Wayne Swan`s `miracle budget`
Date: Thursday, April 19, 2012
Author: Henry Thornton
Yesterday Henry presented his first speculation about the contents of Wayne Swan's 'miracle budget'. This is the budget that is supposedly going to provide the biggest fiscal tightening since Artie Fadden's horror budget in the early 1950s, without slowing growth in an already soft Australian economy.
(As Saul Eslake pointed out on ABC radio this morning, Artie Fadden famously said after that budget his friends could all fit into a telephone box.)
Apart from the overall ('Keynesian') effect of such a fiscal swing, to which I shall return, there are also the structural effects.
Yesterday's rant concerned the (assumed) further reduction of spending to promote entrepreneurial research and tax changes to further inhibit capital formation in the same economic endeavor.
Today, Greg Sheridan focusses on what will be done to Australia's already underfunded defence capability.
'... it is in the realm of national security that the absolute unfitness of the Gillard government to govern is laid bare. Everything I hear suggests this is going to be a horror budget for defence. In the last budget, defence spending was cut substantially, with just 1.8 per cent of our GNP directed to defence, way below the NATO 2 per cent minimum. We are going to cut defence more savagely in this budget. The biggest cuts are likely to come in defence procurement and civilian personnel. This means that the defence force structure which the government proudly proclaimed in its 2009 Defence White Paper has been abandoned'.
This is perhaps the most important consequence of the anticipated savage budget cuts for defence.
Greg Sheridan goes on to discuss the lack of any 'strike' capacity as the F111s are phased out and the aging Collins class submarines become (if this is possible) even more dysfunctional.
Do read this piece, on P 12 of the fish'n'chip version of the Oz and behind the firewall for the online version.
Effects of a 'tough budget'.
Planet Treasury (so-called in Henry's circle because of Treasury's famous, perhaps even growing, insularity) must be grappling with at least two unresolved issues with the forthcoming budget. (This recent article contains evidence of Treasury insularity, but other examples can be provided.)
Planet Treasury, at least under Secretary Henry (Ken not Thornton), believed the stimulus packages helped prevent a recession here.
Assuming Planet Treasury still believes that Keynesian policies work, surely they must be worried at the size of the anti-stimulus to be imposed by Mr Swan's 'horror budget'. Yet we have seen no resignations, no bold speeches explaining how Planet Treasury rationalises its economic analysis when stimulating and when removing stimulus. Please explain, Dr Parkinson.
A second major 'macro' effect of a tough budget, Planet Treasury must believe, is that it allows in theory (based on 'all else being equal') interest rates, and therefore the exchange rate, to be lower that they would otherwise be. There are many reasons why, in the real world, this ain't necessarily so.
The Planet Treasury view is that budget cuts will reduce the government's claim on resources. Lower interest rates, so the argument goes, will make the exchange rate lower. Lower interest rates and a lower exchange rate allow and may facilitate higher demands for Australian goods and services by households and businesses, including overseas consumers and producers.
But while this logic chain works in the mental models of Planet Treasury, there is no generally accepted view of the magnitudes involved, and no amount of tinkering with established economic models - assuming Planet Treasury still maintains an interest in economic models - will provide an answer.
Does a 1 % (of GDP) cut in the fiscal deficit allow a 1 % cut in official cash rates, or does a 1 % budget cut allow a ten basis point cut in interest rates?
Budget cuts will certainly have a direct negative effect on defence capability and Australia's weak entrepreneurial culture. Unless and until these reductions are made up by increased demand and production elsewhere, there presumably must be a net negative effect, or so Planet Treasury presumably believes. But, so far as I am aware, we have not been informed about how it all is supposed to work.
Rather than indulge in what has been called fiscal 'fine tuning', which requires precise knowledge of how it all works, it would be far better for fiscal policy to operate with simple, semi-automatic rules, understood by all. This would facilitate planning by producers and consumers, and rule out the madder aspects of stimulus packages cobbled together on the run - eg pink batts, school halls, etc.
