Gains from trade: vouchsafing the public good of liquidity in financial markets

New Zealand home loans

You may not know it but around 20% of the home loan market has just collapsed – the securitisation market. The banks are moving into the space and and, as a result, rationing credit elsewhere. Below the fold is an op ed in the Age about it.  It introduces a theme you’ll probably be seeing a little more of from me.

In a paper I published in 1997 – pdf – (I think it was) I argued that while competitive neutrality was a good thing, it was possible to have too much of it – at least where it stopped us making the best possible use of the specific qualities of the public sector.  But an alternative and in many cases ultimately more compelling principle is the desirability of making gains through trade. There are some things the public sector does better than the private sector, and it should be able to do them – prudently and within appropriate institutional frameworks.  This column outlines one.  I will outline some others if and when I get the time.

Its a tired cliché but no less true for that that generals fight the current war according to the lessons learned in the last. The current generation of policy pundits have grown up on a simple diet of deregulation. This is itself unremarkable given the general good sense behind tidying up the detritus of the best part of a centurys ad hoc favouritism — a policy that was once sold under the nonsensical title of protection all round.

But the credit crisis has reminded us of something that was just as integral a part of Adam Smiths message to humanity as the bit we remember about the invisible hand. Private competition only works well to transform self-interest into social good in a properly functioning market.

And that makes the functioning of markets themselves a public good par excellence. The rules according to which market participants interact are a public good as is the liquidity and price discovery which the growth of the market provides.

Thats why Smith offered these comments on prudential regulation of credit:

Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed.

Liquidity is a notoriously fickle public good within a financial market. Each of the players is happy participating in a liquid market, and in doing so they further deepen its liquidity. But because most participants are risk averse, that liquidity can dry up with frightening speed each departing at the first whiff of serious grapeshot. Thats why, in the wake of the Great Depression, we built public institutions to vouchsafe the public good of liquidity in core financial markets.

Central banks now protect liquidity by operating as lenders of last resort. And notwithstanding various intervening fashions, its widely understood that both monetary and fiscal policy can beneficially lean against the wind of the business cycle, moderating both the booms and busts to which a purely private market would be doomed.

Weve learned some lessons along the way; for instance, to do its job well a central bank needs a degree of insulation from the fickleness of politicians who have an incentive to avoid hard decisions. So weve strengthened the independence of the central bank and, as a result, the independence of monetary policy.

Likewise central banks have innovated in their attempt to shore up the liquidity of the financial system in the current crisis. Thus as the RBA Governor told us recently, In periods of particularly unusual market duress, central banks should be prepared to move beyond the normal scope of operations to provide liquidity against a broad range of assets.

Ive argued that we should extend these lessons more widely. Along with some more illustrious colleagues like Alan Blinder and Brad Delong (at least I beat them into print!) Ive suggested we should begin building institutions that can provide greater fiscal policy independence. We could begin with an independent board (or even the RBA) publicly advising the government on its fiscal stance in the way the Productivity Commission advises it on micro-economic reform.

Likewise, while I support the RBAs moving beyond the normal scope of operations to shore up liquidity in financial markets, given the extent of financial innovation in recent times and the speed with which risks are transmitted in our increasingly integrated world, we should be thinking about this subject more deeply.

The RBAs limited preparedness to lend against residential mortgage-backed securities (RMBS) helps protect the liquidity of the banking system, but at the cost of competitive neutrality. It helps the banks but does nothing for what was the twenty percent or $50 billion per annum of the housing finance market where liquidity has simply collapsed securitised Australian mortgages which are amongst the safest in the world.

Current RBA practice addresses the short term problem of liquidity for banks but exacerbates the long term damage the collapse of primary securitisation markets is causing to the competitiveness of the home loan sector and beyond. Banks have stepped into the vacuum expanding their market share. But with limited capital theyre starving other customers for credit.

Christopher Joye and Joshua Gans Aussie Mac proposal involves extending this government function in the way that Fannie Mae has done in the US since 1938 and the Canada Mortgage and Housing Corporation, which has done so since it first helped returned soldiers into homes in 1948. Aussie Mac would involve government doing what the RBA is now doing for banks effectively guaranteeing high quality mortgages but on a larger scale and with competitive neutrality.

