The unpleasant arithmetic of compound interest

John Quiggin134 Comments

For the last decade or so, most of the English speaking countries have been running large and generally increasing trade deficits, and therefore running up increasing foreign debt. At the same time, until recently, both real and nominal world interest rates have been falling, which has made debt more affordable. This has produced a sense of security which is about to be reality-checked.

Short-term interest rates have been rising for the last couple of years, and now long-term rates are rising as well. The US 10-year bond rate is now 5.1 per cent, and has been rising fairly fast in recent weeks. The effect is to add a rising interest bill to a large and growing trade deficit. Brad Setser does the math for the US and it isn’t pretty.

If the average rate [on private and government debt] should rise to 6% — roughly the interest rate the US paid back in 2000 — the 2008 US interest bill would reach $420b. That is more than three times the 2005 interest bill.

Unless the trade deficit starts turning around fairly sharply, this would imply a current account deficit close to 10 per cent of GDP, which no country has ever sustained (please point out exceptions in comments).

The story for Australia is broadly similar, though the picture is complicated by the effects of commodity prices, which still seem to be generally rising. As long as that continues, our trade deficit should decline. But, high commodity prices have rarely been sustained for more than a few years at a stretch.

Finally, the organ grinder

John Quiggin57 Comments

We’ve had a string of monkeys, but finally the organ grinder appears. Alexander Downer has a deplorable piece in today’s Oz, attacking John Curtin yet again. Downer quotes Wurth’s piece from last week, managing to omit Wurth’s observation that Menzies was the worst appeaser of all.

It’s pretty unedifying stuff, but if Downer wants to compare personal and historical records, it certainly won’t be to the advantage of Menzies or the Liberal Party and its predecessors.

Rather than dive into this yet, let’s look at the current debate. Downer is promoting the credentials of the Liberals as the war party, against Labor’s pacifism. Right now, we have a disastrous war in Iraq, which has immeasurably strengthened the forces of global terrorism, while dividing and weakening the democratic world, and leading to the commission of crimes including torture and murder on a large scale by those who are supposed to be defending civilised values. On the horizon, we’re promised new wars with Iran, Syria and, if you listen to the government’s most vociferous supporters, the entire Islamic world. Pacifism may not always be the answer, as John Curtin recognised, but it’s greatly preferable to the warmongers who are in charge today.

Folding @Home

John Quiggin8 Comments

Among the fun and useful things you can do with your computer, distributed computing (using spare cycles on lots of personal computers do do big jobs) has always interested me, and I’ve now signed up Folding @Home which models the folding process needed for proteins to function. Misfolding contributes to diseases such as Alzheimers.

Folding @Home encourages team efforts and I can see why. After a week, my G4 Powerbook has only managed 18.25 per cent of the first job (the program doesn’t impose any perceptible load on the processor). So I’ve set up a team called “Ozploggers” and I hope some readers or fellow bloggers will join it. The team number is 50303. To join just go the Download page pick a user name, and nominate this team. Feel free to notify me in comments or by email.

UpdateWith a few readers joining in, the pace has picked up noticeably, reaching 29 per cent today. So please, some more volunteers. It’s fun to watch the simulations, you can get a screensaver if you want to, and there’s a pretty good chance that you will help to save lives.

Linkfest

John Quiggin12 Comments

I’ve been very slack about linking interesting posts lately, so here’s a quick roundup, mainly on military topics, reflecting the week’s news. Jeremy Bray at Catallaxy has a fairly pessimistic update on Iran’s nuclear program, while Andrew Norton discusses the death of Private Kovco. On the latter topic Democracy and Justice looks at the role of contracting out (a policy first implemented under Keating, as several commenters have observed) and Tim Dunlop dissects a typical Greg Sheridan rant.

Apart from the individual tragedy of Private Kovco, and continuing statistical disputes over how many tens of thousands have died, there’s nothing much on Iraq where we seem to have run out of things to say.

The Oz attack on John Curtin seems to have halted for the weekend, but you can read another response from Mark Bahnisch and more on Anzac Day from Gummo Trotsky, David Tiley and Ken Parish.

Finally, JF Beck complains that I don’t link to his posts and it’s true. Let me try to compensate by observing that his site slogan Nothing’s fact until it’s history, and then it’s debatable is the most perfect statement of the rightwing postmodernist outlook that I’ve ever read or am ever likely to. Also, and unequivocally positively, Beck’s participation in the DDT debate has led him to run an appeal for donations to Swim for Malaria, which has raised nearly $US 1000. If right and left could compete more on this basis, we might actually get somewhere.

Galbraith dies

John Quiggin15 Comments

John Kenneth Galbraith has just died. Here’s an NYT obit. Galbraith wasn’t exceptionally influential as an economic theorist, but he had a huge (and I think, generally positive) influence as a public intellectual. He’ll always be remembered as someone willing to challenge the “conventional wisdom”, one of many phrases he coined that have gone into general usage.

Accountability

John Quiggin38 Comments

The body of Jake Kovco has finally returned to Australia. It’s hard to imagine what his family must be going through, starting with the news that they had lost a husband, a father and a son, and then compounded with the series of dreadful bungles (or worse) that we’ve seen.

It would be good to think that somewhere in the chain of command, someone will step forward to say “This happened on my watch, and whether or not I personally did anything wrong, I’m responsible. I offer my resignation”. So far, there hasn’t been any sign that anything like this will happen, but there’s still time.

Weekend reflections

John Quiggin46 Comments

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.