Temporary dual currency will save euro zone

Comments on Bill Evens “WEEKEND ECONOMIST: Full-scale fiscal union”, 29/01/2012, http://www.businessspectator.com.au/bs.nsf/Article/European-currency-fiscal-union-Germany-pd20120127-QW9YA?OpenDocument&src=rot

Quantitative easing means effectively fiscal transfer between good managed countries and poorly managed ones, so unless the former are comfortable with that kind of sacrifice, it is difficult to do in the euro zone where member countries are sovereign and independent.

It may be fair to make this kind of fiscal transfer explicit and let the recipient countries to shoulder some of the costs. It could be in terms of long terms loans from those better managed countries' governments.

Fiscal union is not absolutely necessary, if the euro zone allows a second currency when necessary such as the current situation with a fixed exchange rate with the current euro, so those countries badly in need of a competitive devaluation can adopt that second currency temporarily to boost their international competitiveness.

A dual currency monetary union when necessary is a solution to the currency economic and fiscal difficulties in the euro zone.

This alternative will be better than fiscal union where some nations will oppose it if there are better alternatives that are available.

This dual currency zone will not only retain all the advantages that the current euro have, but also have the necessary flexibility for some countries to adjust through an effective devaluation without the need to have politically and socially difficult nominal wage cuts.

New problems call for new thinking and innovation.

This kind of innovative thinking will save the euro without fiscal union.

RBA can further improve Australian welfare

Comments on Robert Gottliebsen “Don't bank on mortgage rate cuts”, 27/01/2012, http://www.businessspectator.com.au/bs.nsf/Article/Interest-rates-deposits-RBA-house-prices-Mike-Hirs-pd20120127-QVQZQ?OpenDocument

Thus reflects an anomaly with the Australian money markets or at least in the effectiveness of RBA monetary policy.

The RBA should do what the Fed has been doing recently, that is, to allow at least the four major banks to borrow from it with their high quality mortgage backed securities to make the RBA interest rate a really market rate that banks can borrow.

This may include a revised definition of deposits of banking institutions with the RBA, that is, the reserve ratio to facilitate this, but still retain effective control and effectiveness of monetary policy. So how high quality mortgage backed security is accounted in such new definition may need some thinking.

RBA officials need to consider this move to improve the Australian money market in terms of effectiveness. Arguably, Australian real effective interest rates can be lowered and hence welfare can be enhanced. This can be reasoned from the borrowing costs (the interest paid for borrowing at the international markets be our banks for example) that could be paid to the RBA so would be part of gain by Australians!

RBA should reflect why it has not done this earlier.

The US has been the main obstacle in climate change

Comments on Judith Sloan “Doha is dead and there's no case for reviving it”, 27/01/2011, http://www.theaustralian.com.au/news/opinion/doha-is-dead-and-theres-no-case-for-reviving-it/story-fnbkvnk7-1226254691086

The US has been the worst international culprit in terms of international climate change responsibility and agreement, typified by its refusal to join the Kyoto agreement. So there is no credibility in any of its arguments in this area and there is no persuasion for citing that against demand and arguments of the developing countries.

The US stance and the fact that no other countries could do anything about it was the main reason why Canada, Japan and Russia have taken their recent stances.

It is only fair and legitimate that developing countries argue for what they have been argued for.

The fundamental issue of the difficulties in reaching an binding international agreement on this issue has been that the developed countries, especially the US, have all failed to adopt the simplest and fairest approach, that is, equal per capita right of emissions and the user pay principle.

Had that been adopted, developing countries with low emissions are entitled for payments for below average emissions.

Sloan should be able to acknowledge this without too much difficulty, given her strong economic background.

Spectrum of capitalism - something between pure market to pure state

comments on "Davos elite confront capitalism crisis", 26/01/2012, see http://www.businessspectator.com.au/bs.nsf/Article/Davos-elite-confronts-capitalism-crisis-QUL3N?OpenDocument&src=hp9

The debate really is no brain. It is like the kind of debate between new-classical economists and new Keynesian economists, the truth is always some where in between.

Keynesian realise that market can have problems from time to time in getting full employment not soon enough and that is true, so government has to do something to aim at achieving full employment.

Even that theory works, then there is politics that endangers the theoretical fiscal policies that will be needed to ensure full employment.

Then, there are further problems with markets, it is not just aggregate demand or supply that are the only issues, there are structural and inter-temporary issues that are not too dissimilar to the aggregate issues. Those kind of structural and inter-temporary issues also need policies to manage and government is needed to play that role to address those issues.

Then of course income allocation has been recognised as an issue so government constantly work on taxation and welfare policies.

All those issues added together, you have a much bigger role for government to play in the economy: that is essentially some kind of capitalism and state work together, or some kind of state capitalism.