Monetary policy should also run with simple, semi-automatic rules with restraining inflation as its primary aim, since low inflation is vital if real economic activity is to be maximised.
Date: Wednesday, March 27, 2013
Author: Henry Thornton
The crazy plan to steal people's bank deposits in Cyprus has been modified to 'balances over 100,000 Euros in one bank suspected of holding most of the deposits of the Russian mafia', assuming I could understand the sketchy reports avaiable in the free world. In distant Australia, the Labor government refuses to rule out stealing from the people's superannuation deposits.
In Europe, a precedent has been set, and one high official even used the word 'template'. This means the next time a sovereign debt crisis explodes, runs on the banks will be high on the list of plans of the populace at large. Italy, a country unable to form a government, Spain, a nation with close to all its youth unemployed or underemployed, Portugal, Malta, even France in economic strife, the list goes on.
The Cyprus deposit-grab greatly raises the chances of catastrophic outcomes from the Eurozone crisis.
The Japan-China quarrel over some potentially resource-rich but otherwise uninspiring islands is another likely geo-political flash point.
Ambrose Evans-Pritchard reports from Hiroshima. 'At ground zero in Hiroshima the inscription for victims of the world's first Atomic bomb is a pledge. We will never again repeat the evil of war'.
He goes on to explain that Japanese original is vague on who "we" is, but the English translation tactfully refers to mankind as a whole.
'Japan's national ideology is pacifist, and this is written into Article 9 of its constitution, which states that "the Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes." 'This peace complex adds a strange twist to events. It inhibits Japan as a muscular China presses its claim on the Diaoyu/Senkaku islands -- a cluster of uninhabited rocks near Taiwan -- and as Chinese warships push deep into Japanese waters.
'Yet there is no doubt that Japan will fight.
"We simply cannot tolerate any challenge now, or in the future. No nation should underestimate the firmness of our resolve," said Shinzo Abe, the hawkish premier bent on national revival'.
After talking to Japanese officials in Tokyo over the past few days, Evans-Pritchard has formed the 'strong impression not only that they are ready to fight, but also that they expect to win, and furthermore that conflict may come at any moment.
"They are sending ships and even aircraft into our territory every day. It is intense provocation. We're making every effort not to be provoked but they are using fire-control radar. This is one step away from conflict and we are very worried," said a top government official.
'Nothing has changed since outgoing US Defence Secretary Leon Panetta said China and Japan were drifting towards war, except for the Japanese defence budget. Spending on warships and aircraft will jump by 23pc this year'.
A Japanese official told Evans-Prtichard: "Does the Communist Party control their own military? Two thousand years ago under the Han Dynasty, the emperor put his right hand on the wheel of his chariot and told his general that everything inside the borders was the domain of the emperor, and everything outside was left to the commander. That has plagued China throughout its history, and it is the delicate issue we now face."
War between China and Japan would involve the USA, whose treaties with Japan requires it to defend Japan if it is attacked.
'One shudders to think what would happen if China and the US itself came to blows in any form. It would be an earthquake for the global strategic and economic order. The Chinese and US economies are locked together in a sort of `Chimerica', a single dollar-based trading system. China owns $2 trillion of US debt. Much of the US manufacturing base is in the Pearl River Delta or the lower Yangtse'.
New US Secretary of State, John Kerry 'waxed eloquent about US-China ties at his confirmation hearing, but hardly mentioned Japan'. Official comments on the Japan-China conflict so far hve been neutral to cool on Japanese interests.
Evans-Pritchard concludes: 'America is sending the same sorts of signals as England at the onset of the First World War. Nuanced diplomacy -- reflecting a divided Parliament -- allowed the Germans and the French to draw different conclusions in those crucial weeks of July and August 1914.
'What frightens me most is talk from certain quarters in Beijing that the US is a busted flush, bled dry by the financial crisis, crippled by military over-stretch in the Middle East, and that now is the moment to test the paper tiger.
