Economic Growth, They Say

They're Doing It Wrong

Nick Xenophon made an interesting remark last week that the RBA should shift its focus from inflation and on to nominal GDP growth. This is one of those interesting shifts worth considering because which ever way you look at it, inflation isn't the problem it used to be when Keating cut the RBA independent of government, so that it could independently set rates with the ai of controlling inflation. We're at a far cry from the era when Paul Volcker tamed inflation in America through jacking up interest rates. That world seems quaint, for we haven't been in that environment sense before the Dotcom Bubble burst at the turn of the Millennium.

Anyway, here's something interesting by Greg Jericho, going into the rationale for why Nick Xenophon might push for that change:

With the current policy, the worry is always that were inflation to rise due to fiscal policies, then the RBA would raise interest rates.

Thus we had the absurd situation last year where then Treasurer Joe Hockey was claiming the RBA had “room” to cut interest rates because the Abbott government’s spending cuts meant it “had been able to control the inflation genie”.
He said this at a point when underlying inflation hadn’t been above 3% for five years and nominal GDP was growing by just 1.3%.

Targeting nominal GDP resets the conversation.

Rather than having the government cutting spending (which reduces growth) in order to allow the RBA to cut interest rates to stimulate growth, both the fiscal and monetary arms could focus on improving growth – and it would put more pressure on the government rather than the current situation where it is leaving most of the work up to the RBA. 

Given government revenue has been hit due to the decline in nominal GDP growth, making that a focus would also assist with improving the budget balance.

Yes, it would make too much sense but of course the system isn't built for quick handbrake turns of policy like that, no, no.

It's worth going back to Glenn Stevens' last speech as Governor of the Reserve Bank.

Reserve Bank governor Glenn Stevens has used his farewell speech to implore the Turnbull government to take on more debt, saying that rate cuts alone can no longer "dial up the growth we need". 

Although interest rate cuts still had some effect, they worked through encouraging private borrowers to borrow more and had "possibly less" effect than in the past.

"The problem now is that there is a limit to how much we can expect to achieve by relying on already indebted entities taking on more debt," he said.
The government had far more room to borrow and spend than the private sector – owing only 40 per cent of GDP instead of 125 per cent.

"Let me be clear that I am not advocating an increase in deficit financing of day-to-day government spending," he said. "The case for governments being prepared to borrow for the right investment assets – long-lived assets that yield an economic return – does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances. 

"The point I am trying to inject here is simply that popular debate in Australia about government debt and how we limit or reduce it seems so often to be conducted while largely ignoring the size of private debt. Foreign visitors to the Bank over the years have tended to raise questions about household debt much more frequently than they have raised questions about government debt."

So it's one thing for Nick Xenophon to say we need the RBA to prioritise growth rather than whacking signs of inflation. Given the toolset available to the Reserve Bank, which is basically raising or lowering the interest rates, there's really not much more the RBA can do to help growth.

That is to say, the limits of RBA policy - any Central Bank policy - resides at the zero-bound where Zero-Interest-Rate Policy lives. Glen Stevens may well retort to Nick Xenophon, "what the hell do you think we've been doing for the last 8years since the GFC, with historically low interest rates?"

Indeed, that's exactly where the Bank of Japan is at, trying to get economic growth to happen. It's trying massive "trans-dimensional" quantitative easing and yet there are minimal signs that the Japanese economy is coming out of its long slump. The conservative Prime Minster of Japan is telling the heads of the major corporations to raise wages instead of sitting on hoarded profits. It's a wild frontier of Central Banking experiments over in Japan, and really, I'm sure they wouldn't care which came good first, growth figures or inflation figures.

I'm going to go out on climb and say something that would scare fiscal conservatives and hawkish bankers. What Australia needs is a kind of debt forgiveness. So if the economy ends up at the Zero-bound with ZIRP, the RBA needs to forgive the private sector debt and helicopter that printed money into banks. People are going to hate that because basically they'll scream "moral hazard",   except when the economy has flatlined at the zero-bound, then the whole show needs a complete re-boot; and if there's one thing that keeps any economy from re-booting, it's debt.

