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 a professional economist 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 debts accumulated in Australia, and our very low rate of inflation.
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74 Responses to RBA Rates Decision & Roy Morgan Unemployment

  1. clive says:

    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.

  2. alex78 says:

    Great charts, Steve.

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

  3. clive says:

    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.

  4. RickW says:

    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.

  5. RickW says:

    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.

  6. cyrusp says:

    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?

  7. mahaish says:

    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.

  8. glubilee says:

    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.

  9. centerline says:

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

  10. alainton says:

    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.

  11. clive says:

    @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

  12. Steve Hummel says:

    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.

  13. Lyonwiss says:

    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).

  14. RJ says:

    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.

  15. RJ says:

    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?

  16. RJ says:

    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).

  17. RJ says:

    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.

  18. Steve Hummel says:

    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.

  19. Lyonwiss says:

    @ 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.

  20. Lyonwiss says:

    @ 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?

  21. RJ says:

    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.

  22. Lyonwiss says:

    @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?

  23. NeilW says:

    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?

  24. Lyonwiss says:

    @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.

  25. RJ says:

    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.

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