45 thoughts on “Weekend reflections

  1. “Inflation targetting has delivered probably the longest period of economic expansion on record along with low inflation.”

    You don’t think they were fooled all along by demographic structural change, coupled with Asians propensity to work harder and save more to prop it all up and now the music has stopped where are we all?

  2. Here’s what the UMF has to say:

    “The IMF expects global growth to slow significantly in the second half of the year, before recovering gradually in 2009.

    Updated forecasts in the IMF’s World Economic Outlook (WEO), released July 17, also raise inflation projections, particularly for emerging markets and developing countries.

    The WEO expects a moderation in global growth from 5 percent in 2007 to 4.1 percent in 2008 and 3.9 percent in 2009. Following a better-than-expected performance in the early part of 2008, WEO projections for the United States, the euro area, and Japan show a slowdown in activity in the second half of 2008.

    Expansions in emerging and developing economies are also expected to lose further steam, with growth in these countries projected to ease to around 7 percent in 2008-09 from 8 percent in 2007. China’s growth rate is expected to ease from near 12 percent in 2007 to around 10 percent in 2008-09.”

    http://www.imf.org/external/pubs/ft/survey/so/2008/RES071708A.htm

    World economic growth of close to 4% would have been regarded as outstanding a decade ago.

  3. In reply to comment 10. Real physical quantities (matter and energy) are still the basis of the entire economy. Humans are made of matter and subsist on matter. Our spreading infrastructure is material. The resources we use are material. This material production and consumption system cannot keep growing indefinitely on a finite planet.

    It is no different essentially from the “fruit flies in a bottle” experiment.

    What are the non-physical inputs referred to in comment 10? I’d like to see them properly defined. Technological innovation in its expressed form always involves the use and manipulation of matter and energy ie physical quantities.

    The unspoken assumption re these non-physical inputs seems to relate to “mind”, “intelligence”, “human inventiveness”. This is my guess of what is meant. Without entering into the debate about what is “mind”, I will note that implicit in comment 10 is the assumption that human inventiveness can transcend material limits.

    I think a more defendable position would be that human inventiveness and its expression in technology can stretch material limits but it cannot transcend them. There are dangers as well as benefits in stretching limits. When things “break” or “rebound” then we can be in serious trouble. We ought now to be paying a lot more attention to the possible breaking points in our human and natural systems on a world scale.

  4. How many “material resources” went into a Model T Ford compared with a contemporary sedan.

    How much of the difference between a Ford and a Rolls can be attributed to the difference in material resources?

    How about an Apple I versus a G4?

    The economic value of output is only minimally related to the material inputs.

    That’s why when I propose we cut carbon dioxide emissions by 90-95% over the next several decades I believe we can do so without cutting livign standards – and in fact can continue to imporve living standards why we do so.

  5. I’ll repost this link which I initially posted abotu a week ago.

    http://en.wikipedia.org/wiki/List_of_countries_by_ratio_of_GDP_to_carbon_dioxide_emissions

    There is essentially no correlation between economic output and levels of carbon dioxide emissions.

    Mali, Cambodia and Switzerland have similar levels of greenhosue gas emissiosn per unit of economic output.

    Want to reduce India’s GHG emissions – well o nthe oen hand we can take away people’s motorbikes and deisel pumps, limit the use of nitrogen fertilizer and watch people die of starvation.

    Or we can fix the Indian power grid so Indian businesses no longer have to run inefficient polluting emergency fenerators during the regualr black-outs.

  6. Ian, I don’t care what those ostriches in the IMF say, take a look at what’s happening with our banks, the latest being the ANZ-

    “The bank’s shares are now around half the value of their high in October last year of $31.55.

    The damage at ANZ follows last Friday’s sharemarket rout at rival National Australia Bank after that lender announced it was putting aside $830 million to cover losses related to debt defaults on housing loans in the US.

    ANZ’s second half provision come on top of a first half credit write downs of $980 million, bringing the full year potential loss to close to $2.2 billion.

    But in contrast to NAB, ANZ has attributed its likely losses to local clients rather than any exposure to the troubled US property market.”

    Of course the NAB had only previously made a $181 mill provision in May and now the chairman says there may be more downside. That’s about $3.2bill from 2 of the 4 pillars to date and that aint hay matey. Meanwhile the US Congress panics and goes down the Mugabe road-
    http://www.atimes.com/atimes/Global_Economy/JG29Dj07.html
    You can’t throw debt at a solvency crisis and those pinstripes at the IMF should know that. Meanwhile today Swan pops up to reassure everyone our banks are as safe as houses. Basically don’t panic chaps. We’ll see about those IMF experts.

  7. Basically Observa you’re making what’s known as the argument from amazement.

    $2.2 billion dollars is a Very Big Number – except in the context of an Australian economy of around A$1 trillion still growing at around 4% per annum.

    Since you keep implying (without giving us any details) that you have some vast wealth of private sector business experience, you should know that more often than not write-downs undertaken during a market downturn are more often than not written back when markets recover. (Take a look at Tricontinental for an example.)

