Links August 15

Global Macro:

  • Stocks still beat bonds – Burton Malkiel in the Wall Street Journal. He’s the guy that wrote “A Random Walk Down Wall Street” – HT Business Insider
  • Standard Chartered has agreed a $340 million fine – everyone is covering this but here is The Guardian’s take
  • Climate Change – “That sinking feeling”. The Economist Babbage

United States:

  • US Retail sales hit 5 month high – Sky


  • Europe – what goes around comes around. 5 of 17 nations in recession BBC
  • Euro-Zone rot keeps spreading – Wall Street Journal (great head line)
  • Eurozone economy sinks – Al Jazeera
  • Romania out of recession, Czechs, Hungary slip deeper into the mire – Reuters
  • Bloomberg on EU banking plans calling for ECB to share power – here
  • Greece got a debt issue away last night – Wall Street Journal


  • China’s ghost towns and phantom malls – Yes again, BBC
  • China’s golden years are gone – Bloomberg
  • Hot money turns cold on China – Wall Street Journal


  • Mmmmm – Blackwood sinks after Tinkler misses deadline. The Australian
  • Don’t intervene in the Aussie Dollar – David Uren in the Oz
  • ACCC getting titchy over comments on Facebook pages – SmartCompany
  • ASIC warns website operators over Crowd Funding sites – Smart Company
  • Just another reason why the Australian Dollar is so well bid – Melbourne World’s most livable city. ABC
  • Retailers urged to stop making unsuitable clothing for young girls – SMH. Here here, getting very hard for me and my wife to dress our 7 year old appropriately from some stores.
  • NAB feels squeeze in the quarter – SMH


  • The lies we tell ourselves – Forbes
  • Fukushima’s mutant butterflies – CNN
  • As a Fibonacci lover I found this one very interesting – Guardian Science


  1. Bill Black is guilty of exactly the same extremism that he attaches to everyone else. If you don’t believe in magic pudding economics you are immoral.

    Mind you maybe his clarity of thinking is revealed here
    ‘ It is a myth that a nation with a sovereign currency like the U.S. is not “just like” a household with regard to deficits or surpluses.’

    It IS indeed a myth that the US is NOT just like a household…or perhaps a better example might be a large corporation or farm.

    • When households, large corporations or farms can start creating their own money, or have the power to dictate who can and cannot create money, then your argument might have some truth to it.

      In the meantime, I think I’ll go with Steve Keen and tell the neoclassicists to take a hike.

      • “When households, large corporations or farms can start creating their own money, or have the power to dictate who can and cannot create money, then…” and only then will human society evolve to a new and better state of being.

        • All too true.

          As Lawrence Goodwyn wrote in The Populist Moment:


          But the power of hegemony achieved in 1896 was perhaps most clearly illustrated through the banishment of the one clear issue that animated Populism throughout its history—-the greenback critique of American finance capitalism. The “money question” passed out of American politics essentially through self-censorship. This result, quite simply, was a product of cultural intimidation. In its broader implicaitons, however, the silencing of debate about “concentrated capital” betrayed a fatal loss of nerve on the part of those Americans who, during Populism, dared to speak in the name of authentic democracy….

          Aspirations for financial reform on a scale imagined by greenbackers had expired, even among those who thought of themselves as reformers. Inevitably, such reformers had lost the possibility of understanding how the system worked. Structural reform of American banking no longer existed as an issue in America. The ultimate cultural victory being not merely to win an argument but to remove the subject from the agenda for future contention, the consolidation of values that so successfully submerged the “financial question” beyond the purview of succeeding generations was self-sustaining and largely invisible….

          [T]he idea of a democratic monetary system—-the operative dynamic of American Populism—-is simply not something that Americans seem any longer to aspire to.

          **end of quote**

    • Are you saying US government cannot create money in the form of its own sovereign currency?

      I wouldn’t go so far as the MMTers, but the government does have a extended ability to print its way out of debt and maintain social cohesion within its borders.

      • A Govt can only print its way out of debt by putting the nation as a whole further in debt or reqiring that its population cut back its well being so the state can expand.

