An austere future.

Richard Koo (Nomura Research Institute, Tokyo) warns about misdiagnosing the complaint and prescribing an inappropriate therapy. H/T Bill Mitchell

It is laudable for policy makers to shun fiscal profligacy and aim for self-reliance on the part of the private sector. But every several decades, the private sector loses its self- control in a bubble and sustains heavy financial injuries when the bubble bursts. That forces the private sector to pay down debt in spite of zero interest rates, triggering a deflationary spiral. At such times and at such times only, the government must borrow and spend the private sector’s excess savings, not only because monetary policy is impotent at such times but also because the government cannot tell the private sector not to repair its balance sheet.

Although anyone can push for fiscal consolidation in the form of higher taxes and lower spending, whether such efforts actually succeed in reducing the budget deficit is another matter entirely. When the private sector is both willing and able to borrow money, fiscal consolidation efforts by the government will lead to a smaller deficit and higher growth as resources are released to the more efficient private sector. But when the financial health of the private sector is so impaired that it is forced to deleverage even with interest rates at zero, a premature withdrawal of fiscal stimulus will both increase the deficit and weaken the economy. Key differences between the textbook world and the world of balance sheet recessions are summarized in Exhibit 17.

With massive private sector deleveraging continuing in the U.S. and in many other countries in spite of historically low interest rates, this is no time to embark on fiscal consolidation. Such measures must wait until it is certain the private sector has finished deleveraging and is ready to borrow and spend the savings that would be left un-borrowed by the government under an austerity program.

Shrinking the market.

The idea that markets are somehow forward looking needs to be investigated,

This idea that people change their behaviour when their situation changes is known as reflexivity and because stock markets are really only the sum of people’s behaviour if that behaviour changes so does the markets. This leads to feedback, because as markets adapt to new behaviour so they present participants with a new situation, and reflexivity dictates that people change their behaviour once more. We can summarise this: people are reflexive, markets are adaptive and they go around in a dance which never ends. There is no perfect way of predicting what will happen in stock markets, there is no specific, definable outcome. In the jargon when we invest we do so in conditions of uncertainty.

Uncertainty is the key term: when we read, anywhere, of someone confidently predicting the future we should immediately fire up our bullshit deflection system. One of two things is almost certainly happening: either the prediction is so general it has virtually no chance of being wrong – and is therefore worthless – or its only chance of being correct is serendipity. In a world where everyone is making predictions someone will predict everything, but there’s no need to reward them for picking a winning lottery ticket.

Trains potting.

For those that like to stay on track, US rail data An overall increase in traffic with a shift to commodities, draw your own conclusions,

Fourteen of the 20 carload commodity groups posted increases compared with the same week in 2010, including: metallic ores, up 57.1 percent; nonmetallic minerals, up 38 percent, and crushed stone, sand and gravel, up 29 percent. The groups showing a decrease in weekly traffic included: farm products excluding grain, down 9.8 percent.

US economic data in pictures.

Making sense of it is another matter. http://dallasfed.org/data/data/us-charts.pdf

The IMF, the night of the undead and the Rocky Horror Show.

In 2010 the IMF admitted that the 2008 crisis

has exposed flaws in the precrisis policy framework, forced policymakers to explore new policies during the crisis, and forces us to think about the architecture of postcrisis macroeconomic policy.

Sounded like an admission of guilt, sort of. It is worth remembering that the IMF's

primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with one other.

In 2011 the IMF reviewed the year and their policies, inluding austerity

First, post the 2008-09 crisis, the world economy is pregnant with multiple equilibria—self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications

Pregnant with multi equilibria - not a particularly happy prognosis, is it?

Paul Krugman points to one of Blanchard's equilibria as being particularly worrisome, the one about investors wanting both growth and austerity (the Blanchard diagnosis of such an equilibria is schizophrenia)

Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. 

Krugman observes that

If I have this right, Olivier is suggesting that harsh austerity programs may be literally self-defeating, hurting the economy so much that they worsen fiscal prospects.

In his latest chapter of Zombie Economics Australian Professor John Quiggin writes that the

failure of expansionary austerity is already evident. Predictions that, once the state got out of the way, the private sector would come roaring back, have proved laughably false. After more than a year of austerity in the US and Europe, there is no sign of any recovery. Rather, the risk of another crash looms larger than ever.  

Expansionary austerity is not simply a zombie economic idea. It forms the basis of a political strategy of class war, undertaken by the financial and political elite (the “1 per cent”) to hold on to the wealth and power they accumulated during the decades of market liberalism, and to shift the costs of their own failure on to the rest of the population.

...

The struggle against the politics of austerity will be a long one, and often dispiriting.  As the experience of the 1920s and 1930s showed, the forces pushing for austerity are powerful. Nonetheless, they were defeated in the end, by the New Deal in the US, the Attlee Labour government in the UK, and the success of social democratic movements and policies in Europe

The cracking up of the conservatives.

The walkout farce by the Republicans even had the WSJ in dismay

GOP Senate leader Mitch McConnell famously said a year ago that his main task in the 112th Congress was to make sure that President Obama would not be re-elected. Given how he and House Speaker John Boehner have handled the payroll tax debate, we wonder if they might end up re-electing the President before the 2012 campaign even begins in earnest.

