Tony Makin has a very nice piece in the Australian.
IF the battle of the election ads was any guide, fiscal management was a key theme throughout the recent campaign.
The claim that fiscal stimulus saved Australia from recession competed furiously with the admonition to cut the waste and pay back the debt.
Yet the importance of fiscal policy as a reason for the result has been largely ignored by subsequent media commentary.
Fiscal policy isn’t being given the importance that it deserves in the post-election period. I was interviewed on Alan Jones’ show this morning and he was making the point that the Greens fiscal policy needs some scrutiny – especially if they’re going to hold the balance of power in the Senate and contribute a vote to maintaining the Rudd-Gillard government in office. The combination of an ETS with the mining tax would cripple the economy. Rather than play at social engineering, fiscal policy needs to be responsible and prudent.
Whichever side forms government, it will have to live with the legacy of the fiscal extravagance since October 2008. Just as present budgetary actions have implications for future economic activity, past actions have economic implications for the present and the near future.
Questions that will most likely arise during the term of the next government include the following: Why are long-term interest rates and the cost of obtaining funds from abroad continuing to rise? Why is private investment not improving as expected? Why is future economic growth now likely to be lower than otherwise? Why are inflationary pressures continuing to build?
The answer to each of these questions is the same. It’s either mostly, or partly, due to the excessive fiscal stimulus of the past two years.
is the second last paragraph written by Forrest?
is it a joke?
does the person no longer read ABS statistics particularly since the capital expenditure figures were only recently released?
Ten year bond yields have actually fallen over the year. last year they were above 5% now they are well under that.
Well if an economy is growing whilst others are sluggish then the growing economies bond rates will be higher. duh.
Investment is getting back to record levels it was before the GFC as we observed last week.
Economic growth is expected to be rather healthy over the next few years as both Treasury and the RBA attest.
Inflation is related to the state of the economy and the output gap. of course we will have more inflation than the US, Japan or Europe.
It is the result of a healthy economy.
IF the stimulus was excessive than it would be still adding to growth. It is in fact taking away from growth as the private sector takes over as it should.
Perhaps we should look at what Tony says earlier. He says
‘All spending must be funded one way or another, however, and the funds borrowed for that purpose exhaust funds that could finance other economic activity’
oops. no it couldn’t finance other economic activity because the private sector was reducing their expenditure quite a lot.
He even thinks workchoices helped. double oops. how come in 1991 we saw a similar pattern of people working reduced hours until it was apparently a recession had arrived.
Yes I can imagine Sinkers would cite Tony. He makes it up like Sinkers.
Why didn’t he says that 6% is the same as 18% as well.
Butterfield, Bloomfeld % Bishop
30 Aug 10 at 1:26 pm
Well if an economy is growing whilst others are sluggish then the growing economies bond rates will be higher. duh.
Umm okay. Let’s test Homer’s hypothesis.
Latest German GDP foward growth rate 9% annualized.
Current bund 10 year bond rate 2.2%
Annualized Australian growth rate 3 + %
Current 10- Year bond rate. 4.86%
Buzzer sounding off loudly
Fail!
JC
30 Aug 10 at 1:32 pm
oh dear,
why is a fool using annualised figures that is ONE quarter’s figures compounded by 4.
Why isn’t this fool looking ahead to future years.
what is the output gap in Germany and in Australia.
what is it going to be in in the next two or three years?
that’s right it is very very simple. bond markets do not look at present figures but at future figures.
one learns that in the first lecture one attends.
no-one but no-one looks at annualised quarterly figures
Butterfield, Bloomfeld % Bishop
30 Aug 10 at 2:03 pm
“Yes I can imagine Sinkers would cite Tony. He makes it up like Sinkers.”
My God you’re a nasty nobody.
.
30 Aug 10 at 2:05 pm
Why am I looking forward? You’re asking me that question and you pretend you were some sort of market economist?
My point is that your simplistic “analysis” and i used that word really, really freaking loosely is just that. Simplistic.
I could of course call you a freaking moron if you prefer.
JC
30 Aug 10 at 2:12 pm
What would Homer say about Jean Claude Trichet’s call for “immediate fiscal austerity”.