        (Mav…I hope you note the dangers in the words you’ve used…re governments printing and maintaining social cohesion within its borders…strewth!)

        Farms or large corporations can indeed conceptually create money within the entity. Not only that, and this is the real point, they can continue to live beyond the capacity for production the same as a country viz the major part of the western world for the last 30 years. The corporation just keeps issuing bonds. The farm just keeps selling off a paddock. It’s exactly the same process as nations who print are involved in.

        The concept you promote (Glen in particular but also the others commenting) of assuming that the external account is an unlimited source of free funds that will last eternally is just drivel. It was invented by the Americans once they became the reserve currency. Indeed they became the reserve currency just so they could take advantage of such poppy-cock.

        They presume, and up till now it has been possible just because of their sheer size and power, that they can have access to whatever goods and resources they want and that everyone else will keep working and accept the bits of US confetti. The US thinks the world ought think itself privileged that it distributes this confetti ad infinitum …or so it seems. Effectively the US gets ‘stuff’ for nothing.

        Herb Stein’s ‘Steinerism’ becomes more appropriate every day.

        The Smithsonian Agreement 1971, post Breton Woods,on which your economic thinking is fundamentally based, was no great advance in monetary theory and practice.
        I happen to remember those times quite well and I was very ‘economically aware’ at the time. The US was broke. Financially France had its hands around the throat of the Americans. The US could not meet its commitments to the IMF or anyone else. France was demanding payment from the US not in confetti but in GOLD. On the other hand the US had power. The Smithsonian Agreement was just an exercise of that power. The long term results of that are only now becoming apparent.
        In the meantime US Universities have come up with the stupidity that it doesn’t matter how much money the US prints, the world will accept it, so there is no need to put a cost on it.

        Note Charles De Gaulle’s speech fro 1965 six years before Breton Woods

        itulip have a very good summary of these events on youtube

        • FWIW – and I can only speak for myself and not Glen here – I fear that you may well have leapt to certain erroneous conclusions concerning (from my perspective) calls for currency creation to be extricated from being the exclusive right of the sovereign/sovereign-approved system.

          “Farms or large corporations can indeed conceptually create money within the entity. Not only that, and this is the real point, they can continue to live beyond the capacity for production the same as a country..”

          No, they can only create bonds (ie, debt certificates). Not “money”, as in “currency”.

          “Can” is the operative word in your statement here. I do concur completelt with your concern as to what happens if/when the “can” eventuates. But a possibility, does not necessitate a conclusion that it is an inevitability. Indeed, in my opinion it is this very (false) premise that is used to justify the rationale underpinning the “money as debt” status quo.

          “The concept you promote (Glen in particular but also the others commenting) of assuming that the external account is an unlimited source of free funds that will last eternally is just drivel”

          With respect, that is a Straw Man. Unless Glen has specifically stated this previously and I missed it, then it would appear to me that you are placing words in others’ mouths here.

          • They can indeed create their own ‘currency’ which can be spent within the organisation. In some places this used be quite common. The currency is no good outside that organisation unless it can be used to buy something useful in return or indeed buy he organisation itself. That is no different conceptually to any fiat currency

          • Straw man…for goodness sake! You only think it is a straw man because you are not thinking through the problem. I think you should read all DE’s posts on the CAD and external account then come back to me. Perhaps I should qualify it this way…in a nation running a chronic and large CAD such as ours any priniting will, inevitably largely end up in the external account. The same applies if credit is created through lowering interest rates. You seem to me a an MMT follower so follow the sectoral balances. My only qualification is that just because MMT doesn’t recognise the external account and indeed according to Bill Barnacle’s own statements Foreign debt doesn’t matter, that does not mean the external account, with all its considerations, does no exist. It most certainly does and it is NOT just an immaterial part of the private sector.

            You all promote zero to negative RAT rates so tell me if a govt then prints money how does it not end up in the external account? There is only one way and that is to immediately tax the whole lot back which negates the effect of the print. The only way Govt printing can work without adding to external debt or ownership of our resources, is
            1. You have a pile of underused resources which you can clearly target.
            2.The use of those resources adds to your exports to a greater extent than it adds to imports. Remember here that in our economy the marginal increase in imports per $ creation is very high.
            3. You use taxes or interest rates to immediately mop up the surplus money. Effectively you are creating a re-allocation of your resources.

