Feb01
Soros’s Excellent Commentary on the crisis
on February 1st, 2008 at 12:10 amPosted In: Uncategorized
I’ve been researching in Europe and too busy to maintain the blog for a while, for which I apologise. Hopefully I’ll get back to it when I return to Sydney next week. In the meantime, I had the following Soros article recommended to me, and it’s an excellent commentary on the credit crisis:
Soros on “The worst market crisis in 60 years“
In that article, George Soros said,
Some other alternative theories believe that China (and the emerging markets) will still not be able to decouple from a severe US recession (see Can China really ‘de-couple’ from a US recession?). If this theory is right, then the implication for Australia is dire.
Sorry, the link to the alternative theory is wrong. It should be Can China really ‘de-couple’ from a US recession?).
Hi Steve!
Recently, Chief Economist Shane Oliver of AMP Capital Investors had released a new ‘insight’ note about the state of Australia’s debt situation. While he acknowledge the risk of rising debt, he reckons that Australia’s debt is not “as bad” as it seems. We’ve posted an article refuting his view at Aussie household debt not as bad as it seems?.
You may want to do a follow-up on Shane Oliver’s view on Australia’s debt (our article links to his ‘insight’ note if you want to take a read for yourself).
Thanks Contrarian,
Your blog’s comment on Oliver is excellent. If I can make the time, I’ll have a go myself at some of Oliver’s argument too. I’ll obviously echo your key point: that the value of assets is illusory, while the value (read burden) of debt is real.
What I can’t understand is why economists in general can’t work this all out.
I’ll echo the main point as well. The way I look at it is that buying property at the moment is giving money away, the difference between the real and paid price. This has the nice effect of keeping people in jobs as the money I’ve given away is spent. Of course if I don’t buy a property someone will lose their job, but I’ll live with that rather han 30 years of excessive mortgage. I suppose when lots of people decide not to borrow and $100 billion or so disappears from the economy it will be a bit unpleasant. 15% unemployment this recession ? Things could be worse, NZ for example.
Hi Ken!
My feeling is that probably these economists understand the fallacy of their own argument i.e. deep down in their hearts, they know they are wrong. But there’re too many vested interests who will lose a lot if the word gets out that the emperor has no clothes.
Maybe vested interest or simple belief in what I call linear economics, the belief that if it increased last year it will increase this year. One problem is that for the last 10 years predicting an increase has been correct, although at any time the market could have started down, so optimism has been the correct choice and as long as people can be convinced to borrow more money it will be, just makes the slump at the end worse. Looks like it has ended, does a bank economist now advise not taking out a loan ?
For your amusement see http://www.smh.com.au/multimedia/2008/national/sydney-units/index.html The photography is really nice.
Hi Ken!
“Linear economics”…. have you read Nassim Nicholas Taleb’s book, The Black Swan: The Impact of the Highly Improbable?
I have Nassim Nicholas Taleb’s earlier book which I am going to read when I have time. I expect it wont tell me anything new, but will be interesting. It seems that we have replaced the view of a “clockwork universe” with “clockwork stochastic universe” which assumes we know all the probability rules. Financial statistics seems to have become a tour of distribution theory, starting at the normal distribution, then the t-distribution and now various misshaped distributions, as they try to make theory match reality. No one ever talks about how much data is required to get decent estimates of what happens in the tails.
The problem with making probabilistic future predictions is that as long as I include the true outcome in my predictions then I’m right. So probability of recession this year: 10%, 30%, 50%, 90% they’re all the same. It will either happen or it wont. Long run it does matter but the quote is true “in the long run, we’re all dead”.