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Saturday, 23 September

12:46

Money for Life offer "IndyWatch Feed Economics.au"

Our Money for Life seminar is happening very soon - see the details about this cracking event here, where you'll be able to ask the questions you really want answering. 

By the way, there's a special 2-for-1 offer available for here for my blog readers. 

Click on the image below to redeem your offer, and I look forward to seeing you there!


08:00

The Weekend Quiz September 23-24, 2017 answers and discussion "IndyWatch Feed Economics.au"

Here are the answers with discussion for this Weekends Quiz. The information provided should help you work out why you missed a question or three! If you havent already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Question 1:

If the inflation rate is steady and the central bank maintains a constant nominal interest rate, then the public debt ratio will rise if the government deficit doubles (say, from 2 to 4 per cent of GDP) although Modern Monetary Theory would not place any special importance in that increase.

The answer is False.

First, the statement although Modern Monetary Theory would not place any special importance in that increase is true but is a throwaway in the context of the issue whether the public debt ration rises when the primary deficit rises with a real interest rate constant.

The substantive part of the question requires a careful reading and a careful association of concepts to make sure they are commensurate. There are two concepts that are central to the question: (a) a rising fiscal deficit which is a flow and not scaled by GDP in this case; and (b) a rising public debt ratio which by construction (as a ratio) is scaled by GDP.

So the two concepts are not commensurate although they are related in some way.

A rising fiscal deficit does not necessary lead to a rising public debt ratio. You might like to refresh your understanding of these concepts by reading this blog Saturday Quiz March 6, 2010 answers and discussion.

While the mainstream macroeconomics thinks that a sovereign government is revenue-constrained and is subject to the government fiscal constraint, MMT places no particular importance in the public debt to GDP ratio for a sovereign government, given that insolvency is not an issue.

The mainstream framework for analysing the so-called financing choices faced by a government (taxation, debt-issuance, money creation) the government fiscal constraint is written as:
gbc

Which you can read in English as saying that Budget deficit = Governm...

03:00

Thank Your Lucky Southern Cross "IndyWatch Feed Economics.au"

Dear Reader,

There are many remarkable insights in Jim Rickards book The New Case for Gold.

This bonus chapter will turn them into specific, useful and potentially profitable advice for you as an Australian.

As youll discover, Australians are uniquely poised to benefit from Jims analysis to a far greater extent than anyone else in the world.

You dont have to finish the book before you start reading this bonus chapter. They certainly complement each other though. You can think of this as the local guide to Jims ideas and analysis.

There are two reasons Ive come onboard with Strategic Intelligence. The first is Jim Rickards. Nobody in the newsletter industry has his insight, contacts and experience. Nobody.

A few years ago I sat opposite Jim at a dinner. It was after a conference we both spoke at in Sydney. Hes exactly the same guy behind the scenes as on stage. He just gives a little more away when he is off the record. Because hes the same person behind the scenes, I think hes genuine. Im willing to put my reputation on the line alongside his. I trust him.

The other reason Ive come onboard with Strategic Intelligence is gold. Jim Rickards is a long-time fan of gold. He thinks you should own it and governments should peg their currencies to it.

As he puts it in his book:

Gold is money, monetary standards based on gold are possible, even desirable, and that in the absence of a gold standard, individuals should go on a personal gold standard, by buying gold, to preserve wealth.

But its not gold by itself thats so enticing. Aussie gold investors are better placed than literally anyone globally to invest in gold. Theres a simple reason for this our currency.

The Aussie Case for Gold

Australia is a highly developed country. But our economy is built on commodities. And commodities are risky bets. They fluctuate heavily in price. Put the two together and youll understand why our currency has big swings too.

Our currency is whats known as a risk on bet. We do well in the world economys good times, and our currency goes up in value. We do badly during poor times, and our currency falls fast.

This currency instability, combined with Australias legal and political stability, means Aussie investors are best placed globally to benefit from owning gold.

Why? Gold is priced in US dollars. The Aussie gold price is the US dollar gold price, adjusted for the exchange rate to Aussie dollars. This creates a uniquely benefic...

00:58

308 Vote yes for marriage equality "IndyWatch Feed Economics.au"

Australians currently have a chance to vote for marriage equality by postal ballot. I know this is a bit off the usual topics for this blog, but its something I feel strongly about. If you have the right to vote, here are six reasons to vote yes.

1. Because its the kind and decent thing to do. It would create joy for many thousands of people without hurting anybody.

2. Because gay people still face prejudice in many forms, and still attempt suicide at higher rates than their peers. Voting yes would be one small step towards turning this around.