Of course, countries may differ in the kind of issues and their severity that requires different kind of combination of market and state, akin to the kind of Samuelson’s synthesis of classical and Keynesian economics.

High time for ACCC to use plan B

Comments on Stephen Bartholomeusz “Plan B for the ACCC”, 21/01/2012, http://www.businessspectator.com.au/bs.nsf/Article/ACCC-Rod-Sims-Metcash-Franklins-Austar-Foxtel-take-pd20120120-QP4CX?OpenDocument&src=sph&src=rot

It was an interesting case by the ACCC bordered on bizarre, considering the Wesfarmers acquisition of Coles was done, while the ACCC had objected the Metcash' Franklin case.

For a market regulator to rely on theoretical argument without putting into a proper practical and commercial environment reflects how out of touch government organisations can be.

The ACCC should adopt a similar approach to the Productivity Commission in using applied model in testing and determining its decisions. The PC, from its predecessor, the Industry Commission, has been using models, including CGE models to study complex economic cases for policies.

The sort of models the ACCC would need to use may be different from those used by the PC, but modern contemporary merger and acquisition cases can only properly understood by informed studies from using practical models.

ACCC must have a clear overall goal to ensure market competition, efficiency and consumer welfare and use the best applied models available to measure it. Otherwise it will fail in its regulation of the market to enhance Australian welfare.

I would argue that many of ACCC decisions did not have a clear measure how much gain/loss should that case be or not be allowed.

In that context, it is high time for the plan B to be used!

International comparison of currencies

Comments on Daily chart "The Big Mac index", 13/01/2012, http://www.economist.com/blogs/graphicdetail/2012/01/daily-chart-3?page=1
The big mac index is not a basket of goods and services and suffers a universal weakness in that it is a largely a service and is not an easily internationally traded goods or service, so wage and income levels have a mostly monotonic effect, that, is currencies in low income and wage countries appear to be more undervalued than high income/wage countries, apart from short term exchange rates moves.

If a highly traded goods or services would be less subject to this effect of non-trade services.
The point is price differences can be large for non-trade goods and services, and less so for traded goods and services.
The Economist should take this into account when making statements on currency valuations.
Of course, the advantage of big mac is that it is fairly comparable in quality that should not be overlooked.
PS: The Hong Kong case seems very strange.

Swan unreasonable on MRRT and GST link again

Comments on NEWS - Economy "Swan pressures states on GST", 9/01/2012, http://www.businessspectator.com.au/bs.nsf/Article/Swan-pressures-states-on-GST-pd20120109-QBQZS?OpenDocument&src=hp4
The RSPT and MRRT, from their design, is a revenue grab by the Federal ALP government, not as what recommended in the Henry Taxation Review to replace the current mineral Royalties with a more efficient rent type tax on minerals.
As a replacement of state mineral royalties, any new tax on mineral rent should leave that to the states.
Should that be the case, it would address not only efficiency of mineral taxation, but also mitigate the current huge vertical fiscal imbalance between the federal and states levels of government in Australia.
That would be hugely beneficial to not only the current fiscal management but future generations.
Haven't we been told by the federal ALP government that the states will not have enough revenue to provide the predicted level of medical services partially related to population aging in the coming decades, as its excuse to ask the states for part of their GST to be given to the federal government to be counted as its contribution to government funding?
Isn't it a fundamental principle that there should be clear accountability for any government for its expenditures and taxes?
Why the federal Treasurer does not follow basic economic principles in his dealing with the states?

Creativity needed to financially enhance Aussies

Comments on Bill Gross "Paranormal economic activity", 7/01/2012, http://www.businessspectator.com.au/bs.nsf/Article/global-economy-interest-rates-US-Federal-Reserve-E-pd20120105-Q7W3Q?OpenDocument&src=sph&src=rot
I think the flooding of money by ECB, BOE, and Fed will either be hoarded by those financiers that need deleveraging, or spill over to other more promising and less risky countries/markets by some international hedging operators, or both.

Maybe the Aussie stock markets and bond markets will be one of the destinations for those QE money supplies.
It will be self-fulfilling, if enough money is flowing into a better market, because the amount can be very large.
If I could get money from the US, UK, or EU, I would definitely invest in Australia, selecting a time when the A$ is a bit lower to come in  and buy some shares and get out with a decent profit at a time when A$ is higher.
That would be a very excellent strategy.
The question Australians need to ask is why the Australian banks have been arguing that their financing costs from overseas financial markets are higher than the domestic money market where official interest rates are much higher than most of their counterparts overseas.
I was personally wondering that why there is no operators from Australia financiers to set up some bonds to be sold overseas and use the proceeds to provide cheaper loans in Australia.
Indeed, the Australian government perhaps should seize this opportunity to do so to benefit Australians by lowering the cost burdens for many Aussies who have mortgages or loans from the banks.