Spoiled young economists flail!


Back on May 9, I wrote about the failure of Australia’s young economists to recognise that Australia’s economy is at risk as the mining boom winds down. For that little effort I received the following amusing tweeted reply from one of the youngsters in question, Chris Joye:

christopher joye @cjoye 17h
Poor old “Houses & Holes” of Macrobusiness: his 2 big calls–Aussie house prices and the dollar are going to dive–biting him in bum

Now, I will note in passing that I have not made a “big call” on house prices falling, though I have noted that the risks of a fall are now higher than I can recall. My call this year has been that house prices will under perform expectations and will struggle to do better than inflation. That’s looking a pretty decent call at this stage.

Moreover, my much mocked dollar call seems rather to be biting Chris in the bum, so much so he has today become a bearish currency analyst:

First, the RBA apparently crossed a Rubicon with its May rate cut, as I warned them prior to the decision. With the cash rate being pre-emptively crunched from 4.25 per cent to 2.75 per cent today, the carry trade, or yield differential, afforded by Australian bonds is much less enticing. The newly introduced FX risk amplifies this point.

Second, global investors are clearly more jittery about the prospects for Australia’s economy as we move past the investment phase of the mining investment boom and questions arise regarding our key trading partners’ growth rates.

Setting aside the spin we see from ALP lobbyists and uninformed commentators, the stunning increase in Australian government debt from $150 billion at the end of 2007 to over $500 billion today, combined with six years of consecutive budget deficits, has also withered the notion of the “Wonder Down Under”.

Third, the inevitable unwinding of the biggest public intervention in private financial markets in history is looming. I have cautioned before that this puts into play the risk of much higher US yields and a dramatic decline in Australia’s exchange rate with unsavoury inflationary consequences. This time appears nigh.

Welcome to the club, Chris! But I advise dropping the incipient rage about an inflationary surge. The consequences may be unsavoury but they will be better than not seeing the dollar fall. And don’t fret too much about the tradable inflation, the RBA will look through it.

Meanwhile, another of the young turks, Paul Bloxham, yesterday argued in a short video interview on CNBC that there is no mining capital expenditure cliff (rather a plateau over the next few quarters), and that the non-mining economy will fill the void left as the mining investment boom eventually unwinds, and that he doesn’t believe that the RBA will make further cuts to interest rates this year given the Aussie dollar’s recent (modest) depreciation.

Wrong again. The RBA will cut again, even as the dollar falls. It will have no choice as the mining investment cliff gets steeper. I reckon June is odds-on at this stage but we’ll certainly see more before year end. And again, the RBA will look through tradable inflation when it comes.

Two days ago it was “Mad” Adam Carr jumping at bears under the beds:

“Things are continuing to improve, not that you would know about that here. In Australia we’re all getting ready for another recession. The determination of some people is incredible. Alarmists run around frantically telling anyone who will listen that we are doomed unless the dollar comes down sharply, and we are headed for a deep recession.

This is nonsense, although I don’t discount the possibility of the country talking itself into recession – something Reserve Bank Governor Glenn Stevens has noted in the past. The biggest risk here is that we talk ourselves into recession and for some reason there is no shortage of people who are prepared to do the work here, to put in the hard yards. Far too many business commentators and economists are more than willing to, and have been for many years. When the data shows the absurdity of their arguments they just swap hats, as if they weren’t being alarmist in the first place. Then they switch back to alarmism as soon as they get the chance.”

And capping us off this morning we have the Kouk, who I have not included in the band of young brothers to date, but with his conduct on Twitter this morning tosses himself into the gang:


This is a reply to a 37 page document derived from decades of research and experience by Australia’s most internationally regarded economist. Enough said.

Come on fellas!  How are we to address difficult economic circumstances if you don’t take responsibility for your learnings, if you wed yourselves completely to official forecasts and if we’re not allowed to mention the word recession for fear of upsetting the delicate little punters? There is more to the economy than confidence. Much, much more.

You’re letting your readers down. You’re letting your businesses down. You’re letting the nation down.

Houses and Holes
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  1. One thing that unites all these guys is they’re often wrong but they never admit it.

  2. I would just like to know why Treasury seems to have missed all that Garnaut has put forward.

    It’s got to be more than sheer incompetence.

    • Not sure I agree there GSM (that it’s more than sheer incompetence). I think Treasury has clearly shown that a pencil and ruler are the only tools it needs for forecasting.

      • ” I think Treasury has clearly shown that a pencil and ruler are the only tools it needs for forecasting.”

        Sorry AB, too convenient. Nope, I’m ascribing the failure of Treasury here to being willful. And I think you know the reasons why.