Naturally, as in the days of Smith, any intervention is looked upon askance by some and slated by some as government assistance. It is not. Government guaranteed involvement in vouchsafing liquidity in the market should be seen as a trade in which the state agrees to bear a risk that those in the private sector have, by their withdrawal from the market, indicated they cannot or will not bear. At the same time Government should charge an appropriate premium for its insurance, reflecting its unique position in the marketplace as the least cost bearer of such risk.

In its role as lender of last resort the central bank is in a fine position to price its own services at a healthy profit and it should do so. And just as the RBA is currently charging banks a healthy margin for lending against their residential mortgages, so too the government should charge a healthy premium for insuring residential mortgage securities during times of extreme dislocation. And as is generally the case with trade, it doesnt take place unless both parties gain from it. Only in this case, in addition to the Government expecting to come out ahead financially, we get a powerful economy wide benefit of the perseveration of liquidity in the financial markets.

In short, if done right, as with the opening of a new trade route, everyone could expect to be a winner including a government eager to deliver a higher surplus.

One final thought: right now the credit crunch is acting in concert with higher interest rates to produce a desired slowing of our economy, but rising bank margins are building costs into our economy which well rue once this tightening cycle is over and our economy needs to pick up steam.

So lets get on with innovating the tools well need to fight this, and future wars, rather than honing instincts we developed during the last one.

36 thoughts on “Gains from trade: vouchsafing the public good of liquidity in financial markets

  1. First off, Nicholas, when discussing government itnervention in the mortgage market, you really should declare your interest.

    Second, the LLR function exists to protect the financial system from – you guessed it – systemic risk. It has never been intended to keep liquidity costs down or maintain competitive neutrality in funding. The banks are winning share in mortgages because they have more robust and diverse sources of funding than non-bank originators. That is, they have a competitive advantage that goes well beyond access to the RBA’s LLR facilities. That said, the RBA, like other central banks, has provided additional liquidity to the banks because they’re part of an inter-connected system and the consequences of a bank failure are such that there’s a case to be made for otherwise healthy banks to be lent liquidity in extremis. However, non-bank mortgage originators like Rams can fall over – and have – with no consequence to the financial system. Indeed, they SHOULD be allowed to fall over. The fact that the RBA COULD be propping up failing mortgage originators is not to say that it SHOULD.

    Third and finally, it would be premature to state at this point that the securitisation market experienced in the last few years prior to the crisis was “normal”. Arguably it was a bubble, and it’s thus far from clear that the government should be doing anything to compensate for the loss of investor support for an industry model that looks challenged at best.

  2. industry model that looks challenged at best.

    Why do you say that, Fyodor? You think a good part of the non bank lending is dying? Your thoughts?

    I would have thought that the securitization business is an excellent way to disperse and distribute risk. Yes I know that the market is dead for the moment, but tomorrow is always a new day and if anything is certain it’s that some form of securitization will make it’s way back albeit in a different form.

    I picked up an interesting tidbit from a hedge fund friend the other day. I don’t know if it is true or not as I haven’t bothered to look it up but he was saying that there hasn’t been one triple AAA rated CDO hat has defaulted in the US as yet. Meanwhile this paper is trading at 60 to 70 cents in the dollar. If this is true then it seems most of the anguish has been felt in the mark to market rather than outright default.

    Thinking out aloud maybe the solution is to somehow “hybridize” the CDO market in way that places less less importance on mark to market and is seen as a sort of carry trade investment matched by long term same maturity funding

    Firms like Rams obviously got into trouble because they were running a short book and if they had a better match between their assets and liabilities they wouldn’t have got into so much trouble. Perhaps a stronger management clamping down on the origination side of the business would also not be a bad idea particularly at some US banks and firms like Rams.