Saturday Sanity Break, 23 March 2013
Date: Saturday, March 23, 2013
Author: Henry Thornton
Euro-crisis has returned, with little old Cyprus in the gun for decades of indulgance and an over-inflated banking system and general reluctance to cop the remedy, not that the Eurozone plan to steal up to 10 % of bank deposits makes any sense.
Quit the Euro common currency, Cyprus, restore the Cypriot Pound at a 50 % depreciation compared to the Euro, raise explicit taxes, cut government spending and tell people life has to change.
Or, plan C, become a Russian satellite.
Australia's left-leaning government seems to be taking us in the same direction purely from internal machinations, as the Image of the Week suggests.
Alan Mitchell: 'While the Reserve Bank’s board minutes were reminding us that “further [cash rate] reductions may be required”, the bank’s deputy governor, Philip Lowe, was reassuring his Australian Industry Group audience that, after 1.75 percentage points of rate cuts over the past 16 months, lower interest rates were “doing their work broadly as expected”.
'If the monetary transmission mechanism worked as it had in the past, he explained, improved consumer sentiment and higher asset prices should feed through – in time – to higher spending by households.
'There were, Lowe said, tentative signs this was beginning to happen. There was evidence of slightly firmer retail spending over recent months as well as a slightly firmer tone in the labour market data and “signs of a pick-up in the forward indicators for new dwelling construction across many areas of the country”.
'But, as Westpac economists later noted, when it comes to the housing pick-up, not all regions will be equal. So far the good news on dwelling approvals has been concentrated in NSW and Western Australia. Approvals in Victoria have been on a trend decline for the past six months, and trend approvals for private-sector houses fell 2.8 per cent in January.
'BIS Shrapnel’s Frank Gelber had been hammering the same point at the Sydney forecaster’s client conference a few days earlier'.
Overnight, Peter Siddle fought like an old-timer to give Australia a slim chance of emerging from the forth test against India with a shred of dignity.
Earlier in the week, it was great to see the bowlers, especially siddle and Stark, fighting like ... oldtime Aussie bowlers, to stave off defeat against the pestiferous Indians.
A friend sent the following account, no doubt intended to soften Aussies up for the Ashes.
An English lady walked into a Police Station and the desk Sergeant said "Can I help you?" "Yes" she said, "I'd like to report a case of sexual assault". "Where did it happen?" the Sergeant asked. "In the park just down the road" she replied. "Can you describe what happened?" "Yes, I was walking along the footpath in the park near the trees when a man jumped out of the bushes and dragged me in there, removed my underwear then he dropped his pants to his knees and had his way with me". "Could you give me a description of him?" "Yes, he was wearing white shoes, long white trousers, a white shirt and he had these two big long pads from his feet up to and over his knees, one on each leg". "Sounds to me like he was a cricketer, most probably a batsman", said the Sergeant. "Yes", said the lady, "He was an Australian Cricketer". "That's very observant", said the Sergeant, "You worked that out from his accent?" "No", she replied. "I worked it out because he wasn't in for very long".
Image of the week
courtesy The Oz
Hard Labor continues, for now
Date: Friday, March 22, 2013
Author: Henry Thornton
Tony Abbott can now promise, above all, and in contrast to the government, stable, competent government by grown-ups. He and his loyal ministers-in-waiting can campaign confidently on a broad positive front - in defence of free speech, preservation of Paul Keating's legacy on superannuation, abolition of ludicrous and unnecessary taxes, rescue of a (far cheaper) broadband, revival of defence spending (when budget stability allows this), stopping the boats and, above all, competent economic management with the aim of stemming growth of and ultimately removing Labor's near $300 billion debt.
Julia Gillard has won a great victory in Labor's ongoing civil war. In doing so she has lost Simon Crean, one of her most competent ministers, along with several other men of goodwill and proven effectiveness. But she has demonstrated she is the toughest guy in the caucus, and that gender is of little relevance when the games are for high enough stakes.