      • I do indeed. I guess we’ll see what happens to their forecasting skills over the next few years.

    • Alex Heyworth

      The problem with Treasury, as with all departments these days, is that they are too keen to tell the minister what he wants to hear instead of what he needs to hear.

    • “It’s not willfull. They drank the cool aid”

      That may, MAY, explain up to now. But It wont explain any near future similar prognostications. There is too much evidence now being revealed to the contrary. Any further “she’ll be right” forecasts or scenarios from Treasury, and RBA for that matter, should be met with a firing squad IMO.

  3. The fact that Joye feels he has to respond shows how much influence Macrobusiness now has. Let us all rejoice! Maybe someone with real power and conviction will eventually listen to MB too, and act with honour.

  4. reusachtigeMEMBER

    The fact these types go on about “hey, the baddies are trying to talk us into recession” just proves that their approach is to try and talk us up ALL the time, ie, spruik, because it is propaganda that makes an economy and nothing else. Do they actually realise that talk is cheap and there’s real issues at hand here?

    • The Dutch Prime-Minister recently said that the Dutch should stop being so gloomy and start spending again as according tho him the country was talking itself into recession.

      The people collectively laughed.

  5. Yes it’s quite telling how the likes of Shadow and Strindberg really hate MB and have actively tried to defame the site.

  6. I rather like twitter, but there is an element of high school behaviour amongst some users.
    I’m sure that there is an age, IQ, and personal insecurity level related algorithm for that somewhere.

    • outsidetrader

      Surely the next logical step is an apology, but I won’t hold my breath…

      PS – There’s a typo in the article heading – there’s only one “L” in fail 😛

  7. SweeperMEMBER

    If we talk ourselves into recession, we can just talk ourselves back into prosperity. So there is nothing to worry about. Commentators overestimate their influence over economic actors and events.

    That’s a dumb comment from Koukoulas BTW.

    • Exactly. And everyone knows that the Magic Confidence Fairy is going to start spreading her magic in mid-September anyway.

      • The Magic Confidence Fairy will go back under the rock she came from once people realise that Abbott is not the bold & courageous decision maker that many expect him to be. He’s just a slightly less incompetent version of Gillard. The confidence boost, if any materialises, won’t last long.

    • I would argue that most comments by Koukoulas can be described in that manner. He comes across as having too much skin in the game being the PMs former adviser to be objective.

      • General Disarray

        It’s going to be interesting to see if there’s a big change in his commentary when the LNP is in.

      • I must admit that I stopped taking him seriously when he was shouting from the rooftops last Sep/Oct that Swan would produce his promised surplus. He was even saying that the ALP may even produce a surprise surplus (after Swan backed away from his promise) and Swan may have gone too early. He nows carries on as though he gets everything right and not achieving the surplus was a shock that nobody predicted. In my opinion, the Kouk is the leader of this ‘gang’ HnH refers to.

  8. Expect more irony when we start emerging from recession in 2015/16 and MB is talking about the positive backdrop of our favourable currency, relatively low interest rates, lower real wages, lower debt levels and more affordable housing. As our manufacturing industry re-emerges from the doldrums and our intellectual property starts to gain traction on the global stage.

    At this stage the usual suspects will be calling Armaggedon.

  9. That tweet by Koukoulas is a disgrace. Surely he can’t believe that he does himself any credit by engaging with others on serious matter using that medium.

    He’s just convinced me that he’s got nothing.

  10. Magnus Carlsen

    So Joye at 36 is the new ‘young gun’ economist? Well I guess if 50 is the new 40 and all that…

    Mod: lets leave the personal stuff aside thanks Bobby.

  11. migtronixMEMBER

    The one thing I have not seen mentioned in these pages (and admittedly I only discovered this resource 2 days ago) is something that was pointed out in ZeroHedge – that in the last month 15, read that again 15, central banks cut their prime rate! 15! And is it just a coincidence that they meet at the BIS in Bassel, Switzerland EVERY month?

    With that in mind I, for one, very much doubt that rate cuts by these self appointed monopolists is ever based on “local market conditions” and much more to do with global bankster collusion…


  12. Good work. False positive propaganda can do great harm to young innocent prospective home buyers and lead them into dangerous debt.

  13. Conducting this type of debate in the Fin is complex, but on Twitter! On twitter the key metaphor of Australian male life comes into play – sport. Winners losers, top of the ladder or not.

    No analysis, no debate.

  14. He does seem to be a protected species, nearly like a NSW SOO player facing the judicary in May, June or July.

    I once queried certain aspects, when it was raised he has future political aspriations.

    It was completely non-personal, but disappeared.