiment has produced a fresh round of market nerves as rates of return demanded by holders of Spainish bonds hover near the 'unsustainable' level of 6 %.
The US economy is recovering, but the latest new jobs numbers have again raised questions about the likely speed of American recovery.
China is growing more slowly, and commodity prices received by Australian exporters are already dipping, as the latest RBA commodity price graph shows.
The world, including Australia, is in for a period of slow growth as we all work off the results of thirty years of profligate spending. It may also be a time of deflation, which will itself remind us all of the difficult economic times from 1913 until 1946.
Meanwhile, leading American (but Australian born) industrialist, Andrew Liveris, observes that Australia has no coherent economic strategy.
This reminds Henry of a judgment quoted by Martin Lynch in his book Mining in World History. Chile, then the USA, had copper booms in the nineteenth century.
Chilean copper came first, with a myriad of small mines exploiting high grade ore.
The USA came second, and developed four giant mines. After a fierce price war, Chile was effectively out of the game for the next century.
Martin Lynch quotes an expert who said: 'Chile had a mining policy of state revenue, the United States one of economic growth'.
Please take note, Wayne Swan and Julia Gillard. Those who ignore the lessons of history are condemned to repeat past mistakes.
By playing to our strengths and building on the current mining boom, rather than using it to bolster state revenue, Australia could become a truly dynamic economic powerhouse. Or we could remain mired in mediocrity, at least in manufacturing, education and tourism, the industries hampered by a high exchange rate. That is the choice facing us today, and for the rest of this decade.
Lest we forget
Date: Wednesday, April 25, 2012
Author: Henry Thornton
The fine painting by Peter Byron reminds us to remember the many brave men and women who fell in war, or returned physically or mentally scarred.