RBA Rates Deci­sion & Roy Mor­gan Unem­ploy­ment

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The RBA’s deci­sion not to reduce rates this month caught most pun­dits by surprise—including me. Given the inter­na­tional and local data, I thought they’d err on the side of cau­tion and cut rates.

As I always note when asked to call what the RBA will do next, this is a call on how another body will respond to what they per­ceive as the eco­nomic data and the direc­tion their model of the econ­omy pre­dicts the actual econ­omy will move in. That’s closer to pick­ing which cock­roach is going to walk out of a cir­cle first in a Changi prison gam­bling den than it is to eco­nomic fore­cast­ing per se (which is dubi­ous enough activ­ity in itself). So mak­ing a wrong guess about what the RBA will do is not the same as mak­ing a wrong eco­nomic fore­cast; you’re just mak­ing a dif­fer­ent fore­cast of the future than is the RBA.

The RBA’s expla­na­tion for its deci­sion shows that it is mak­ing a rosy call of both the cur­rent data and the direc­tion in which the Aus­tralian econ­omy is headed.

Infor­ma­tion on the Aus­tralian econ­omy con­tin­ues to sug­gest growth close to trend… the unem­ploy­ment rate increased slightly in mid year, though it has been steady over recent months… In under­ly­ing terms, infla­tion is around 2½ per cent… the Bank expects infla­tion to be in the 2–3 per cent range.

Credit growth remains mod­est, though there has been a slight increase in demand for credit by busi­nesses. Hous­ing prices showed some sign of sta­bil­is­ing at the end of 2011, after hav­ing declined for most of the year. The exchange rate has risen fur­ther, even though the terms of trade have started to decline … With growth expected to be close to trend and infla­tion close to tar­get, the Board judged that the set­ting of mon­e­tary pol­icy was appro­pri­ate for the moment.

As the Syd­ney Morn­ing Her­ald edi­to­ri­alised, the RBA mes­sage was that the future looks good:

MOVE right along folks. Noth­ing to see here. By keep­ing inter­est rates on hold this week, the Reserve Bank is send­ing a sub­con­scious mes­sage to bor­row­ers: the econ­omy is doing rea­son­ably well. There is no need to panic…

Although we in NSW seem bogged Eey­ore-like in our sad and dank lit­tle cor­ner of the for­est, glumly chew­ing our this­tles day after day, per­haps we really ought to cheer up. Gloom is not just mis­er­able in itself. When it comes to the econ­omy, it’s dan­ger­ous.

This is not the take that the major­ity of eco­nomic pun­dits have on the data—and for once, I’m with the major­ity. Nor­mally the major­ity is bull­ish (because they have a Neo­clas­si­cal per­spec­tive on the econ­omy that largely ignores credit, and thinks the econ­omy always returns to equi­lib­rium) and I’m bear­ish (because I have a “Post Key­ne­sian” per­spec­tive that sees credit as the key motive eco­nomic force, and believes the econ­omy is always in dis­e­qui­lib­rium).

The major­ity of eco­nomic pun­dits lined up with me for a change because there was a range of data that implied the econ­omy was stalling. Firstly, unem­ploy­ment has been trend­ing up, and the “steady over recent months” phe­nom­e­non that the RBA referred to above was entirely due to a fall in the par­tic­i­pa­tion rate. Had this remained at the Novem­ber level, the ABS unem­ploy­ment rate would have jumped to 5.6% last month.

Fig­ure 1

And that’s the good news: as was widely reported, employ­ment fell by almost 30,000 last month, so that net job growth in 2011 was zero—the worst out­come in 20 years.

Sec­ondly, a broader mea­sure of unem­ploy­ment main­tained by Roy Mor­gan Research hit 10.3 percent—5 per­cent above the ABS fig­ure. The ABS treats some­one who has worked for one hour in the pre­vi­ous two weeks as employed, a def­i­n­i­tion that Roy Mor­gan rightly rejects:

Surely if some­one is not work­ing, is look­ing for work and con­sid­ers them­selves to be unem­ployed, then they should be con­sid­ered unem­ployed regard­less of whether they hap­pen to have done a cou­ple of hours work here and there dur­ing the month?”