  3. Sweet Jesus Nicholas. As if the total bankruptcy of overfed suits in Central Banks around the world isn’t patently obvious now, you want to give them carte blanche to throw more of their funny money guarantees at their problem. No doubt Standard and Poors will be more than happy to accommodate them and give them all the ‘AAA’ mortgages they want-http://www.atimes.com/atimes/Global_Economy/JE13Dj06.html
    Face it Nicholas, Central Banks’ giant Ponzi scheme is over because the punters know there aren’t enough real goods/commodities backing all that paper now. They can’t turn it all into commodities or future commodity streams fast enough in case you haven’t noticed and to boot they want a greater risk premium if they’re to forgo that privelege and hand it over to someone else to pursue for a while. Welcome to inflation and rising interest rates now, the latter something those CB suits can’t keep up with, in case you haven’t been watching. Current Federal Govt surpluses (ie real forgone consumption) are illusory. They’re just entries in a computer rather than tanks full of oil, mountains of iron ore, or warehouses full of plasmas, let alone the stuff that glitters. That’s why all the countercyclical Keynesians are singing the Austrians’ tune now, re Rudd spending it on Howard’s tax cuts, but all the while the Reserve will be tutt-tutting at such profligacy. The tension is priceless for we Austrian fans now, if it weren’t so bloody serious, given where the US is at. I never thought I’d hear the day lefty Keynesians would be looking to the US for guidance. Any port in a storm I suppose. In Bernanke they trust now.

  4. No JC, firms like Rams got into trouble because they thought the sun never set on access to plentiful dollars and whose fault was that? That was the constitutional marketplace they were operating in and just who was ultimately responsible for setting that up and blinding them to fundamental economic reality for so long?

  5. Ob:

    In Bernanke they trust now.

    I actually think Bernanke has done a pretty good darned job in handling this huge problem. He was a little shaky at the beginning but he seems to have steered the big tanker away from the big iceberg.

    There were some pretty scary moments. Bear Stearns had started the fateful week with $17 billion in cash and ended up going into Friday with a 70 billion dollar hole. If that thing had gone into Monday (as Bear had basically written “cheques” that were settling that day) it could have brought down a large part of the world’s financial system.

    The other little talked about and bigger problem was UBS. Their hole was potentially over 100 billion and if it wasn’t for swap lines supporting the Swiss National Bank at Bernanke’s orchestration they wouldn’t have been able to hold it as Switzerland is too small. That one could have turned into the big tsunami. However UBS recapitalized and they’re back in the shipping lanes.

  6. “I actually think Bernanke has done a pretty good darned job in handling this huge problem.”
    Sweet Jesus JC, just whose problem was he ‘handling’? Let Gerry Jackson describe the local scene succinctly for you-

    “With the budget looming up thoughts have turned to the government’s accumulating surpluses, which, even with proposed tax cuts, could reach $80 billion by 2012. Panicked by the thought of massive surpluses some geniuses among our economic commentariat are warning the government that funding tax cuts out of the surplus could “over stimulate” the economy and aggravate the current account deficit.

    But others are wondering out loud about the need for huge surpluses. After all, the Federal Government’s debt has been wiped clean and the Future Fund is supposed to solve the public sector superannuation problem. On the surface there appears to be no sound political reason for the government to continue running surpluses. However, what is being overlooked is the monetary source of the surpluses. (Keynesianland money simply does not matter). It’s a pretty sorry state of affairs when economists think tax cuts are inflationary while arguing that money supply is largely irrelevant. It ought to be self-evident that this approach contradictory.

    From March 1996 to November 2007 bank deposits rose by 224 per cent and M1 by 200 per cent. Let us take a single year: the period January to December 2007 saw currency rise by 8.7 per cent, bank deposits by 14.7 per cent and M1 by 13 per cent. It really is incredible that our economic commentariat remained completely unfazed by this reckless monetary expansion. No wonder these commentators are clueless about the source of our current account deficits and our rising foreign debt. Where in heavens name do these commentators think all these dollars came from?”

