This regular feature is back again. The idea is that, over the weekend, you should post your thoughts in a more leisurely fashion than in ordinary comments or the Monday Message Board. On the occasion of the Queen’s Birthday, I’d be interested in thoughts on our relationship to the British monarchy.
Please post your thoughts on any topic, at whatever length seems appropriate to you. Civilised discussion and no coarse language, please.
As a generally left-wing columnist for a generally right-wing paper, I naturally spend a fair bit of time thinking about how to keep my spot. So I was interested to see this piece by Gerard Henderson on why he got sacked from the Age (Hat-tips to Philip Gomes and Tim Dunlop), where he had the converse position. Henderson’s explanation is that the Age is moving to the left and attributed his sacking to the fact that the Left was offended by his last three columns, which
* said that Evatt was to blame for the Labor Split of 1955
* attacked the Labor Party’s opposition to the Vietnam War
* claimed that Australia’s involvement in the Gallipoli campaign was justified.
Having read the columns, I’d say Henderson was half-right. They probably contributed to his sacking, but on commercial rather than political grounds.
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That’s a rough estimate of the volume of outstanding contracts in financial derivatives, mainly interest swaps (some year-old and incomplete data here totals $175 trillion). As the name implies, these are usually matched, so that the actual net exposure of any party is a tiny fraction of the gross. But if the counterparty on one side of the swap should default, things could get very nasty. And, given the volume, default on a small proportion of the contracts would overwhelm the resources of the world’s central banks. To get an idea of magnitudes, US GDP is about $11 trillion or 5.5 per cent of outstanding contracts. When Long Term Credit Management went bust in 1998, threatening the stability of the world’s financial system, its gross position totalled $1.25 trillion, or about 0.6 per cent of the amount outstanding today.
Of course, the central bankers and prudential regulators have everything under control, and have simulated all the possible things that can go wrong. As for experimental tests of the stability of the system, we haven’t really had one yet, apart from LTCM. The last time the US financial system came under any real stress was the 1990 recession (or maybe the 1987 crash) at which time the volume of derivatives was maybe $1 trillion.
Still, as Eeyore said in a rather similar situation, “That’s what makes it so terribly interesting. Not really knowing until afterwards”.
It’s nice when blogging pays off in the form of published output, but it rarely happens as quickly as this. On Tuesday night Ken Parish alerted me to an amazing infrastructure proposal, similar to Colin’s canal. The plan is for a 3000-km transmission line connecting Darwin to the National Grid. Even a cursory examination was sufficient to show that the economics of this idea were crazy, and some late-night work produced an analysis ready for publication in today’s Fin (article over the fold).
I’m grateful to Ken for pointing this post out to me in the first place, and to commenters Robert Merkel and Derrida Derider (both regulars here) among others, who raised points that help me clarify my argument. Unfortunately, you can’t give this kind of credit in an opinion piece, but I can do so here. This is the kind of thing that shows the power of blogging.
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When we were discussing, not long ago, whether foreign aid could be useful in countries with corrupt and incompetent governments, I wasn’t imagining stories like this (see also this).
As a comparison, here’s a report from December 31, 2004 of aid finally reaching a city in Aceh, close to the epicentre of the earthquake/tsunami that struck on Boxing Day, 5 days previously. That’s in the middle of a war zone in a Third World country, with few roads, and thousands of kilometres from the countries giving most of the aid.
One further comparison. Ten days after the New Orleans disaster, the US has received offers of aid totalling $US1 billion. The total amount given by the US government in response to the tsunami was $950 million.
One of the great things about the internets is that you can instantly find song lyrics, even if you only recall one line of the song. In the case of The Kinks, Dedicated follower of fashion there was only one word I couldn’t make out despite hearing the song many times. The crucial line turns out to be
Everywhere the carnabetian army marches on,
Each one an dedicated follower of fashion.
It’s obvious when it’s written out that carnabetian is a reference to Carnaby Street, the fashion centre of Swinging London in the 1960s, but I don’t think I would ever have worked it out by ear.
ANZ is offering to match donations to charity made by its Internet banking customers. There’s a choice of eight charities, so their should be something for people of all tastes and ideological views.
And, particularly if you’re a top-bracket taxpayer, it’s an offer too good to miss as the end of the tax year approaches. Give, say, $200 to your preferred charity. ANZ’s matching money will bring it up to $400. Then Mr Costello will refund you $100 (well, $96.80 or thereabouts), so you get $400 worth of warm inner glow for the price of a couple of tickets to the footy.
Banks being banks, I was naturally suspicious. But I tried it out and the documentation came back indicating that everything had gone as promised. I guess you have to sign up as an ANZ customer to take advantage of this. But it’s no big hassle and loyalty to one bank is a thing of the past – there’s no need to scrap your existing arrangements if you don’t want to.
Today’s big news, for me at least, is that Apple will be moving to use Intel chips in Macs, in place of the PowerPC chip that’s been used for the last ten years or so. This isn’t good news for Mac users, since the required transitions are always messy and painful. The reason for the shift is that IBM, which produces the PowerPC, has been unwilling or unable to produce a low-heat version of the G5 chip for use in Powerbooks. The shift marks the end of the PowerPC strategy, which began as an alliance between Apple, IBM and Motorola and seemed at first likely to produce a serious alternative to Intel’s dominance of the CPU market.
The good news for Mac users is that, thanks to the massive success of the iPod and the flow-on effects to Mac sales, Apple is in a stronger position to make this move than at any time in years. In addition, the Mac OS itself is easily portable. Still, I expect some of my favorite obscure applications will struggle to make the change.
Another item in the positive column is that this ought to make it easier to run Windows on the occasions I need it (I currently use the Virtual PC emulator which is impressive, considering, but still problematic), and may also reduce the difficulty of porting Windows software to Mac.
General Glut turns his attention to Australia’s current account deficit, a topic that’s also being debated in a number of threads over at Stephen Kirchner’s blog. There’s a lot to cover here, so I’ll list the main points I’m going to cover up front
* Martin Wolf makes a point I’ve also been going on about for some time, that the Anglosphere dominates the consuming and borrowing side of the global trade balance
* Although Australia and the US have similar CAD/GDP ratios, the underlying stats are very different
* The claim that Australia’s CAD is being used to finance non-dwelling investment doesn’t stack up well when you look at actual expenditures, rather than volumes derived from dubious price adjustments
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In macroeconomic terms, the RBA decision to keep interest rates unchanged looks like a good call. With the levels of indebtedness we have in Australia, the risk of overkill, as seen in 1990, are greater than the risk of delaying for a while to see what happens. Although the evidence is patchy, the claims that economic activity has peaked look quite plausible. On most reasonable estimates, interest rates are still below their ‘neutral’ level and it looks as if they can’t go significantly above this level without producing substantial damage
In microeconomic terms, the decision looks far less appealing. Interest rates represent the price of current consumption in terms of future consumption. If they are permanently held below their equilibrium (roughly the same as neutral) level, the result must be too much consumption and too little saving and Australia has seen this in spades, with negative rates of household savings for some years. Not surprisingly, this has been accompanied by a boom in asset prices, particularly for residential land. This in turn has been associated with a shift in investment towards housing which, since it produces non-tradable services, is not helpful in addressing a huge current account deficit.
When one set of considerations strongly suggests holding interest rates steady and another suggests they need to rise significantly, the obvious conclusion is that we are trying to do too much with one instrument.