Senator John McCain tweets

WSJ is right on the mark here

Robert Reich offers the observation that the turmoil within the Republicans is more than just a power tussle between the conservatives and the Tea Party

The underlying conflict lies deep into the nature and structure of the Republican Party. And its roots are very old.

By "very old" he means pre civil war very old

It’s no mere coincidence that the states responsible for putting the most Tea Party representatives in the House are all former members of the Confederacy.

Of course it could all be just coincidence

This isn’t to say all Tea Partiers are white, Southern or rural Republicans – only that these characteristics define the epicenter of Tea Party Land.

The defining characteristics of Tea Partiers being

the latest incarnation of an angry white minority – predominantly Southern, and mainly rural – that has repeatedly attacked American democracy in order to get its way.

By some accounts the Confederacy lost the war, by others the war isnt finished

America has had a long history of white Southern radicals who will stop at nothing to get their way – seceding from the Union in 1861, refusing to obey Civil Rights legislation in the 1960s, shutting the government in 1995, and risking the full faith and credit of the United States in 2010.

Abraham Lincoln led the Republicans in a war over equality. Over time the Republicans have lost that moral authority and are now a party of opportunists who want more than their fair share.

Bankers balls busted by ex-broker.

JPMorgan head honcho Jamie Dimon complained about the bad rap bankers are currently copping

“Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it,”

Joshua Brown, a NYC investment advisor, has offered to help Mr Dimon "understand it"

Dear Jamie Dimon,

I hope this note finds you well.

I am writing to profess my utter disbelief at how little you seem to understand the current mood of the nation.  In a story at Bloomberg today, you and a handful of fellow banker and billionaire "job creators" were quoted as believing that the horrific sentiment directed toward you from virtually all corners of America had something to do with how much money you had.  I'd like to take a moment to disabuse you of this foolishness.

America is different than almost every other place on earth in that its citizenry reveres the wealthy and we are raised to believe that we can all one day join the ranks of the rich.  The lack of a caste system or visible rungs of society's ladder is what separates our empire from so many fallen empires throughout history.  In a nation bereft of royalty by virtue of its republican birth, the American people have done what any other resourceful people would do - we've created our own royalty and our royalty is the 1%.  Not only do we not "hate the rich" as you and other em-bubbled plutocrats have postulated, in point of fact, we love them.  We worship our rich to the point of obsession.  The highest-rated television shows uniformly feature the unimaginably fabulous families of celebrities not to mention the housewives (real or otherwise) of the rich.  We don't care what color they are or what religion they practice or where in the country they live or what channel their show is on - if they're rich, we are watching.

When Derek Jeter was toyed with by the New York Yankees when it came time for him to renew his next hundred million dollar contract, the people empathized with Derek Jeter.  Sure, this disagreement essentially took place between one of the wealthiest organizations in the country and one of the wealthiest private citizens - but we rooted for Jeter to get his money.  Nobody begrudged him a penny of it or wanted a piece of it or decried the fact that he was luckier than the rest of us.  In the American psyche, Jeter was one of the good guys who was deservedly successful.  He was one of us and an example of hard work paying off.

Likewise, when Steve Jobs died, he did so with more money than you or any of your "job alliance" buddies - ten times more than most of you, in fact.  And upon his death the entire nation went into mourning.  We set up makeshift shrines to his brilliance in front of Apple stores from coast to coast.  His biography flew off the shelves and people bought Apple products and stock shares in his honor and in his memory.  Does that strike you as the action of a populace that hates success?

No, Jamie, it is not that Americans hate successful people or the wealthy.  In fact, it is just the opposite.  We love the success stories in our midst and it is a distinctly American trait to believe that we can all follow in the footsteps of the elite, even though so few of us ever actually do.

So, no, we don't hate the rich.  What we hate are the predators.

What we hate are the people who we view as having found their success as a consequence of the damage their activities have done to our country.  What we hate are those who take and give nothing back in the form of innovation, convenience, entertainment or scientific progress.  We hate those who've exploited political relationships and stupidity to rake in even more of the nation's wealth while simultaneously driving the potential for success further away from the grasp of everyone else.

Here in New York, we hated watching real estate and financial services elitists drive up the prices of everything from affordable apartments to martinis in midtown with the reckless speculation that would eventually lead to mass layoffs, rampant joblessness and the wreckage of so many retirement dreams.  No one ever asked the rest of us if we minded, it just happened. I'm sure people across the country can tell similar stories.

So please, do us all a favor and come to the realization that the loathing you feel from your fellow Americans has nothing to do with your "success" or your "wealth" and it has everything to do with the fact that your wealth and success have come at a cost to the rest of us.  No one wants your money or opportunities, what they want is the same chance that their parents had to attain these things for themselves.  You are viewed, and rightfully so, as part of the machine that has removed this chance for many - and that is what they hate.

America hates unjustified privilege, it hates an unfair playing field and crony capitalism without the threat of bankruptcy, it hates privatized gains and socialized losses, it hates rule changes that benefit the few at the expense of the many and it hates people who have been bailed out and don't display even the slightest bit of remorse or humbleness in the presence of so much suffering in the aftermath.