The losers in Labor's civil war will have little incentive to roll up their sleeves and campaign for a Gillard victory at the election on 14 September, if the parliament survives to that date. The Greens and 'Independents' must be wondering if their prospects for re-election will be enhanced or weakened by standing beside such a divided rabble to prevent voters from exercising their right to have a government of their own choice.
Next step is the May budget. Will Treasurer Swan keep spending money like an inebriated sailor or take real steps to stop the growth of debt? Henry hopes for the latter and fears for the former.
Pour me another drink, bartender
Date: Thursday, March 21, 2013
Author: Henry Thornton
'The stock market is making new highs while the U.S. economy picks up and unemployment falls. Is that enough to nudge the Federal Reserve toward the exit from ultra-low interest rates? Fed Chairman Ben Bernanke took the stage today, after a Federal Open Market Committee meeting, to give us hints'. Thus said the Wall Street Journal. See 'Bubbles' Ben's press conference here.
The short answer - economy improving, but not enough to allow exit from super-easy monetary policy.
US Fed Chief, Ben Bernanke said there has been 'substantial labor-market improvement in recent months', but that the Fed wants to ensure those gains aren't temporary before scaling back its buying of Treasury securities and mortgage bonds.
The policy of adjusting the pace would allow markets to anticipate the ultimate end of purchases or the renewed ramping up, should conditions worsen. 'The point of this is to let the market see our behavior', Bernanke said.
In addition, it seems the Fed does not see widespread impact from the Cypriot crisis. 'It's a difficult situation in Cyprus,' Bernanke said. 'We hope the Europeans will come up with an efficient and equitable solution'.
(Contrast this with the robust comments of RBA Deputy-Chief, Philip Lowe.)
The Fed downgraded forecasts for economic growth this year and next but predicted that unemployment would fall faster than expected in December. The economy this year is now thought likely to grow between 2.3 % and 2.8 %. Cuts to government spending are the main reason, but this impact is far less than the early 'sequester' hysteria suggested.
Officials reiterated their plan to keep short-term interest rates near zero until the jobless rate reaches 6.5 %, so long as inflation remains under control. Thirteen of 19 officials said they expected interest rates to begin rising in 2015.
Federal Reserve Bank President Esther George dissented, as she did in January, because she was concerned that the 'continued high level of monetary accommodation increased the risks of future economic and financial imbalances' and could push long-term inflation expectations higher.
Share prices rose again overnight and so the current show rocks on. 'Pour me another drink, bartender'.
But we have been warned, by Esther George, an unlikely voice crying in the wilderness.
The high dollar - accident or design?
Date: Wednesday, March 20, 2013
Author: Henry Thornton
'The obvious answer to the question of how financial stability should be ensured is to put in place an "appropriate" prudential framework. A "Tinbergenesque" approach would indeed suggest that financial stability should be left to prudential policy while monetary stability should be assigned to monetary policy. Two instruments for two goals'.
Courtesy The Oz
(This was Philip Lowe writing with Claudio Borio in 2002, in a BIS Working Paper (No 114), freely available via the internet. A 2013 image is above.)
Milton Friedman made a similar point in 1963 when he wrote about: 'the difficulties raised by seeking to make policy serve two masters'. (A Monetary History of the United States 1867 to 1960, p 291.)
Henry has in recent months undertaken some heavy duty economics after nearly thirty years of corporate life. The subject being investigated concerns asset inflation and monetary policy, a subject that Messrs Borio and Lowe were pursuing in 2002. Amongst what is a large but inconclusive literature, the key point made by Friedman, Tinbergan and Borio and Lowe seems to have been totally forgotten.
Failure to consistently recognise that monetary policy cannot serve two masters, or that monetary and prudential policy needs 'Two instruments for two goals' is suprising, even astounding. It is like physicists forgetting the effects of gravity, or stock brokers saying 'this time it's different' when an asset bubble appears.
