Links September 25

Global Macro

  • Economics and disequilibrium. Steve Keen. Didn’t notice it yesterday due to the strange title and buried lead, but this is a thoroughly good read. Here’s Keen’s main point: “Had economists built on [Irving] Fisher’s Road to Damascus conversion, an entirely new economics could have resulted from the Great Depression, with disequilibrium rather than equilibrium as its organising principle. Instead, with Fisher ignored, the economics profession rebuilt itself around Hicks’s equilibrium interpretation of Keynes’s General Theory. By the time our modern-day crisis hit, equilibrium thinking was utterly ascendant in economics.”
  • Hard truths about global growth. Michael Spence
  • Traders are hackers and other stupid thoughts. Mark Cuban
  • Grain export restrictions remain on Russia’s agenda. Financial Times
  • RIP containment. The Diplomat

United States

  • The other American officials caught in the Benghazi consulate attack. New York Times
  • A very successful American bank you’ve never heard of. The Economist
  • A very successful Fed governor you have heard of. Washington Post
  • The downside of avoiding the IRS? Even more paperwork! NPR
  • Despite notional opposition, Republican states prepare for Obamacare. New York Times


  • Troika doubles Greek shortfall estimate. Der Spiegel
  • EU struggles to reach budget agreement. BBC
  • Beware Eurozone fantasies. The Economist
  • Britain, Canada to share embassies. Wall Street Journal. Austerity budgeting or the return of Empire? Scheme may extend to Australia and New Zealand. Canada already provides consular assistance to Australians in various places.


  • India restricts iron ore trade. Wall Street Journal
  • China’s real urbanisation challenge: hukou reform. Caixin
  • Another Foxconn riot, this time involving 2,000. CNet
  • But at least the iPhone 5 has a solution for the Senkaku dilemma. Foreign Policy
  • Bumi plc plunges on Indonesia probe. Financial Times
  • And Chinese firms face the music. Caixin
  • As does Bo Xilai’s former police chief, sentenced to 15 years. Xinhua
  • Park Geun-hye, South Korean presidential candidate, apologises for the sins of the father. Financial Times


  • Myopic view of the Aussie dollar. Michael Pascoe. Myopic indeed. Apparently those who call for a rate cut are ‘pet shop inmates.’
  • Short selling bans justified: ASIC. Financial Review
  • Government officials involved in another export corruption scandal. The Age
  • Queensland will stick with IR framework. The Australian
  • Virgin asks ACCC to scrutinise Qantas-Emirates deal. Financial Review
  • Storm Financial targeted retirees. The Australian. All these firms target retirees.
  • Regulator slaps CommSec with $50,000 fine. Business Day. I’m sure that will hurt.
  • BHP responds to contractor death at Pinto Valley copper site. The Australian
  • The curse of conformity. Tim Colebatch at his best



  1. This theory is similar to George Soros disequilibrium theory.
    I agree with Steve that more rigid science of Economic Science is desirable, but unlikely to get traction. A great example is the attempt to ban automated trading models. These models are very efficient and have rigid mathematically based modelling and are reducing trading costs dramatically for most participants. Don’t believe the dinosaurs, philosophers and zealots, science is the way forward.

    • Ah, but from the Diplomat article “.. societies find comfort in following familiar policies that once produced results. Even when they no longer make sense, familiar, well-established ideas are reassuring to the public, particularly in unsettling times.” Jurassic Park may have had a meaning beyond the children’s film.

    • Suggestions like this scare me… phase out $50s and $100s? In real terms they are worth much less when introduced and inflation is still ongoing. $100 would be lucky to cover the groceries of a couple for a week and yet it’s claimed anyone wanting to use larger notes is doing so for tax avoidance? Personally I take out a few hundred dollars at the start of each week and use cash to avoid bank fees and convenience factor.

    • Whether this theory is based on reality or not, I think the idea to phase-out the $100 bill is sound one because with more and more transactions done electronically, there’s not much use to high-value bill anyway. The other benefit is to limit the mean for criminals and tax-dodgers to do their transactions.

      • How about those using cash (in a legal manner) who simply prefer the privacy it provides? Or is personal privacy an outdated idea that now only criminals prefer?

        I bet you’re the type to support that new legislation for ISPs to store all internet history (2 years).

        Where does it stop?

        • Privacy has its place in society and I agree with you that there should be limit to the “big brother” trend by government. But, don’t put words into my mouth because I never said anything against privacy right on internet data.

