Please note: there is no sovereign debt risk in Japan!

Sometimes you read an article that clearly has a pretext but then tries to cover that pretext in some (not) smart way to make the prejudice seem reasonable. That is the impression I had when I read this Bloomberg opinion piece by William Pesek (January 31, 2011) – Pinnacle Envy Signals New Bubble Is Inflating – which I was expecting to be about real estate bubbles but which, in fact, turned out to be an erroneous blather about Japanese debt risk. Please note: there is no sovereign debt risk in Japan!

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Saturday Quiz – January 29, 2011 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Oh for a decent public employment service!

I am away today with a full day of commitments from an early flight to the late evening. So I called up Victor and to see if he would write another blog which I know are of great interest. Today he is writing about some of the early manifestations of the neo-liberal onslaught on sound government services – in this case our former public employment service which was abolished and the services privatised. This is one of the examples in which the neo-liberals have not only converted unemployment from being a target of policy (to keep it low) into a tool of policy (to discipline inflation) but it also is one aspect of what I call the “unemployment industry” which sprung up to deal with entrenched joblessness that deficient approach to macroeconomic policy generated. It was amazing how the outsourcing and privatising of government services created a bevy of private profit-seekers who sought the booty on offer. In 2001 the OECD held out our privatised labour services as the exemplar of its Jobs Study agenda. What they were extolling was a corrupt, inefficient and ineffective system of shuffling the unemployed between various (mostly) meaningless training programs and work-for-the-dole compliance placements. But then the OECD has hardly had high standards so we shouldn’t have been surprised about that. Anyway, enough from me – the plane is ready … over to Victor.

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The madness along the Atlantic crosses the Pacific

Today the Australian government demonstrated how poor their grasp of macroeconomics is and how badly they are managing our economy. In response to the very destructive floods that have ravaged the most populated states on the east coast (Queensland, NSW and Victoria) and wiped out billions in income-generating assets and businesses, they decided to increase taxes to “pay” for the reconstruction relief. This is at at time when the economy is slowing, inflation is moderating and the banks cannot get enough treasury debt to satisfy their prudential requirements. Further, it is at a time when there are 12.5 per cent of willing labour resources lying idle and long-term unemployment is rising. I noted in yesterday’s blog – Its grim on both sides of the Atlantic – that things are really bleak in the UK (now contracting again courtesy of its government policies) and in the US (about to contract courtesy of its government’s mismanagement). In both cases, the malaise is being caused by a dysfunctional ideology being imposed by policy makers onto very fragile economies. Well it seems that the madness along the coastlines of the Atlantic has crossed the Pacific. The imposition of a flood levy is a nonsensical and destructive policy act.

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Its grim on both sides of the Atlantic

I have been sick today which is rare and have had trouble remaining vertical for very long. So the blog is a little shorter than usual. Just as well the subject matter might have disrupted my recovery. I note the UK economy is being deliberately sabotaged by its elected representatives which seems to conjure up a very weird construction of what we elect governments for. And in that context, the deficit terrorists are ramping up their calls for major fiscal retrenchment in the US. I thought Americans could read English – maybe they missed the British Office of National Statistics National Accounts release – it is pretty obvious – real GDP growth now negative again courtesy of a negative contribution from government in the December quarter. And the terrorists seem to want the same for the US. Its grim on both sides of the Atlantic.

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There is no inflationary outbreak evident – the economy is slowing

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the December 2010 quarter today and it showed that inflation continues to fall. The ABC News reported that – CPI figure comes in below expectations. Who’s expectations you might ask? Yes, the bank economists and other main-streamers who have a one track obsession that whenever there is some sign of growth there must be inflation. Wrong again. It was clear that inflation is moderating notwithstanding the spikes that will come in the next months as a result of the flood disasters. But when will the inflation-obsessives give up on the idea that the budget deficits cause inflation. The reality is that the Australian economy is slowing down and there is still a significant amount of spare capacity available for real output expansion should aggregate demand rise. Some sectors are growing strongly (mining) but that unlikely to create significant cost pressures elsewhere in the economy given the amount of labour slack. Last month I gave the bank economists a tip. Consult the ideological chart and then predict the opposite. They would have predicted the data movements more accurately if they had have taken my advice. There is no inflationary outbreak evident – the economy is slowing.

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Ricardians in UK have a wonderful Xmas

The latest data from the UK provides us with further evidence that mainstream economic theory and its policy advice is dangerous and should be disregarded. We are now some six months or more into the period of fiscal austerity in Britain even though many of the cut backs and tax hikes etc have not yet been introduced. But the British households and firms have known since the election result in May what was ahead of them and so have had time to make adjustments to their spending and saving patterns to take into account the expected future. Modern Monetary Theory (MMT) predicted that as a result of the fiscal austerity plans, the British economy would slow down again as private consumers and firms cut back on their own spending driven strongly by the fear of unemployment and flat sales conditions that accompany that situation. Mainstream theory pushed the notion of Ricardian Equivalence which claims that that private spending is weak because we are scared of the future tax implications of the rising budget deficits. But, the overwhelming evidence shows that firms will not invest while consumption is weak and households will not spend because they scared of becoming unemployed and are trying to reduce their bloated debt levels. Recent data shows that the Ricardians in UK have had a wonderful Xmas. Not!

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Saturday Quiz – January 22, 2011 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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