A mechanism for a transfer union, the euro zone

Comments on KarenMaley "Will Merkel snap the olive branch?" 24/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/Angela-Merkel-Greek-bailout-eurozone-debt-crisis-m-pd20110824-KZU3L?OpenDocument&emcontent_Maley&src=rot

Well, there should be some risk premium to be paid by higher risk members to lower risk members to reflect different levels of sovereign risks among the euro members, and as a measure of discipline for any careless and or imprudent policies by certain members.

It would also alleviate the concerns of lower risk and more prudent members, and as a reward or as a guarantee to them so that they will not completely sacrifice themselves for any imprudent members.

Of course, the premium paid by any member should be smaller than what it could get from capital markets for the mechanism to work effectively and in every member's interests.

A struggling government unlikely to survive

Comments on Ben Packham and James Massola “Julia Gillard links carbon price to a 'bright future' for manufacturing”, 23/08/2011, http://www.theaustralian.com.au/national-affairs/steel-push-to-secure-local-jobs-as-julia-gillard-resists-protectionism/comments-fn59niix-1226120243132

What Gillard said might work in the very long run, but she and her government have not demonstrated how to make up for short to medium runs of their strategy to work.

The problem is that the short to medium runs are crucial for the nation and for a government, particularly so when it has been struggling enormously already.

Inevitably Gillard and her government are going to fail in designing a workable strategy and a set of policies to survive long enough of the short to medium runs.

Her alliance with the Greens means it is impossible for her to be flexible enough on the carbon tax to make it work effectively and to the best of our national interests.

Gillard has also swung the IR system too much into the area of inflexibility.

The political need for her government to show it is able to produce a budget surplus means there will not enough investment in productivity and critical infrastructure, especially in the context of the huge investment used for the NBN.

Low productivity growth will make impossible to deal with the adverse impact of the mining boom on most other sectors effectively.

Unfortunately for her, Australians on longer have any patience with Gillard and her government. And that will be fatal for her government.

It is political impossibility. What she is saying is likely to be perceived as stubbornness and silly political rhetoric of a person out of touch and with ignorance.

Are the much mentioned euro bonds feasible?

Comments on Martin Sandbu "Shaking off Europe's German bonds", 18/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/Eurozone-debt-crisis-eurobonds-markets-yields-Germ-pd20110817-KT3T8?OpenDocument&src=rot

While the argument that size matters is reasonable enough, the use of the US and Japan as example needs some caution, because each has its own advantages that are not just limited to their sizes.
Japan first. How much of the Japanese government bonds is has been bought and held by funds and people outside Japan? My answer is likely to be: not much and its share is small. If that answer is correct, then it shows the Japanese are different in some key aspects in terms of their portfolio investments in Japan and abroad, as opposed to most other people in the west. It is the Japanese they themselves buy their low yield government bonds.
Now the US. It is true that it has been the largest economy and also a very large government bonds market - that is, its size is large. However, its political influences and its role as the leader of the west world also have a significant effect beyond the size of its government bonds market.
Ignoring these characteristics of Japan and the US is likely to make the argument and conclusion questionable.

Of course, another consideration is whether the individual states of the USA need to issue their own bonds or can they use the federal government bonds to finance their own debts.

One needs also recognise the further difficulty that the euro zone or EU have a looser structure than the USA. Would the key members that are in a better state be willing to subsidise other members so explicitly?

Costs of carbon tax and modelling work

Comments on Gary Johns "Convoy a revolt of working people" 18/08/2011, http://www.theaustralian.com.au/national-affairs/commentary/convoy-a-revolt-of-working-people/story-e6frgd0x-1226116943715

While what Johns argues may seem reasonable, the same line of argument could/would put the costs of no action on carbon equally large, or they might be even higher.

There are many variables, factors and scenarios that are very difficult to model, as most modellers or people close to modelling works are aware. This may be a double edged sword, and could be used either in favour of the Treasury modelling or against it.

The real issues are whether actions should be taken to mitigate emissions of carbon dioxide, and if the answer is positive, how actions should be taken.

Another disappointing piece from Sheridan

Comments on Greg Sheridan "Kowtowing to the Chinese on human rights won't earn their respect", 18/08/2011, http://www.theaustralian.com.au/news/opinion/kowtowing-to-the-chinese-on-human-rights-wont-earn-their-respect/story-e6frg6zo-1226116945864

This piece from Greg Sheridan is disappointing, as usually the case when he wrote about China or the US.

He does not appear to have moved a bit from his cold war era mentality and thinking. Nor does he appear to have recognised the rapidly changing strategic equation between the US and China.

More disappointingly is his black and white reasoning and comments on people in Australia in particular and in the west in general regarding to their analysis on China.

In his mind, any people who are a bit hawks to speak about China are the best mind in diplomatic field, and those who are more realistic are problematic.

It is disappointing of the Australian Newspaper to have not employ a better mind in its foreign affairs editor, although in the paper is generally very good in many fields it covers.