    Ypu might also want to go back and compare the current economci situation i nthe US with either the S&L crisis or with the British housing bust and ask yourself why a crisis which is currently signficantly smalelr in actual (not hypothesised) lossess in relation to GDP is apparently going ot produce the catastrophe you so long for.

    The Asai Times author you link to appears not to understand the difference between a guarantee and a subsidy.

    Here’s a home work assignement for you: How much US taxpayer money has been lost to date “bailing out” Fannie Mae and Freddie Mac? Bear in mind when answering that the Federal Reserve System is not an arm of the US government. Bear in mind too that any Treasury money spent buying Fannie Mae and Freddie Mac shares is only lost to the extent that the shares fall below the market price.

    Bonus question: the Asia Times article you quote says that “trillions of dollars” have been loaned and lost.

    Given that

    a. the US mortgage default rate is currently around 2%; and

    b. US housing prices have fallen around 10% from their peak and most mortgages are for less than 100% of the pruchase price of the property implying a typical recovery via foreclosure of 80-90% of the principal of the loan

    How many quadrillion dollars does the author appear to beleive the US houding market is worth?

    What does this tell us about the author’s credibility?

    The Economist had a recent article discussing when we’d know the share markets were approaching their bottom. They discussed stuff like PE ratios and the relative retrun from government bonds versus blue chips. They concluded that the markets are probably currently within around 10% of their bottoms.

    They missed one of the biggest indicators of all – the endless proliferation of gloom and doom scenarios.

    When your cab driver volunteers stock tips it’s probably time to get out of the market, when your cab driver volunteers “we’ll all be roon’d” it’s probably time to get back into the market.

  8. Debates like thie can be somewhat pointless escpecially when precise predictions aren’t being made meaning it’s impossible to see who was correct.

    So Observa – is it your contention that the US is goign to convert to a gold-baseed or commodity-based currency?

    If so, when do you think this will happen?

    How high do you think the US mortgage default rate is going to go and in what time frame?

    For my part:

    1. The US will not adopt a commodity-backed currency within the next ten years. If the US Fed board changes its interest rate settign policy it will likely be to shift from the current implicit inflation targettign to an explicit stated inflation target.

    2. The US mortgage default rate will nto exceed 3% and will peak within the next three months.

    Oh and while I’m at it – oil prices or the rest of the eyar will remain between $100 and $140 per barrel, barring a US or Israeli attack on Iran.

  9. What is the consensus among cab drivers at the moment about the direction of the stocks, ian?

  10. I dont; take taxis as often as I used too (since I hav to pay for them since I elft the public service) but the last couple to volunteer an opinion were definitely in the “we’re all doomed” camp.

  11. And you seriously believe in raising taxes to pay these loopies Ian? Basically for-‘ Trust us, we’re from the Govt and we’re here to help you work out where all your fiat money went and mourn your losses.’
    Where the bloody hell are all the customers like you hiding is what I want to know. Ditto the cabbies so they could take you the long way round.

  12. “And you seriously believe in raising taxes to pay these loopies Ian?”

    Show me where I said anything of the sort.

    Australia has no need to raise taxes because we have a large and growing government surplus which means that even the worst likely financial sector meltdown can be dealt with.

    The US needs to either raise taxes or cut spending drastically because it’s current government deficit is unsustainable. I’ve been saying that since 2001 so it has nothing to do with the current situation.

  13. Oh and Observa I have been giving detailed point by point responses to your comments and have been prepared to make specific measurable predictions about what I think is going to happen.

    You have failed to respond substantively to most of my points and have failed to convert your vague “Doomsday is coming” claims into a form which can be tested.

    If you continue to simply bluster and point to whatever irrelevant article you happen to have turned up on Google News, I’m not going to bother to continue to respond in this fashion.

    So please –

    When will the US (or Australia) adopt a commodity-backed currency?

    When will US mortgage defaults peak and what will the peak default rate be?

  14. Fair enough Ian and those IMF boys do have to be careful about frightening the horses before they finally state the obvious just before the horses all bolt. If you’ve got the time, listen to Peter Schiff in Nov 2006 (parts 1-8)tell it like it’s happening now-
    http://www.youtube.com/results?search_query=peter+schiff+mortgage+bankers&search_type=&aq=f
    A lot of it applies to Oz too I’m afraid, but the overarching problem of moral hazard was always monetary in origin.

  15. I expect the US to go into recession some time over the next few quarters. I think there’s a 50-50 chance Australia will experience a growth recession.

    (A growth recession is where the economy doesn’t actually contract for two consecutive quarters which is the technical definition of a recession but where growth is too slow to keep up with labor force growth resulting in rising unemployment.)

    The question is are we looking at a 2001 recession, a 1992 recession, a 1973 recession or a 1932-style depression.

    My money is on a mild to moderate recession somewhere between 2001 and 1992.

    Observa seems to be anticipating something somewhere between 1932 and Mad Max.

  16. I must admit I’m curious how Observa explains speculative bubbles in species-based financial systems such as the south Seas Bubble; Tulipmania, the Panic of 1873 and the Wall Street crash of 1929.

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