It’s the leverage, stupid

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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.

Debtwatch No. 40 November 2009: Have we dodged the Iceberg?

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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under­way in the pri­vate sec­tor there­fore depends on how the econ­omy is likely to per­form after the stim­u­lus is withdrawn.

Happy Anniversary Wall Street

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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.


Excellent post on $A Carry Trade in SMH, Age

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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;

An anniversary approaches

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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.

Multi-sectoral production–one for Geeks

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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.

The Economy, How Bad Is It?

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The Econ­omy, How Bad Is It?
The econ­omy is so bad:
That I got a pre-declined credit card in the mail.
I ordered a burger at McDon­alds and the kid behind the counter asked, “Can you afford fries with that?”
That CEO’s are now play­ing minia­ture golf.
If the bank returns your check marked “Insuf­fi­cient Funds,” you call them and ask if they meant you or them.
Hot Wheels and Match­box stocks are trad­ing higher than GM.
McDon­alds is sell­ing the 1/4 ouncer.
Par­ents in Bev­erly Hills have fired their nan­nies and learnt their children’s names.
T truck­load of Amer­i­cans was caught sneak­ing into Mexico.
Dick Cheney took his stock­bro­ker hunting.
The Mafia is lay­ing off judges.
Exxon-Mobil laid off 25 Congressmen.
And finally
Con­gress says they are look­ing into this Bernard Mad­off scandal.
Oh, great!!  The guy who made $50 Bil­lion dis­ap­pear is being inves­ti­gated by the peo­ple who made $1.5 Tril­lion disappear!

In the spirit of “we all need a laugh”, this list of jokes is doing the rounds in the USA:

RBA gets it wrong again

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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).

Debtwatch No. 39 October 2009: In the Dark on Cause and Effect

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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.