The ludi­crous offi­cial def­i­n­i­tion of unem­ploy­ment is a clas­sic case of bureau­cra­cies (includ­ing the United Nations Inter­na­tional Labor Orga­ni­za­tion in this case) elim­i­nat­ing a prob­lem by redefin­ing it rather than solv­ing it. Many peo­ple have crit­i­cised this def­i­n­i­tion (includ­ing Peter Brain from the National Insti­tute for Eco­nomic and Indus­try Research, who found that over a dozen offi­cial rede­f­i­n­i­tions of unem­ploy­ment had all reduced the recorded level); since the late 1990s, Roy Mor­gan has gone one bet­ter and con­ducted a monthly sur­vey using a def­i­n­i­tion of unem­ploy­ment that actu­ally makes sense:

” Accord­ing to the ABS def­i­n­i­tion, a per­son who has worked for one hour or more for pay­ment or some­one who has worked with­out pay in a fam­ily busi­ness, is con­sid­ered employed regard­less of whether they con­sider them­selves employed or not.

The ABS def­i­n­i­tion also details that if a respon­dent is not actively look­ing for work (ie: apply­ing for work, answer­ing job adver­tise­ments, being reg­is­tered with Cen­tre-link or ten­der­ing for work), they are not con­sid­ered to be unem­ployed.

The Roy Mor­gan sur­vey, in con­trast, defines any respon­dent who is not employed full or part-time and who is look­ing for paid employ­ment as being unem­ployed. ” (Roy Mor­gan, Sep­tem­ber 2011)

Roy Morgan’s def­i­n­i­tion there­fore nec­es­sar­ily records a higher level of unem­ploy­ment than the ABS—and they are also a more legit­i­mate mea­sure of real unem­ploy­ment. How­ever their results are also more volatile, since their sam­ple is smaller than the ABS’s, and the results are not sea­son­ally adjusted.

Fig­ure 2

Over­all how­ever, Roy Morgan’s fig­ures are a more accu­rate indi­ca­tor of the level of unem­ploy­ment than the ABS’s, and also as a har­bin­ger of where the ABS data may move in the future. The cur­rent gap between the two mea­sures is the high­est it has ever been—over 5 per­cent, when the aver­age gap has been about 2.5 percent—and this implies that the next move in the ABS fig­ures could be sub­stan­tially upwards. Gary Mor­gan warned that the econ­omy is a lot weaker than the RBA seems to think:

Today’s Roy Mor­gan unem­ploy­ment esti­mates strongly sup­port anec­do­tal evi­dence of con­tin­u­ing job losses through­out Aus­tralia. Just in the past week we have been told that West­pac has announced 550 jobs to go; ANZ is axing 130 jobs; Holden will cut 200 jobs at its Ade­laide plant; Toy­ota will cut 350 jobs in Mel­bourne; Reckitt Benckiser (maker of Mortein & Det­tol) is to retrench 200 jobs at its Syd­ney oper­a­tions; defence firm Thales shed­ding 50 jobs in Bendigo — these are just the most promi­nent exam­ples of job losses occur­ring in the Aus­tralian econ­omy!

Econ­o­mists and politi­cians are wrong to talk about a ‘tight’ labour mar­ket in Aus­tralia dri­ving wage pres­sures. Wage demands (infla­tion) at the moment are being dri­ven by unions — a small minor­ity of the Aus­tralian work­force — not by a tight labour mar­ket with work­ers chang­ing jobs to secure bet­ter wages and con­di­tions. Today’s Roy Mor­gan employ­ment esti­mates show why infla­tion in Aus­tralia is con­tained, and will remain con­tained — at its meet­ing next Tues­day the RBA must drop inter­est rates by at least 0.5% and prob­a­bly more.”

