Italy woes raises the stakes of the euro crisis

Comments on Alan Kohler “Revenge of the golden days”, 7/11/2011, http://www.businessspectator.com.au/bs.nsf/Article/ECB-gold-G20-Cannes-IMF-debt-crisis-inflation-Berl-pd20111107-NCRPR?OpenDocument&src=sph&src=rot

As I have pointed out somewhere else, an orderly exit from the euro of some troubled members and allow them to have their own currencies and set fixed exchange rates to the euro, so they can have effective depreciations instead of deflation and so much painful adjustments.

Fixed exchange rates with the euro are to prevent what the Asia financial crisis from happening in the euro zone.

European leaders should realise that to keep the vanity of existing euro is costly, and more creative thinking is required to minimise the costs of adjustments.

The sooner they let this happen the better off they and the world will.

Any delay just simply exacerbate the problems.

A plan to save euro and Europe

Comments on Philip Stephens “Wanted: one plan to save Europe”, 23/09/2011, http://www.businessspectator.com.au/bs.nsf/Article/Eurozone-debt-crisis-euro-currency-monetary-union--pd20110923-LY4T2?OpenDocument&src=rot

There is a need for both shorter and longer term plans. A short term plan could be a euro bond that has differential costs to different countries when they use it. The costs should be lower than a higher risk country's own bond implies but higher or lower than the costs of the euro bond. How much higher or lower should be determined by the member countries collectively.

A differential design imposes a real cost to those countries that have taken too much risks or ill disciplined fiscally that contributed to their current fiscal predicaments.

It will provide a solution to those countries risking of default with lower cost of financing.

It will also lower the costs of those other countries that bail out those high risk countries.

Politically it would be beneficial for both debt and credit countries within the euro zone.

A longer term plan could be further strengthening the original requirement by the euro constitution/agreement.

A really long term or permanent plan is fiscal integration. But it will take time for the conditions to be right.

How to fix USA Inc.'s Red

Comments on Mary Meeker “USA Inc.: Red, White, and Very Blue”, 24/02/2011, http://www.businessweek.com/magazine/content/11_10/b4218000828880.htm

It shouldn't be that difficult at all if the USA Inc can change its own thinking and behaviour to a more realistic level.

First, for example, if it does not continue the thinking it still has the means to keep its military dominance to the degree it has got now and reduce its military spending so just to be the same as the current world second largest military spending, then it can save a lot its taxpayer's money and contribute significantly to repairing its budget deficits.

It will not cause any security and defence danger to itself at all.

Secondly, it could take urgent actions in tackling climate change and reducing carbon emissions by applying a carbon tax and gradually increasing the tax.

This tax has dual functions: a. to join the other nations in action to limit adverse climate change or at least to act as insurance for the future of its citizens; b. it can raise revenue and reduce budget deficits.

They are only two of many options that the USA Inc has. The only question is: is it prepared to do the right and reasonable things?

A fiscal and political strategy for Greece current woes

Comments on Karen Maley “Will traders catch Spanish flu?” 1/03/2010, http://www.businessspectator.com.au/bs.nsf/Article/Will-traders-catch-Spanish-flu-pd20100301-34RWV?OpenDocument&src=sph

Why don't the Greek government design a clever fiscal strategy to make its balance sheet or finance better without relying too much on government bond?

For example, the government can increase the taxes of all sources temporally for a period, and return the tax in the future with a set interest.

This would act as compulsory borrowing from its taxpayers.

It should be the best fiscal and political strategy and there are hardly any other strategies that are better.

While politically it is not without difficulties, it should be a reasonable political strategy to sell it to the taxpayers. People are rational.

Rudd government must learn rapidly from mistakes to get the budget right, but it may be already too late

Comments on Paul Kelly’s “Moment of truth for Labor”, The Australian, 9/05/2009, http://www.theaustralian.news.com.au/story/0,25197,25449742-12250,00.html

It could be called “the end of the beginning” of just clever politics, or the beginning of the end of the honeymoon period of the Rudd government. The latter followed 12 years of the Howard era, which presented the Australian public with a dilema: ever more prosperous and the elimination of national government debts on the one hand, and the public had some big disappointments and deep political illusions, including Tempo, children overboard, the association with George W Bush’s advanture into the Iraq war and the proven lies of weapons of mass-destruction, refusal to rectify Kyoto, the too ideologically driven IR laws, to name a few, on the other. People wanted a change, and they wished to see new faces in politics, for better or for worse. They certainly got that. Rudd appeared on the scene as the Labor lead in this environment and people embraced his team enthusiatically, just as the Ameriacans did the same to Oboma a year later. People naturally have given more generous tolerance to the Rudd government and hence a longer period of honeymoon.

It is hightime that the Rudd government has to lift its games so not to disappoint the public too much. Clever politics alone will never be enough. After some spectacular failures, real deeds that can withstand the test of history are badly needed. If the Rudd government does not perform in its making of this budget, that will be added onto its failures or inability to govern over the past six months or so, including the two cash handouts in the disguise of fiscal stimulus that is more and more clear that they were wastes with little stimulaiton to the economy but to unnecessarily blowing up the hole of of the bedget and it is increasing very rapidly, the debacle of the national broadband network processes and the humuliating failure in its approach to ETS.

The two cash handouts along has shown how inexperienced the government has been in managing the economy and its budget. On top of that, you have a unblievable escalation of the costs for a national broadband network from less than $10 billion in total and a government contribution of about $4-5 billion, to $43 billion in total and a potential government contribution of the whole lot. Both the cash handouts and this NBN fiasco were made in the face of dramatically declining government revenue, as a result of world wide financial and economic crisis that has not been seen since the great depression. Are Rudd and his ministers economically competent enough to manage the economy and its budget? So far they have shown to be negative. That is why I say they need to list their games veryrapidly and to show in this budget they can learn and will learn very fast. Otherwise they will completely lose the public and will be a one-term government and prime minister.

It is in everyone’s (baring its political foes) interest for the government to succed in managing the economy and its budget. It is too much at stake. The public need to watch the government very closely and must do so much more critically from now on.

Yes, it is true that the 2009 budget is about two competing ideas: stimulus and sustainability. In the context I just outlined above, I found it hard to understand that the government could be given a AAA rating for stimulus. Stimulus does not mean throwing money at everything or anything. It means policy effectiveness. If some stimulus is ineffective in stimulating the economy/demand, it is not stimulus, isn’t it? On that account, the government has failed miserably in its two cash handouts.

More disturbingly and worryingly, the NBN fiasco with several and potentially ten fold increase in the costs to the government appears to suggest that the government will fail in the second aspect, that is, sustainability. However the government still has time to change its strategy to NBN and correct its mistakes. The public can also forgive the cash handouts for they are sunk costs already. If the government does not learn rapid eough, the public may not always be so forgiven. I am really worried that the government does not seem to learn, but I hope I was wrong. The question the public will seek a answer to: will the Rudd government translate its clever politics due to enormous political goodwill by the public to also smart economics, that is, to manage the economy and its budget well?