In a speech in Maryland on January 7, 2011, one of the US Federal Reserve Governors, Elizabeth A. Duke spoke about current monetary trends in the US. It was hot on the heels of the testimony that the Federal Reserve boss Ben Bernanke made to the US Senate (January 7, 2011). They echoed similar messages. The reality is that the US economy is stagnating with very moderate growth and a very weak labour market. The overwhelming reliance on monetary policy as the saviour (low interest rates and quantitative easing) is misguided and will not provide the spending support that the private sector requires to regain their confidence again. But the interesting point to come from Duke’s speech was her observation that the US monetary system is not behaving according to how the mainstream macroeconomics textbooks (and thousands of orthodox teachers) depict it. That comes as no surprise when it is clear from the perspective of Modern Monetary Theory (MMT) that the textbooks are a joke. But given the monetary system is not “behaving itself” you can guess what all those mainstream professors are out there telling their students. Simple, the system is wrong!

As the days go by we begin to realise the huge scale of the problem that the floods in Northern Australia are presenting our country. Whole communities are being forced to leave their homes and major disruptions to economic activity (in very important regions) are being experienced. The floods are being labelled the worst in Australian history (well the white European occupation of indigenous land history) although that depends on the area – certainly the worst since the early 1950s. The areas that are affected are major sugar, coal, iron-ore and food production regions. So real GDP growth will be reduced and this will exacerbate the already slowing economy. What should be the correct federal government response? Answer: to expand the budget deficit (via discretionary spending increases) to ensure that essential public infrastructure is replaced and private economies are able to function again. What is the current federal government contemplating? Answer: spending cuts. My assessment of this: they have no credibility as fiscal managers.

Happy new year to everyone! It is starting out pretty poorly despite the nice weather and personal fun. On the last day of last year, the British Government released its Giving Green Paper, which apparently provides some detail about how it sees its Big Society concept working. As one commentator said it reads like it was written by a bunch of amateurs. But what it tells me is that the conservatives haven’t really evolved much since Maggie Thatcher declared there was no such thing as society. The Big Society is just a reprise of that concept with some mention of mobile phone apps and ATMs to match the historical period of technology that the latest attack on the welfare of the citizens is occurring. The Big Society is a blatant relinquishment of essential government roles and in that sense is a politically cynical attempt to cover up the impossibility of individual action relaxing systemic spending gaps. My training as a macroeconomists tells me that individuals cannot ease such macroeconomic constraints. Only the national government via appropriately sized budget deficits can do that. Which is exactly the responsibility the British government is recoiling from. The Big Society aka BS. More the fool anyone who believes in it.