Nobody hates your right to make money, Jamie.  They hate how you and certain others have made it.

Don't be confused on this score for a moment longer.

IMF report on the IMF (and Ireland)

According to the expert analysis

The initial years of Ireland’s recovery rely greatly on net exports, but threats to global growth have escalated, especially in relation to the unresolved crisis in the euro area.

These "unresolved crises" include, according to ECB president Draghi, an

unavoidable short-term contraction

The IMF recommend

a shift from low productivity sectors, such as construction, to high valued added export sectors.

and are not too happy with progress

room for further progress on improving competitiveness.

With no real confidence in the economy and no end in sight people are looking to export markets as a place to live and are heading for the exit

Ireland's central statistics office has projected that 50,000 people will have left the republic by the end of the year, many for Australia and the US.

This isn't a good thing as can be seen in Greece where the brain drain has become a torrent

In 2010, 1.21 million people emigrated, according to the World Bank, equalling 10.8% of the population. The top destinations were Germany, Australia, Canada, Albania, Turkey, UK, Cyprus, Israel and Belgium. Skilled Greeks are particularly likely to leave – in 2010, 4,886 physicians emigrated, meaning that Greece lost 9.4% of its doctors in just one year. Greece, like most other EU countries is still an attractive destination for poor immigrants – 1.3 million people arrived in 2011. But with the biggest number coming from poorer countries such as Albania, Bulgaria, Romania and Georgia, it is likely that the majority of new arrivals lack the skills to replace the emigrants.

Government banking laws are made to be broken - by the banks.

Following the Vickers' banking report and suggestions from the Independent Commission on Banking the the UK chancellor of the exchequer George Osbourne announced reforms to the banking industry

"Our objective is clear. We want to separate high street banking from investment banking, to protect the British economy, protect British taxpayers and make sure that nothing is too big too fail.

Already the government has signalled failure of their own reform

The chancellor appears to have handed a major concession to HSBC, the biggest bank in the UK, which had warned it might shift its headquarters out of London because of regulatory reforms, including those heralded by the Independent Commission on Banking.

Banks 1, taxpayer 0

The very rich are just like us - they have feelings too.

Various billionaires collectively whinge in this piece from Bloomberg. Well, almost all of them

"Rich businesspeople like me don’t create jobs,” Nick Hanauer, co-founder of aQuantive Inc., an online advertising company he sold to Microsoft Corp. for about $6 billion, wrote in a Dec. 1 Bloomberg View article. “Let’s tax the rich like we once did and use that money to spur growth.”

Apart from the odd bad apple the rich are in one mind on the issue

hedge-fund manager Leon Cooperman, the Omega Advisors Inc. chairman and former CEO of Goldman Sachs Group Inc. (GS)’s money-management unit. Capitalists “are not the scourge that they are too often made out to be” and the wealthy aren’t “a monolithic, selfish and unfeeling lot,” Cooperman wrote. They make products that “fill store shelves at Christmas” and provide health care to millions.

Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said.

“You’ll get more out of me,” the billionaire said, “if you treat me with respect.”

Hedge fund share restrictions favor managers over investors

Eureka alert

Chestnut Hill, MA – Armed with insider knowledge, managers of share-restricted hedge funds sell off their own holdings ahead of their investors in order to avoid low returns produced by an outflow of shareholder dollars, according to a new study by researchers from Boston College and EDHEC Business School in France. ..

Climate skeptics cynical about scientific skepticism.

Mark Boslough reports on the Third Santa Fe Conference on Global and Regional Climate Change

After three years of convening climate-related sessions at AGU, I have yet to receive an abstract that argues against anthropogenic global warming.

He spoke with "skeptic" Christopher Monckton

He has no understanding of science or the scientific method, and when I asked him about scientific prediction, he called it a “fool’s errand”. He has a strong authoritarian approach to those with whom he disagrees, and his conspiracy theories run deep and dark.

He concludes

The main lesson I took away from the conference was this: there is no consistent contrarian science, and there is no defining contrarian ideology or motivation. Some are sincere. Others are angry at their lack of funding. Some appear to be envious of the IPCC scientists’ success, and others have found a niche that gets them attention they would not otherwise get. Only a few appear to be motivated by politics. No single label applies to them, and I found myself referring to them as “contrarians/skeptics/deniers/enablers/provocateurs/publicity-seekers”.

The one common thread I found among them was the fervent belief that “Climategate” was a conspiracy and that the IPCC is rigged. This faith-based belief seems to be unshakable, and is the antithesis of true skepticism. Those I met were uniformly cynical about the honesty and motivations of mainstream scientists. If I were forced to use a single label, I would be inclined to call them “science cynics”.

Hands tied by ideology - the IMF and neoliberalism.

 The IMF know what to do in a crisis

expansionary fiscal policy seems particularly effective in shortening recessions associated with financial crises and boosting recoveries.

They have already hit the panic button

BRUSSELS — The International Monetary Fund, known throughout its history for urging governments to slash their budgets, is now worried that a global round of austerity may trigger a new recession and is urging countries to look for ways to boost growth.

On Monday, the agency warned the world’s leading economies that belt-tightening by governments, companies and consumers has been become so aggressive that the global economy could falter because of anemic demand.