    Think of it like this JC. Just suppose we all lived in a consitutional marketplace(CM) where a $100 today would buy you say $102 worth of goods and services in a years time(yeah I know you have to think real hard about that) Question: In which CM, ie that one or the real world of our central bankers’ making, do you think you’d be much more circumspect about lending your hard earned? (ie forgoing consumption today) Think that over and then ask yourself which CM Keynesians and big Govt spenders like to live in? Which CM gives them the best opportunity to grow Govt, particularly with progressive income tax, stamp duties on housing and the like, not to mention jobs for the boys in the Reserve Bank if nothing else. Furthermore, how on earth do these economic geniuses reconcile raising interest rates in Oz vs dropping them like brick in the US? Truth is when you’re playing with monopoly money that isn’t yours and getting bloody well paid for it, who cares eh?

  7. See if you can spot the fly in the ointment of their thinking, if not right now, then pretty damned soon JC.

  8. Or to put it another way JC, these bloody counter-cyclical Keynesian doctors want to treat your symptoms, when they’re all carrying the bloody disease that’s about to flatten you.

  9. Why do you say that, Fyodor? You think a good part of the non bank lending is dying? Your thoughts?

    Because the non-bank origination model relying solely upon wholesale funding looks challenged. To the point where non-bank lenders are dying due to their inability to compete with bank balance sheets. Those would be some of my thoughts.

    I would have thought that the securitization business is an excellent way to disperse and distribute risk. Yes I know that the market is dead for the moment, but tomorrow is always a new day and if anything is certain its that some form of securitization will make its way back albeit in a different form.

    Agree with all of that. In the meantime, it’s deaderer than a dodo.

    I picked up an interesting tidbit from a hedge fund friend the other day. I dont know if it is true or not as I havent bothered to look it up but he was saying that there hasnt been one triple AAA rated CDO hat has defaulted in the US as yet. Meanwhile this paper is trading at 60 to 70 cents in the dollar. If this is true then it seems most of the anguish has been felt in the mark to market rather than outright default.

    I believe that’s correct. Market pricing is anticipating defaults that have yet to emerge and, indeed, may not. Probably over-anticipating, but then nobody’s perfect. That said, we’ve yet to see the full wave of defaults from seasoning ARM products, so I wouldn’t get too carried away with the apparent lack of default.

    I think we’ve discussed this before – there’s a tremendous amount of irrational pricing in debt-land at the mo.

    Thinking out aloud maybe the solution is to somehow hybridize the CDO market in way that places less less importance on mark to market and is seen as a sort of carry trade investment matched by long term same maturity funding

    I have no idea what you’re on about, or on.

    Firms like Rams obviously got into trouble because they were running a short book and if they had a better match between their assets and liabilities they wouldnt have got into so much trouble. Perhaps a stronger management clamping down on the origination side of the business would also not be a bad idea particularly at some US banks and firms like Rams.

    They weren’t running a short book – their assets were variable rate and their liabilities were variable rate, all short-term. The problem was not duration mismatch; it was the total fucking collapse of creditor support in their dominant funding source – the US extendible commercial paper (XCP) market. They had assumed that this market would continue to operate, and they were proved wrong. They had insufficient diversity in their funding base and were unable to adapt quickly enough to the changed environment. There was nothing wrong with their origination practices or the quality of their asset base. They were simply too greedy and myopic on their funding.

  10. Obby, you’re confusing, amongst a multitude of things, monetarism and the “Austrian” school of economics. I know you’re a hopeless case, but I’ll give it a lash anyway: stop reading junk economics written by wingnuts.

    While I’m on the point, if you’re going to declare your true and abiding love for the Dark Arts, please refer to it as Austrian ECONOMICS. Declaring yourself to be an “Austrian fan” makes you sound more than usually clueless, like you’re into Sachertorte and inter-generational incest. Maybe you really were onto something with that orgonomic fixation – that also came from Austria, IIRC…

  11. They werent running a short book – their assets were variable rate and their liabilities were variable rate, all short-term.

    So you’re saying that eg RAMS had a fully committed lines of credit? I am not sure that was the case with them or others. Some portion of their lines were committed, but not all.

    But yes, they had serious spread risk.

  12. So youre saying that eg RAMS had a fully committed lines of credit? I am not sure that was the case with them or others. Some portion of their lines were committed, but not all.

    Given I didn’t mention “fully committed lines of credit” I think you can take it as given that I didn’t say “RAMS had a fully committed lines of credit”.

