News That's Fit To Punt - 14/Mar/2016

Taro Aso's Lecture Revisited

I'm a bit amazed to read this in the SMH today.

"There's an acknowledgment, even in the investor community, that monetary policy is kind of running out of ammo," said Thomas Costerg, economist at Standard Chartered Bank in New York. "The focus is now shifting to fiscal policy." 

 That's where it should have been all along, according to Modern Money Theory. The 20-something-year-old doctrine, on the fringes of economic thought, is getting a hearing with an unconventional take on government spending in nations with their own currency.
Such countries, the MMTers argue, face no risk of fiscal crisis. They may owe debts in, say, dollars or yen - but they're also the monopoly creators of dollars or yen, so can always meet their obligations. For the same reason, they don't need to finance spending by collecting taxes, or even selling bonds. 

The long-run implication of that approach has many economists worried.
"I have no problem with deficit spending," said Aneta Markowska, chief US economist at Societe Generale in New York. "But this idea of the government printing money - unlimited amounts of money - and running unlimited, infinite deficits, that could become unhinged pretty quickly." 

To which MMT replies: No one's saying there are no limits. Real resources can be a constraint - how much labor is available to build that road? Taxes are an essential tool, to ensure demand for the currency and cool the economy if it overheats. But the MMTers argue there's plenty of room to spend without triggering inflation. 

The US did dramatically loosen the purse strings after the 2008 crisis, posting a deficit of more than 10 percent of gross domestic product the next year. That's since been trimmed to 2.6 per cent of GDP, or $US439 billion, last year. 

The Congressional Budget Office expects the gap to widen in the coming decade, as retiring baby-boomers saddle the government with higher social security and health-care costs. That's the risk often cited by fiscal hawks. 

Mainstream doves accept the long-term caveat. But they point to record-low bond yields and say investors aren't worried about deficits right now, so why not spend?

Pretty amazing how that is seen as 'radical' economics but that's the same argument Taro Aso was mounting. The Sydney Morning Herald is way behind the curve on this notion - heck they're even behind this blog.

The article also makes the point that conflating household debt and government debt leads to much confusion - like it did with Tony Abbott's garbled wagon government debt when the real debt problem in Australia lies with the private sector debt.

Temperature Spike 

This is not good news.

Global temperatures leapt in February, lifting warming from pre-industrial levels to beyond 1.5 degrees, and stoking concerns about a "climate emergency".
Unusual warmth in waters off northern Australia also prompted an alert by the Great Barrier Reef Marine Authority about the risk of widespread coral bleaching. 

According to NASA analysis, average temperatures last month were 1.35 degrees above the norm for the 1951-1980 period.

They smashed the previous biggest departure from the average - set only in the previous month - by 0.21 degrees. 

"This is really quite stunning ... it's completely unprecedented," said Stefan Rahmstorf, from Germany's Potsdam Institute of Climate Impact Research and a visiting professorial fellow at the University of NSW, noting the NASA data as reported by the Wunderground blog.

So it appears we've run out of headroom for the denial. The rest of the article doesn't offer much good news either.

Nobody's Talking About North Korea

Philip K. Dick said reality is that which won't go away when you close your eyes. When you think about that, most things reality that would qualify would be not-so-nice things. Like North Korea. The rogue nation has basically announced it can build nukes the size small enough to mount on a missile - and seeing that their Rodong missies can get out to the Pacific, it puts South Korea and Japan well within its range. This has resulted in Japan and South Korea calling in anti-missile armaments from the USA, but it has also ratcheted up the tension with North Korea.

So... there's that reality that gets under-reported here in Australia. In that light, here's a bit of interesting analysis here.

Now, after repeated and renewed provocations by the North, the gig is up for Abe and his two-track approach with the North. Last month, Japan imposed retaliatory sanctions on the North following its missile test - staged as "satellite launch".

Pyongyang responded by terminating the inquiry on the abductions, effectively cutting the lifeline Abe had worked so hard to establish. The hostility between the two sides has increased even more after the subsequent imposition of new UNSC sanctions and the attention-seeking news release by the North highlighting their advances on miniaturisation.

In retrospect, it was not too hard to see this end - as both tracks of Japan's policy on North Korea consistently overlapped despite Tokyo's attempts to decouple them.
In fact, Tokyo previously pushed for this intersection as evidenced by the inclusion of abduction discussions on the sidelines of the now moribund Six Party Talks.

With denuclearisation talks effectively dead, the Abe government gambled with a more risky two-track approach to North Korea, by hedging between a hawkish line on Pyongyang's missile and weapons of mass destruction programmes and a more dove-ish approach on the abductions.

This gamble has failed. As tensions continue to increase on the Korean peninsula, it is time now for Abe to cut his losses - at least for the time being - and maintain a united front alongside the US and South Korea in deterring the Kim Jong-un regime.

It looks like it was a complete and utter waste of time talking to North Korea about anything. The Six Party talks through the 2000s and now the independent lines of diplomacy out of Tokyo and Seoul has ended up with the worst case scenario. The North Koreans have got the nukes they can put on missiles, and neither Japan nor South Korea got their kidnapped people back. The UN Security Council is pushing for harder sanctions, but of course China won't be completely cornering North Korea.

Oh and meanwhile some idiot has gone and blown up the toilets at there Yasukuni Shrine. The man wanted for the bombing is a South Korean national. That's going to be another bone of contention between Tokyo and Seoul, making it harder to coordinate policy against North Korea. It's a mess. It's a worse mess than the usual mess too.