Today’s blog comes to you from beautiful Boomerang Beach, on the mid-North Coast of NSW and within the Booti Booti National Park. I am experimenting with the concept of a mobile office – well a cabin by the beach. Armed with my USB turbo mobile broadband and my portable computer, some files and books (not to mention a guitar and a couple of surfboards) I decided I can work nearly anywhere these days. Connectivity is no longer a problem. So I decided to head north for a couple of days to see how the concept works. Maybe it will begin a gypsy research life although I know one person who won’t allow that to happen! Anyway, it is a lovely setting and I can walk about 200 metres to the surf through the sand dunes. The perfect antidote to the sort of hysteria I covered in yesterday’s blog. Today I am considering corporate welfare among other topics and you definitely need a peaceful and soothing location to delve into that topic in any depth.

Today I have been reading all the documentation surrounding the proposals issued by the Bank of International Settlements to reform the regulatory system for international banking. These considerations then took me to an interesting paper from Deutsche Bank where they refute (albeit unintentionally) much of the media hysteria about exploding government bond yields and bond markets “closing governments down” because their deficits are “ballooning out of control”. In fact, the DB Report shows categorically that within the new regulatory framework that the BIS (and hence the Australian Prudential Regulation Authority will introduce), there is scope for larger budget deficits. In terms of the state of the Australian labour market and the very slow growth that the world economy will experience in the coming years, a further stimulus package is necessary. The DB Report implies that the bond markets would welcome it. Curious?

Yesterday, the British government announced that they had actually recorded a deficit in January which is rare given they normally get a big revenue boost in that month. The reaction to the news has been hysterical and calls to invoke fiscal austerity measures in the lead up to their national election are gathering pace. You can imagine that these calls are suggesting exactly the opposite of what I think the British government should be doing. Given that they risk locking a generation of their youth into a lifetime of disadvantage, job creation programs are required now which will require further stimulus. That is the only responsible course of action. The bond markets disagree. But if the governments around the world really represented the interests of their citizens they would use their capacities to render all these vandals irrelevant. Most people, however, do not understand what that capacity is and how the government could use it. Anyway, now to the news …

Today I have been thinking how extraordinarily stupid human beings are. The so-called Club Med Eurozone nations are being fast tracked into a crisis by a pernicious concoction of corrupt and lazy ratings agencies, Northern European truculence, and a ridiculous monetary system that provides no fiscal support within what is really a federal system. And as the ailing governments boldly and stupidly declare a willingness to play ball with the Brussels-Frankfurt consensus bullies there are signs that social order is beginning to break down. Then I read that an American city is turning its lights off at night to save money. Then I read some goon telling everyone to short US bonds because there will be a debt meltdown. And all of this stuff stems from unnecessary constructions and constraints that we have placed on systems that should be geared to advancing general welfare.

Person the life-boats! Get the hard hats out! Strife and pestilence is coming! I am wondering what all these loons – the deficit terrorists – who are now elevating a simple endogenous fiscal balance into a national emergency – will say in a few years when growth returns, unemployment falls, people start rebuilding their savings and most importantly their children do not go into slave camps making widgets to send back to the previous generation to pay for the fiscal balances and … the sky stays firmly above our heads although it does rain occasionally down on us to help farmers grow vegetables. What will these hysterical idiots say then? Today, the budget deficit has become the latest WMD. A seek and destroy mission is required. Bring out the military and attack treasury offices everywhere. Rally patriots the hour of calling is nigh?

Today I delve into the world of financial advice by E-mail. There are a growing number of subscription lists that people are exhorted to join to receive the latest in analysis from so-called experts. Most of it would qualify as spam. They seem to follow a formula – stir the emotions, offer great deals (which appear to be the motive – to make money), and spread dangerous half-truths and total fallacies. I get a lot of E-mails myself from readers asking me to comment on some of the claims that they have been reading in these “products”. So today I thought I would meet those requests by focusing on a particular newsletter that is broadly representative of the genre. My advice is to avoid wasting your time on these lists and read billy blog instead!

