The pace of the equity market boom has already been worrying the old dogs, and exciting the young dogs.  Two salivating young dogs presented to Henry yesterday, their ability to distinguish a dry old stick from a juicy bone alarming.  Shares will keep rising, and overseas shares in particular.  So we were told, with the supreme confidence of the young dog.

'How does the Fed exit from present super-easy monetary policy?', asked Henry. 'There is a big issue with America's tax and spending policy', answered the younger dog, though at far greater length than this summary suggests.

'I know about tax and spending', Henry replied, 'but what about zero interest rates and 'quantitative easing'?

The older young dog leapt in with a barrage of words, the message of which seemed to be that the Fed could go on printing money forever.

Most global equity markets fell by around 2 % yesterday, and the US market by 'only' 0.5 % overnight.  Major Eurozone markets fell by similar amounts to the US indices, but individual bank shares by several times more.

This was not apparently caused by concern for the future of US monetary policy, although there is a meeting of the Fed's policy group tonight and Wednesday night, with fresh Bernanke-speak to follow, and perhaps to understand.

No, it was the travails of Cypriot banks which captured the attention of global markets.

While Cyprus and its economy are but a flyspeck on the page of history, its government's novel answer to its bankruptcy is to tax bank deposits by 'up to 10 %'.

Rip it out of poverty-stricken Cypriots and Russian millionairers who, it seems, have migrated to a country no doubt perceived as a safe haven.

Silly idea, really, and Henry was amused to see the Cypriot PM or President saying 'If not this, we'd have to leave the Eurozone and our currency would fall a long way'.

'Precisely, Mr PM/President,  that would be part of any sensible recovery plan' would say any economist of note taking an interest in the troubles of Cyprus. And in a nation that has spent without saving, why would you penalise savings so obvioulsy? (What is Cyprus's only Nobel Prize winning economist, Professor Christopher Pissarides of LSE, up to, one wonders.)

The rest of Eurpoe is reeling in disbelief.  What if little old Cyprus succeeds in taxing people's bank deposits?  Even the threat of this is generating fear of similar action in France, and Italy, and Spain. And, since Eurocrats love a precedent, who knows what might happen next.

Unless the radical Cypriot plan is firmly quashed, goes the text, runs on Eurozone banks will bring down the whole ediface of Eurozone finance, followed quickly by American and British finance.

Even before this storm in a glass of brandy sour, old dogs of the global investment community were predicting a 20 % 'correction' of equity markets. And Ben 'Bubbles' Bernanke is yet to tell us how he plans to exit from overly easy monetary policy.

We have been warned!

Reader comment.

Tiresais of Canberra says: 'You’ll no doubt agree with Ambrose E-P on this one! The world is truly turning upside down when the Kremlin has sounder views on private property than Brussels.  I hate to think what ideas all this must be giving Bruce Springsteen’s fan on the Treasury benches. 

The reference to Ambrose Evans-Pritchard is to 'Daylight robbery in Cyprus will come to haunt EMU'.

See also Reserve flays plan to tax Cypriots. (A cheer for Mr. Lowe)

'Consider the pattern this year. Labor has unnerved the superannuation industry; it keeps finding new ways to irritate the mining industry. After the past fortnight, the Business Council of Australia has declared, in effect, no confidence in a government engaged in "ill-disciplined regulation-making for political expediency". The two other main business bodies, the Australian Industry Group and the Chamber of Commerce and Industry have passed the point of alienation. There is agitation in the sporting communities about Labor's management of the drugs issue; groups pledged to a strong skilled migrant intake, the IT sector, healthcare and hospitality have real concerns; and Labor has now triggered a political war with much of the media industry'.

Read on here.

Government by disaster - another case study

Julia is not alone says 'one man global content provider Mark Steyn.

He writes of 'Obama's fake-disaster-movie joke'.

'Government by fake disaster movie seems to be going swimmingly for Obama. Every Republican attempt at fiscal discipline ends with higher spending and more taxes. That's the way it went with the Christmas blockbuster Fiscal Cliff, and that's the way to bet with Les Sequesterables. Even the Internal Revenue Service can't keep up: "Tax season" is here, yet it's not accepting tax returns from millions of Americans because the IRS hasn't yet processed the tax changes passed in the dead of night at new year'.

Caaaarlton!