          However, on balance I still agree with the idea because it is related to national economy and good initiative to stamp-out crime’s proceeds and black / cash economy to avoid paying tax. We don’t want to become a nation of tax-dodgers like Greece and this is a good price to pay.

          It is my principle that everything in this world has a price and in this case, the small privacy value on your daily transactions is good price to ensure we get all tax revenues and limit the criminal activities. Of course, you’re entitled to have your own view on this.

          • If the monetary system is put right, then there is absolutely no need for taxation in the first place. Rendering the entire basis of excuses for further intrusions on privacy in the name of “catching tax cheats” as moot.

          • Fair enough re words in mouth Deo.

            But where does it stop? Get rid of $100’s? $50’s? Why not $20’s?

            Shouldn’t the maximum note size be increasing as inflation continues to reduce the purchasing power of each note?

            The $100 bill was first introduced in 1984. The same basket of goods that $100 bought in 1984 costs $270 today. So it is not far off 1/3 it’s 1984 value.

            On what are you basing the maximum denomination note we should have? Simply because the $100 bill is most commonly used by criminals? That will always be the case.

          • he small privacy value on your daily transactions

            Gerez I put a damned high value on my privacy about where i’m at.

            What’s my future in the grand scheme….off to a re-education camp?????

            I can’t believe how easily all our rights to privacy are being so easily eroded.

          • On what are you basing the maximum denomination note we should have?

            I think it is based on the fact that $100 bill is not regularly used in daily transaction. Even in the ATM or when you draw cash from bank, it is rare you get in $100 bill. If cost of living is so high that most transactions required $100 bill then I suppose the RBA would need to consider higher denomination, right ?

          • That “small” intrusion into your privacy can reveal some pretty intimate details:

            As I mentioned before, it is small price considering regular person in their modern life already reveal so much about their shopping habits / preference anyway by doing online transactions, using debit / credit cards, registering to loyalty schemes, etc. Yes, it has privacy issue but to me it is still little price compared to high potential benefit from stamping-out crimes (mostly in contraband items and drugs) and tax-evasions. I know this may not be totally effective but if it can help reducing those bad stuff, then it still has bigger benefits vs. costs.

            I can imagine how “easy” for drug-lords to hide their cash in $10 or $20..compared to $100 bill …or how “easy” to perform cash transaction to avoid GST / income tax if we only have $20 as highest value bill.

          • “I think it is based on the fact that $100 bill is not regularly used in daily transaction.”

            They are not used regularly in transactions because they are not dispensed from ATMs (at least I’m not aware of any ATMs which dispense $100 bills). I would use them on a regular basis as opposed to having a wallet stuffed full of $50s if they were easily obtained.

            This seems like pretty weak reasoning to target the $100 bill specifically.

          • They are not used regularly in transactions because they are not dispensed from ATMs (at least I’m not aware of any ATMs which dispense $100 bills). I would use them on a regular basis as opposed to having a wallet stuffed full of $50s if they were easily obtained.

            BB, please read my complete post. I mentioned the fact that it is also hard to find in bank or ATM’s drawings. You can argue day and night but I won’t but this is chicken and egg argument. Banks will say that it won’t stock much $100 bill in the ATM because not many customers use it in their daily transaction…as I said chicken and egg situation.

            But, honestly I rarely have to spend more than $20 in my daily cash transactions which is usually a minimum limit of using EFTPOS / credit card in many shops. Maybe you’re different but hey, some people have huge appetite or expensive taste 😉

          • We don’t want to become a nation of tax-dodgers like Greece and this is a good price to pay. Yep not like Greece where everyone does it. Like Australia where only rich people should be able to do it….
            And criminal activity: mostly those criminal pensioners dodging tax and rorting the huge pension.

          • Give it about 5 years and your current $50 is going to be worth about $20…We’ll all have fat wallets anyway!

            Why not just ban cash so we can track everyone everywhere at any time!!! Got to keep an eyer on these damned private citizens….it’s small price for them to pay for our ‘protection’

        • Roxon on this topic today.

          It’s going to happen, and we the sheeple can’t be trusted comes out loud and clear.

          The trend in the US/UK/EU, and here is that the government will control all aspects of your life one way or the other. It’s a slow creep, but how disgusting are these people who claim to be our leaders want more than anything to destroy any concept of trust and citizenship and all that entails. Your guilty sheeple, and you will be controlled.