Ben Bernanke's 'Helicopter Money', Applied

The logic for doing Helicopter money in Australia is pretty simple. People are not spending money because they're busy paying down mortgages as fast as they can. This isn't doing much good because it means the money goes from the bank to employer to employee and back to the bank without going through the economy. So you alleviate the mortgage stress, and the people will be inclined to spend their money. The government hands the printed money to the banks, buying out the debt on paper. Immediately there should be inflation because people now have money to go spend it on the next asset, That's when the Central Bank can re-set the interest rates at a more historic normal level.

Of course, it won't go that way because the bankers would lose out on long term money, but that would be the point. Somebody has to take a loss and the bank would have to get its money while losing out on future profit based on the booked loans. It hasn't happened because ultimately the economy is owned by the 1% and the 1% stands to make nothing out of "helicopter money". But the alternative is the current, comatose, low-growth low-inflation state in which we find ourselves.

The problem with QE as it's been carried out to date, and lots of it, they're finding in Japan, is that the money simply doesn't go to where it's supposed to go. The BOJ stuff the banks full of money, but the banks don't lend to sell businesses and entrepreneur. The lending practices still tend to lead the banks towards lending for fixed assets like property - and even then there's just not as much of that going around. The big companies of Japan's old industrial growth era are still profitable but they don't pay out dividends, and they don't give out pay-rises. They tend to sit on the big piles of cash and say they see nothing in which they want to invest.

The only way to make sure the money gets out an about in the economy is to hand it to the consumer and have them spend. In other words, it's like Capillarity Up economics. They cam very close to pulling the trigger on 'Helicopter money' this year in Japan, but at the last minute they held back. I guess there is something fundamentally weird for government stop simply be giving people money. Be that as it may, the Japanese may eventually have to do it; and if the precedent is set, other countries will do it. It's not like it's a new idea.

The Wisdom Of Solon And All That

It doesn't get discussed a whole lot unless you read a bit of ancient history. Solon, famously forgave debts. He also forbade the export foods except olives. He encouraged the cultivation of olives specifically as en export commodity. Meanwhile he forbade the export of foods because if staples got sent away, the poor would starve and that had terrible consequences for society. If you asked Solon, he'd object to 'Helicopter Money' as a policy but his big thing was debt forgiveness.

The ancient world is full of instances of debt forgiveness. The people in power in the ancient world probably looked at debt as something that becomes intractable and kills the economy. The Romans famously refuse to forgive debt and of course the aftermath of the Roman civilisation were the Dark Ages. So it is worth pondering what the hell we're going to do with a financial system that has created so much debt the world's GDP cannot begin to repay it. It's not likest's a problem that's going to go away. The more it sits there, it's going to chew away at the future, just as it is doing right now, only worse.

That's the historic context of all this bickering about debt. Something tells me the debt won't be forgiven, there won't be Helicopter Money, it's all going to crack up and turn to shit right before our very eyes. So much for civilisation.

Moral Hazard Spectacular

Stop(ped) Making Sense

Pleiades wanted me to write a bit about this today. He's sent me a couple of interesting links behind the AFR paywall. I can't link to them a a result but I can offer my opinion on a few things.

You have to hand it to Central Banks. They'll jawbone anything and everything to get the economy to roughly go in a direction. Usually, what the Central Banks want is for asset prices to be stable and go up, while an inflation of about 2-3% eats away at cash so people have to do something with their money apart from shove it under the mattress. You can put them in equities, bonds, commodities, property, but the 2-3% is there to eat away at your pile of cash if you keep it stationary.

Of course, that's why interest rates move the way they do, which is to say whenever the equity markets sag, the Central Banks cut interest rates and every time they hit new highs, they take some points off. We've been watching this game for something like 30years since the RBA went independent of the Federal government, and since the days when Paul Volcker as the head of the US Fed set about taming inflation.

