My call a few weeks ago that the global financial crisis is over was very much an Anglo-centric one, and a US-centric one in particular (Closing the door on the GFC, March 10).
Europe’s continuing own goal from the euro and austerity, and credit excesses in emerging economies, could still derail a global recovery. But the epicentre of the crisis was the US, and the indications are solid there that this particular ‘Minsky moment’ is behind it.
I have been to so many countries in the last decade that my carbon footprint is Yeti-size. But one country I haven’t been to for 32 years is the one I’m in now: China.
What a difference three decades makes: my visit in 1981–82 coincided with the trial of the Gang of Four; now many sub-25 Chinese think that must be the name of a new boy band they yet haven’t heard of.
A couple of weeks ago I took a swipe at Bank of England over a speech by its Governor Mark Carney that was unrealistic about the dangers of a bloated financial sector (Godzilla is good for you? March 3). Today I’m doing the opposite: I’m doffing my cap to the researchers at Threadneedle Street for a new paper “Money creation in the modern economy,” which gives a truly realistic explanation of how money is created, why this really matters, and why virtually everything that economic textbooks say about money is wrong.
(At least for the Anglo zone; more on Europe and Emerging Markets in coming weeks).
One of the ironies of the economic crisis that began in late 2007 is that the best acronym for it — the “GFC” for “global financial crisis” — was coined in the one country that suffered the least from it, Australia. The year 2014 is the seventh of the “GFC” (the panic began on August 9, 2007, when BNP Paribas shut down three of its subprime-based funds), but at last the majority of economic reports are of sustained if anaemic growth, rather than of bank failures and recession. Australia’s reported growth rate for 2013 of 2.8 per cent follows the UK reporting 1.9 per cent and the US 2.4 per cent; even the EU, where several countries are still mired in outright Depressions, recorded an overall growth rate of 0.1 per cent for 2013.
The bigger the financial sector gets, the more it can destroy. And Bank of England Governor Mark Carney’s vision of British banks nine times the size of GDP is positively terrifying…
Fans of Japanese schlock fiction will be pleased to know that that old mega-favourite Godzilla is returning in 2014, to stomp on simulated cities in a cinema near you. And of course, he’s bigger and better: the original Japanese movie had him at about 50–100 metres and weighing 20–60,000 tons; I’d guess he was about twice that size in the 1998 US remake; and by the looks of the trailer for the 2014 movie, he’s now a couple of kilometres tall and probably weighs in the millions.
The penultimate Windows version of Minsky (released a few days ago) inadvertently installed an old kernel with a very low execution speed. This has been fixed in the latest version. If you downloaded a few days ago and now find that models run very slowly, please download the latest version today (it has the same name: Minsky.1.D32). If you downloaded before then, the execution speed will be fine, but a few bugs have also been fixed in this release: see Tickets for the details (from my perspective, the main bug was a failure to pass LaTeX formatting codes between Godley Tables).
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Last week I satirised Australia’s outmoded belief that the rate of interest can be used to fine tune the economy. This belief was ensconced in the so-called “Taylor Rule”, which accurately described what central banks tended to do until the economic crisis hit in 2007. That rule saw the inflation rate and the unemployment rate as the two key economic indicators, and the interest rate as the key mechanism needed to achieve an acceptable balance between them.
Of course, the crisis blew that rule out of the water, and issues that central bankers once dismissed as unimportant — like, for example, asset price bubbles or the level of private debt — suddenly had to be discussed.
With the announcement that Toyota will stop its manufacturing in Australia in 2017, Australia has become one of the few wealthy nations on the planet without a car industry. But there’s a good argument that Australia never had a car industry in the first place.
Douglas Adams’ brilliant comic farce The Hitchhiker’s Guide to the Galaxy describes Earth as residing in sector ZZ9 Plural Z Alpha, one of “the uncharted backwaters of the unfashionable end of the Western Spiral Arm of the Galaxy” and being inhabited by “ape-descended life forms” who “are so amazingly primitive that they still think digital watches are a pretty neat idea”.
Sometimes when I return to Australia, I feel that I’ve arrived in the planet’s sector ZZ9 Plural Z Alpha. Here, the economic debate is so primitive that people still think the economy can be controlled by tinkering with the rate of interest.
“I know my place” was the title of a famous sketch on English class sensibilities from the 1960s, starring the very tall (Upper Class) John Cleese, the average height (Middle Class) Ronnie Barker, and the very short (Lower Class) Ronnie Corbett.
The Upper Class Cleese generally looked down on both Middle Class Barker and Lower Class Corbett; Barker looked up to Cleese and down on Corbett; and Corbett “knew his place”. That was at the bottom of the English class system pecking order, and surviving his place meant living life with lowered expectations.