Fig­ure 3

 

If Gary Mor­gan is right, the RBA’s rosy fore­cast for the future will be shown to be in error. The pri­mary source of that error will be not merely mis­placed opti­mism, but reliance upon neo­clas­si­cal eco­nomic mod­els about the econ­omy that ignore the role of credit just at the moment that decel­er­at­ing credit is finally set­ting in in earnest in Aus­tralia, after being delayed by the First Home Ven­dors Boost.

Fig­ure 4

The First Home Ven­dors Boost was the sole cause of the rever­sal of delever­ag­ing in Aus­tralia after the cri­sis began, with the growth in mort­gages more than off­set­ting the reduc­tion in debt by the busi­ness sec­tor.

Fig­ure 5

With that arti­fi­cial stim­u­lus to credit growth over, credit growth is now decel­er­at­ing in Aus­tralia, and caus­ing unem­ploy­ment to rise despite the off­set­ting impact of the resources boom.

Fig­ure 6

Mort­gage debt is now decel­er­at­ing strongly, and tak­ing house prices down with it.

Fig­ure 7

From its com­ment that “Hous­ing prices showed some sign of sta­bil­is­ing at the end of 2011”, the RBA appears to be buy­ing the RPData spin that a one month upwards blip in their data series after 11 months of decline sig­nals a bot­tom to the hous­ing mar­ket. How­ever a sim­ple com­par­i­son of house prices here to those in Japan and the USA after their bub­ble economies burst makes it hard to argue that “Aus­tralia is dif­fer­ent”.

Fig­ure 8

Of course, at this stage it is too early to tell whether we’ll fol­low the long slow decline of Japan­ese prices, or the sud­den fall that marked the USA. But by the end of 2012, Australia’s house price decline pro­file should be appar­ent.

Fig­ure 9

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • clive

    This seems to be a clear indi­ca­tor of where house prices are head­ing.

    Unions fear more than 500 jobs will be lost after one of Australia’s old­est con­struc­tion com­pa­nies stopped trad­ing on Thurs­day.

    Kell and Rigby has been oper­at­ing since 1910 and has been involved in major projects in Syd­ney, includ­ing the recent refur­bish­ment of Syd­ney Town Hall.

    The News South Wales branch sec­re­tary of the CFMEU, Brian Parker, says the com­pany stopped trad­ing on Thurs­day and is likely to go into vol­un­tary receiver­ship on Fri­day.’

    http://www.abc.net.au/news/2012–02-09/500-jobs-in-the-balance-as-construction-company-considers-finan/3821662/?site=sydney

    The feed­back I’m get­ting from builders in Queens­land is that the only thing keep­ing the indus­try going is min­ing towns, flood repair, and cyclone repair.

  • alex78

    Great charts, Steve.

    Why do you think we’re unlikely to see the FHOB (FHVB) rein­tro­duced?

  • clive

    It’s been sug­gested that the RBA is aware of what’s com­ing and they are just sav­ing their bul­lets. Any­one?
    Does any­one believe the gov­ern­ment will have another crack at the FHVB? Qld has recently extended their $10000 to April, how­ever I don’t think it’s hav­ing much effect as even many of the MSM have accepted that house prices are falling the only dis­agree­ment appears to be how far and how fast.

  • RickW

    There is a good paper on this link regard­ing dif­fer­ences in mort­gages between coun­tries:
    http://www.housingamerica.org/RIHA/RIHA/Publications/74023_10122_Research_RIHA_Lea_Report.pdf

    The main fac­tor is the full recourse lend­ing. Some areas around the Gold Coast look like the power is off at night. This is not solely related to power costs. A sig­nif­i­cant por­tion of the houses are vacated as own­ers are work­ing FIFO jobs for min­ing com­pa­nies, main­tain­ing an income to ser­vice their mort­gage. Flights west and north from the pop­u­la­tion cen­tres in the SE to sup­port these long-range com­mutes to suit work ros­ters is grow­ing.

    Based on the more oner­ous con­se­quence of default in Aus­tralia I sus­pect the hous­ing price decline in Aus­tralia will more closely trend Japan. Prob­a­bly a bit faster down than Japan but much slower than the US rate. 