...but what if all this was a crock?

Share markets in the USA are at an all time high, but interest rates are close to zero, and Quantitative Easing is, while being tapered back, still pumping liquidity into the market in exchange of bad debts. You'd have to look at all this and say that the narrative we've been led to believe is broken. It's also been 7years since the GFC broke, 6 since liquidity got pumped into he market, and QE is still continuing. The American markets are talking about a 'Recovery', but the mere fact that interest rates are at zero and QE is still going on should tell you we're nowhere near any kind of recovery.

If there were a 'Recovery', how could there be stories like this?:

Driven by economic necessity — Rohr has been chronically unemployed and her husband lost his job last year — she moved her family back home with her 77-year-old mother.

At a time when the still sluggish economy has sent a flood of jobless young adults back home, older people are quietly moving in with their parents at twice the rate of their younger counterparts.

For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents' homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.

The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.

"The numbers are pretty amazing," Wallace said. "It's an age group that you normally think of as pretty financially stable. They're mid-career. They may be thinking ahead toward retirement. They've got a nest egg going. And then all of a sudden you see this huge push back into their parents' homes."

I'm sort of lost for words when I read that because that's a surefire sign that the economy has not made any kind of credible recovery - but for some miraculous reason US equity prices have punched through the previous highs from prior to the GFC meltdown. What QE has accomplished is to reinflate all the asset bubbles, up to and including the housing bubble in America. If you think this is somehow not true then hey presto, subprime mortgages are back. Maybe these people in California living in their parents' houses can score one of those loans that only need 3% upfront.

The point is, Ben Bernanke said the whole QE thing and TARP thing was to shore up banks so they would keep lending and that liquidity would not dry up and businesses would stay open. What's happened instead is that the money got sent out of America on financial markets to places with high risk and high yields - affectionately known as emerging markets - and has subsequently inflated commodity prices and real estate prices around the globe. More to the point it didn't exactly save jobs.

We're Really Going To Fight For The Grey Zone On The Eastern Front?

This is nuts. The US is sending 600 troops for an exercise in eastern Europe. Airborne troops are allegedly going to Poland, Lithuania, Latvia and Estonia. All of it in response to the crisis in Crimea. There are a few things I am not convinced about America's willingness to follow through and fight a war in Ukraine.

First of all is how willing the NATO allies are, in supporting America. Germany in particular makes me doubt NATO's resolve. Are the Dutch and Spaniards and Belgians and Italians willing to send troops out to Ukraine and shed blood for Ukrainians, even though they're not even a member of NATO or the Euro zone? It seems incredibly unlikely the commitment is there. Germany in particular might still be culturally traumatised by the World War II campaign in Ukraine and the political fall out ever since. Do they want to send troops there? I'd hazard a guess and say no.

Secondly, Europe still relies on Russian gas supplies from the pipeline that runs through Ukraine. They're not in a position to bite the hand that feeds it. And contrary to opinions flying around that America's shale gas boom is big enough to fill in the gap it has two giant hurdles to getting to Europe: the gas has to be liquefied and then shipped across the sea. It's not economically viable to be doing so.

Which brings me to the third conceptual bump in seeing the West fight in the Ukraine against the dark forces of Mordor Putin's Russia is that there's no money in the coffers to sustain this war effort. A lot of the Eurozone and the USA are simply carrying too much debt to finance yet another war (after the squandered expenses of the Iraq misadventure and the mismanaged Afghan misadventure). The Central Banks are tapped out printing money to buy back the crappy subprime debt that needs to get written off. Who are the idiots who are going to line up and buy war bonds to fund this misadventure into the grey zone of history where mighty empires go to die as they dash themselves upon the borders of Russia?

Putin must know all this. So this has to be a bluff. Right? Of course one imagines this is exactly how people felt in the 1930s in the aftermath of the 1929 bust as the world marched to World War II. I can't believe I'm even writing of this on an ANZAC Day weekend. You'd be worried if you're the Baltic states and Poland.