But now, older and presumably wiser, Philip Lowe is promoting the view that firm monetary policy, helping to produce a high exchange rate, can both restrain inflation and boost Australia's productivity while keeping the overall economy in balance. His paper is available here.
I do not doubt that hard times can make business owners and their workers work harder and smarter. Friedman (with his co-author Schwartz) wrote somewhere else in their wonderful book about the interaction between monetary policy and other economic variables: 'there are undoubtedly some influences running in the other direction' (ie the reverse to the main direction of influence) and 'the links have much play in them'.
Improved productivity may well be partly due to hard times that result from firm domestic monetary policy relative to the average of other developed country monetary policies, which are currently easy to the point of irresponsibility. In my view the disjunction of Australian monetary policy and that being pursued in the USA, the UK, the ECB and other leading nations is diabolical, and will end badly for all of us.
One of the diabolical consequences for Australia is the hollowing out of its industrial structure, along with severe damage to tourism, education and other industries harmed by an excessively strong dollar.
Yes, some participents will survive, and they will do this only be becoming more productive, but many will not.
And I do not think the disjunction is minor. Australia's best economic historians say Australia's average productivity level is approximately 80 per cent of USA's average productivity level. That suggests that a more sensible level for the Australian dollar might be around 80 cents in the American dollar.
I am aware that experts will laugh at such a crude comparison, so let us have the debate. Right now I'd be happy with a value of 90 cents because, regrettably, the adjustments so valued by Mr Lowe have progressed - 'hysterisis' is the relevant technical word I seem to recall.
I am also aware that my proposed solution of a tax on capital inflow will be regarded by some economists as apostasy. Wikepedia defines this as 'renunciation and criticism of, or opposition to, a person's former religion', kindly adding ... 'and without pejorative connotation'.
Economic policy is not religion, and policy makers cannot always predict how the world will look decades in the future. When the Australian dollar was floated in 1983 - my account of this is here - the RBA's exchange control department was abolished on the same day. None of those involved could predict that in thirty years major countries would indulge in recklessly easy monetary policy, while our central bank would stand firm against this.
So, different times require different responses. Seeking to defend a damagingly pure policy stance is no substitute for the hard thought and courage required to recognise that the world has changed. We would be wise to change along with it.
I`ll drink to that
Date: Tuesday, March 19, 2013
Author: Henry Thornton
Now Cyprus is broke and Euroworries are back on the front page of the world's newspapers.
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!
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.
Saturday Sanity Break, 16 March 2013
Date: Saturday, March 16, 2013
Author: Henry Thornton
'The PM's deliberate polarising of the country defies normal political logic' says Paul Kelly.
'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'.
'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'.
'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).
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.
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
A world loosening up
Date: Friday, March 15, 2013
Author: Henry Thornton
Jobs are the subject of the week. The Australian government seeking to wreck the 457 Visa scheme that has plugged skills gaps, not only but also in IT, despite a manifest shortage of Australians with the requisite skills. Gloomy liason reports, small business in trouble throughout the land and ham-fisted downsizing by Australia's highly profitable banks seem to define the state of the labor market. It goes on. Fear of job loss in the Australian Labor Party. The Catholic Cardinals selecting a new non-Italian, non-European Pope.
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?
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.
Labor market conundrum
Date: Thursday, March 14, 2013
Author: Henry Thornton
The Thornton family picture framer said today business was 'horribly quiet'. People were not spending because of the gridlocked political situation, but he predicted the mother of share market booms after the voters elect Tony Abbott.
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 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'.
Japanese hydrates and the US recovery
Date: Wednesday, March 13, 2013
Author: Tiresias of Canberra
Very interesting news from Japan. An important slap in the face to Ozzie complacency about the likely future of the global fuel market. Once again ingenuity trumps resource endowments. It also threatens to take the wind out of the sails of the US, which always does very nicely when its competitors have to pay for overpriced fuel from the Mid-East.
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".'
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.