3. Because we should not let the religious beliefs of a minority dictate how the rest of us live our lives. There is and should be a separation of church and state in Australia. Nobody should be required to follow the dictates of a religion to which they do not voluntarily subscribe. That is the real issue of religious freedom here quite the opposite of what some no advocates are claiming.

4. Because the position of some Christians against same-sex marriage is not supported by the Bible anyway (Whitaker, 2017). The Bible has vastly more to say about being kind and generous than the few vague fragments it includes on homosexuality. Nowhere does it actually proscribe same-sex marriage. In the Old Testament, it does say that a man lying with another man instead of his wife is an abomination. But (a) this is about adulterous sex, not marriage between a loving couple, and (b) there is an interesting list of other things that the Old Testament also describes as abominations, including wearing mixed-fabric clothing, tattoos, mocking the blind by putting obstacles in their way, and trimming your beard. Why are we not having a postal plebiscite on the trimming of beards? The highly selective focus of some Christians on homosexuality is hypocritical. Neither testament of the Bible says anything whatsoever against lesbians.

5. Because Australia is lagging behind the rest of the civilised world. Same-sex marriage is already legal in The Netherlands, Belgium, Spain, Canada, South Africa, Norway, Sweden, Portugal, Iceland, Argentina, Denmark, France, Brazil, Uruguay, New Zealand, the UK, Ireland, the US, Luxemburg, Colombia, Greenland, Finland, Slovenia, Germany and Taiwan.

6. Because this change is inevitable, and saying no now would needlessly delay us doing the right thing. It prolongs the debate and increases the number of publ...

Friday, 22 September

22:49

Weekend reads - must see articles of the week "IndyWatch Feed Economics.au"

Summarised for you right here at Property Update. Enjoy!

12:00

Australia's Origin Energy to Trial Blockchain Power Trading "IndyWatch Feed Economics.au"

One of Australia's largest power providers is working with blockchain startup Power Ledger on a platform aimed to facilitate energy trading.

08:00

The Weekend Quiz September 23-24, 2017 "IndyWatch Feed Economics.au"

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

1. If the inflation rate is steady and the central bank maintains a constant nominal interest rate, then the public debt ratio will rise if the government deficit doubles (say, from 2 to 4 per cent of GDP) although Modern Monetary Theory would not place any special importance in that increase.



2. Progressives have pointed out the slow or non-existent growth in real wages over the last decades. What they demand is that the rate of growth in earnings is faster than the growth in labour productivity. Is this sufficient to achieve their aim of real wages growth?



3. A fiscal surplus may not suggest that the national government is trying to slow the economy down and contain inflation.


...

03:43

The Elites Are Privately Warning about a Crash "IndyWatch Feed Economics.au"

Many everyday citizens assume powerful global financial elites operate behind closed doors in secret conclaves, like the scene of a Spectre board meeting in the recent James Bond film.

Actually, the opposite is true. Most of what the power elite does is hidden in plain sight in speeches, seminars, webcasts and technical papers. These are readily available from institutional websites and media channels.

Its true that private meetings occur on the sidelines of Davos, the IMF annual meeting, and G-20 summits of the kind just concluded. But the results of even those secret meetings are typically announced or leaked, or can be reasonably inferred based on subsequent policy coordination.

What the elites rely on is not secrecy but lack of proficiency by the media.

The elites communicate in an intentionally boring style with lots of technical jargon, and publish in channels non-experts have never heard of and are unlikely to find. In effect, the elites are communicating with each other in their own language and hoping that no one else notices.

Still, there are some exceptions. Mohamed A. El-Erian is a bona fide member of the global power elite (a former deputy director of the IMF and president of the Harvard Management Co.). Yet he writes in a fairly accessible style on the popular Bloomberg website. When El-Erian talks, we should all listen.

In a recent article, he raises serious doubts about the sustainability of the bull market in stocks because of reduced liquidity resulting from simultaneous policy tightening by the Fed, European Central Bank (ECB) and the Bank of England.

He says stocks rose on a sea of liquidity and they may crash when that liquidity is removed. This is a warning to other elites, but its also a warning to you.

But its not just El-Erian whos sounding the alarm

Youve heard the expression the big money. This is a reference to the largest and most plugged-in investors on Earth. Some are mega-rich individuals, and some are large banks and institutional investors with a dense network of contacts and inside information.

When it comes to big money, sovereign wealth funds are at the top of the food chain. These are funds sponsored by mostly wealthy nations to invest a countrys reserves from trade or natural resources in stocks, bonds, private equity and hedge funds.

As a result, sovereign wealth fund managers have the best information networks of any investors. The chief investment officer of a sovereign wealth fund can pick up the phone and speak to the CEO of any major corporation, private equity fund or hedge fund in the world.

