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It is a stunning outcome. The Australian economy grew in the March quarter. Strong growth in exports have offset the weak performance in private investment. In the absence of two consecutive quarters of negative growth we are technically not in recession – nor have we been in recession for nearly 20 years. There has been [...] This Budget is based on forecasts that unemployment would have grown considerably without future strong fiscal stimuli but that the economy will, in fact, turn around rapidly in 2011 and then grow at 4.5%. The debt that does stem from the Budget is significant but not overwhelming and probably unavoidable if one accepts the budget [...]
Economist Michael Boskin carries out arithmetic on the planned Obama budgets. He forecasts huge budget deficits towards the end of Obama’s presidency and an extra $6.5 trillion in national debt that taxpayers will bear – and this is before proposed increased Medicare and social security costs. Boskin’s estimate [...] The value of world trade will fall 9% in 2009 compared to growth of a miserable 2% (not 4.5% as forecast) in 2008 the WTO said on Monday. World production will fall by 1-2% in 2009, the first fall since the 1930s. Further falls in trade can be anticipated as the recession intensifies – the [...] Jonathon Jarvis provides this exceedingly clear view of the global financial crisis. One of the best I have seen. (Correctly measured, quarter-to-quarter) Chinese economic growth in final quarter 2008 was zero or negative. The US economy shrunk at an annual rate of 6.2%. The Japanese economy is shrinking at 12.7% annually with exports falling 45% on a year ago. European data suggests a more severe contraction there than in the US – although that claim [...] Barack Obama has an enormously expansionary fiscal program to get demand moving but promises to halve the budget deficit by the end of his (first) term. This is a tricky promise to deliver on since he has also guaranteed not to tax US households earning less than $250,000US an extra cent. 3.8 million Americans earn more than [...] Robert Holbrook in 1972 drew attention to the issue of policy instrument instability. Essentially an economic policy can become infeasible if policy needs to adjust more intensively to offset past effects of policy – the policy itself becomes an unstable process. This type of instability is particularly likely if we try to pursue stabilisation of [...] I liked this article by Henry Ergas on the likely ineffectiveness of the $42 billion fiscal package introduced by the Rudd Government as it accords with my own macroeconomic priors. For a small open economy like Australia fiscal actions make sense in a standard Mundell-Fleming macroeconomic context if the exchange rate is fixed. Monetary policy then does [...] Paul Krugman slams the moves for tax cuts arguing that the US economy is about to fall into an abyss*. The question really is the size of the cuts – if big enough they can provide as much stimulation as a fiscal expansion. At times Krugman allows his Republican hatreds to override his reason. Greg [...] I am sympathetic to Malcolm Turnbull’s rejection of the Rudd stimulus package and to his proposed more modest alternative of bringing tax cuts forward. I think the recession does have a long way to go and that disposing of all available fiscal ammunition immediately is unwise – a conservative package of something less than half [...] It is $42,000,000,000 distributed among 21,580, 428 people or around $1,900 per capita. It will not create but it will ‘save’ 90,000 jobs which is something short of $500,000 per job. Can we celebrate? Well the budget will be $22 billion in deficit this year and $35 billion next year. That’s $55 billion of extra debt. [...] Australia is a small open economy that takes economically what is dished out by the world economy. We don’t significantly affect world events. The world has dished us out a really bad serve. The terms of trade we face have moved against us -despite a recent tick upturn – so we will export less and the [...] Blanchard’s solution: commit to expansionary policies now and, if necessary, in the future so that people will no longer believe that a financial apocalypse is around the next corner. In addition, recycle the proceeds of government security sales into riskier assets and get the government to spend more on retail as well as encouraging the public [...] The IMF revise their growth forecast for the world in 2009 from 2.2% two months ago to 0.5% now. Growth has virtually stopped. 50 million jobs will be lost globally. The developed countries will experience major declines. The US economy will contract by 2%, Britain by 2.8% (the worst in the developed world), Japan 2.6%, [...] This graph shows the US monetary base – the ‘high powered’ money that generates the money supply – for the last 100 years. I assume that this base is generating a less than proportionate growth in the US money stock – M3 grew in 2008 at only about 15% – because of the much-publicised decline in [...] Stock markets have been strong in recent weeks – in anticipation of an Obama fiscal-led recovery – and many financial analysts are predicting the end of the panic and a reversal toward economic normality. That is a false perspective – the US, Chinese and European economies are in free fall. As with the Great Depression [...] This Economist piece pins down the distinction between recessions (2 consecutive quarters of negative growth) and depressions (declines of GPD which either exceeded 10% in a year or which persist for more than 3 years) and analyses when and where they each occur. Depressions were more common in the past because bank failures were more often [...] Always of interest to read Soros’ views – here. Can also look at him at MIT discussing his new paradigm for financial markets – here. The Dow Jones last night fell another 5% to end up below 8,000 - its lowest level for 5 years. Banking stocks were again savaged as were auto producers – a large slab of the US auto industry faces the prospects of collapse. In addition the US is experiencing deflation – the US CPI dropped 1% in October. [...] |
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