          • @ flawse

            Your writing is so convoluted and muddled that it’s difficult to sort out just what it is you are going on about. So let’s start from scratch with some basic definitions:

            Definition of ‘Current Account Deficit’:
            Occurs when a country’s total imports of goods, services and transfers is greater than the country’s total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world.

            And then let’s take a look at how the US’s account deficit with China has played out over the past couple of decades:

            1) China sells U.S. goods
            2) U.S. pays in dollars
            3) China, instead of using those dollars to create internal demand, loans those dollars back to U.S., either by buying T-bills or asset-backed securities.
            4) These loans are used not in productive investment in the U.S. (e.g. plant, equipment, etc.) but to pay for even more goods imported largely from emerging economies, to bid up the price of existing U.S. assets (in other words to blow asset bubbles), and to finance war.

            You seem to be quite concerned over “external ownership of our resources.” But why is that a problem, as long as external ownership doesn’t translate into loss of sovereignty? It seems like the much greater problem is when the incoming capital flows or transfers are squandered on frivolous and non-productive pursuits. As a counterfactual to your argument, I would point to the 19th century when there were massive and unprecedented capital transfers to the United States from Great Britain, and that money was invested to industrialize the United States, not to de-industrialize it as has been the case with capital flows from China.

            The same account deficit dynamic that played itself out between the US and China was repeated in Europe, with Germany playing the role of China and the periphery playing the role of the US. Today and in the near future, however, the U.S. has an easier road to hoe because it has not signed away its sovereignty over monetary and regulatory policy with a bunch of treaties and agreements as the periphery has.

            Monetary easing can also be used for frivolous and non-productive pursuits, such as to pay for even more goods imported largely from emerging economies, to bid up the price of existing U.S. assets (in other words to blow asset bubbles), and to finance war. And so can government spending or fiscal stimulus. This, in my opinion, is where the MMTers’ all too often cast a blind eye.

        • flawse,

          Your analysis is completely neoclassical in that the role that private banks play in creating money appears nowhere. Debt slaves are not created by government, but by private banks. The role of neoclassical dogma is to conceal this simple reality.

          Thus Steve Keen has argued:


          The economic crisis occurred because of a failure of both economic theory and economic management. Economic theory is dominated by the “Neoclassical” school of thought, and this school’s understanding of banks, money and debt is seriously deficient. Attempts to control the macroeconomy have been based upon this theory, and have therefore failed. Policies to control the banking system need to be based on a realistic model of how it operates, and this is the model of endogenous money.

          **end of quote**

          Another excellent paper from the London School of Economics that explains this can be found here:

          “Ignoring the role of private debt in an economy is like driving without accounting for your blind-spot”

          • Glen
            Have you EVER once read anything I’ve written. If you read anything did you ever stop to think about it?I’m further from neoclassical than Steve himself!

            We were specifically talking about Govts printing money. Private Banks can indeed ‘ money’ Indeed my own business ‘prints money’ in response to interest rates. If interest rates are 5% i need less worry about credit I extend to customers than if rates were 30%. Similarly Banks can create a lot more credit if rates are negative RAT than if they are +10% RAT. Such credit creation and the resultant imports, in our economy, immediately adds to the CAD and our foreign indebtedness. Of course we cover the extreme indebtedness we create by selling our assets to gain foreign currency.

            In our economy, if you have either Govt deficits or excess credit creation through low interest rates you get increased indebtedness.

          • P.S. Neoclassical economics ignores the external account. Which makes your arguments closer to neo-classical than anything i have ever written.

            Steve himself ignores the external account much to my chagrin. If I understand his response to me on the topic it’s mainly because he is trying to build models that work. It takes time to get around everything.
            Unfortunately I do believe it is leading him to not include what is happening in the external account in his writings.
            I believe FWIW that is a fundamental mistake but he can only do what he can humanly do.