“The immediate risk is that the global economy tips into a downward spiral. . . . Even in a less severe scenario, key advanced economies could suffer from a protracted period of low growth,” the IMF said. The agency report urged all but the most debt-strapped nations to boost growth through expansive government budget and spending policies or through central bank measures such as lowering interest rates to stimulate the economy.

Christina Romer argues

the importance of the policy response in determining the effects of crises argues strongly against complacency here at home. A country as creditworthy as the United States can continue to use fiscal stimulus to help return the economy to full employment.

The evidence is there yet there are those that, like Robert J. Samuelson, who refuse to accept it

What might have worked in the 1930s offers no panacea today.

The reason?

High debt complicates the analysis and subverts the solutions.

High debt?

in the mid-1930s, governments in most wealthy nations were relatively small and their debts modest. Deficit spending and pump priming were plausible responses to economic slumps. Now, huge governments are often saddled with massive debts.

Paul Krugman questions the assertion that things are different now

It’s also interesting to note — contrary to what you often hear — that at the time Keynes was writing, and calling for fiscal stimulus, Britain was substantially deeper in debt than Britain or the United States are now.

China and North Korea, partners in genocide.

Václav Havel on the now dead Kim Jong-il

Today, the testimony of thousands of North Korean refugees, who have survived the miserable journey through Communist China to free South Korea, tell of the criminal nature of the North Korean dictatorship. Accounts of repression are supported and verified by modern satellite images, and clearly illustrate that North Korea has a functioning system of concentration camps. The Kwan-li-so, or the political penal-labour colony, holds as many as 200,000 prisoners who are barely surviving day-to-day or are dying in the same conditions as did the millions of prisoners in the Soviet gulag system in the past.

...Despite the ever-present army and police, tens of thousands of desperate North Koreans have escaped to China. In defiance of international treaties, the Chinese government does not recognize the status of these people as refugees, and Chinese officials have prevented the Office of the UN High Commissioner for Refugees from having access to any North Korean in China.

The Chinese government hunts the refugees in the woods along the border and deports them back to North Korea, where the journey ends in the Kwan-li-so. All of this is happening right now, and the world is standing idly by.

Economic costs of inequality.

An extreme state of inequality is slavery; this paper from South Africa describes the consequences to the economy of such inequality

The use of slaves as a substitute for wage labour or other capital investments allowed farmers to prosper, but it also resulted in severe inequality. It was this high inequality that drove the growth- debilitating institutions posited by Engerman and Sokoloff (2000). The immigration of Europeans was discouraged after 1717, and again during the middle of the century, while education was limited to the wealthy. Factor endowments interacted with institutions to create a highly unequal early South African society, with long-term development consequences.

Lack of equality not lack of equity is driving the recession.

An interview with Amir Sufi (University of Chicago Booth School of Business) and Atif Mian (University of California, Berkeley)

The distribution of net wealth matters a lot. Let’s suppose there’s $100 of wealth in the economy and there’s a hundred people. If everybody had $1 of wealth, and then there’s a massive drop in house prices, my argument is that this recession wouldn’t have been nearly as severe. It’s because the five guys at the top have all of the $100 and are just lending to the other 95, that’s why the recession is so severe when house prices collapse. Paul said this a few times on his blog, and he’s usually very clear, but I don’t think he’s been clear enough on explaining this. These models on why deleveraging matters are all about the net wealth distribution. We shouldn’t be surprised that this recession and the Great Depression were preceded by very large increases in wealth inequality. This is well documented during the 1920s and the 2000s. This is why I get a bit annoyed at the guys who are saying it’s just a pure wealth effect, because it’s something bigger than that.

Roger Montgomery tunes into JB Hi-fi

In response to the announcement and subsequent market downgrade of JB Hi-fi Roger Montgomery posted this response, including the following

the only thing that was going for JB Hi-Fi was its discount to intrinsic value.  Many investors believe that a stock I mention is below intrinsic value is a “darling’ of mine.  It isn’t.   A company must meet all of our criteria and it will only be held for as long as it does.  Those of you using Skaffold will however have seen JBH was trading only at a discount to one of the intrinsic value estimates – the intrinsic value based on analyst forecasts – but not the more conservative Skaffold Line valuation estimate of $13.16. Both valuations are now likely to decline further in coming days -even the more conservative $13.16 valuation SKaffold has been displaying..

So it seems that even those that have paid up and are using the Roger Montgomery SKaffold system would have been caught out - JB Hifi was trading at above SKaffold intrinsic values and SKaffold valuation is to be revised.

Not that there is anything particularly wrong with the Roger Montgomery SKaffold system, or any others for that matter - they have the potential to be useful in analysing the past. As for today and tomorrow, it is remains anyone's guess.

Picking winners, a losing game.

In his article excoriating fund managers Peter Martin quoted Daniel Kahneman

Kahneman won the 2002 economics Nobel for groundbreaking research into the way we make decisions. He saves a special place in his new book Thinking, Fast and Slow for “stock pickers”, who he says attempt to make much of their money buying and selling from each other.

