Mostly, financial markets (the wealth shuffling casino) and the real economy (where people live and work) run as parallel universes. But occasionally as in the case of the GFC morphing into a full-blown real crisis with massive income and job losses the two merge. In many cases the merger is driven by a poor understanding of the way the fiat monetary system operates. As a consequence we get decisions taking by the gamblers (they prefer to be called speculators – it sounds better) based on faulty analysis of how the econmy works, pushing asset prices up (or down) which in turn affect the way governments are reacting to the “real crisis”. The surge in gold prices in the last few days might be an example of that.

On July 8, 2009 a world first occurred in Sweden when the Swedish Riksbank (its central bank) made announced that its deposit interest rate would be set at minus 0.25. While this has set the cat among the pidgeons around the financial markets, it is a classic example of “central banking gone crazy” or more politely “quantitative easing on steroids”. The only problem is that performance enhancing drugs seem to make athletes ride or run faster. This move will do very little to make the Swedish economy increase output or employ more people. For a background to my analysis on this event in central banking history you might like to read my blog – Quantitative Easing 101.

So today’s National Accounts data offers us a rear-vision mirror view of where the Australian was between April and June of this year. To some extent events have overtaken the relevance of this information. More recent news in the past week indicates that right now we are even further advanced in recovery than the June National Accounts data is indicating. But be warned. Not everything is what it seems to be.

I saw the latest Government Finance Statistics released by the ABS today just after I read the Financial Times where there was an article by former Cambridge Professor of Modern History, Peter Clarke entitled This is no time to throw away the crutches. There was a symbiosis in time. Then I read all the geeing up that is going on about rising manufacturing output in China and Japan and the News Limited themes that we have to get interest rates up sooner rather than later or the inflation genie will escape and I remembered the real world.

I have been intrigued with Japan for many years. It probably started with the post-war hostility towards them by the soldiers who saw the worst of them. The Anzac tradition was very unkind to Japan and its modern generations. It always puzzled me how we could hate them so much yet rely on them for our Post-World War II boom. I also thought we owed them something for being part of the political axis that dropped the first and only nuclear weapon on defenceless citizens when the war was over anyway. Whatever, I have long studied the nation and its economy. So yesterday’s election outcome certainly exercises the mind. Will it be a paradigm shift or a frustrating period where an ostensibly social democratic government runs up against the neo-liberal machine? I put these thoughts together about while travelling to and from Sydney on the train today.

As part of some research I am doing for a book that will come out next year on the dynamics of recessions I have been looking at asymmetries in the response of the labour market to changing economic activity. The analysis has produced some very interesting set of graphs that inform us, very starkly, how recessions damage the labour market. They also reveal why I am at present dubbing the current downturn the underemployment recession.

Strange events come together sometimes. One was the continuing railing against the ABC, our national broadcaster by the failed former federal treasurer. He somehow thinks the national broadcaster continues to display left-wing bias. The other event was an astonishing interview on a popular national ABC program where the content was about as far away from the sort of thing the failed former treasurer was railing against. The ABC program interview will have New Yorkers marching in the streets to defend the buildings of their famous newspaper. Here is how the events unfolded.

In today’s Australian newspaper ex Federal Treasury official Tony Makin writes that We keep repeating Keynes’s mistakes. Do we now? The story is a litany of half-truths and basic conceptual errors. He is now a professor of economics. Bad luck for his students. The article, one of a regular contribution he makes to the increasingly squawking right-wing News Limited daily, is a classic example of how to deceive the public with spurious economic reasoning – that the author knows most of the public will just accept without question.