    Whether they had committed lines or not is irrelevant in regard to your assertion that RAMS was “running a short book”. It wasn’t.

    But yes, they had serious spread risk.

    Depends on which spread you’re talking about, and what you mean by “serious”.

  13. Given I didnt mention fully committed lines of credit I think you can take it as given that I didnt say RAMS had a fully committed lines of credit.

    Fair enough.

    Whether they had committed lines or not is irrelevant in regard to your assertion that RAMS was running a short book. It wasnt.

    You sure they weren’t. (going from memory) There was an interval from the time the problems first arose which i think was back in August and rolling a largish portion of their liabilities which was about 3 to 5 months. In other words I understood they were running a mismatched book…. a short book.

    So you’re saying they didn’t have maturity risk in their book?

    Depends on which spread youre talking about, and what you mean by serious.

    Serious enough to send them to the ER.

    I think weve discussed this before – theres a tremendous amount of irrational pricing in debt-land at the mo.

    Where do you think is the most serious mispricing going on here in oz? I actually thinks some of the Mac and BNB satellites are very mis priced.

  14. You sure they werent. (going from memory) There was an interval from the time the problems first arose which i think was back in August and rolling a largish portion of their liabilities which was about 3 to 5 months. In other words I understood they were running a mismatched book. a short book.

    The problem wasn’t a mismatched book; as I stated earlier, both the asset and liabilities were effectively priced off short-term variable rates. The problem wasn’t duration mismatch. The problem, as I explained earlier, is that the XCP funding (which was only term 30 days to begin with) that was rolling over – the one you’re referring to – rolled over into a non-existent market. There was simply no functioning market for it. That’s not a mismatch; it’s a liquidity event.

    Serious enough to send them to the ER.

    You don’t state the spread to which you were referring.

    Where do you think is the most serious mispricing going on here in oz? I actually thinks some of the Mac and BNB satellites are very mis priced.

    WTF? Are you trawling for stock tips again?

  15. I understood that part of book was mismatched in terms of duration. I didn’t think i gave the impression that I thought all their book was mismatched.

    But let me ask you as I still don’t quite understand what happened with Rams if as you say there was next to none duration risk.

    Nearly all their asset side was based on variable rate…. anchored to what i am not sure. If the cost of funding blew out why couldn’t they pass that on to the borrowers. As far as I understand it they have covered the liabilities side otherwise they would have gone broke.

    Are you trawling for stock tips again

    ?

    Na, just interested in what you have to say, believe or not.

  16. I understood that part of book was mismatched in terms of duration. I didnt think i gave the impression that I thought all their book was mismatched.

    But let me ask you as I still dont quite understand what happened with Rams if as you say there was next to none duration risk.

    Nearly all their asset side was based on variable rate. anchored to what i am not sure. If the cost of funding blew out why couldnt they pass that on to the borrowers. As far as I understand it they have covered the liabilities side otherwise they would have gone broke.

    Assets – predominantly at offical cash rate plus spread

    Liabilities – at bill rate (or equivalent) plus spread

    When the credit crisis snowballed into an avalanche in August, the bill rate blew out relative to cash. By the end of August, 30day Bills less cash had gone from around 10bps to 35bps. RAMS was able to wear that margin impact temporarily, and did have the option to reprice rates on its mortgage assets. The problem at this stage wasn’t price or spread.

    The problem was that RAMS had just over A$6.1bn in XCP paper rolling over in the middle of August that simply had no takers – the XCP market collapsed over July-August. RAMS was forced to “extend” (which is where the “X” in XCP comes from) its programmes for a further 180 days. However, with little realistic prospect of being able to refinance that debt at the end of the extension period, the business effectively died. This fact was confirmed when Westpac bought the operating assets and agreed to become the cornerstone investor in the refinance of the XCP programmes.

    As I said, it was the inability to refinance the XCP facilities that killed RAMS.

  17. Thanks good explanation:

    It’s this though that got me a little stuck:

    However, with little realistic prospect of being able to refinance that debt at the end of the extension period, the business effectively died.