“Most of the buyers and sellers know that they have the same information; they exchange the stocks primarily because they have different opinions. The buyers think the price is too low and likely to rise, while the sellers think the price is high and likely to drop. The puzzle is why buyers and sellers alike think that the current price is wrong. What makes them believe they know more about what the price should be than the market does? For most of them, that belief is an illusion.”

JB Hi-fi has been the darling of stockpickers, like Roger Montgomery, who described JB Hi-fi as one of ten extraordinary companies. 

Today's' announcement by JB Hi-fi was a shocker

JB Hi-Fi shares have plummeted over 11% this morning after the electronics retailer announced a shock profit downgrade for the first half of the year, saying price deflation is just too much to handle.

Chief executive Terry Smart announced yesterday EBIT for the first half will be around 5% lower than last year's, subject to Christmas trading.

The future for JB Hi-fi at best can only be described as ordinary

"They're in a hard situation. Where do they go from here? Online sales are up 80%, and that's good, but there's still a lot they have to deal with."

"In terms of the pipeline over the next few years, there's not a huge amount of products coming up."

The announcement comes after Harvey Norman chairman Gerry Harvey has continually warned of price deflation, saying it is continually putting pressure on the company.

Why didn't Roger Montgomery also warn of this?

What day/month is it; Xmas, halloween or April 1?

Editorial in the Australian

Iraq as a cradle of democracy

Republican signs pledge, passes NEWT.

Presidential hopeful Newt Gingrich signed the National Organization for Marriage (NOM) pledge

committing himself to play a leadership role as president to preserve marriage as the union of one man and one woman

This action promoted the following billboard from dating agency Ashley Madison (motto: life is short have an affair)

 

At first glance, seems like a slam job. At second glance ...

“I am pro-Newt. Big time,” said Noel Biderman, the CEO of AshleyMadison.com, the company that bought and paid for the billboard, located just before the Route 1 toll bridge heading into New Jersey.

And just what is AshleyMadison.com? Simply put, it’s dating site for married people seeking to have affairs...

Newt is in danger of becoming a fictional character from Harry Potter.

Murdoch lost for words (for once)

That once great paper, the Australian, struggles to invent more news

JULIA Gillard has refused to say whether or not she likes Kevin Rudd

RBA on the EU shemozzle.

I remain confident that Australia, with its strong government finances, resilient banking system, relatively low exposures to the troubled countries and strong links to the dynamic Asian region, is well placed to deal with events that may unfold.

Link here

The now less than super Superannuation - Peter Martin

Back in November Peter Martin wrote

Super is a con, perpetrated by people who con themselves

In particular he singled out the managers

Rewarded with generous fees and a leglislatively-directed (increasing) flow of our money into their hands regardless of performance it would be reasonable to imagine fund managers had something special.

They do. Nobel Prize winning psychologist Daniel Kahneman calls it the “illusion of skill”.

Today we have news that an Australian super fund is less than super

A key scheme of one of Australia's biggest superannuation funds is short of money, leaving more than 100,000 people facing the prospect of having their super slashed.

The fund has more than 450,000 members and about $30 billion in assets under management. Its members thought they were in a scheme that was secure but that is no longer the case.

For many the illusion has gone up in smoke

"It means that those people that have already retired, about to retire, and those people who are still contributing a large amount of their income are going to get much less," he said.

"And for those who have been planning on a particular retirement income, they're going to be very disappointed."

The next decade - Australian Treasury speech.

Link here Europe

Given the delays in crafting a Euro-wide credible policy response, and the fiscal contractions now underway in many Euro-zone members, Europe will almost certainly return to recession next year, with the potential for it to be deep and drawn out.

USA

the US economy is now on the path to a recovery — albeit a slow, and tentative one. However, the US’ public balance sheet remains in a work in progress. The failure of the Congressional ‘Supercommittee’, tasked with finding US$1.2 trillion in budget savings has now triggered automatic spending cuts. These could reduce GDP growth by up to ¾ of a percentage point in financial year 2013, a potentially significant shock to what is likely to be a still modest recovery.

Asia

As the size of this Asian middle class expands and incomes rise, they will exhibit consumption patterns akin to advanced economies — this creates a massive potential market for our key knowledge-based exports like education and high-end manufacturing, as well as tourism. As living standards improve, purchasing power rises and food consumption patterns change, so we can also expect to see growing demand for agricultural and soft commodities as new members of the middle class have greater opportunities for a more protein-rich diet.

No one should be under the illusion that the growth paths of emerging economies, whether China or any other country, will be smooth and uninterrupted — there will be cycles of growth, but we anticipate these will be around a strong rising trend when looked at in decadal terms.

Australia

..can take some comfort from its starting position. We are located in the fastest growing region in the global economy with a number of opportunities likely to present themselves over the next decade. Equally, the flexibility of our economy and our medium-term oriented policy frameworks have assisted Australia manage the impacts from external volatility. The policies that have stood us in good stead in the current volatility will also provide a good foundation for the policies we need to pursue to reap the opportunities in prospect over the next decade and beyond.

The US Federal Reserve - concerned more with inflation than employment.

Link here

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.

The fear of inflation impacts on employment. There was not even a hint of further stimulus

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

The Fed are indicating that the only threat to the US economy is external

Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.

