So I’m walking to Kosciusko–now that the ABS Established House Price Index has cracked its September 2008 peak of 131 to reach an all-time high of 134.4 (as of September one year later). This renewed bubble reversed the trend of falling nominal house prices that had dropped the index to a low of 123.8 in March 2009.
This level of price volatility–down 5.5% in 6 months, only to rise 8.5% in the subsequent six months–almost matches the stock market’s manic-depressive performance.
Part 1: The USA
The most recent “unexpectedly good” growth figures for the USA appear to indicate that what will still be the worst downturn since the Great Depression is finally over.
However this is not your usual downturn. Not only is it acknowledged as the most severe since the Great Depression, it has also evoked the most remarkable government economic stimulus ever seen. It would be bizarre if this had not had an effect on the data.
Whether a recovery is truly underway in the private sector therefore depends on how the economy is likely to perform after the stimulus is withdrawn.
If I was asked to nominate the wisest aphorism of all time, Mark Twain’s “History doesn’t repeat, but it sure does rhyme” would definitely be one of my top two candidates.
On song, today Wall Street is replaying the 1930s, but to a slightly different meter. With the 80th anniversary of the Great Crash of 1929 falling on October 29th of this year, Wall Street is celebrating in characteristic style–with a euphoria-led bubble that now appears to be crashing up against economic reality.
Kenneth Davidson has been one of the most consistent voices for sensible economic analysis in the Australian media for decades now (another I’d give a similar accolade to is Brian Toohey), and he’s written a brilliant piece in The Age and The Sydney Morning Herald on the specualtive bubble that is the Australian dollar.
Davidson lays out the causes and probable effects superbly in the length of a newspaper feature. The causes are that:
- The bailout funds in the USA and UK in particular have cashed up financial institutions that don’t want to lend any more to mortgages (and have long ago forgotten how to lend to fund productive enterprises), so they’re looking for short term hot money gains;
As I’ve noted here earlier, the blog newsfrom1930 performs a very valuable “reality check” for today by each day publishing a summary of the Wall Street Journal from the same day in 1930. The overwhelming flavour of reports from that time is that the Depression was over and recovery was imminent. Plus la change…
This week it’s offering another service–publishing summaries of news reports from one year earlier: 1929. The reason, of course, is that we are approaching the 80th anniversary of “Black Tuesday”: the day in 1929 when the Dow Jones fell for more than 10 percent for a second day in a row, bringing to an emphatic end the bull market of 1929 and ushering in the Great Depression.
Thanks to all those Debtwatch readers who made donations to assist with the costs of bringing Michael to Australia for this speaking tour. Roughly A$800 has been raised–I’ve allowed $10 for every donation made since I put that message up to go to Michael’s expenses, and there have been 81 donations (many of more than $10, some of less) since then.
Paul Krugman sometimes introduces his more complicated posts on his blog as being “wonkish”. This post is wonkish in spades–though in the linked papers rather than the content here.
I’ve just finished the first reasonable description of my multi-sectoral monetary model of production, which I’ll be presenting at the Paul Woolley Centre for Capital Market Dysfunctionality conference later this month.
There’s lots more to add before the model is complete, but this is a working first draft. Later additions will include a tendency to equalise profit rates across sectors and fixed capital, as well as fiat money creation in addition to pure credit money as in this model.
In the spirit of “we all need a laugh”, this list of jokes is doing the rounds in the USA:
The RBA has put rates up now on the belief that the financial crisis is behind us, and it has to return to its established role of controlling inflation.
That this decision was likely was flagged by the speech by Anthony Richards last week, which implied that the RBA, having ignored the house price bubble created by private credit growth in the preceding two decades, was worried about the renewal of the bubble initiated by the Government’s First Home Vendors Boost (I refuse to call it by its official name, since the money clearly went to the vendors, while the buyers copped only higher prices).
One of the keynote speakers at the 38th Australian Conference of Economists in Adelaide last week was Edward Lazear, who was Chairman of the US President’s Council of Economic Advisers from 2006-09.
In other words, he was in one of the world’s economic hotseats right when the “Great Moderation” (see also Gerard Baker’s UK Times article in early 2007) gave way to the Global Financial Crisis.