    In the end they did actually manage to roll over didn’t they? And this is where my question comes. If they were able to roll over and could pass on the cost where did they come unstuck. I am assuming the bill rate went up just as much as the CP market basis… Or didn’t it (if in fact they end up rolling in the CP market). And why weren’t they basing the asset side of the book to the CP market spread rather then the domestic bill market.

  18. Sorry, just to be clearer why werent they using the same basis spread for both sides of the book?

    Australian variable-rate home loans are priced off the OCR. It’s the convention, albeit not an entirely sensible one. Wholesale funding is based off the prevailing money-market rate, being Bank Bills here.

    In the end they did actually manage to roll over didnt they? And this is where my question comes. If they were able to roll over and could pass on the cost where did they come unstuck. I am assuming the bill rate went up just as much as the CP market basis Or didnt it (if in fact they end up rolling in the CP market). And why werent they basing the asset side of the book to the CP market spread rather then the domestic bill market.

    RAMS was refinanced because Westpac and other banks stepped in with their own balance sheets to refinance the XCP, principally with warehouse facilities. This only happened after Westpac carved up the business to its own benefit. No free lunch and all that.

  19. “..stop reading junk economics written by wingnuts.”
    Perhaps you’d like to explain just how the mainstream economic view is doing at present Fyodor, instead of throwing names at your betters. Explain to me why our Govt shouldn’t spend all that $21.7bill surplus they’ve budgeted for, or simply give it back to their pet ‘working families’ who are doing it so tough with those fuel and grocery prices. Why not Mr Mainstream?

  20. If you guys want to see the Q&A around AussieMac, which is quite extensive, go to Joshua Gans’s website at economics.com.au and search for AussieMac. Many of your questions are addressed there.

  21. Perhaps youd like to explain just how the mainstream economic view is doing at present Fyodor, instead of throwing names at your betters.

    How is it doing? Just dandy. If you’re het up to argue contra, make your case. I stand ready to be shocked and awed by your command of economic theory and practice. I’ll even give you extra points for anecdotes of collective wisdom from the smoko room.

    Explain to me why our Govt shouldnt spend all that $21.7bill surplus theyve budgeted for, or simply give it back to their pet working families who are doing it so tough with those fuel and grocery prices. Why not Mr Mainstream?

    Likewise, I’m not particularly vexed about fiscal tinkering in the last budget. Pretty underwhelming in general, was my take. I certainly don’t give a fuck about special pleading for this Mr Mainstream to which you refer.

  22. Fyodor, what you and Nicholas are noticing now, is the beginning of the collapse of faith in the world’s CBs Ponzi scheme. In the case of RAMS, they are simply another bit player who got caught up in the frenzy of the game and came to believe it would last forever, given the decade it has and due to some unforseen alignment of the planets. Those planets were demographics and a seemingly inexaustible supply of new Asian players to the game. Well actually in the case of all these Asian players, they were press ganged into it by their ultimate Keynesian overlords. No matter, while the game rages, these overlords or facilitating commission agents are as popular as the game. Everyone loves a winner. There is a nasty corollary however. In the case of RAMS, when the music of plentiful cheap money stopped, they found themselves chairless. Exit the game. The reason the cheap money stopped for them was a flight to safety of the banks(and commodities/commodity streams now), which I like so many investors rightly conclude, will be defended to the last by the printers of so much fiat money. Basically the banks don’t have to engage in such unruly squabbling for chairs, because they have reserved seating anyway. A bit like corporate boxes at the Grand Finale for which they pay the ‘appropriately determined fee’, whilst the rest take their chances with the scalpers, or what really becomes an auction at market determined rates. Then it’s a case of sedentary to the fittest.
    The Ponzi scheme is now drawing to its inevitable conclusion now. Not just your minor Ponzi scheme failure like The Dotcom or Asian meltdown, but the grandaddy of them all, because of the malinvestments of a decade that have to be unwound now. Two choices. Take the shock and awe on the chin, or what’s more likely, wear the inflationary long term unwinding. My bet is the long term stagflation, because that’s the easieast path for the guilty to take now. Having said that Oz is in a better position than most with its access to anti-inflationary commodity streams, but therein lies a problem for the new multiculturalists in Govt, with those with lots of that funny money eyeing them off now, in order to shore up its real purchasing power in future-
    http://www.news.com.au/business/story/0,23636,23697537-31037,00.html