'MARC Murphy's ascendancy to the captaincy of Carlton comes at the perfect time, according to a man who once distinguished himself in the role, Blues president Stephen Kernahan.

'Mick Malthouse, who has been made responsible for returning the Blues to the lofty position they held through Kernahan's era as a player, said Murphy had been chosen because he was best placed to "uphold the tradition and the spirit of Carlton".

'The 25-year-old said he was humbled by Carlton's decision to award him the captaincy, ahead of older teammates Kade Simpson and Andrew Carrazzo.

'But the player needed look only around him during a press conference announcing the decision to realise just how decorated the company is that he now finds himself in. On walking into a room at Visy Park yesterday, Murphy was confronted by larger-than-life banners of Chris Judd, the champion he is succeeding, Mark Maclure, Alex Jesaulenko, John Nicholls - described by Kernahan, who also featured, as the greatest ever Blue - and Anthony Koutoufides.

Despite the hype, Caaaarlton! disappointed last night when well beaten by Brisbane.

Henry felt the urgency shown in th first games under Supercoach Mick Malthouse was missing.

But a more structural problem was illustrated.  Caaaarlton! still lacks a power forward and a power backman, weaknesses demonstrated by Brisbane's dominant (and scarey) Jonathan Brown (five goals) and Daniel Merrett (commanding in the air in defence), not to forget the rich Mr. Rich (dominating everywhere).

Read more here.

Cricket'n'stuff

It must be said that the coach and captain's imposition of some tough discipline seems to have encouraged the others - well done Warner, Cowan, Stark and Smith.  Bowl out the Indians cheaply, Smithy and you'll have earned the all-rounder's spot given up by Watto.

The Caaaarlton! U19 squad was once given the instruction 'come to the game wearing a tie or you won't play'.  Henry was one of the four who complied and, guess what, those four were the ones omitted.  The non-tie wearing members of the team were an undisciplined rabble and failed badly.  Henry went back to Nunawading to play in a grand final.  That team would have beaten Caaaarlton! U19s, no doubt about it.

Great Gatsby

BAZ Luhrmann's 3D adaptation of The Great Gatsby will open the Cannes Film Festival this year, organisers said on Tuesday.

The eagerly anticipated film, starring Leonardo DiCaprio, Tobey Maguire and Carey Mulligan, was delayed from being released in 2012 so that Luhrmann could continue to refine the film.

The director is said to be a favourite of the festival.

His 2001 musical drama Moulin Rouge remains one of the most memorable opening nights in Cannes history, with an expensive after-party thrown by distributor 20th Century Fox.

Image of the week

  Courtesy Wire Services

The most immediate news is the apparent massive surge of new jobs in Australia in February, despite the far gloomier  indicators revealed (here) by Henry's liason with real people, and Gary Morgan's Labor market survey. We call this the labor market conundrum, and we await a genius of statisticians to untangle the truth on this vital matter.  (Professor Mark Wooden of the Melbourne Institute, we need you to step up!)

Unsurprisingly, all but the bleeding hearts who think the economy needs further rate cuts are suggesting this puts further interest rate cuts into the deep freeze.

The Australian dollar jumped on the jobs growth news, and this development emphasises the need for Henry's tax on capital inflow.  But discussion of this matter has been notable only for its absence, the apart for the contributions of Professors Max Corden and Warwick McKibbin, plus some who needed to remain anonymous. (Comments page here.)

Other signs of returning economic buoyancy include a jump in consumer confidence, increases in house prices and reports of improving retail sales, at least among members of the Woolies and Coles near-duopoly.

On the other hand, the latest survey of 500 Australian businesses by nab indicated their confidence and reported trading conditions fell between January and February, while the volume of forward orders collapsed to their lowest level since 2009.

Nab itself is in the midst of a massive downsizing, which is progressing in stages, presumably to prolong the suspense and give everyone who is allowed to stay until the next round a reason to work like beavers. 

Henry's battles with electricity retailers continue, and the Thornton household is now having power bills sent by the third retailer in 4 months.  Numbers 1 and 2 both lied about their rates and deserve to be fined at least, and their CEO's banned for several years.  Where is the regulator? one is forced to ask.

If it is good enough for Cricket Australia's high cricket officials to try to  enforce decent standards, what about crooked and lying power providers?

Politics downunder

The political news is dominated 'Mussolini' Conroy's attempt to abolish free speech.