    Japan has suf­fered through the rise in China, which has been a long process. US just blew up with peo­ple free to walk away once there was no equity. Aus­tralia is cer­tainly in a much bet­ter posi­tion to man­age it down rather than a blow up like the US.

    I would argue the RBA got it right but for the wrong rea­sons. Aus­tralia needs to dis­cour­age investment/speculation in waste­ful enter­prises. The coun­try needs to be encour­ag­ing sav­ings and invest­ment in its strengths not sup­port­ing prop­erty ponzis and arti­fi­cially sup­port­ing lost causes.

  • RickW

    There is a good paper on this link regard­ing dif­fer­ences in mort­gages between coun­tries:
    http://www.housingamerica.org/RIHA/RIHA/Publications/74023_10122_Research_RIHA_Lea_Report.pdf

    A big fac­tor is full recourse lend­ing or not. 

    The lack of lights at night around some newer sub-divi­sions on the Gold Coast is not solely related to power costs. A sig­nif­i­cant pro­por­tion of the houses are vacated as own­ers are work­ing FIFO jobs for min­ing com­pa­nies; main­tain­ing an income to ser­vice their mort­gage. Flights west and north from the pop­u­la­tion cen­tres in the SE to sup­port these long-range com­mutes to suit work ros­ters is grow­ing.

    Based on the more oner­ous con­se­quence of default in Aus­tralia I sus­pect the hous­ing price decline in Aus­tralia will more closely trend Japan. Prob­a­bly a bit faster down than Japan but much slower than the US rate. 

    Japan has suf­fered through the rise in China, which has been a long process. US just blew up with peo­ple free to walk away once there was no equity. Aus­tralia is cer­tainly in a much bet­ter posi­tion to man­age it down rather than a blow up like the US.

    I would argue the RBA got it right but for the wrong rea­sons. Aus­tralia needs to dis­cour­age investment/speculation in waste­ful enter­prises. The coun­try needs to be encour­ag­ing sav­ings and invest­ment in its strengths not sup­port­ing prop­erty ponzis and arti­fi­cially sup­port­ing lost causes.

  • cyrusp

    The RBA knew that even if they cut the banks wouldn’t fol­low. Or the banks would raise instead. So they’re in a bind.

    Pro­fes­sor Keen, I’m hav­ing a hard time rec­on­cil­ing endoge­nous money the­ory with all this talk these days about banks off­shore fund­ing costs going up. Why can’t the banks just bor­row at the RBA rate? Why are they going off­shore?

  • mahaish

    think the point is,

    the rba board shouldnt b allowed any­where near a inter­est rate deci­sion.

    they con­stantly over shoot or under shoot.

    we should let mar­ket forces dic­tate this process.

    any­way under endoge­nous money , and the implicit or explicit gau­ran­tee the cen­tral bank pro­vides for the pay­ment sys­tem, they are con­stanly react­ing to the changes in the stock/flow of mon­e­tary aggre­gates, rather than pre emp­tively con­trol­ling it.