He’s good at his job. Stiglitz etc continue to snipe when others do their best, and Stiglitz etc’s best was rayther ordinary and ignored by Stiglitz etc, as Rogoff noted a long time ago.
If only Homey read a little!
.
30 Aug 10 at 2:38 pm
yeah he is good at his job. what is growth in Europe?
He was worried about inflation when it was what?
No roggoff said countries that get into a hole because of debt HAVE to adopt austerity, That is wholly debatable. Dear me Marky caught out again.
Yeah the Baltics, hungary, Ireland are all booming!
that is as silly as Forrest saying why do markets look forward.
Tony is trying to say the ‘china effect helps us. It is only just entering the figured through the trade and and now profits data.
Commodity prices only really jumped bigtime this year.
He simply makes it up as he goes along.
Butterfield, Bloomfeld % Bishop
30 Aug 10 at 2:54 pm
Homer – the fact that you think you’re a higher authority on macroeconomics with no journal publications or technical papers at all than Makin, mean’s you’re bullshitting everyone here, especially yuorself.
.
30 Aug 10 at 3:00 pm
on the contrary I have already shown where he is wrong.
He claims that monetary policy helped but cannot explain how the housing industry for example reacted vastly different in this recovery than in others.
He asserts like other idiots China helped us but as I have shown the facts are otherwise.
He is simply another demented soul whose whole ideological world came crumbling down and so makes it up each time hoping people will believe him.Sinkers does it all the time.
His 6% equals 18% being an absolute classic
Butterfield, Bloomfeld % Bishop
30 Aug 10 at 3:04 pm
“He claims that monetary policy helped but cannot explain how the housing industry for example reacted vastly different in this recovery than in others.”
??? Really? What is the alternative?
Homer you chump, part of the reason why and also the reason why the GFC didn’t hit us that ahrd was that we had our own cycle which crapped out in the end of 2007 and public infrastrucuture was being built publicly and privately before the GFC/stimulus.
“He asserts like other idiots China helped us but as I have shown the facts are otherwise.”
You’ve proven our second biggest trading partner engaging in a 250 bn AUD stimulus mainly in housing and rail construction didn’t effect our commodity driven economy?
Really? Where?
“He is simply…demented ”
Ah yes Homer, that’s why he got his arse and published the 20+ journal articles you need to buy a professorship.
“His 6% equals 18% being an absolute classic”
WTF is this about you arseclown? He’s backed up his comments with figures. You never posit any evidence and infer you’re the only person smart enough to know what it is.
You are a serial bullshit artist.
.
30 Aug 10 at 3:12 pm
oh dear poor Marky doesn’t understand.
let us have a look at the figures
monetary policy.
in past recessions or slowdowns all forms of the housing sectors rose together HOWEVER in the last slowdown investor approvals were well behind others. why?
Funny how Tony, sinkers and other fiction writers never try to expalin this.
no it doesn’t matter wht was being invested in infrastrucutre when the GFC hit ,what matters is what you spend after that ie the increase.
If you already have a large structural deficit then the structural deficit needs to be even larger.
This happened in the US courtesy of George Bush not here. ANOTHER mistakes by Marky
Yes China has an effect via the income effect.
what happened to the terms of trade. It essentially only jumped to large heights in 2010.
We are now ONLY seeing first in the trade data ( you know exports are large than imports) and now company profits.
a little later we will see it in wages and retail data.
Gee it is fantastic to see how pig ignorant you are on this topic as you are on every topic.
Tony contines ,like our Sinkers . to make it up
Butterfield, Bloomfeld % Bishop
31 Aug 10 at 9:17 am
“let us have a look at the figures
monetary policy.
in past recessions or slowdowns all forms of the housing sectors rose together HOWEVER in the last slowdown investor approvals were well behind others. why?
Funny how Tony, sinkers and other fiction writers never try to expalin this.”
I’ve alrady explain to you that housing crapped outbeforehand. The cycles were not in sync beforehand. Thanks God. Then you say “oh look wowee, they weren’t in Sinc, therefore monetary policy must not have worked”.