'Musso' is attempting to ram through a major step in the Soviet/Fascist direction in the short time that might be involved in finding a solution to a major national crisis.

The smarties are saying this is a token effort, giving Mr. Conroy and the government an 'honorable' way to dump the whole idea.

If this is the fact, we should award Mr. C with another nickname beginning with 'M', but we think he is not smart enough for this.

The resident Machiavelli says all this is Gillard's survival strategy.  Make Labor so unelectable that no-one else will want the top job.  I'd say she's achieved her aim.

The thrashing of Labor in the West, and the appointment of Australia's first indigenous head of government in the North are two other novel developments.

New Pope appointed

None of this week's news in Oz is as momentous as the Catholic Cardinals chanelling God to select the first Jesuit, the first man to be called Pope Francis and the first non-European for a thousand years.

Pope Francis is a genuine man of the people, it seems, described as 'theologically conservative and socially liberal'.

'I'd far rather it was the other way round', said a (lapsed) Catholic close to Henry.

But perhaps another sign of a world loosening up, such as gay soldiers and sailors marching in uniform in Sydney's recent Mardi Gras and noone knowing the true state of australia's labor market.

Mrs Thornton reports most weeks that there are increasing numbers of 'closing down' sales and empty shops.

The junior Thorntons are spending untold hours applying for jobs online, sometimes receiving the rejection notice - obviously automated - within seconds of sending their carefully crafted application.  It seems respectable degrees - two in the case of the oldest and second oldest, plus cheerful and hard-working personalities - are not compelling for the robots who deal with the online job applications.  Only the youngest has a job for next year, obtained by the quality of the work he did in a work experience job arranged by Henry.

A professor visiting recently from Oxford said the only way to get a job in England is through personal referral, perferably by a cabinet minister or captain of industry. And in Italy and Spain, there are no jobs for young people.

Henry's medical advisor - well, one of them - said today people were still getting ill, and also that the stock market was booming because the Coalition was going to win and 'fix the joint up'.

In February 2013 an estimated 1.36 million Australians (10.9% of the workforce) were unemployed. This is virtually unchanged from last month but is the equal highest rate of unemployment since January 2002. The Australian workforce* was 12,511,000, comprising 7,497,000 full-time workers (up 301,000); 3,654,000 part-time workers (up 38,000) and 1,360,000 looking for work (up 33,000) according to Roy Morgan.

 A further 1,113,000 Australians were under-employed - working part-time and looking for more work. This is 45,000 more than a month ago, and represents 8.9% of the workforce* (up 0.1%).

 In total 2.473 million Australians (19.8% of the workforce) were unemployed or under-employed in February. This is up 0.1% or 78,000 more than last month and also up a large 329,000 (2.3%) over the past 12 months since February 2012.

In February an estimated 649,000 Australians (down 95,000) were looking for full-time work, a trend in February that has happened in seven out of the last ten years, while a record high 711,000 (up a large 128,000) are now looking for part-time work. Considerably higher than the rise a year ago of 17,000.

The latest Roy Morgan unemployment estimate of 10.9% is more than double the 5.4% currently quoted by the ABS for Febuary 2013.

The ABS today announced the biggest increase in Australian jobs since ... well , almost it seems since Moses was found in the bullrushes.

'Australia's seasonally adjusted unemployment rate remained steady at 5.4 per cent in February, as announced by the Australian Bureau of Statistics (ABS) today.

The ABS reported the number of people employed increased by 71,500 to 11,628,300 in February. The increase in employment was due to increased part-time employment, up 53,700 people to 3,510,800 and increased full-time employment, up 17,800 to 8,117,400. The increase in total employment was driven by an increase in male part-time employment, and female full-time and part-time employment.

'The number of people unemployed increased by 400 people to 660,000 in February, the ABS reported.

'The ABS monthly seasonally adjusted aggregate hours worked series showed an increase in February, up 11.3 million hours to 1,632.8 million hours.

'The ABS reported a seasonally adjusted labour force participation rate increase of 0.3 percentage points to 65.3 per cent in February.

'The seasonally adjusted underemployment rate was 7.1 per cent in February 2013. Combined with the unemployment rate of 5.4 per cent, the latest estimate of total seasonally adjusted labour force underutilisation was 12.5 per cent in February'.