  • glu­bilee

    Be care­ful in you con­clu­sions about US mort­gage mar­ket, it is not mono­lithic. The rules vary greatly state by state and even mort­gage by mort­gage. In US many mort­gages are fixed rate, and only way to take advan­tage of low­er­ing mort­gage rates is to re-fi the loan. So given US rates have been on decades long downptrend, any­one in a mort­gage for more than a few years, while equity was still increas­ing before bub­ble burst, like refi’d. Well in Cal­i­for­nia, if you refi’d, your loan becomes non-recourse. Some states it’s been tak­ing 2 years or more for the house to be repos­sessed, but here in MN it can hap­pen in 6 months, even when con­tested. Also, while there is an increase in strate­gic default­ing, there are still major­ity of peo­ple in hor­riby under­wa­ter mort­gages that pay them if they can, for all kinds of rea­sons. Most of the defaults nation­ally are sim­ply by those who are unem­ployed or whose busi­nesses died, who couldnt pay mort­gage. I do con­tend a more sud­den dive in prices, like in some of the hard­est hit states like Florida, Cal­i­for­nia, lead to more will­ing­ness to stop pay­ing an under­wa­ter mort­gage, which really is best for gen­eral con­sumer finances and for macro econ­omy. How­ever, a long slow bit­ter decline like Japan and that is likely in Aus­tralia, leads to a multi decade third world debtor nation-like aus­ter­ity plan. Peo­ple spend­ing their whole lives pay­ing debts on worth­less assets, banks for­ever bleed­ing any life out of the econ­omy. Japan had other poli­cies I place, that despite real estate depre­ci­a­tion, stock depre­ci­a­tion, their reg­u­lar work­ing folks lifestyles have done fairly decent in their lost decade. Mean­while, US that had no such loss decade prior to 2008. But com­pare the wealth and poverty of the pics of the peo­ple, the houses, the cars in the Kat­rina dis­as­ter in the US and Japan’s earth­quake, tsunami. There is no comparioson,while most of the pics i f Kat­rina were of peo­ple in poverty, most of the after­math of the tsunami was brand new cars and won­der­fully nice houses being crushed, with safes full of cash float­ing away. Depre­ci­at­ing real estate is not the whole story of the health of a country’s work­ing peo­ple, but doubt Aus­tralia will have the ben­e­fit the Japan­ese have had.

  • cen­ter­line

    Well said Glu­bilee. Japan was unique in many ways — includ­ing cul­ture as well as tim­ing. Would be a hard act to fol­low.

  • alain­ton

    Lets not for­get a cat­a­strophic fall in house­hold for­ma­tion in Japan caused by its age­ing pop­u­la­tion and lack of immi­gra­tion made the down­side of Japan’s house prices far worse, and a return in the trend of house­hold for­ma­tion is help­ing the US mar­ket to recover.

  • clive

    @alainton Not so sure about house­hold for­ma­tion have a look at this arti­cle.

    The US Cen­sus how­ever splits house­holds into two cat­e­gories: “fam­ily” and “non-fam­ily”. About 66% of US house­holds are fam­i­lies, with the rest clas­si­fied as “unre­lated peo­ple” shar­ing a liv­ing space — col­lege stu­dents, unmar­ried cou­ples, sin­gles liv­ing on their own, etc. The chart below (last 20 years) shows that non-fam­ily house­holds have gen­er­ally been grow­ing in line with the US pop­u­la­tion and although dipped in 2008, have since recov­ered.

    The real prob­lem how­ever is found in the fam­ily house­hold for­ma­tion. Fam­ily house­holds have com­pletely decou­pled from the US pop­u­la­tion growth since 2008.

    This devi­a­tion is quite new. Fam­ily house­holds have been form­ing at an aver­age rate of 651,000 per year since at least 1947 (when the first annual house­hold data became avail­able). Dur­ing that whole period the only years show­ing “neg­a­tive for­ma­tion” are 2008, 2010, and 2011 — likely the result of fam­i­lies mov­ing together (par­ents and grand­par­ents, etc.).

    Clearly the sim­plest expla­na­tion for this diver­gence is the spike in unem­ploy­ment and eco­nomic uncer­tainty. Peo­ple are for­go­ing or delay­ing form­ing sep­a­rate fam­ily house­holds (such as delay­ing mar­riage). As JPMor­gan pointed out last week, this should cor­rect itself if employ­ment improves. ”

    Since many believe the unem­ploy­ment fig­ures are BS.…

    http://soberlook.com/2012/01/story-of-household-formation-is-about.html

  • Steve Hum­mel

    In regard to eco­nomic fore­casts and eco­nomic sys­tems:

    Vir­tu­ally every­one and every entity has an agenda. It would be best if we adhered to a sys­tem that made a profit mak­ing sys­tem oper­ate like most euphemisti­cally believe cap­i­tal­ism does or will; and that has as its agenda the eco­nomic lib­er­a­tion of the indi­vid­ual not just the freer oper­a­tion of the busi­ness enti­ties within that sys­tem.