    We could call it Romnesia: the ability of the very rich to forget the context in which they made their money. To forget their education, inheritance, family networks, contacts and introductions. To forget the workers whose labour enriched them. To forget the infrastructure and security, the educated workforce, the contracts, subsidies and bailouts the government provided…

    …The crudest exponent of Romnesia is the Australian mining magnate Gina Rinehart…

  3. Short selling bands justified: ASIC. Financial Review

    I presume we means ‘bans’ Ed: Ta. Fixed.
    If we are banning short selling then we should also ban borrowing to buy shares.
    With a ‘short sell’, as understood, we are shorting shares and going long currency.
    It seems reasonable therefore to stop this sort of speculation by people who short the currency to go long shares.

    Both transactions involve shorting.

    • This is regulatory protection racket run by ASIC for the banksters.

      After FMG got shorted to hell and back, banksters must be a nervous bunch. This is a warning shot across the bow to Hedgies like Jim Chanos to stay away from the protected/endangered species.

      PS: When people here discussed shorting banks, I had warned this is precisely what is going to happen.

        • I don’t get what you are trying to say here.

          If you believe the official line that ASIC took 4 long years to produce a remarkably short, 29 page report on “short selling” and coincidently release it within weeks of FMG being shorted, then I got a Harbour bridge to sell to you (*) .

          The report was a media bait to give ASIC an opportunity to talk about banning short selling again.

          (*) Struts not included and sold separately

          • Mav, I do not believe that banks or anyone are a protected species.

            ASIC is tooth-less tiger.

            Are you understanding my perceived ramblings now?

          • ASIC is a capitive tiger of the banks – they can still ban short selling when it suits their masters (of the universe).

            I stand corrected then. BUT, to make a dollar (and more!) from Financial Instruments, we need to work ourselves (and our strategies) around the manipulation.


          Little gratitude for the ban that saved the bacon


          REMEMBER that short-selling ban a few years ago, the one that had the pleasant effect of putting Australia’s financial institutions on the protected species list alongside Abbott’s Booby and Bulmer’s Fruit Bat? The same one that stopped the occasional bank joining the queue behind Lehman Brothers for an appointment to meet its maker?

          If we’re not mistaken it was the financial industry requesting, nay, pleading for the ban on short-selling financial stocks to be put in place.

          But according to the corporate plod’s hard-hitting review of the ban, released yesterday, the industry now says the ban in fact cost it money.

          ”Industry groups were in broad agreement that the greatest costs imposed by the short-selling measures were lost business opportunities driven by the short-selling ban,” ASIC noted.

          The industry lamented the loss of being able to make ”fee income from products; brokerage revenues; returns from some proprietary trading strategies; and revenues from stock lending”.

          We searched high and low for a word of thanks from a bank in the report.

          Nary a word of thanks for ASIC saving their bacon. Just a gripe about how it cost them the chance to make something like $6 million more in revenue.

          As for the plod, it gave itself a thorough grilling over the short-selling ban, and delivering itself a slightly hedged thumbs up.

          ”Broadly,” its conclusion began, ”the short-selling measures achieved some of the objectives outlined in this report.”

          Er, ”broadly”? And, ”some”? Hardly blowing the trumpet.

          Sure, there was the odd unintended consequence: ”The ban on short-selling may have exacerbated market volatility. It also potentially inhibited price discovery in the market and may have reduced market liquidity.”

          Fair enough, they were extraordinary times. But then this:

          ”The short-selling measures potentially contributed to a number of other outcomes, which had negative impacts on the efficient operation of the Australian market. These included higher bid-ask spreads, lower turnover and encumbered price discovery.”

          OK, anything more?

          ”Negative impacts may have been exacerbated by the length of the period of the Australian short-selling ban compared with those in other highly developed markets.”

          Is that it?

          ”As well as its impact on the financial market overall, the ban on short-selling also imposed costs on certain participants in the market. The main costs incurred were the costs to implement reporting and other compliance arrangements and the loss of revenue and business opportunities because of the inability to short-sell. Some fund managers using alternative investment strategies were significantly affected in this way.”

          Thumbs up all the way.