Among sovereign wealth funds, the Government of Singapore Investment Corp. (GIC) is one of the largest, with over $354 bi...

02:43

S&P Downgrades China Sovereign Credit Rating "IndyWatch Feed Economics.au"

If theres one thing we can rely on in the financial world, its a rating agency coming to the party late.

Standard & Poors has now come out and lowered Chinas soveriegn credit rating. It also downgraded the countrys outlook from stable to negative.

It seems slightly bizarre that the other two big rating firms downgraded China four years ago.

Thats a long time in finance.

China has been racking up debt since the global financial crisis. This has worried a lot of people, for a long time. There is a limit to how much credit can pump up the economy.

I happened to be speaking to China expert Tom Miller two nights ago. He says Chinas leaders are perfectly aware that the state-run companies are saturated in debt.

In fact, a few years ago, the Chinese authorities identified the one factor in the Chinese economy that could take on more debt to prop up the economy: The Chinese consumer.

Hence mortgage growth took off as the rules were loosened a bit, and weve seen Chinas real estate market run hot in parts of the country.

How far can that go? Im not sure. Im not particularly bearish on China. Id say any slowdown there is probably expected now, and therefore priced in.

My colleague, Jim Rickards, is not sanguine. He views China as one of the triggers that could tip over the financial system.

In fact, China is one of the biggest triggers the global elites are preparing for. There is another one though.

Read on for Jims take here

Best wishes,

Callum Newman Signature

Callum Newman
Editor, The Daily Reckoning Australia

The post S&P Downgrades China Sovereign Credit Rating appeared first on Daily Reckoning Australia.

01:36

Tricky question of getting better banking "IndyWatch Feed Economics.au"

THE chair of the Australian Competition and Consumer Commission, Rod Sims, has always championed competition as the friend of the consumer. In the past few years he has been especially critical of state-owned utility monopolies and privatisations that lead to monopolies and structures that hurt consumers.

This week, with the interests of consumers at heart, he questioned the four pillars policy that prohibits mergers among the big four banks.

He said it could be argued that the four pillars policy gives the big four an advantage because they are seen as too big to fail and would be bailed out by the taxpayers if there was a crash, so they get higher credit ratings and can borrow at lower interest rates. Against that advantage it might make it harder new banks to enter the market to give consumers a better deal.

Alternatively, Sims suggests, the Government should look at extending the no-merger rule beyond the four big banks to all banks to stop the big four swallowing up smaller banks which can offer consumers a better deal.

Yes, it is a good idea to look at the banking system to see if the rules are still serving consumer needs, but we should be very careful. The stability of the financial system is more important than whether banks are serving consumers. It will not help consumers if the financial system is made less stable.

Australia has been pretty well served by its financial system compared to other countries, as the history of the global financial crisis attests. Sure, we have had our scams and incidents of unethical behaviour, but we dodged the bullet that hit the US and Europe.

A book by Obamas first Treasury Secretary, Timothy Geithner, called Stress Test: Reflections on Financial Crises is quite instructive on how important the financial system is to the well-being of everyone. It also busts some myths on the 2008 crisis and points out some lessons which have still not been learnt in the US, and probably not in Australia either.

Geithner was head of the New York Federal Reserve under Bush and was one of the first to express alarm at the growth of the derivatives market which was one of the main causes of the crash. Finance companies bundled up mortgages into derivatives and sold them. The ratings agencies foolishly gave them AAA ratings, but when the housing bubble burst, the derivatives were near worthless and a chain reaction began.

Geithner wanted a classic Keynesian response: for the Government to push money into the economy, as was done by the Rudd G...

01:08

China bans Bitcoin executives from leaving the country "IndyWatch Feed Economics.au"

http://www.trustnodes.com/2017/09/19/china-bans-bitcoin-executives-leaving-country-miners-preparing-worst

Chinese media is reporting executives of crypto exchanges have been ordered to not leave the country with a very rough translation stating:

A number of informed sources say the executives of special currency trading platforms are not allowed to leave Beijing to cooperate with the investigation. In accordance with regulatory requirements, trading platform shareholders, the actual controller, executives and financial executives need to fully cooperate with the relevant work in the clean-up period in Beijing.

Australias Financial Review (AFR) says the above has been confirmed with them by a source close to one of the biggest exchanges, Huobi, which told them its founder, Li Lin, was required to report to the authorities and cooperate with their work at any time.

The draconian measure is undertaken following a decision by Chinas Communist Party to close down all crypto exchang...

IndyWatch Australian Economic News Feed Archiver

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