In Roy Morgan's latest release, linked above, Mr Morgan said: “Today’s Roy Morgan February employment estimates show Australian unemployment rate unchanged at 10.9% (1,360,000 people unemployed, up 33,000 in a month – a new record high figure). Australia’s under-employment rose 45,000 to 1,113,000 meaning a record high 2.473 million (up 78,000) Australians (19.8%, up 0.1%) are either unemployed or under-employed.

“Although total employment rose 105,000 to 11,151,000 over the last 12 months (full-time employment up 89,000 to 7,497,000 and part-time employment up 16,000 to 3,654,000), there was a far greater rise in total Australian unemployment and under-employment – now up a significant 329,000 over the past 12 months.

“These figures clearly show that the Australian economy remains in a weakened state with record high unemployment and under-employment. The economy clearly needs extra stimulation and in the run-up to the Federal Election our politicians will find it harder to provide the leadership in improving the Australian economy we all require. The uncertain political situation means the RBA was wrong to leave interest rates unchanged at 3% yesterday and must recommence cutting interest rates at the earliest opportunity.

“Australian interest rates are amongst the highest in the world and international news backs up the argument that the RBA must re-start lowering interest rates immediately. Overnight the Dow Jones Index in the US closed at a record high of 14,253.77 – this is the first time the Dow Jones has closed at a record high since the beginning of the Global Financial Crisis. However, in Australia the All Ordinaries Index is currently around 5,100, which is around 1,700 points (25%) below its record high above 6,800 reached more than 5 years ago in November 2007.

“In addition, news today from the ABS National Accounts provides a worrying illustration of Australia’s economic situation with the southern States of Australia – Victoria, South Australia and Tasmania now all in recession, as well as the ACT – all of which have now recorded two quarters of negative growth during the latter half of 2012.”

Gary Morgan told Henry today: 'The ABS is wrong because of the questions asked, so simple'.

If it was as simple as the ABS not knowing the right questions to ask, you'd think the wise men at the RBA would be using Roy Morgan's numbers.

Henry's liason (reported above) supports the view that things in the Labor market are tough.

But still the whole machinery of government rolls on saying things are fine.  I suspect the voters know better.  (See later contribution below the graph.)

A few weeks later - good sense ...

A sensible bloke, Peter Smith by name, writes about 'More imaginary employment numbers'.

'Employment did not increase by 74,000 in February nor did it fall by 36,000 in March. What then did happen? No-one knows. Trend estimates, which even out sampling error, show employment rising by 15,500 in February and by 12,600 in March. This is the best guide we have. If employment growth of this order of magnitude were to continue, month in and month out, unemployment would rise gradually and progressively because the civilian population (of over 15 years of age) is currently growing by around 27,000 per month; that’s around 18,000 joining the workforce based on two-thirds participation. Do the math as the Americans might say.

'Sluggish growth in employment is consistent with the rise in the seasonally adjusted unemployment rate from 5.2% in March, 2012, to 5.6% in March, 2013; during a period too when the participation rate has reportedly fallen from 65.4% to 65.1%. Without that fall in participation, the unemployment rate would now be about 6%. And well over 6%, if the participation rate in March 2011 of 65.7% still applied'.

Here is the full article, courtesy Quadrant Online.

Ambrose Evans- Pritchard reports that Japan has extracted natural "ice" gas from methane hydrates beneath the sea off its coasts in a technological coup, opening up a super-resource that could meet the country's gas needs for the next century and radically change the world's energy outlook.

'The state-owned oil and gas company JOGMEC said an exploration ship had successfully drilled 300 metres below the seabed into deposits of methane hydrate, an ice-like solid that stores gas molecules but requires great skill to extract safely.

"Methane hydrates available within Japan's territorial waters may well be able to supply the nation's natural gas needs for a century," said the company, adding that the waters under exploration also contain large reserves of rare earth metals.

'Government officials said it was the world's first off-shore experiment of its kind, though Japan been working closely with the Canadians. The US and China have their own probes underway.

'he US Geological Survey said methane hydrates offer an "immense carbon reservoir", twice all other known fossil fuels on earth (illustrated in pie chart below). However, it warned that the ecological impact is "very poorly understood".'

Read on here. 

US recovery

Tiresias writes 'Re your opinions in Monday’s blog ('economic recovery will be helped if people spend more, as they will need to do if recovery is to continue'), I beg to disagree.