“no it doesn’t matter wht was being invested in infrastrucutre when the GFC hit ,what matters is what you spend after that ie the increase.”
Yes it does. It is part of the reason why the cycles were out of sync.
“If you already have a large structural deficit then the structural deficit needs to be even larger.”
Vulgar bastard Keynesianism.
“This happened in the US courtesy of George Bush not here. ANOTHER mistakes by Marky”
Are you out of your mind? Whenever have I inferred otherwise?
“Yes China has an effect via the income effect.”
A moment of sanity.
“what happened to the terms of trade. It essentially only jumped to large heights in 2010.
We are now ONLY seeing first in the trade data ( you know exports are large than imports) and now company profits.”
How do terms of trade affect aggregate corporate profits? The truth is no one would really know Homer, unless you have done some modeling on a large sacel version of something Mc Kibbin’s model, which is as dubious as your bond trading career.
“a little later we will see it in wages and retail data.”
In non tradeables as well Homer?
“Tony contines ,like our Sinkers . to make it up”
You’re still a mean spirited, dopey little shit compared to people of any political inclination, who have put in the hard work to earn their docotorates and professorships.
.
31 Aug 10 at 1:20 pm
So JC even with a cash rate of 4.5%, you think our 10-year bond yield should be down around 2.2%. You really struggle with this stuff don’t you. Do yourself a favour and stick to equities.
sdfc
31 Aug 10 at 9:11 pm
SDFC:
Try and be a little honest sometime and you may get better treatment even though you have no understanding of economics.
Homer made this statement:
Well if an economy is growing whilst others are sluggish then the growing economies bond rates will be higher. duh.
He’s wrong. Germany’s economic circumstance proves that.
JC
31 Aug 10 at 9:14 pm
And he’s even more wrong when you take into account say Greece who’s economy is sluggish (to say the least) and their bond rates are way higher than ours at around 7.5% last time I looked.
If you want to bat for Homer’s side, SDFC go right ahead but let me warn you know that he gets taken out in a stretcher and given electric shock treatment each day to wake him up.
JC
31 Aug 10 at 9:18 pm
No JC the yield curve is anchored by money market rates. Euro-zone short rates are around 0.5%. That’s why the 10-year bund yield is 2.1%, while the 10-year CGS is up at 4.76%. Its got nothing to do with concerns about our fiscal position.
sdfc
31 Aug 10 at 9:24 pm
SDFC
Let me repeat what homer said:
Well if an economy is growing whilst others are sluggish then the growing economies bond rates will be higher. duh.
He’s wrong.
Continue having that argument with yourself though as it’s amusing.
JC
31 Aug 10 at 9:30 pm
JC I’m assuming you know very well that there remain lingering concerns over Greek debt which is why their bond yields are so high. It’s called a credit spread.
sdfc
31 Aug 10 at 9:30 pm
???
The money market is short term. Ypu’re telling me that fiscal positions, future GDP growth etc don’t afect long term expectations?
.
31 Aug 10 at 9:30 pm
SDFC:
Homer made this comment:
Well if an economy is growing whilst others are sluggish then the growing economies bond rates will be higher. duh.
Let me repeat again. He’s wrong.
JC
31 Aug 10 at 9:32 pm
“No JC the yield curve is anchored by money market rates.”
“It’s called a credit spread.”
Unless the Greeks are rolling over their debt with short term instruments at a high frequerncy, one of the above statements cannot be correct.
.
31 Aug 10 at 9:33 pm
No Mark
Greek long term debt is traded on financial markets, the credit premium simply reflects the price investors demand for holding risky Greek debt.
The benchmark long rate in the European markets are German long bond rates which carry little or no default risk. The credit premium I discussed is the spread between German and Greek bond yields. So no there is no contradiction between the two statements.
JC your point that Australian 10-year bond rates are higher than German bond rates is meaningless once you take into account that the Australian cash rate is at 4.5% while euro money market rates are sitting at around 0.5%. For the Australian 10-year bond rate to fall to those of German rates there would have to be an expectation of dramatic cuts in the Aussie cash rate.
sdfc
1 Sep 10 at 7:20 pm