Just two years ago, Central Banks appeared triumphant. Inflation, the scourge of the 1970s and 80s, appeared dead, the financial crisis of the Tech Wreck had been contained, economies worldwide were booming, and stock markets and house prices were spiralling ever upwards.
Then along came the Subprime Crisis, and we received a rude reminder of why Central Banks were created in the first place: to ensure that the world would never again experience a Great Depression.
The Our Finance Blogs site (http://ourfinanceblogs.com/forum/) is hosting an online debate on “Property 2009: Crash, Boom or Stagnate?!”. I will be one of the protagonists in the debate. If you’d like to take part, go to:
http://ourfinanceblogs.com/forum/index.php?action=register
and sign in. Check:
http://ourfinanceblogs.com/forum/index.php?topic=7.msg9#msg9
for further details.
Click here to log access the debate
George negus is interviewing me and Peter Schiff on Dateline tonight. The topic is the attempted rescue of Fannie Mae and Freddie Mac, and what that may mean for the global economy and Australia in particular.
Dateline goes to air tonight (Wednesday) at 8.30pm. It is also accessible on the web, the day after the program goes to air.
In other news, the podcasts are currently not functional, but I hope to fix them up tomorrow.
Well Stu Cameron has been on the ball, but clearly I’ve stuffed up linking the files on my site! Several readers have told me that the podcasts 3–6 can’t be accessed.
At some stage they will be available, but I have a rush of work on right now so please wait until I put up a new post with properly tested links. My apologies for the confusion in the meantime.
http://www.debtdeflation.com/podcast/debtwatch.xml
And you can also access the audio files from:
http://www.debtdeflation.com/podcast/
The topics of these three podcasts (Numbers 4, 5 and 6) are:
Late last year on SBS News, when Stan Grant asked me which way the RBA would move rates in 2008, I replied “Up, and then down”, Stan quipped “Spoken like a true economist–an even handed answer!”–to which I replied “More down than up”.
I expected the intial rate rises because of the RBA’s focus on the rate of inflation, and a subsequent fall, not because inflation would be heading down, but because the economy would be–and the RBA rate would be forced to follow it
Last month closed with some far from comforting news about the state of the US housing market (sales and prices still falling), US financial institutions (Fannie Mae and Freddie Mac in need of rescue), Australian banks (NAB’s 90% write-down of its US CDO portfolio). Then ABS figures showed that retail sales had fallen “unexpectedly” by one percent in June. The recent rally in stock markets came to a sudden end, and after a brief period of renewed confidence, the question “how much worse can “It” get?” is once again doing the rounds.
My answer is: a lot worse. The empirical grounds for this assessment are:
I recently made a submission to the Senate Economics Committee on the RBA (Enhanced Independence) Bill, where I argued against the Bill–as did all four public submissions.
After making that submission (which I’ll post here shortly) I thought I’d check out my submission to the Wallis Committee–since I argued that the RBA and the regulatory authorities in general, while they may appear to have succeeded in controlling inflation, have presided over the biggest speculative bubble in world history.
The securitisation of loans was a major part of this bubble, which of course, no-one could have foreseen… or at least that’s the line from conventional economists.
The Reserve Bank Amendment (Enhanced Independence) Bill 2008, which was tabled in Parliament in March, aims to give the RBA Governor and Deputy Governor “the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician” (Wayne Swann, Hansard, Thursday, 20 March 2008, p. 2381).
Under the current Reserve Bank Act, the Governor and Deputy are appointed by the Treasurer, and the Treasurer must remove them from their positions if either of them:
Tables like the ones below take my breath away when I see them for the first time–because the story they tell is worse than any I would have dared make up. As I noted in the interview with Kerry O’Brien on the 7.30 Report, real wages have increased since 1990, and since Australia’s last election in late 2004. However, mortgage debt has increased by far more.
Both parties will make much of their economic management credentials in this election campaign.
Many Australians, on the other hand, seem convinced that the economy would do as well regardless of which party were in power.
The average punter has it right: luck, rather than skill, has determined which governments in retrospect came up smelling like roses in the economic management stakes, and which instead smelt like manure.
By far the biggest determinant of political luck is what was happening to private debt while any given government was in power. If debt was rising, then the government looked good; if it was falling, then the government looked bad.