I suspect that a lasting economic recovery in the US is not on the cards because the cluster of asset bubbles has confounded price signals, so that many (if not most) investors in the US are at a loss to gauge lasting value. People are also spooked by the increasingly erratic nature of policy decisions, the lack of any apparent principle in US monetary and fiscal policy and the recklessness of printing more dollars. To cap it off the pollies and central bankers have decided to extend public assistance to failed businesses (rather than just ease the predicament of workers in the downturn) thereby making the business cycle more or less useless as far as clearing out deadwood and preparing for a new round of growth. Why invest in marginal businesses or industries that should have been closed down in the first place?

Henry comments: much wisdom in what you say, Tiresias. What I find amazing just now is how strong US equity markets have been when all the issues you list should be causing markets to struggle.

Could it be the effect of Ben Bernanke's printing press?

 Exiting from zero interest rates and massive 'quantitative easing' wis the monetary policy challenge of the 2010s.

My concern is that Fed Funds rate effectively  zero, and allied ‘quantitative easing’, have created serious difficulties not yet totally evident or understood.  The recent small-scale market panic when Fed minutes revealed discussion about the difficulties of the exit from current extremely easy monetary policy illustrates exactly the dilemma facing the US Fed and therefore the health of the global economy.

Tightening monetary policy, as in 1928 and 1929, on top of a general expectation that markets are over-valued, will bring any asset boom to an end. But, as Friedman and Schwartz said in 1963, ‘monetary policy cannot serve two masters’. Policy-makers need to have a clear way to modify asset booms when the evidence suggests the strong risk of the boom getting out of control.

History says that booming share prices combined with low goods and services inflation should ring a loud warning bell.

As we asked last Thursday, 'Que?' 

Equity markets 'have been booming as a result of a deliberate strategy of central banks: by forcing down bond yields, they hope to persuade investors to buy risky assets and thus restore confidence to both businesses and consumers. In much of the developed world, ...'  Precisely, but fortunately for us, Glenn Steves and his merry men (and women) have not joined this gadarene stampede.

So far, so good. Central bank intervention, says the venerable mag, risks encouraging what Alan Greenspan memorably called 'irrational exuberance'. This was the case in the 1980s and 1990s, and there are signs in credit markets of that again being the case. A separate article by Buttonwood makes this case.

'As yet, however, the excesses are not on the scale of the last two bull markets; indeed, the American public is only just regaining its appetite for equity mutual funds. So central banks can be excused for sitting back and enjoying the bull run, especially as any action they could plausibly take to halt it would damage a still-fragile economy'.

But there is a paradox.  Economic recovery will be helped if people spend more, as they will need to do if recovery is to continue. But with bond yields low and equity valuations high, market returns are unlikely to be high. Therefore people need to save more, especially if they wish to keep building a satisfactory retirement fund.

'Balancing the desire for short-term consumption and the need for long-term thrift is one of the trickiest issues for rich countries as they navigate their way out of the crisis.

'Perhaps the Dow will resolve that paradox by continuing to soar', says The Economist. But 'More likely, it will not'.

'The S&P 500 climbed for its sixth straight day, putting it less than 1 per cent from an all-time closing high. The benchmark S&P index rose for its ninth positive week out of the last 10. All three major US stock indexes racked up their biggest weekly gains since the first week of the year.

US employers added a greater-than-expected 236,000 workers to their payrolls and helping to push the jobless rate to a four year-low of 7.7 % 'in a bright signal on the economy's health'.

Downunder

Meanwhile, in distant Australia, '457 reasons Labor's lost the plot' says Paul Kelly.

The 457 Visa program is the main reason Australia did not have a major wage breakout during the boom.  It also explains why business can cope in the face of Australians reluctant to leave the coffee shops for the mines. 

It is no wonder that the Gillard government is doing its best to hobble such an effective program, following the narrow sectional interest of its militant union backers.

Paul Kelly does not put it so directly, but its all there, gentle readers, and good on the venerable veteran commentator.  Read on here.

Our thoughts from earlier this week, including on 457 visa holders, may be accessed here.