  • Lyon­wiss

    Cyrusp Feb­ru­ary 10, 2012 at 1:45 pm

    Most econ­o­mists have lit­tle clue of what they are talk­ing about, because they have no idea of the big pic­ture. Their train­ing and their careers are about pub­lish­ing as many research papers as pos­si­ble, which requires a nar­row focus in order to estab­lish an “exper­tise” or an author­ity in some area of eco­nom­ics, so that they can nei­ther be chal­lenged nor are they likely to be chal­lenged aca­d­e­m­i­cally, because they do not impinge on other experts’ turf.

    When these econ­o­mists make pro­nounce­ments about how to solve cur­rent eco­nomic prob­lems, they are usu­ally unqual­i­fied based on their recog­nised exper­tise, which I con­tend is invari­ably nar­rowly focussed. But they are given a hear­ing by the media on the basis that they are famous for some­thing: writ­ten a book, won the Nobel prize or any other recog­ni­tion, deserved or oth­er­wise.

    With­out any inten­tion to belit­tle Steve’s achieve­ments, I point out that pub­lic igno­rance, par­tic­u­larly the media, cre­ate totally unre­al­is­tic expec­ta­tions of experts, induc­ing them (through sit­u­a­tions and cir­cum­stances) to pre­dict, fore­cast or opine on mat­ters which are out­side their com­pe­tence. Per­fectly good
    econ­o­mists have been turned into char­la­tans through the media cir­cus.

    After this long winded com­ment, my unso­licited short answer to your ques­tions is: as far as I know both from all papers and com­ments I read on the sub­ject and by my own a pri­ori rea­son­ing, endoge­nous money and MMT only apply to a closed econ­omy, and not the real world of open economies. Fiat money is based on author­ity or law enforce­ment, for which treaties, agree­ments and the mil­i­tary are less cogent inter­na­tional instru­ments.

    Aus­tralia has less net sav­ings domes­ti­cally than is needed for its invest­ment cap­i­tal and Aus­tralia is there­fore depen­dent on bor­row­ing from over­seas. Lend­ing cre­ates deposits, but does not imme­di­ately cre­ate equity nor meet cap­i­tal require­ments. The gov­ern­ment does not print money or increase its debt to ful­fil pri­vate sec­tor needs (except in a cri­sis).

  • RJ

    Aus­tralia has less net sav­ings domes­ti­cally than is needed for its invest­ment cap­i­tal and Aus­tralia is there­fore depen­dent on bor­row­ing from over­seas”

    Aust needs Aust dol­lars. These dol­lars may be held by for­eign­ers (and will be if Aust runs a trade deficit) but Aust dol­lars can ONLY increase from

    –Aust banks lend­ing Aussie dol­lars or
    –The Aust Govt run­ning a deficit that is not drained by bond issues.

    Aust dol­lars CAN NOT be increased by over­seas bor­row­ing. All this can do is trans­fer Aussie dol­lars from a for­eign holder of Aussie dol­lars to a Aussie res­i­dent

    So all Aussie money orig­i­nates from Aussie banks. Backed by either non Govt or Govt debt

    Austs can increase their hold­ing of say US dol­lars by bor­row­ing from for­eign­ers but if they then want Aussie dol­lars they need to find some­one with Aussie dol­lars to swap US for Aust $s.

  • RJ

    endoge­nous money and MMT only apply to a closed econ­omy, and not the real world of open economies.”

    Do you even know what this means?

  • RJ

    The gov­ern­ment does not print money or increase its debt to ful­fil pri­vate sec­tor needs (except in a cri­sis).”

    The Govt does not really print money any more. Cash and coins are only used to allow an eas­ier trans­fer of bank credit. So credit ALWAYS comes first

    And you are com­pletely wrong on Govt debt. Govt debt does ful­fil the pri­vate sec­tors needs (to save). Pen­sion funds often hold Govt bonds. And these bonds are only avail­able if Govts run deficits (accu­mu­lated as debt).

  • RJ

    I point out that pub­lic igno­rance,”

    Agree it is not great. MMT though does under­stand money and bank­ing but most do not. So there is hope when at least one group can explain how money and bank­ing works so clearly.