What do you do when your government is selling you out? Get the titular head (president) to intervene. That is what seems to be happening in Iceland at the moment. While the president is being accused of being an old political hack who longs to be back in the limelight, the more accurate interpretation is that he is reflecting the mood of the population which have been abandoned by a government intent on big-noting itself on the world stage by pushing for EMU admission. The sources of the problems in Iceland mirror those that have been at work globally to undermine the stability of the financial system and plunge real economies into deep recession – a religious belief in the efficacy of unregulated markets and the efficiency of entrepreneurial zeal. Both beliefs are now in shatters along with many economies not the least being Iceland. It is time that Iceland invoked its status as a modern monetary economy whose government has sovereign status in its own currency and started showing leadership to advance public purpose.

Several readers have E-mailed about the concept of a multiplier in macroeconomics particularly in light of comments I made yesterday about the current debate as to whether the deficits will be expansionary and whether it would be better to cut taxes rather than increase spending. There appears to be a lot of confusion about the most basic concepts involved so this blog seeks to address some of those issues. It is not a comprehensive literature review.

Last week, the Federal Reserve chairman Ben Bernanke received endorsement for a further term from the US Senate Committee on Banking, Housing and Urban Affairs (popularly known as the US Senate Banking Committee). There is much controversy about this re-nomination along the lines that he was Chairman as the crisis unfolded and he did nothing about it until it was too late. There is also angst about his refusal to provide Congress with specific information about institutions that the Federal Reserve bailed out. These issues are not unimportant. But the strongest reason why he should be dispensed with is that his public statements leads any informed analyst to conclude that he doesn’t really understand the monetary system. From a modern monetary theory (MMT) perspective his comments on the monetary system are as sophisticated as the most flawed mainstream macroeconomics textbook.

What do you get when a bunch of former politicians who have an inflated sense of self-importance and cannot stay out of the public glare? Well one answer is nonsense. The related answer is the so-called Pew-Peterson Commission report Red Ink Rising, which was released in December 2009 with the by-line “A Call to Action to Stem the Mounting Federal Debt”. And with the Copenhagen climate change talks being the big public interest story of the week it was only a matter of time before soon goon started mapping the public debt-hysteria debate into the climate change debate to bring home the message to all of us that we are doomed unless we do something drastic. Its been quite a day down here!

The political debate in Australia is never very inspiring. But in the last few days it has reached new heights … that is, lows. The Federal Opposition has now decided to address its rock-bottom political support by changing its shadow front-bench significantly and installing some of the most conservative members they could drag out. The strategy is clearly to “talk tough” and “take the fight up to the government” and all that sort of thing. The only problem is that it is already turning the public debate into a comedy show. I predict this conservative configuration will talk their way into oblivion much faster than the previous shadow cabinet. In the process, we will have plenty to laugh about.

Over the course of this economic crisis, I have seen a lot of erroneous analysis based on the conflation of things that are not commensurate. It is getting worse as the debt hysteria mounts. These conflations are examples of category errors, which are common in monetary and macroeconomic analysis. Most of the theoretical development in macroeconomics text books used by universities fall foul of this type of error. The one thing that follows is that when you detect this type of error you should be deeply suspicious of the arguments being presented.

I am feeling a little uncomfortable at present – landlocked. I am working in Almaty, Kazakstan, which is part of Central Asia and one of only 44 countries that do not have a sea edge. But it would be worse if we were in Uzbekistan which is one of only two countries that is doubly-landlocked. That means it is a landlocked country surrounded by other landlocked countries so I would have to cross two national borders to get to the surf! I will report on what I am up to over here in more detail at a future date. But even though this is a remote region, the Australian national broadcaster the ABC has tracked me down. They rang early this morning and want to talk about the Australian Treasury’s claim that unemployment fears are easing and skills shortages are now the threat to our economy – what? 14 percent of our labour underutilised and we are now back to the skills shortage debate. Anyway, the ABC has been on my mind overnight …

I am researching a new book project at present. I plan with a (development economist) colleague to outline a new development agenda for low income countries. The imposition of neo-liberal policy agenda has artificially and immorally constrained development in the poorest nations. This paradigm is in denial of the opportunities forthcoming to a sovereign government to expand employment and national well-being. We intend to outline a modern monetary approach to economic development as a rival development paradigm. As part of this project, I was reading a research report released last week by the Centre of Economic Policy Research (Washington). The report shows that around 75 per cent of IMF agreements in the current downturn are pro-cyclical. That is we learn what we have always known – the IMF should not be allowed out without supervision.