And Paul Kelly seems to be warming to the opposition leader. He concludes his 457 expose as follows: 'Abbott's position is long known. In his speech last April, he tied his support for 457 visas to tough border protection. "These are the best possible immigrants to Australia," Abbott said of 457 visa holders. He put up his values in lights - he stands for stopping boatpeople and welcoming 457 visa holders who come to do a job and pay taxes. Gillard invites the public to see the differences between Labor and Coalition on 457 visas, but this is an invitation that may backfire'.

Excuse me, Miss Gillard, is this a policy-free nay-sayer speaking?

Property

'Property's perking up' sats Michael Stutchbury's AFR.

The front page teaser says last year's interest rate cuts are starting to take effect, with house prices up in all capital cities except ... you got it, Adelaide. Auction clearence rates are rising, and affordability is improving, especially for rich people.

Most analysts expect only single-digit growth in coming years, sadly for us property owners, happily for the kids, it seems the next boom is some way off.

Indeed, the AFR's Christopher Joye has flirted with joining the lonely man who cannot be named who says the next move in interest rates may be up.

'Watch the jobless rate', says Mr Joye. 'An unambiguous decline in the jobless rate, propelled by an aging population that shrinks the pool of productive labor, will force the RBA to remove its extreme stimulus'.  Wow!

The Budget, the wretched bloody budget.

Finally, it seems, the chickens of Rudd-Gillard-Swan's dreadful profligacy are coming home to roost, morphed it seems into vultures, and revealing the Treasurer as ugly duckling.

Our recent thoughts are at this link. 

Oscar awards and Mardi Gras 2013.

She's back. Fiona Prior, creator of the first version of Henry's site and teacher of Henry about html code. Far more importantly, mistress of all things cultural, after a long sabattical while she did, ... well, interesting stuff.

Here is Fiona's take on the Oscars and the Mardi Gras - we especially loved the serviceman and women marching in those lovely uniforms.

Readers can look forward to news and views of movies, exhibitions and any cultural event that catches the lady's eagle eye.

Image of the week

Courtesy The Oz

'WESTPAC'S plain-speaking London economist James Shugg remains as gloomy about the global economy as he was over a year ago, when he said the Australian dollar could plunge to US80c and a break up of the eurozone would prompt a "global catastrophe".

'Mr Shugg said yesterday he thought the renaissance of economic optimism this year was built on a mirage, a result of "quantitative easing" in Europe and Japan, rather than fundamental economic improvements. He suggested Greece, and potentially other European countries, were likely to default next year.

"I stand by every word of what I said in November 2011," he told The Australian from London.

'At a Rockhampton, Queensland, conference in late 2011, Mr Shugg said he had never been so worried about the economic outlook in 25 years.

"I've started smoking; I can't get to sleep at night. Markets are freezing up and things are even worse than you are reading about," he reportedly said then.

As if in response, the diligent team at nab ask three questions, which presumably means they have some concerns.

• The recent capex and exploration expectations data suggest that mining investment may be approaching a turning point. A decline is inevitable: the question is when and how fast.
 
• On the basis of past engineering construction commencements, there are reasons to believe that there is a risk of a decline in 2014 big enough to take 2% points off GDP growth in that year unless another “mega” project starts soon. Lower levels of bulk commodity prices are also likely to be positive for the underlying trend in mining project commencements.

• If mining investment retreats spectacularly in 2014, non-mining investment will need to fill the gap quickly if employment growth is to be maintained.

And in the wider world ...

The US economy is defying its fiscal deadlock to produce stronger than expected signs of life, though it seems it is a close run thing.

 '340,000 initial claims for jobless benefits were filed in the latest week, less than the 350,000 expected. The reading comes ahead of Friday's closely watched jobs report. On Wednesday, Automatic Data Processing and Moody's Analytics said private-sector job growth was higher than expected in February.

"Five of the last nine [jobless claims] reports have come in better than economists had anticipated ... It is much more indicative of a trend," said Eric Wiegand, senior portfolio manager with US Bank Wealth Management's Private Client Reserve.

In another shot in the 'currency wars', China has warned Japan to desist in forcing the yen lower, correction, throwing out its garbage.

'BEIJING—The president of China's giant sovereign-wealth fund warned Japan against using its neighbors as a "garbage bin" by deliberately devaluing the yen, joining growing international griping about a potential currency war.

In unusually strong language, Gao Xiqing, president of China Investment Corp., echoed alarms from Latin America to Europe that the new Japanese government is aiming to boost its exports at other countries' expense via a weaker currency—allegations often leveled at China itself by the U.S. and others.