  • Steve Hum­mel

    Ulti­mately, what will change and make eco­nomic, finan­cial and mon­e­tary sys­tems more equi­table, humane (with or with­out sta­bil­ity) and even under­stand­able to most individuals.….regulations?, dif­fer­en­tial equa­tions? or reassess­ment of and pol­icy re-align­ment with the the best human val­ues, most res­o­nant ideas and last but not nec­es­sar­ily the least, the true eco­nomic self inter­est of indi­vid­u­als? Par­a­digms, sys­tems of ideas and val­ues, these have the power to change the world inter­nally AND exter­nally. Start from the source of power, human aware­ness, learn its anatomy (and even per­haps its basic nature) and build all of society’s sys­tems from there.…..or lesser val­ues will reign instead. Man by his very nature must chose to believe some­thing, bet­ter to believe in and make real the higher real­ism than some lower ide­al­ism.

  • Lyon­wiss

    @ Steve Hum­mel Feb­ru­ary 11, 2012 at 8:19 pm

    You said: “Man by his very nature must chose to believe some­thing, bet­ter to believe in…”

    I strongly dis­agree with this, because it is sim­ply wrong. I would believe in some­thing only because I have NO choice but to believe in it. Believ­ing in some­thing just because you feel that you are com­pelled to choose between avail­able alter­na­tives is surely a path to human mis­ery. This applies to eco­nom­ics as much as it applies to life in gen­eral: one wrong idea against another wrong idea.

  • Lyon­wiss

    @ RJ Feb­ru­ary 11, 2012 at 7:59 pm

    You state ad nau­seum the non­sense: “Gov­ern­ment debt = Pri­vate sec­tor sav­ing”

    Where is the pri­vate sec­tor sav­ing which cor­re­sponds to the Greek gov­ern­ment debt?

  • RJ

    Lyon­wise

    Do you know what a finan­cial lia­bil­ity is. And a finan­cial asset

    In fact you do not oth­er­wise you would not ask this above ques­tion

    Govt debt ALWAYS equals a non Govt finan­cial asset. But you like many are igno­rant of this point and what it means. As you are of the huge dif­fer­ence between Greek Govt debt (they are no longer mon­e­tary sov­er­eign) and Aust Govt debt.

  • Lyon­wiss

    @RJ Feb­ru­ary 11, 2012 at 9:32 pm

    I hear your insult that I’m stu­pid and igno­rant. What is the the “non Govt finan­cial asset” (rather than pri­vate sec­tor sav­ing) which cor­re­sponds to Greek Govt debt?

  • What is the the “non Govt finan­cial asset” (rather than pri­vate sec­tor sav­ing) which cor­re­sponds to Greek Govt debt?”

    What do you think Greek gov­ern­ment bonds are then? What do you think their own­ers own if not a finan­cial asset?

  • Lyon­wiss

    @NeilW Feb­ru­ary 11, 2012 at 9:49 pm

    Of course, I’m an idiot. I get it: gov­ern­ment debt comes from the issuance of gov­ern­ment bonds. As RJ said: “Pen­sion funds often hold Govt bonds. And these bonds are only avail­able if Govts run deficits (accu­mu­lated as debt).” So the pri­vate sec­tor owns Greek gov­ern­ment bonds, so there is no prob­lem then. All the talk of sov­er­eign debt default is just non­sense. I have been taken in again.

  • RJ

    Lyon­wise

    All the talk of sov­er­eign debt default is just non­sense”

    It is non­sense for mon­e­tary sov­er­eign coun­tries like Aust. But as Greece has given away their most valu­able asset there is a chance of default if the ECB does not step in.

    But if you now under­stand that Govt debt equals a non Govt ASSET. This is a step in the right direc­tion

    And for coun­tries like Aust more Govt debt would be a huge ben­e­fit to the major­ity of peo­ple. And talk of coun­tries like the US default­ing for eco­nomic rea­sons is non­sense based on unbe­liev­able igno­rance about money and bank­ing. But unfor­tu­nately one that impacts on many politi­cians, rat­ing agen­cies, econ­o­mists etc.