Alan Kohler is one of Australia’s most experienced commentators and journalists. Alan is the founder of Eureka Report, Australia’s most successful investment newsletter, and Business Spectator, a 24-hour free business news and commentary website. He also hosts Inside Business, a half-hour Sunday programme on the ABC, is the finance presenter on the ABC News - and producer of the nightly graph (or two).
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Comments on this article
Comments PolicyEurope has proven that government austerity and private austerity at the same time causes recession (unless changes in the net external sector can offset it.)
Many now accept that this problem is accentuated where a country is not the sovereign issuer of it's own currency, but merely the user of some other body's currency as are the countries of the EMZ. (The IMF gets radical? November 5)
Richard Koo has shown us that Japan has proven that GDP and employment can be maintained by increasing government debt and spending whenever the private sector deleverages, but most people have concerns about how Japanese government debt unwinds in the face of aging population likely causing total savings to reduce.
Steve Keen has done much to make us and financial journalists realise that contrary to mainstream economics debt growth/contraction rates have huge impact on the economy.
Now it remains for financial journalists and commentators to understand Modern Monetary Theory/Realism and the comparative advantages of fiat currencies and to know about the periods surrounding the fall of the gold standard and the period surrounding the breakdown of the Bretton-Woods fixed exchange rate regime. These understandings are slowly building.
This IMF paper will assist but we need a simple summary based on Australia and its institutions to assist in this process.
Thank you, Steve (The IMF gets radical?, November 5).
Currently we have a prosperous economy like Spain in financial trouble due to their banks propping up a Real Estate bubble hat eventually burst.
The sub prime in the USA was caused by banks lending to any person with a pulse.
They are two current problems caused by banks. Therefore private Banks definitely need more monitoring.
Maybe the question should be asked "why do we need Banks". The banks greed for higher profits causes so many financial problems. Why not a government owned bank despite how inefficient government are in business.
Neoclassical economics, with its abstract models and algebraic equations, together with Keynesian economics dominates mainstream economics today. (The IMF gets radical?, Novemeber 6)
Neoclassical economics had its foundation at the turn of the 20th century. At that time the boards of American universities, originally composed of clergymen, changed to being composed of wealthy businessmen. Examples are JP Morgan at New York's Columbia University and JD Rockefeller at Chicago University. The boards were unaccountable and in charge of the appointment of scholars and the funding of their departments. The terminology and paradigm of economics was changed to suit the version of capitalism the bankers wanted.
It was like having Big Tobacco in charge of medical research.
Economists ought to be radically reappraising their understanding of how the world really works. Evidence fot that is a century where politicians have had little help from their professional advisers in the quest for full employment, elimination of poverty and any understanding, prediction or control of the boom and bust business cycle.
"The Corruption of Economics" by F Harrison and M Gaffney is a good insight book as to why economics is such a muddled science.
How about the rescue packages that we now see in Europe? (The IMF gets radical?, November 14)
A debt is created and circulated as liquidity (Euros) against the purchases of government bonds in the secondary market, raising their price for a short while. This is also a net new addition to the system's liquidity because it is based on - nada. Or rather, securitizes itself afterwards. In order to sterilize, a second operation is supposed to be undertaken by the ECB. My point however is that the net effect is that balances increase and therefore investors/speculators/
'the market' have more leeway to manipulate the market so as to get the highest return, thereby augmenting systemic risk.
Steve Keen's clubbing, we hope, will finally crack enough economists' minds that the profession will soon abandon its misspecified banking models. The facts that the economics profession was largely silent as the bubble was peaking, and that their policies since have failed to arrest the drop in employment, are no doubt amplifying Mr. Keen's message.
Nonetheless, I would suggest that he use a hammer instead of a club, when criticizing "neoclassical economists." The hammer will hit the likes of Krugman much harder than a club, and will avoid collateral damage to the many economists who are open-minded, sympathetic, and ready to awaken...including those who use neoclassical models just because they were so trained. We don't want to alienate them.
By the way, Irving Fischer can be considered one of the fathers of neoclassical economics, yet he understood well that banks' erratic behavior caused an erratic money supply. Not only that, he proposed to divorce money supply from bank credit in his pamphlet, 100% money, as a way to smooth the business cycle.