 

The Money That's Not There

Deficits? What Deficits?

A few weeks ago I made an observation over elsewhere on the interwebs which I forgot to note over here. Once upon a time in the 90's when Pauline Hanson was a tyro crank politician, she was much ridiculed for her views. They were in most part totally outlandish and powered by a kind of backward looking xenophobia that made your skin crawl, but in particular she had a solution for Australia's debt problem, which was "print more money."

The press went to town on this statement as a clear indication that this would not work because printing money wold cause a massive outbreak of inflation; the likes of which crippled the Weimar Republic, so clearly this was a stupid idea born out of a stupid person. So the narrative went. And who amongst us who bothered to study modern history didn't know of the crazy inflation that engulfed inter-war Germany as the Weimar Republic busily printed money to pay their reparations for World War I? Print money, you get Weimar Republic.

Fast forward 15 years and 5 years on from the GFC we find, in fact that is exactly the US Federal Reserve Bank is doing in its guise of Quantitative Easing, and even the Bank of Japan has joined the ranks of central banks 'printing money' with the celebrated 'Abenomics' in progress. The interesting thing is that inflation - the kind we read about in history books about the Weimar Republic - hasn't exactly broken out in neither the USA nor Japan. In fact the Bank of Japan is running the printing presses much faster than the US Fed, and it might not make its inflation target of 2%. Go figure that one out.

No Inflation. All that money printed, and still no inflation. If anything central banks in the advanced economies are scared shitless of a collapse in asset prices.

I hate to say all this because I really dislike Pauline Hanson, but if the amount of deficit of the Australian Government was the size that it was - such that it could be paid off by the selling of assets under John Howard - maybe the Hanson plan of printing money back then might have been better? That way, the Federal Government, and by extension we the people would still have those assets.

Or maybe government debt isn't as big a deal as the private sector is making out. What's really bad about Greece and the other distressed euro economies probably is the fact that they can't devalue their currency by printing their own money. But if we go by the - ahem, *gulp* - "Hansonomics", Greece ought to quit the Euro zone and just print whatever money it likes to pay its freaking debts. And as crazy as that sounds to educated minds the evidence seems to be the case. Stick that into your objectivity pipe and smoke it.

This brings me to this article here.

In a 34-page review for clients of how a Coalition government might change economic management, Mr Eslake, chief Australian economist for Bank of America Merrill Lynch, also highlights the potential for "significant and ongoing tensions" in an Abbott government between its "genuine economic liberals", such as shadow treasurer Joe Hockey, and those who are "more sceptical about markets ... including in many cases Tony Abbott as Prime Minister".

He predicts that the Coalition will ultimately adopt all of Labor's proposed budget savings measures, except for ending the tax break for cars bought through salary sacrifice.

Even so, Mr Eslake estimates, the Coalition has so far committed to $28.4 billion of tax cuts and $14.8 billion on new spending in the next four years, a total of $43.25 billion. But he estimates the nine savings measures the Coalition has announced so far would save only $13.44 billion over the same period.

"By our reckoning, over the remainder of the election campaign, the Coalition needs to announce additional savings measures totally in the vicinity of $30 billion over the four years to 2016-17 in order to be able credibly to claim that it would produce better bottom line outcomes than those projected (by Treasury and the Department of Finance), he said."

"That is a substantial sum, although it is considerably less than the $70 billion 'black hole' suggested by the government."

And that ought to give you a bit of a scare. If the polls are to be believed the incoming Liberal National Coalition Government is selling itself on being fiscal hawks and that 30billion will come out of something somewhere along the way in a fit of austerity worship. I don't know where it will come from, and by the sounds of it, neither does treasurer-to-be Jolly Joe Hockey, but knowing their political persuasion it's likely to come out of welfare cheques and education budgets.

Yet in a bigger picture sense, all this pain it will inflict on millions of people will basically hurt the economy anyway while doing not much good. It's almost enough for you to endorse Hansonomic Printing Presses and ask them to simply print the money to pay the freaking debt. It's what grown up countries do.