Strains in global financial markets continue to pose significant downside risks to the economic outlook.

UK post EU - looking forwards not backwards.

The UK’s Economic Research Council invited me to represent LSE in a panel discussion on near-term prospects for the UK economy. Lord Norman Lamont, 1990-1993 Chancellor of the Exchequer, chaired. The other panelists were Prof John Muellbauer from Oxford and Prof Hashem Pesaran from Cambridge. The venue? The Royal Institution of Great Britain’s Faraday Lecture Theatre, where in 1825 the first of the Royal Institution Christmas Lectures were delivered.

The speaker, Danny Quah, advised that for whatever reason things have changed and for the UK to survive they must adapt to those changes

How would I propose to change matters? My suggestions at the event were general and therefore impractical. But here they are again:

1. Reboot the UK economy: Take the pain and turn around to engage fully with the emerging economies; do business with them as economic partner — no more, no less. The emerging economies are now the world’s engine of growth: Deal with it.

2. Unleash our universities and other thoughtful, creative industries. This is NOT to raise government spending, but just to free up extant restrictions on their operations. UK higher education is hugely in demand by the emerging economies. If there’s anything that’s going to help re-balance the global economy, this is it.

3. Throw out long-standing aesthetics and principles – they’re also called prejudices. Become enamoured of what works — whether it’s guided capitalism under a bit of state control or anything else we previously thought completely nuts (i.e., outside the Washington Consensus). Celebrate the virtues of working hard, raising productivity, saving for the future — not revile them as many do today for Germany or used to do most obviously recently only for China (and yet might come back to doing so again soon).

Romney takes foot out of mouth and shoots it.

Another presidential hopeful finds out just how hard it is to use discrimination as a policy tool

Mitt Romney found out today that it's a little bit more difficult to tell a gay person you believe in repealing their rights when you're sitting with them face-to-face, and that person happens to be a veteran. It's relatively easy to give interviews and send out mailers telling people you don't believe in gay marriage to beef up your conservative credentials in Iowa and New Hampshire, but telling a gay person face-to-face? Not so much, and perhaps that's why this video (below) has gotten attention. When Romney sat down next to a flannel-clad, Vietnam Veteran cap-wearing 63-year-old Bob Garon, he probably had no idea that Garon was gay when he stated, “I believe marriage is between a man and a woman," and said that he would like to see the repeal of New Hampshire's same-sex marriage laws. Those would be the same-sex marriage laws that allowed Garon to marry his husband in July. It's not until Garon responds,  “If two men get married, apparently a veteran’s spouse would not be entitled to any burial benefits or medical benefits or anything that the serviceman has devoted his time and effort to his country, and you just don’t support equality in terms of same-sex marriage?", that you see a bit of panic and Romney's wheels start to spin, as he puts it all together and finds out just how hard it is to tell a fellow human being that he supports taking away their rights. Cue the awkwardness..

Parked car chases dog - Rick Perry wedges Rick Perry

Conservative presidential hopeful Rick Perry was keen to play the wedge game

Promoting special rights for gays in foreign countries is not in America’s interests and not worth a dime of taxpayers’ money...President Obama has again mistaken America’s tolerance for different lifestyles with an endorsement of those lifestyles. I will not make that mistake.”

In an ad he expands on his zero tolerance

"There's something wrong in this country when gays can serve openly in the military but our kids can't openly celebrate Christmas or pray in school."

Observers were keen to notice that

1) Rick Perry is wearing a "Brokeback Mountain" jacket
2) The music in his ad is by Aaron Copeland...an outspoken gay Jew.
3) before the original ad was taken off Youtube it managed to earn more than 3,000,000 dislikes

Battle lines drawn - Central Bank vs Financial Sector

It appears likely that official statistics overstate the financial sector’s contribution to GDP, and we now have evidence that this is indeed the case.

Boston Fed

YOYO RIP, long live WITT.

NYT on the first campaign speech

Mr. Obama correctly framed the choice for voters: The country can return to policies that stacked the deck for the wealthy and left everyone else to fend for themselves, creating what he called “you’re on your own economics.” Or elected officials can step in to keep competition fair and ensure the government has enough money to protect the vulnerable and invest in education and research.

The never wrong pundit calls the race

“Even if I am being conservative, I don’t see how Obama can lose,” says Lichtman, the brains behind The Keys to the White House.

After surveying the Republican field even Fox calls it a lay down miserere

It has become a national sport to put odds on who wins 2012. I think there is no question. President Obama wins. He has done a very good job in a very rocky time and the American people will remember next November.

Banking on public interest.

There has been plenty of anguish expressed by the apparent failure of the banks to pass on the reduced RBA lending rate. The Kouk was unimpressed

Frankly, it matters little if banks do or don't pass it on because it will be the behaviour of the economy which is determined by much much more than interest rates and bank margins that will determine future monetary policy moves. If banks don't pass any on, and the economy is weak, then the RBA will cut some more. Obviously.

..it is a completely free way of supporting the banks. It costs nothing to do. There are no extensions of government guarantees, no quantitative easing requirements which screw up your bond and currency markets, no need for the government to write a cheque as the odds of a bank failure shorten. It's a free lunch.

