Warnings and forebodings
Date: Monday, December 19, 2011
Author: Henry Thornton
Warnings and forebodings about the global economy are spreading like wildfire or a really nasty virus.
Better to get a realistic view on the table rather than some Panglossian fairytale, like an old geezer delivering gifts down the chimney.
Realism will spoil Christmas for some, perhaps including the two medical scientists Henry dined with last night.
'What is going on' was the question, and the tutorial was intense.
It is hard for well qualified and experienced professionals in fields other than economics to comprehend just how uncertain are some of the big issues of economic policy. Lack of effective action to solve the crisis in Europe, and lack of political agreement about economic policy in the USA, are exhibits one and two in support of this statement. Australia provides exhibit three.
Henry explained to the scientists as well as he could that the Club Med nations of Europe need two things to begin getting back onto their metaphorical feet.
The first is a good dose of debt reduction, and the second is a substantial depreciation of their currencies. The third, unavoidable, remedy is hard and sustained fiscal austerity, which will be part of the solution in any scenario.
Making austerity the whole solution, as seems to be the strategy of the Eurozone leaders so far, would be to impose great misery for at least a decade on the Club Med nations of Europe.
Morally this may satisfy those who ignore the banks and others who so enthusiastically promoted Club Med debt and sold it to investors. But the promoters of Club Med debt and their clients were equally (in Henry's view) morally culpable.
Taking a serious haircut to existing debt levels to allow less misery for the Club Med peoples would seem both fair and economically expedient.
Market forces should enforce the first of these classic remedies, but so far as Henry is aware it has been suggested only for Greece. The second classic remedy is ruled out by the membership of the Eurozone itself and will only become relevant as Club Med nations quit the currency union that is almost literally choking their economies to death.
'What happens when these countries quit the Eurozone?' asked one of the medical scientists. 'No-one knows for sure' I replied. 'There will be a lot of legal argy bargy, as the rules of the Eurozone are apparently silent on this possibility. The big difficulty is the Eurozone banks. The likely outcome would see assets in new Drachma, new Lira, new zloty, etc, etc, and liabilities in Euros, meaning bankruptcy. I doubt there is any body that could rescue all the major Eurozone banks. Widespread bank failure means Great Depression, that is an iron law of economics, or at least of economic history'.
The discussion continued - what happens to US and Chinese exports if there is a Depression in Europe, what does this mean for Australia and its programs to support medical science and other undoubtedly worthwhile causes?
I suspect there will be many such conversations to dampen the festivities this Christmas.
Thanks to The Australian's David Uren we learn today of a fine speech by the Governor of the Bank of Canada, Mark Carney.
'ONE of the world's most respected central bankers has warned the world economy is at a tipping point beyond which forcible debt reduction will bring collapsing asset prices.
'Bank of Canada governor Mark Carney said last week that the "global Minsky moment has arrived", referring to the work of American economist Hyman Minsky, who proposed in the 1960s that financial markets were intrinsically unstable.
'During periods of growth, excess cash generated speculative booms that encouraged people to borrow beyond their ability to repay. When markets turned down they would be forced to sell assets in a falling market to pay down debt'.
"Debt tolerance has decisively turned. The initially well-founded optimism that launched the decades-long credit boom has given way to a belated pessimism that seeks to reverse it," Carney said, in a speech underscoring the great challenge that confronts the world economy, achieving growth while trying to pay down debt. "Current events mark a rupture. Advanced economies have steadily increased leverage for decades. That era is now decisively over."
'The change can be seen clearly in Australia, where households and business have stopped borrowing and are working hard at lowering debt. The key vulnerability is household debt, which remains high'.
I strongly urge you all to take the time to read Mark Carney's sobering speech for for yourself.
His concluding thoughts are as applicable to Australia as they are to Canada.
'When we found ourselves in fiscal trouble in the 1990s, Canadians made tough decisions, so that on the eve of Lehman’s demise, Canada was in the best fiscal shape in the G-7.
'We must be careful, however, not to take too much comfort from these experiences. Past is not always prologue. In the past, demographics and productivity trends were more favourable than they are today. In the past, we deleveraged during times of strong global growth. In the past, our exchange rate acted as a valuable shock absorber, helping to smooth the rebuilding of competitiveness that can only sustainably be attained through productivity growth.
'Today, our demographics have turned, our productivity growth has slowed and the world is undergoing a competitive deleveraging.
'We might appear to prosper for a while by consuming beyond our means. Markets may let us do so for longer than we should. But if we yield to this temptation, eventually we, too, will face painful adjustments.
'It is better to rebalance now from a position of strength; to build the competitiveness and prosperity worthy of our nation'.
Here's to a sober as well as a deeply thoughtful Christmas holiday.
Those interested in a more detailed discussion of Henry's views on the reasons for the current crisis and the lessons for economic policy might find this presentation - with a link to the relevant chapter of Great Crises of Capitalism - of interest.
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.).
Australia`s economic challenges
Date: Monday, September 09, 2013
Author: Henry Thornton
A fine win for Tony Abbott and his highly disciplined team means Australia is again 'open for business' after the chaos and uncertainty of the past six years. Now comes the really hard part, fixing the economy.
Steady and predictable decision-making will be a hallmark of the new government. Abolishing the carbon and mining taxes, stopping the boats, putting the budget onto a sustainable path to surplus and investing in much needed infrastructure are all important first steps.
Despite the likely frustration by the current Senate on the first two objectives, one imagines the incoming Senate will contain sufficient conservative independents to allow passage after July 1 2014.
Stopping the boats is an almost bi-partisan desire and, if anyone can do it, it is the new government. It seems to Henry that regional action is required and that the previous government finally realised this in its dying days.
Putting the federal budget onto a sustainable and credible path to surplus, so Labor's debt can be repaid, is a large task. The electorate must be convinced to support sensible budget housekeeping and postponement or scaling back of programs that are currently unaffordable. Tax reform is also highly desirable, to align tax receipts with agreed spending priorities.
Henry is strongly in favour of cuts to effectively useless research programs. Focus by most of our universities on first rate teaching and specialisation by our leading research universities on disciplines in which they could reach top ten globally has the potential to greatly improve the performance and productivity of the contribution of Australia's tertiary education and research sector.
Vital new infrastructure must be paid for, and the only way to do this without postponing the attack on deficits and debt is to incentivise the private sector to lead the charge, with appropriate government oversight to see the tendering process is honest and promises by winning tenderers are adhered to.
Tax reform to improve incentives to save, to invest and to work could do much to produce the stronger economy the incoming government has promised.
So too will the promised attack on productivity-inhibiting red- and green-tape regulations. Industrial relations must return to the 'sensible middle' and this will do more than any other policy to create jobs and improve productivity.
The single biggest challenge facing the Australian economy is the current double-digit cost disequilibrium. Unless it is solved quickly real recession, with double-digit unemployment, will quickly become the reality facing us all. This matter is currently being attacked by corporate managements cutting costs but, as someone once put it 'you cannot shrink your way to greatness'. Tax and regulatory reform are the ways the new government can help companies deal with the cost disequilibrium.
The team at Henry Thornton wishes the government every success in helping deal with the challenges facing us all. Its success will be Austrlia's success.
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.