In Euroland 'Fading hopes of growth have helped push the euro lower. The eurozone downturn in the fourth quarter was larger than expected, with a contraction of 0.6 per cent on the quarter.

'Exports fell 0.9 per cent, the biggest drop since late 2009. Hopes of a rapid bounce back in the first quarter only seem justified in Germany. Economic survey data for February show a Continent still stuck in recession.

'Meanwhile, the Italian election results, with a surprisingly strong showing for activist Beppe Grillo's anti-austerity Five Star Movement, have moved growth up the political agenda in Europe once again. Euro-area unemployment hit a record 11.9 per cent in January'.

Aussie politics

Graham Richardson says Julia Gillard's trip to Western Sydney was a grave mistake, and whoever thought up the idea should be shot.

Henry's resident colorful racing identity, T.P. Mahar, has devised a delicious plan - Ted Baillieu contesting the Federal seat of Melbourne Ports, thereby ridding the parliament of the pesky little green man.

The latest Morgan poll shows this is not an entirely mad idea, so read on here.

Mrs Thornton's tennis pals have started the weekly tennis game and yapathon early today to beat the heat. (Surely this long run of autumn heat is proof positive that the planet is cooling?)

This week's yap is mainly about politics, which is at least better than the various affairs/badly behaved kids that make up the ladies' usual fare.  'The [Victorian] Libs are too short of talent and were not ready to govern' seems to be the verdict.

The sensible Rudd-Gillard-Swan government initiative is to allow people on the dole to earn more before ripping the dole off them.

There is no way to avoid the fact of a high effective marginal tax rate on dole recipients who earn money in the real (tax-paying) community, but so long as that rate is less than 50 % it is still better for dole recipients to earn more.

Such people presumably already earn money, but in most cases it is in the black economy, where the marginal rate of tax is zero, so we should not expect too much to change.  But the idea is 'directionally correct' as one of Henry's old mates put it overnight.

Ultimately, if western civilisation lasts, everyone, regardless of income or wealth, will be able to claim a minimum amount for frugal living, subject only to their names being listed on a website (or the twenty-second century equivalent) to discourage well-to-do folk from bludging on the rest of society.

While the Rudd-Gillard-Swan team are about it, why not let boat people released into the community earn their keep? First because we need every person available to do their bit, and secondly, far more important, if we do not do this such people will be forced to join the black economy, making them minor criminals.  If punishment is required, or deterrence, make them work for local councils, just about the most unloved jobs going around.

Incarceration makes many such people mentally damaged, and living on sub-dole welfare payments will make them desperate, ripe for enrolling in criminal gangs.

Far better to stop the flow of boat people at the source, which is Tony Abbott's plan.

While the Rudd-Gillard-Swan team is at it, please rethink your negative attitude to 457 visa workers.  Such people provide much-needed skills, and we (and the visa holders) get a good hard look at each other, making successful 457 visa holders who wish to stay excellent migrants, not unlike Tony Abbott and Julia Gillard.  In fact, we are all immigrants, aboriginal Australians some 40 thousand years ago, the rest of us one to nine (or is it 10?) generations ago. 

The RBA board did the sensible thing and left interest rates on hold.  That bright young man whom Henry cannot name for fear of inflicting on him the kiss of death syndrome has now opined that the 'easing bias' he and others discern in Glenn Stevens' carefully polished utterances may be designed to talk the dollar down.

No hints about the introduction of a tax on capital inflow, despite a leading economist's assertion to Henry: 'Yes, I understand the argument - very logical - and I expect the RBA  is considering this policy option (as are other countries, eg Brazil)'.

More here from those who have commented on Henry's plan. 

And the good people at nab said overnight 'Retail sales bounce 0.9 % in Jan; some gloss taken away by downwardly revised December.

'Most categories rose in January, department stores the exception this month

'Net exports contribute 0.6 % points to GDP growth, a touch shy of our 0.9 % forecast

'Net exports and terms of trade both to reverse in Q1

 'Public spending in Q4 about flat, no growth as fiscal restraint continued though Q4.

'Sticking with our 0.3 % GDP pick for tomorrow'.

Watch this space, and don'tcha love the terse style - designed for the busy banker who hates to read redundant words.