  23. It’s not all plain sailing for we Austrain converts Fyodor, although you can certainly keep your spreads, XCP paper, wholesale and retail fiat money, etc. Had a bit of a dilemma over turning some fiat money into solar to the grid or adding to the Billiton, Woodside, Rio, PrimeAg, etc commodity streams recently. The $12500 net solar cost for 12x175W panels, etc won out last Monday on the garage/carport roof, because I figured those nasty Keynesians would probably want to means test that $8000 tax clawback, which they promptly did. Couple that with rising energy prices, Rann’s 2 for 1 compulsory utilities buyback from July 1 and a resultant risk free, after tax return of 10+ percent and I finally joined the greenies. I’ll have to watch my alternative choice of Billiton shares to see how I did with that tradeoff in future. Still, a bird in the hand as they say. Like most new chums you can’t help going out and glancing at the Fronius inverter readout to see how the investment’s ticking along. Suddenly clouds become a bit of a pissoff, but the novelty will soon wear off no doubt.

  24. Well, no surprise there, then: you’re a fiat-money conspiracy theorist, with the predictably banal millenarian twist common to Mathusiasts of the right wing. You’re in grand company, Obby, amongst some truly spectacular loons.

    You were even clueless enough to use the code-word “Ponzi”. Here’s a tip: look it up and learn something. The evidence so far is that you received your BEc. from the Tinfoil Department of the Universamity of teh Interwebs.

  25. The nuances of Ponzi or Pyramid schemes aside, Fyodor, I’ll leave Asian savers to figure it all out, a predicament Ponzi himself would no doubt have appreciated. Oh I have no particular objection to fiat money, just too much of it in everyone elses’ hands, or its creators, for my own good. There you go casting aspersions on venerable tinfoil hat institutions, that turned out so many of the mainstream hats today. No real arguments or suggestions though I note, particularly on what our fearless leaders should do now with all that manna from Heaven($21.7 bill at current estimates) they presumably have socked away in their computer hard drives. All they need to do is click a mouse and send all that real savings (ie forgone consumption) down the wire to all those struggling ‘working families’ and hey presto, their problems are solvered. Or should that be in trucks?

  26. I’ll leave you with this thought Fyodor. In the seventies, lots of mainstream scientists from venerable hatted institutions believed we were all headed for an Ice Age. Apparently they were wrong, or interpreted the signs incorrectly, yet now you apparently see no schizophrenic tension between what the Reserve is arguing and doing and what mainstream economists now view the Rudd Govt should do with accrued and future forgone consumption (ie real savings from production). I do.

  27. In the seventies, lots of mainstream scientists from venerable hatted institutions believed we were all headed for an Ice Age. Apparently they were wrong, or interpreted the signs incorrectly, yet now you apparently see no schizophrenic tension between what the Reserve is arguing and doing and what mainstream economists now view the Rudd Govt should do with accrued and future forgone consumption (ie real savings from production). I do.

    Non sequitur. In terms of fiscal impact the budget made immaterial changes to the spending and taxation settings. FFS get over it.

  28. He’s right Ob. The Budget was simply playing around with little numbers in the overall scheme of things. There was nothing in there that could be thought as a big idea.

  29. JC, I agree with you on that but reading between the lines Stevens is quietly humming the Austrian tune now, although I doubt he quite knows who composed it. He’ll know that and be singing the lyrics when his set in stone inflation target drops from 2% to 3% to say -1% to 0%. Has it dawned on him yet as to what’s what’s so special about his set in stone target now?

  30. WTF? I’ll say it again, obby: monetarism is not Austrian economics. Glenn Stevens would have forgotten far more about Austrian economics than you’ve ever learned, which appears to be comprised entirely of the crackpot DIY variety.

    The only “Austrian” tune Stevens is humming would be of the classical genre, or Falco, if he’s lucky.

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