News That's Fit To Punt - 15/Sep/2012

Q.E 3 - Infinity

The biggest news of the week for me wasn't the storming of the US Embassy in Libya but Ben Bernanke saying he's just going to leave the tap on until stuff gets better. Indefinitely.

''We are trying to create more employment … the tools we have involve affecting financial asset prices,'' Bernanke said at a press conference after the Fed's announcement. Companies felt there was not enough demand for their products, and if the value of homes, shares and other assets improved, Americans would be ''more willing to go out and provide the demand'', he said.

The open-ended nature of the stimulus is one measure of how hard the Fed is now pushing. Another is the fact that it has softened a focus on containing inflation that has dominated central bank thinking for decades.

Bernanke insisted yesterday that the Fed was not intentionally trying to raise inflation to a point where it more aggressively depreciated America's daunting $US16 trillion debt load, an option that has been there from the moment the global crisis began.

It was, however, ''not going to [be] premature in removing policy accommodation'', he said, adding: ''Even after the economy starts to recover more quickly, even after the unemployment rate begins to move down more decisively, we're not going to rush to begin to tighten policy. We're going to give it some time to make sure the recovery is well established.''

The success or failure of the ''do what it takes'' quantitative easing strategy that is being rolled out on either side of the Atlantic depends on whether companies and individuals respond. In the US at least, the capacity to do so has been demonstrated before.

That's some pretty drastic tap turning. They're already at 0% interests rates, and committed to that for a long time to come. now they're going to spend 40billion a month buying crap paper, printing money to do it. Tea Party types are going to have a stroke. Gold investors are going to have jism-spasms.  Commodities are going to rise again and save Twggy Forrest.

I've had a little l think about what all this means because since the GFC, central bankers and treasury officials from around the world have done this thing of trying to stimulate the economy. This includes things like the TARP bail outs as well as the Rudd Government's big stimulus package which staved off a nose dive into a depression (and the more time goes on, we have to give him credit for that decision lone).

The problem is, at this point we're having to wonder about the 'moral hazard' that was decried at the time by certain people who felt that bailing out bankers was one thing but bailing out everybody was a terrible thing because they might just keep doing what they were doing that got us all into the mess. Note, they weren't as hard on the bankers as they were on socialist governments that just gave out the money for people to pay down their credit card debts.

But 4 years removed from that chaotic time, the great danger seems to have been the possibility (or even probability) that asset prices might go into reverse and we have a deflationary spiral. The big fear, as it were, seems to be that if everybody ends up being foreclosed upon by their banks and are forced to sell their houses, then there would be all these homeless families who owe more money to the banks even after being forced out of their homes. And this seems to be the scenario everybody is furiously trying to avoid, both over in the USA and over here in Australia.

So we come back to the moral hazard bit. Just as a token of understanding, RBA boss Glenn Stevens was saying earlier in the year that it wasn't acceptable for people to be assuming that property only goes up; and yet we have governments around the world totally invested in making sure they never come down. You'd be stupid not to buy into the Property Ponzi scheme that gets bailed at the first sign of a crack. Nobody is willing to give up their houses. Should they be made to by market forces? It seems the Federal reserve in the USA says no and, - this is the amazing bit - What they're saying is that they're going to take the value off the house by stripping the value out of the price tag on your house.

Yes, you can still keep your $700,000 price tag on your house; you won' be foreclosed; but that $700,000 won't be worth the $700,000 you bought it at, because we're printing money to destroy the value faster than before. And it won't show up in inflation figures because people won't sell their houses often enough to make it matter.

In the long run, the property bubble in the first world racked up a certain sum of unrealistic prices, which has to be wound back. Rather than let the deflation give back those prices, they're going to switch on inflation so that the dollar value diminishes to match the real value.the point is, going forwards, there is nothing to say that Real Estate is a better investment than shares or bonds because they're going to inflate away any gains you make beyond the market. It's probably a good thing if it blunts property speculation, but judging from the news this week, overseas investors are piling into Sydney Real Estate, most likely because of the moral hazard or actual lack thereof.