            After his debt jubilee statement I do intend to take it up with him again :)Note I’m not a bosom buddy of Steve’s or anything remotely similar(unfortunately as he is a good man) We just found we were riding similar horses many years before the GFC was on anyone else’s horizon.

          • @ flawse

            I did read what you had to say.

            And what I hear is someone, just like Paul Ryan, who harps on incessantly about government debt, with nary a mention of private debt.

            Ryan is either clueless or in denial about banks, money and debt. Thus we get these endless rants about public debt, while he ignores the elephant in the room, private debt.

            Here’s a great graph that illustrates this:


            Ryan is tantamount to someone being rolled into the emergency room with a heart attack, and all he can worry about is his runny nose.

            Your comments such as “We were specifically talking about Govts printing money” and “my own business ‘prints money’ in response to interest rates” are not indicative of someone who has much of an understanding of banks, money and debt. The monetary base is only a small part of the total money supply and doesn’t always move in concert with the money supply. And your comment about “my own business ‘prints money’ ” is just nonsensical. You also, like the neoclassical economists, either ignore or deny the effect the creation or destruction of money has upon production and demand in the macroeconomy.

            That’s why I cited the two papers by Steve Keen. Until you have some basic understanding of banks, money and debt, how is it possible to have an intelligent conversation with you concerning these matters?

          • flawse says:

            Steve himself ignores the external account…

            Nonsense. You’ve obviously never heard Keen speak of Keyne’s proposals regarding international capital flows.

          • Repeat…Repeat again…

            This discussion was specifically to do with Govt printing. Personally I don’t see a lot wrong with Govt debt except in that, with policy settings as we have in this country, it does involve the sale of assets.

            You reckon you are not ignoring the external account then you ask what is wrong with having a mountain of foreign debt and having sold all our assets to foreign buyers.?
            Seriously…you need to sort yourself out!

            What’s wrong with all our industry and mines belonging to foreign interests?
            If you can’t see that I can’t help you. However you might like to tell me what we are going to do after the sale is complete? Secondly, as Rumples pointed out it creates a negative flow…we have repatriation of dividends in front of us. This is already a problem in our accounts.

            You accuse me of not understanding money and debt and its role….I suggest I was following Keen long before you came on the scene in any way. I understand it fully. You just haven’t thought the problem through.

            I have read Steve’s papers on Keynes proposals. Now maybe somewhere back in time had these things been proposed and gradually introduced it may have had some role.
            The proposal, if introduced now, would just reinforce the western world’s sense of entitlement and its sense that it can just go on as it is with the Chinese working their butts off in factories and saving while we live the life of luxury.
            The Chinese are not just going to give up all their international reserves that they are now using to ensure their food and resource pipeline.
            Eveyone needs to get a bit real instead of presuming the goid-given right of we westerners to live at the expense of others.

            P.S. Muddled writing…you have obviously NOT ever read my posts. It’s very difficult to explain in detail, in a short post, why someone ought use their own brain when that person is mostly determined to throw personal insults as their main form of argument.

      • The concept you promote (Glen in particular but also the others commenting) of assuming that the external account is an unlimited source of free funds that will last eternally is just drivel.

        Note that I have never used the word “unlimited” and instead deliberately used the word “extended”. But I know where you are coming from.

        In the end, money is a man-made construct. Both Austerian & MMT can be right IN THEORY. But in the real word, IMHO, it is the behavioural stuff (fear/greed) that matters and no economics theory can get that one right.

        • it is the behavioural stuff (fear/greed) that matters and no economics theory can get that one right.

          That’s true Mav…which is why in the final analysis I always conclude the problem is indeed ‘us’

  2. Question David Uren…why would the RBA be paying 3.5% on the currency it, itself, issued? Maybe I’m missing something.

    I’d agree that pure RBA intervention in the currency is dangerous without a whole lot of other fiscal and regulatory measures. Nevertheless it fascinates me how it is OK to flog off every asset we have to fund consumption while at the same time destroying our own employment.
    What is David’s ‘end-game’?

  3. The lies we tell ourselves – Forbes

    Thanks for that one. In the Mankind Project it is the question we ask ourselves ‘What will happen if I do act?” “What will happen if I don’t act” It tends to provide a fair bit of clarity.