Hedge funds lost in a maze.

After losing 9% I guess things could be worse (there's still plenty of opportunity to do so)

Some fund managers privately confess that they wish they could move entirely into cash and sit out the market turmoil. But they feel pressure to continue trading to justify the steep fees they charge for managing investors’ assets.

Machines make for better investment advisors.

Physicist Mark Buchanan looks at research conducted by IBM where traders pitted their skills against algorithms (The robots always out-performed the humans) and comments

there's really no reason to think the markets should become more mechanical as they become more algorithmic. They've probably been quite mechanical all along, and algorithmic too -- it's just that non-rational zero intelligence automatons running the algorithms were called people. 

Its time to start taxing the very rich..

..say the very rich.

Growing numbers of millionaires and billionaires have gone on record as favoring higher taxes on the rich, because they can afford them and think they’re necessary to deal with our nation’s fiscal problem, which is largely due to historically low revenues.

These include Warren Buffett, Carlos Slim, Mark Cuban and Nick Hanauer, among others. The group Patriotic Millionaires for Fiscal Strength has been lobbying Congress to raise taxes on people like themselves. A similar movement is under way in Europe as well.

It is no longer possible to deny that there has been a sharp rise in the income and wealth of the ultra-rich while everyone else’s income has stagnated. Authoritative recent studies by the Congressional Budget Office and by Anthony Atkinson, Thomas Piketty and Emmanuel Saez prove that fact beyond question.

The point is not to punish the rich for being rich — Republicans routinely scream “class warfare” whenever anyone suggests higher taxes on the rich — but to raise revenue. If the rich don’t pay more, everyone else will have to.

The very rich are different from you and me..

..they have more money. Speculation abounds on the size of the now very ex Reuter Thompson chief 'golden handshake'

While the group would not reveal the details of any payoff, it confirmed its outlook for the full year 2011 yesterday adding that there would be ‘one-time charges’ related to the ‘restructuring’.

He took home £6m in pay and bonuses last year. Under the terms of a historic service contract seen by the Mail, which is not thought to have changed significantly, he will be entitled to ‘cessation compensation’.

This would see him collect his 12-month salary and a ‘relevant bonus’ calculated by multiplying this figure by the highest percentage of bonus received over the last three years.

Together with Glocer’s shares and options, worth £17.4m, he could walk away with a cool £24m.

The American also had a reputation for engineering a range of lavish perks on top of his handsome rewards. While based in London running Reuters he received an annual £268,000 housing allowance and was paid £409,403 to relocate back to New York in 2008.

Glocer’s previous contract also showed he had benefited from ‘the cost of business class travel from New York to London (and return) five times a year’ for his ‘spouse, children and nanny’.

You have nobody to blame but yourself.

Much has been made on the current credit crisis - that it is a failure of capitalism/socialism, the welfare state/american dream, fiat money, globalisation, privatisation, corporatisation, democratisation, taxation - on it goes.

Joseph Stiglitz reviews past and present global fiscal and monetary crises for a common thread and found that

financial sectors behaved badly and failed to assess creditworthiness and manage risk as they were supposed to do. 

The New York Fed has done some research and found that speculators ramped up values and lenders were a party to this inflation.

We conclude that investors were much more important in the housing boom and bust during the 2000s than previously thought. The availability of low- and no-down-payment mortgages in the nonprime sector enabled investors to make these bets.. 

..We conclude that it’s very important for lenders (and regulators) to manage leverage as asset bubbles are inflating.

..Effective regulation of speculative borrowing, like what is being attempted in China today, may be needed to prevent this kind of crisis from recurring.

 It has becoming obvious that self regulation is the flaw.

Peter Hartcher on the imbalance and failure of capitalism.

Why the Right Keeps Winning Left Behind | Peter Hartcher | The Monthly
It was Carnegie, son of the arch-establishment businessman Sir Rod Carnegie, who emerged as the media star of the Gillard government’s tax forum in October with his call for the wealthiest 15% of income earners to pay 15% more in income tax. “What I am saying is that the economic rents of capitalism are disproportionately cascading towards a smaller and smaller section of the community – of which I happen to be one,” he said on Lateline.

Aussie housing - the incredible shrinking domain.

Link

Pursuit of the Great Australian Dream -- ownership of a stand-alone house on a quarter-acre piece of land -- has seen households double their debt load as a proportion of disposable income in the past 15 years to 154 percent in the quarter ended June 30, according to central bank figures. That’s higher than the 133 percent ratio Americans accumulated at the height of the U.S. sub prime-mortgage boom.

...As the market sours, landed properties are losing value faster than apartments. House prices in Australian capitals fell 4.7 percent in October compared with a year earlier, while apartment values slipped 1.7 percent, according to Brisbane- based RP Data.

..The Great Australian Dream isn’t gone; it’s just a smaller dream now.” 

Uncaging the austerity beast.

Paul Krugman represents IMF data pictorially to demonstrate debt/GDP ratio for the UK

While it is not unusual for a government to run up debt more recently government debt had become a political issue, in 2008 the then shadow chancellor George Osborne warned of excessive debt

"We are in danger, if the government is not careful, of having a proper sterling collapse, a run on the pound."

