I’ve been requested to dedicate this edition of the newsletter to our VP-Events Ruark Lantay Lefkovich who regularly assists the publications department in the development of our mailouts. This week he’s supplied us with one of the eclectic articles we’ve come to demand of him, this time investigating the economics of onion rearing. I must say it’s quite ogre-due…
While the so called ‘liver transplant’ of a new PM and Treasurer may have helped domestic conditions it did nothing to stop the influence of global conditions on our relatively small-open economy as the dollar fell 3% in a week, ending on Friday at around USD 0.70.
Foreign holdings of Australian debt fell to about 64%, it’s lowest levels in nearly 6 years. On financial markets the ASX200 had a rough week, falling below and staying there on Wednesday before recovering and ending the week at above 5050. Over the past 6 months banks and energy providers have been the most volatile and amusingly utilities were the least, suggesting you can increase your utility by purchasing them.
Late in the week Fed Chair Janet Yellen fronted the media in a relatively rare appearance after last weeks surprising decision not to increase rates. She commented that, baring any unforeseen crises, while rates were left on hold last week they can be expected to be raised by the end of the year.
Despite this consumer confidence has seen the biggest weekly jump since the survey began in 2008, mainly due to the post-leadership change ‘sugar hit’. Longer term effects are yet to be seen but signs are fairly reassuring.
I’d like to dedicate this edition of the newsletter to Kai Zen for his constant service to this publication, including his kind donation of this week’s article. Written by the highly respected French economist Thomas Picketty it outlines the potential benefits the refugee ‘crisis’ could infact have for the still fragile European economy. He also highlights how pre-GFC, Europe had a very different attitude towards immigration, but the past 8 years have changed their view and not for the better, linking poor economic management with a deteriorating social tolerance.
Arguably, this was one of the biggest weeks for economies internationally and domestically this year. Starting with the Australian economy, the change in PM is expected to have a substantial impact on business confidence, at least in the short term, judging from the historical spikes experienced in the two Rudd/Gillard transitions.
Even with potentially favourable short-term expectations on the horizon, RBA Governor Glenn Stevens adopted an ‘upbeat’ assessment of the domestic economy in the medium term. Claiming recent descriptions of the domestic situation was “more negative than facts actually warrent”, Stevens dampened expectations of a rate cut in the near future and also boosted confidence. Further, he mentioned that he was reassured by the weakening of the domestic currency over the past 12 months and the 200 basis point buffer we still retain.
Obviously familiar with the old joke ‘talk is cheap as supply exceeds demand’, Australia’s chief central banker certainly knows to use such statements sparingly, and thus to great effect. His positive words rounded off what was a good week on domestic markets with the All Ords closing at 5193 and the AUD moving back up to USD 0.72, at least for the time being.
However, this was in part also due to the unexpected decision by the US Federal Reserve to leave rates on hold,once again demonstrating that the consensus of ‘market economists’ can mean very little. Fed Chair Janet Yellen (interestingly enough married to Nobel Laureate George Akerlof) expressed concerns about weaker global conditions, namely lower growth, continuing market volatility and the instability in China. While Stevens downplayed this issues as not unexpected in the RBA’s long-term assessment of the global economy.
Coming from over 30 years ago, this weeks article is by no means new. However, the ideas it discusses are still avidly debated even today within economic spheres. It investigates the differences between three forms of time utilised by economists; the standard logical time oft used in microeconomics, the rarer historical time familiar to some more eclectic economists, and perhaps the rarest form, mechanical time. Each form has a substantial effect on how different schools of thought perceive the economy, so if the internal debates within economics fascinate you then have a look.