Somewhere Steven Keane is laughing and crying.

Eying The Charging Bull

Are things really that bad in America right now? Don't look now but the Dow Jones finished at 13,593.57, marking a 5 year high. by which we mean, it's the highest it's been since the GFC started 5 years ago.

US stocks rose for a fourth straight session on Friday to close out the week at nearly five-year highs after the Federal Reserve took bold action to spur the economy, a move that could keep equities buoyed in the coming months.
Shares of Apple Inc, the largest US company by market value, ended at an all-time peak, and Exxon Mobil , the second biggest, hit a four-year high.

Equities are in a run-up that has pushed the S&P 500 to end higher for four consecutive months. The extended advance has come mainily from actions by Europe's and the United States' central banks to keep interest rates low and stimulate their struggling economies.

The Fed said Thursday that it would keep up its aggressive bond-buying until unemployment falls. Chairman Ben Bernanke said he wanted to see a convincing improvement in the economy that could deliver sustainable job creation.
Bernanke's comments are "going to create an artificial floor on the market, meaning that we could see higher prices over time," said Paul Nolte, managing director at Dearborn Partners in Chicago. "Any correction that we get will be no more than a few per centage points."

The Dow and the S&P 500 both closed at their highest levels since December 2007, while the Nasdaq ended at the highest since November 2000. The small-cap Russell 2000 index closed at the highest since April 2011.

The Dow Jones industrial average ended up 53.51 points, or 0.40 per cent, to 13,593.37. The Standard & Poor's 500 Index closed up 5.78 points, or 0.40 per cent, to 1,465.77. The Nasdaq Composite Index gained 28.12 points, or 0.89 per cent, to 3,183.95.

For the week, the Dow rose 2.2 per cent, the S&P climbed 1.9 per cent and the Nasdaq added 1.5 per cent.
The S&P is now just 6 per cent below its all-time closing high of 1,565.15 despite a relatively weak economy and economic risks around the world.

The Dow might set an all time high by the end of the year. The same thing goes with all the other American indices. This might all be 'irrational exuberance' as Alan Greenspan called the 2009 rally, but he doesn't seem to be saying it now.

I know there's a 'Fiscal cliff' coming later this year, but that is why Bernanke opened the sluice gates and let it rip. When it crashes over the all time highs, this is likely the start of a new bull run in US equities.

Lining Up For A Beating
Back  here in Australia, there's been another bit of Rudd-pronouncements and a round of "is-he-won't-he". This time Simon Crean managed not to go out there and slander Kevin Rudd. The election last weekend yielded some interesting results, all food for thought and the main dish on the food-for-thought degustation is that the ALP is likely to get bollocked hard in NSW at the next Federal election.

A second backbencher from western Sydney, John Murphy, spoke up. Murphy is especially vulnerable. He holds his seat of Reid by a margin of 2.6 per cent.

He agreed with Swan that the ALP performance had been ''patchy'' and cited two contrasting local experiences. The Labor mayor of Canada Bay council, Angelo Tsirekas, managed to win a 10 per cent swing in his favour.

But in Auburn, where Labor had long held an unassailable dominance, the party had been outpolled by the Liberals by a margin of two to one.
If that's not an alarm, Murphy said, I don't know what is. We've got to take notice and get into these communities, he urged. Canada Bay and Auburn fall within Murphy's federal electoral boundaries.

Swan offered a reassurance that things would turn around but again offered no strategy. A third MP, Stephen Jones, echoed the concerns of Hayes and Murphy.

It was a moment of ironic tang for some in the room. Some caucus members remembered hearing Julia Gillard justify her coup against Kevin Rudd by saying that she was not so much troubled by the Rudd government's difficulties but by the fact that he seemed to have no plan to get out of difficulty.

