According to FT Alphaville, former investment bank Merrill Lynch has done an analysis of country credit risk which, alarmingly if unsurprisingly, given the factors considered, lists Australia as the riskiest country in the world. The analysis uses seven measures “current account financing gap, FX reserves/short-term external debt ratio, exports to-GDP ratio, private credit-to-GDP ratio, private credit growth, loans-to deposits ratio and banks capital-to-assets ratio”, and you don’t need to look up the figures to know that Australia is at risk on all of these measures.
OTOH, our strong points such as large and positive public sector net worth don’t get measured here. And, given that the top 10 low-risk country list is headed by Nigeria, and includes Colombia, Indonesia and Russia, it’s obvious that this is not an index of economic health. Still, our chronic current account deficits represent a real vulnerability, a point I got tired of making during the years of easy money (Hat-tip: Felix Salmon).
I won’t get time to blog on the Mid-Year Economic Forecast for a while, but I’ll note one of the few pieces of good news. The silly idea of announcing “aspirational” tax cuts for the government’s next term has been abandoned.
Over the fold, is my piece from today’s Fin on the task facing Obama. The original version started “Following his convincing election victory, Barack Obama can look forward to taking office under the most challenging conditions facing any incoming president since Franklin Rooseveltâ€™s inauguration in 1933,”, but another columnist came in with an almost identical lead, so I changed mine. But the great thing about a blog is that you can choose which version you like best (or dislike least). The original opening paras are at the end of the post.
It will be some time before we can truly determine the political, social and geopolitical implications of Obama’s victory. In the meantime, I’ll be parochial and observe that this really is the end of an era (in fact the first era) of political blogging.
With the networks calling Ohio for Obama, the only question remaining for today is the size of the win. I have to work on my Fin column, so I’ll throw it open to you to discuss the implications.
Barring an unforeseen catastrophe, Barack Obama will be elected president of the United States tomorrow. Barring an unforeseen miracle, by the time he is inaugurated, the US (and much of the rest of the world) will be in the deepest recession for decades. This is going to be a huge challenge, and two months of drift certainly won’t help. Paul Krugman is calling (not sure how seriously) for an interim government of national unity. It seems highly unlikely, though, even in the face of a failure as complete as that of any Administration since Hoover’s (or maybe Buchanan’s) that Bush will be willing to cede even one day of power to the incoming Democrats.
The situation when Obama takes over will be one of huge challenges and huge opportunities. The challenges are obvious: the economy in a gigantic mess, a string of foreign policy disasters and military misadventures and a deeply divided country. Only changes that are both radical and well designed will fix these problems, and this is a difficult combination to pull off.
The opportunities are the flip side of this. Not only does Obama seem likely to come in with big Democratic majorities in both Houses of Congress and a big popular mandate*, but the severity of the crisis has undermined what seemed like unalterable political taboos. The Republican Administration has just nationalised a large chunk of the banking system, and has long since abandoned any adherence to notions like balanced budgets. In these circumstances, the idea that policies of expanded government intervention are too radical for Americans to contemplate seem only marginally less silly than a literal acceptance of the McCain clam that Obama’s victory would constitute a referendum in favour of socialism.
Looking at what Obama needs to do, the big items are bringing the financial system back under control, rebalancing the tax system while substantially increasing tax revenue in the long term and completing the New Deal, particularly with respect to health care. More on all these items soon.
* In this context, I don’t think it’s critical that the Dems win the 60 Senate seats required to stop a filibuster under the Senate’s arcane procedural rules. It’s usually possible to peel off a few moderate votes. And, in any case, it’s just a procedural rule that can be abolished by simple majority. The threat of that happening will probably be enough to prevent overuse of this device.
Here’s a piece I did for the Australian Institute of Company Directors in 2006 (actually, in 2005, but it came out later). I think it covered most of the main points that have arisen in the debate over deposit guarantees.
Embarrassment alert Thanks to a system failure, the link wasn’t saved but reader Tintin found it here. Before that, SJ found a piece from 2002 which has (ahem) a bit of overlap with what I published in 2006. The second piece does have some refinements, notably explicit support for narrow banking, but I didn’t learn an awful lot on this topic in the intervening four years.
It’s time once again for the Monday Message Board. Post your thoughts on any issue. Civilised discussion only. Please avoid snarks and trolling and strictly no coarse language.