This became a political plank and the newly elected govt set out to implement their policy of fiscal austerity.  As their policy bit in GDP also slipped, hence the recent uptick in the debt ratio. Manufacturing was the the big hope for the recovery of the private sector but..

Dec. 1 (Bloomberg) -- U.K. manufacturing shrank at the fastest pace in 2 1/2 years in November as both domestic and overseas demand weakened..

..The U.K.’s Office for Budget Responsibility cut its 2012 economic growth forecast to 0.7 percent from 2.5 percent this week.

The govt has been advised to go easy on the taxpayer

The National Institute for Economic and Social Research (NIESR) urged George Osborne to rethink his austerity programme and to use targeted tax cuts to boost demand, as a "meaningful recovery" continues to elude the economy..

..the thinktank forecast that household incomes, which fell last year by 0.8% – the first drop since 1981 – would drop by a further 1.1% in 2011. "Wage growth has failed to keep up with an elevated rate of inflation and tax increases," it said.

It seems counterintuitive to expect an economic recovery to be meaningful if it is to be funded by taxpayers, who are running out of cash and the unemployed, who pay no tax at all.

Good (no, great) interview with Glenn Murcutt.

http://mpegmedia.abc.net.au/rn/podcast/2011/11/bdn_20111130_1525.mp3

Germany and the Eurozone - just don't mention the war.

Polish Foreign Minister Radoslaw Sikorski resorted to dramatic rhetoric on Monday evening when he appealed to Germany to avert the collapse of the euro zone.

"There is nothing inevitable about Europe's decline. But we are standing on the edge of a precipice. This is the scariest moment of my ministerial life but therefore also the most sublime," Radoslaw Sikorski said in a speech in Berlin on Monday evening. "I demand of Germany that, for your own sake and for ours, you help it (the euro zone) survive and prosper. You know full well that nobody else can do it."

"I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity," he said, referring to the troubled history of relations between the two nations.

http://www.spiegel.de/international/europe/0,1518,800618,00.html

Motor mouth loses thread in top gear

Jeremy Clarkson on striking health care workers

"I'd have them all shot. I would take them outside and execute them in front of their families.

To some it comes as no surprise that Clarkson was quoted in serial killer Breivik 1,500 page 'manifesto'

he also quoted both Melanie Phillips of the Daily Mail (often and at length) and from Jeremy Clarkson's Sunday Times column.

Breivik was recently declared insane.

Hockey iced.

Mr Hockey should stick to opening fetes instead of tempting fate

THE federal Coalition's economic credibility has been dealt a blow after a tribunal found that two accountants who costed its 2010 election policies had breached professional standards

The ruling is an embarrassment to shadow treasurer Joe Hockey, who wrongly insisted during the campaign that the accountants' policy costings had been audited.

Geoffrey Phillip Kid and Cyrus Patell, of the Perth office of accountants WHK Horwath, produced a one-page report for the Coalition on its policies two days before the election.

Mr Hockey said at the time that the pair had certified "in law that our numbers are accurate''.

"If the fifth-biggest accounting firm in Australia signs off on our numbers it is a brave person to start saying there are accounting tricks," Mr Hockey told ABC radio in November 2010. "I tell you it is audited. This is an audited statement.''

Fellow Coalition frontbencher Andrew Robb also strongly vouched for the costings, saying they were "as good as you could get anywhere in the country, including in Treasury''.

In fact, the document was the result of a carefully worded agreement between the accountants and the Coalition to produce work primarily ''not of an audit nature''.

Macro underwhelmed by market sentiment.

Mark Thoma did a Q&A on the latest development

note that while this move can ease financial market conditions, it does nothing to address the underlying problems creating those conditions. So this is no substitute for the difficult decisions that Europe must make to overcome its troubles.

The Kouk is similarly unmoved

This may fix the global ills but it seems more likely that the move, while a good one, is just another desperate attempt from desperate policy makers helping out desperate bankers in desperate times.

Austan Goolsbee explains why

Germany’s productivity has gone way up. Normally, that would mean their currency appreciates, which lessens the advantage that gives their economy [in exports]. But unlike virtually every other advanced country in the world, the manufacturing share of output in Germany has risen over the last 20 years. And part of the explanation is that, just as in China, Germany has an export-oriented growth strategy fueled by a currency that’s undervalued. But that undervalued currency has been at the expense of Southern Europe. And the main point of the piece is that there’s no obvious way for Southern Europe to grow, and if they can’t grow, they can’t balance their budgets no matter how much austerity they engage in.

...Europe has two-and-a-half crises it’s facing. The first is an immediate banking crisis very much like our crisis in 2008. A large number of their financial institutions are viewed as being insolvent. That run has already begun. It’s slow, but it’s there. In my opinion, they will have to recapitalize their banks, one way or the other. Second crisis, which is related but distinct, is the fiscal crisis. There’s sort of a run on the public issuance of new debt.

The globalization of money

As explained by the FED

What is the purpose of the foreign currency liquidity swap lines? 

The foreign currency liquidity swap lines are designed to provide the Federal Reserve with the capacity to offer liquidity in foreign currencies to U.S. financial institutions should the Federal Reserve judge that such actions are appropriate.