Well, that would be painful in the caucus room, but really, this moment was going to come on the back of February's big leadership spill that was supposed to put paid to Kevin Rudd and allow Julia Gillard to win the electorate. Except the electorate isn't listening. I don't mean any disrespect, but I will continue to say that I won't vote for Julia Gillard because basically if the ALP was happy to risk the future of Australia in the hands of Tony Abbott, then I am not doing anything worse by taking the exact same risk, by donkey voting for the Lower House at the next Federal Elections (I'm voting for the Australian Sex Party in the Senate).

It doesn't matter what Julia Gillard has done since February or will do on to the next election. The reasons for me not voting for her have been writ in history. The ALP can't unfuck that goat.

Speaking Of Terrible Tony...

Student politics on campus is an often silly, shitty, horrible, bizarre thing. You always wonder what the storm in a teacup is, but it's always nice to know that it can have real life repercussions, for 35 years one from some SRC arguy-bargy at the University of Sydney's SRC, we've been hearing what a prick and a hostile misogynist  Tony Abbott was at university.

Barbara Ramjan beat him hands down. She was of the left but her work as the SRC's welfare officer made her a popular figure on the campus. The night her victory was declared, the SRC offices saw wild scenes of bad-boy behaviour: flashing, mooning, jeering and abuse. Abbott watched all this. His loss was a very public disappointment. He approached Ramjan. She thought he was coming over to congratulate her. "But no, that's not what he wanted," she recalls. "He came up to within an inch of my nose and punched the wall on either side of my head." Thirty-five years later she recalls with cold disdain what he did. "It was done to intimi­date." Abbott tells me he has no recollection of the incident: "It would be profoundly out of character had it occurred."

Pure ugliness of his character on full display. Anyway, in the wake of that publication, we've seen a few other people pop up and corroborate the account and Christopher Pyne - the evil leprechaun of the right - say it's all water under the bridge and not important enough to be talking about.

It took Tony Abbott a full week to hide from the mushroom cloud, after which he emerged and denied it. Well it is a well known rule of blame-assignation that "he who denied it supplied it" so it must have been him to cause that stink on campus back in 1977. Then he finally emerged and  said a Labor dirt unit dug it up.

Fronting the media yesterday for the first time in almost a week, Mr Abbott sought to reconcile his previous statements that he could not recollect the incident and that it never happened. ''How can you recall something that never happened?'' he said.
He did admit to another allegation - that after Ms Ramjan became the SRC chairman and asked to be known as chairperson, he called her ''chairthing''.
''There were lots of silly, embarrassing, childish things done in student politics and I wasn't immune to that,'' he said.
Mr Abbott denied the wall-punching allegation and claimed the matter had been dredged up by a Labor dirt unit. ''There is a Labor dirt unit and it's feeding information to people left, right and centre,'' he said.
Ms Ramjan, who has been telling the story for years, told the Herald it was ''absolutely'' true and she rejected outright that Labor put her up to it. ''I have never been a member of a political party in my life,'' she said. ''He's a bully.''

I don't doubt that he is a bully for a moment. It's nice to know that student politics is of some consequence, when it comes back to bite Tony Abbott in the metaphorical arse - yes, the very same one he was hedging on offering Tony Windsor in exchange for being Prime Minister.

The Right Man At The Right Time

In Praise of Helicopter Ben

There's a really diverting article here about the role of Ben Bernanke, Chairman of the US Federal Reserve, in stemming the impact of the current Global Financial Crisis - otherwise known as the GFC, or Globally fried Chicken.

In the world of financial pain and recrimination after the panic of 2008, it is easy to miss a central point: the US Federal Reserve has, so far, saved the American economy from a precipitous collapse.

Even easier to miss is the Federal Reserve's role internationally; no country likes to issue a press release with the title, "The US central bank saved our butts".

The Fed put up massive amounts of dollars, more than $US620 billion ($821 billion), including some $US20 billion for the Reserve Bank of Australia, to meet the dollar demands of banks throughout the world. It played a vital role as international lender of last resort and averting a global financial catastrophe (see breakout). "The Fed story is a revolutionary story because, in my book, they avoided a tremendous calamity", says a Columbia University associate professor of finance, Martin Cherkes.