  4. More great stuff from Prof. Keen. Sadly, in highlighting the results of Irving Fisher’s Road to Damascus conversion, the singular and most important key he fails to hold up for due attention, is Fisher’s recognition of and advocacy for the work of Silvio Gesell with regard to the “Freigeld” (“free gold”) debt-and-usury-free monetary system. “Stamp scrip” in particular, which Fisher lobbied Congress to support –

    Free money may turn out to be the best regulator of the velocity of circulation of money, which is the most confusing element in the stabilization of the price level. Applied correctly it could in fact haul us out of the crisis in a few weeks … I am a humble servant of the merchant Gesell. — Prof. Dr. Irving Fisher, economist at Yale University New Haven/USA

    Gesell’s chiefwork is written in cool and scientific terms, although it is run through by a more passionate and charged devotion to social justice than many think fit for a scholar. I believe that the future will learn more from Gesell’s than from Marx’s spirit. — John Maynard Keynes, Economist, Fellow of King’s College, University of Cambridge/England

    Gesell’s standpoint is both anticlassical and antimarxist … The uniqueness of Gesell’s theory lies in his attitude to social reform. His theory can only be understood considering his general point of view as a reformer … His analysis is not completely developed in several important points, but all in all his model shows no fault.
    — Prof. Dr. Dudley Dillard, economist at the University of Maryland /USA

    We would especially like to certify our great esteem for pioneers such as Proudhon, Walras, and Silvio Gesell, who accomplished the great reconciliation of individualism and collectivism that the economic order we are striving for must rest upon.
    — Prof. Dr. Maurice Allais, economist at the University of Paris/France

    Academic economists are ready to ignore the ‘crackpots’, especially the monetary reformers. Johannsen, Foster and Catchings, Hobson and Gesell all had brilliant contributions to make in our day, but could receive no audience. It is hoped, that in the future economists will give a sympathetic ear to those who possess great economic intuition. — Prof. Dr. Lawrence Klein, economist at the University of Pennsylvania/USA

  5. The Colebatch article was misinformed; he largely appears to have ignored the role of globalisation in acceleration of offshore manufacture. He would do well to read:

    to gain an insight into the composition of trade, import/export including manufactures etc over the past decade.

    He was probably the author of that undergrad slogan and a Fitzroy street – hasn’t moved on either it seems.

      • +1 It’s a superb article.

        3d1k, I agree, and disagree, with your comment that “he largely appears to have ignored the role of globalisation in acceleration of offshore manufacture.”

        Colebatch wrote:

        Rather, they would allow the higher dollar to reduce import prices, and increase the relative cost of Australian products. This would shift production overseas…

        In my view, this is the very definition of furthering globalisation. By NOT addressing the AUD FX rate, our politicians and officials have wilfully encouraged the forces that undermine our capacity for national self-reliance. Their inaction serves to increase our dependency on other nations. A globalists’ wet dream.

        As other nations (eg, US, UK) have begun to see the negative results of globalisation on their own economies – ie, interpendency and loss of self-reliance creating vulnerability – we are seeing the tide begin to turn against those forces (eg, currency wars, “protectionism” in many forms).

        My 2c.

        • Trade data over recent years appear to show a distribution component in regard to exports (primary, services, manufactures) not strongly supportive of the negative role of the strong AUD. Changes in our manufacturing production base are consistent with most other developed economies as the gradual shift to global production continues.

          A globalist’s wet dream? Globalisation on the scale we have witnessed is an experiment in play, too early to draw conclusions from. The same wealthy developed countries that now have constituencies decrying globalisation have until recently enjoyed enormous (short-term?) benefits and now like petulant kids in the schoolyard want the game to end. The kids are going to have to grow up, because this game has a long way to go.

          For mine I see it very difficult to unwind the dependencies engendered by globalisation without some sort of cataclysmic re-write of individual economies and that will not happen, at least not by choice.

          Articles like Colebatch’s (like the slogan he refers to) only ever tell half the story.

          My 2c. Barnaby is Entertaining. 🙂

          • some sort of cataclysmic re-write of individual economies and that will not happen, at least not by choice.

            Not by choice of the common folk, no. But happen it will. The 1929-1945 reprise is already well underway.

  6. Chris Joye in the AFR: “One of our most deeply misguided and poisonous policy aims is the desire to reduce income inequality.

    Australia’s leading inequality expert, Labor politician Andrew Leigh, reluctantly acknowledges the latest research, including his own, shows that more income inequality does not lead to worse health, crime, savings or growth outcomes.”