Category: Economy

Analysis of the global economy

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Imbalances in the Australian housing market | Chris Joye

Chris Joye from the Financial Review warns on Radio National that imbalances that may be developing in the Australian housing market:

Hat tip to Leith van Onselen at Macrobusiness.com.au who comments:

“My only observation is that governments of all persuasions have for too long abrogated their responsibilities for housing policy to the RBA – allowing affordability concerns to be addressed via continuous lowering of interest rates, rather than addressing the underlying causes of poor affordability through supply-side and taxation reform.”

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Retired general speaks out against across-the-board spending cuts

Retired General Carter Ham, former head of U.S. Africa Command, speaks out against across-the-board spending cuts at the National Association for Business Economics in San Francisco:

“My least-favorite saying on the planet is to ‘do more with less.’ You don’t do more with less, you do less with less,” Gen. Ham said. “You have to figure out what’s most important.”

One solution would be to give federal agencies the flexibility to find savings where they can, rather than mandating how they make the cuts, he said. The government also needs to have frank discussions about how to reduce the military budget and shift priorities to address current and future threats.

~ From Sarah Portlock at WSJ online.

Read more at Retired General to Economists: Economic Stability Drives National Security – Real Time Economics – WSJ.

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Why this is a bad time to win an election | Business Spectator

Prof. Steve Keen writes:

So what could the future hold for Prime Minister Abbott? Here I have a hunch that he’ll end up suffering a similar fate, not to the previous Liberal leader he admires – John Howard – but to ….. Malcolm Fraser.

Fraser, as noted, had the good fortune to take over from Whitlam after the bursting of the debt bubble was largely over, but the bad fortune that the revival in Australia’s bubble was considerably more anaemic than America’s. Abbott could well find himself experiencing a similar double-edged sword of fate. He will take over when the deleveraging that caused the GFC has come to a temporary halt, and demand will be rising in the US….. But this rise could peter out even more quickly than it did for Fraser, leading to anaemic economic performance that will be blamed on the politician rather than the times.

Read more at Why this is a bad time to win an election | Business Spectator.

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Vickers calls for doubling of bank capital levels | FT.com

“It is not very sensible to run a market economy on the basis of a banking system that is 33 times leveraged, let alone 40 or 50 times leveraged,” Sir John [Sir John Vickers, Oxford academic who chaired the Independent Commission on Banking] told the Financial Times. He believes the right number is closer to 10 times, equivalent to a 10 per cent ratio.

That is a lot higher than the 3 per cent (33 times leverage) required by Basel III and the 4.1% (CBA) to 4.5% (WBC) of the big four Australian banks.

Read more at Vickers calls for doubling of bank capital levels – FT.com.

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Fed’s Fisher Slams Congress Over Fiscal Policy | WSJ

Rob Curran at WSJ reports on a speech by Dallas Fed President Richard Fisher:

Speaking at a luncheon hosted by financial-industry trade group the Dallas Estate Planning Council at the Dallas Country Club, Mr. Fisher said the central bank has done all it can to stimulate the U.S. economy. He said members of Congress–both Republicans and Democrats–have failed to do their part. Elected officials have “sold our children–and our grandchildren–down the river,” Mr. Fisher said. “We haven’t had a budget for five years; no one knows what their taxes are going to be; no one knows what spending is going to be.”

The Dallas Fed president has long maintained that the missing ingredient in the economic recovery is a sound fiscal policy.

via Fed’s Fisher Slams Congress Over Fiscal Policy – Real Time Economics – WSJ.

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The BRICs party is over | Anders Aslund | Vox

Anders Åslund:

From 2000 to 2008 the world went through one of the greatest commodity and credit booms of all times. Goldman Sachs preached that the BRICs were unstoppable….

However, Genesis warns that after seven years of plenty, “seven years of famine will come and the famine will ravage the land”. Genesis appears to have described the combined commodity and credit cycle, from which the Brazil, Russia, India and China have benefited more than their due….

Read more at The BRICs party is over | vox.

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Saul Eslake: 50 years of housing policy failure | | MacroBusiness

Leith van Onselen quotes Saul Eslake:

Research by Judy Yates of the University of NSW shows that home ownership rates among younger age groups declined dramatically between the 1991 and 2011 Censuses – from 56% to 47% among 25-34 year olds; from 75% to 64% among 35-44 year olds; from 81% to 73% among 45-54 year olds; and 84% to 79% among those over 55…

Eslake also nails one of my pet hates: federal/state intervention in the housing market to boost demand, driving up prices and fueling the housing bubble:

Eslake puts the recent failure of housing supply to keep up with demand down to two main factors, namely:

  • The decline in the provision of social housing; and
  • Restrictive state and local government planning schemes and upfront charging for development and infrastructure.

Eslake is particularly scathing of policies that boost demand, such as FHB Grants and negative gearing.

Read more at Saul Eslake: 50 years of housing policy failure | | MacroBusiness.

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GM and Toyota may follow Ford’s lead and shut plants in Australia – Quartz

Nandagopal J. Nair writes:

The biggest drag is is a strong Australian dollar, which is making local manufacturing uncompetitive compared to imports. Over the past 12 months the currency has traded about 30% above its three-decade average. Its strength has pushed up manufacturing costs, making Australia the third most expensive country to do business in, according to the IMF.

Read more at GM and Toyota may follow Ford’s lead and shut plants in Australia – Quartz.

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John Mauldin: Effect of the taper

The last two times the Fed has ended a period of quantitative easing, the air has come out of the market balloon. Has this coming move been so telegraphed that the reaction will be different than in the past, or will we see the same result? Want to bet your bonus on it? Or your retirement?

~ John Mauldin

See graph at Mauldin Economics

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