Prominent New York mergers-and-acquisition lawyer Rodgin Cohen, the chairman of Sullivan & Cromwell, says: "What you will never know and can only guess is how much worse it would have been if the Fed had not played this role. It would have been a lot worse. One will never know but we could well have been thrown into a Great Depression very quickly".

These views are not the popular perception amid the welter of post-crisis regulator bashing. It is hard to use a word like "saved" when the US economy is in such a parlous state: unemployment numbers are at their highest level since 1983, climbing to 8.5 per cent in March and the US gross domestic product is falling at an annual rate of 6.3 per cent.

But so far it is a recession and most economists believe it is unlikely to become a depression. Unemployment grew more quickly in the Great Depression and peaked at 25 per cent. GDP fell more quickly too in the 1930s, before bottoming more than 30 per cent below its peak.

Sure, there is pain. But this time around there is still a functioning banking system. There were 25 bank collapses last year. In the first 10 months of 1930 there were 744 bank failures, in the next three months there were 761 bank failures.

The Fed has pulled off this rescue of the financial system with actions of a size and scale that are hard to comprehend. It has continually upped the stakes until it has committed to lending or spending $US2 trillion to address the full force of the panic, using many programs it has invented out of thin air. It has moved from a strict money supply role, advocated by monetarist economists and championed by Milton Friedman, to outright spending to support failing markets, a role closely aligned to the views of John Maynard Keynes.

In other words, he was ready to abandon principles and do what's right. All those people talking about moral hazards were in essence arguing that we should go down the path of the Great Depression in order to preserve our principles. It's a hard pill to swallow if it is the size of a watermelon folks!

An Article About The US Republican Party

Back in the day when Time Magazine was WASP and North Eastern USA in its bias, I don't know if it would have published an article like this one here. It's a bit far-reaching in its claims; but it is an interesting read.

As the party has shrunk to its base, it has catered even more to its base's biases, insisting that the New Deal made the Depression worse, carbon emissions are fine for the environment and tax cuts actually boost revenues — even though the vast majority of historians, scientists and economists disagree. The RNC is about to vote on a kindergartenish resolution to change the name of its opponent to the Democrat Socialist Party. This plays well with hard-core culture warriors and tea-party activists convinced that a dictator-President is plotting to seize their guns, choose their doctors and put ACORN in charge of the Census, but it ultimately produces even more shrinkage, which gives the base even more influence — and the death spiral continues. "We're excluding the young, minorities, environmentalists, pro-choice — the list goes on," says Olympia Snowe of Maine, one of two moderate Republicans left in the Senate after Specter's switch. "Ideological purity is not the ticket to the promised land."

More juicy bits here:

Big Government is never popular in theory, but the disaster aid, school lunches and prescription drugs that make up Big Government have become wildly popular in practice, especially now that so many people are hurting. Samuel Wurzelbacher, better known as Joe the Plumber, tells TIME he's so outraged by GOP overspending, he's quitting the party — and he's the bull's-eye of its target audience. But he also said he wouldn't support any cuts in defense, Social Security, Medicare or Medicaid — which, along with debt payments, would put more than two-thirds of the budget off limits. It's no coincidence that many Republicans who voted against the stimulus have claimed credit for stimulus projects in their district — or that Louisiana Governor Bobby Jindal stopped ridiculing volcano-monitoring programs after a volcano erupted in Alaska. "We can't be the antigovernment party," Snowe says. "That's not what people want."

That bit had me in stitches. It's a little late to wake up to that notion now.  Part of the horror of the Bush years - and you can count in his old man's term with it - is that the repeated coddling of the rich while continuously cutting back what government offered was really going to hurt a lot of people. It's a little harder to argue a case for the big end of town when the current President is going to be busy cleaning up the mess from the rampant deregulated orgy left behind by those years where the rich got their way, all the way. If you're the party that enabled it, then you're stuck with that bill.