Matt Nolan

Question for the next couple of days

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Does the US have a marginally functional government?

We already know they don’t have a fully functional government, or a reasonably functional government.  But we are waiting to see if the government really exists at all, and is able to muster itself together enough to avoid accidentally defaulting on debt and starting a new financial crisis.

Whether we think they need to cut spending or not it doesn’t matter – we are talking about the next week where they will exceed their debt ceiling no matter what.  So lets hope they extend it.

And even when they do, after how absolutely useless they have been can they really avoid being downgraded?  If they don’t get downgraded the credit rating agencies will be seen as to be just as hopeless as they were following the global financial crisis …

Update:  So the President, house leader, and senate leader all agree on a deal.  But it still needs to get through the senate, and the house, tomorrow.  Man, how last minute is this!

jamesz

This is not about cycling

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An Australian cycling magazine claims that you could save $3.5 million over your lifetime if you ride instead of owning a car. They say that their calculations are solid and we have no reason to doubt them, but this is not a story about how great it is to ride a bike.

Their calculations assume that you save every cent you don’t spend on a car in an account earning 6% interest. Unsurprisingly, the magic of compound interest — and probably a complete absence of discounting the value back to today — gives huge savings over a forty year career. Do cyclists really save all that money? No. Is it misleading to add interest on top of the savings and not discount the value back forty years to today? A bit. Does this really tell us much about the benefits of bike commuting? Not really, it’s just a story about how easy it is to make big numbers with daft counterfactual assumptions. Are they more misleading than most headline numbers in the newspapers? Probably not.

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Matt Nolan

Historical revisionism on July OCR

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So because the dollar has eased back following the OCR people have decided that the statement was dovish (ahh the Herald did this too).

Fact, no it wasn’t – it was a more hawkish than expected statement.  Probabilities of rate increases did rise following the statement.

Remember something here, the link between the exchange rate and the OCR IS NOT as clear as people act like it is.  Money doesn’t “flow in” to take advantage of “higher interest rates” when the RBNZ increases the OCR – as so much depends on the “demand” for said overseas loans.  Please god, lets remember that someone in NZ actually has to borrow the overseas money for a loan to be made – its doesn’t just wash up on our shores in a bottle and start aggressively lifting our currency through black magic.  Oft times the currency does get pushed up (especially pre-core funding ratio), but in of itself it will not always happen.

Hell, explaining daily movements in the currency is a mugs game (explaining movements in the currency generally is bad enough).  However, the fact that people put it down to a dovish OCR statement illustrates to me that people are putting TOO MUCH weight on how the RBNZ effects economic variables that aren’t inflation – something which concerns me greatly.

 

Matt Nolan

Damned if you do, damned if you don’t

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The daily post for today has been delay to next week – as this issue needs to be covered now.

That’s what the RBNZ is likely hearing when columns like this appear.  This one is from Bernard Hickey, where he bemoans the Bank’s decision to signal an increase in interest rates (which will increase long rates, and so IS an increase in interest rates) which has lead to a slight tick up in the currency.

The logic of the article might seem seductive for those who feel we must “transform” the economy, and those who believe we can truly “command and control” an entire economy.  But it is false.  Let me explain.

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Matt Nolan

Core funding ratios, monetary policy, and trade-offs

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In a recent Herald article, Geoff Simmons discusses the core funding ratio.  I work near the GMI team, and I have a lot of time for their outside the box thinking on issues – however, this is one case where I will have to respectfully disagree with the conclusions.

What was the conclusion?  It was that the RBNZ should look at varying the Core Funding Ratio (CFR) at its next meeting in order to reduce inflationary pressures, instead of increasing interest rates.

Now it has been suggested that adjusted the CFR during the “extremes” of the cycle may carry weight – but here I want to share for the trading 212 review uk.

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Matt Nolan

A independent tax authority is not undemocratic – it is more democratic

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In an act of striking economic naivete and breathtaking historical revisionism, writer Joe Beagelhole marshals the European debt crisis as evidence that allowing political institutions to use a lack of transparency to rack up debt is sustainable, and that we don’t need an independent body making the full cost of fiscal decisions transparent to the public at large.

Well, at least if the author of this column can insult other people like a pretentious prat – then I figure I’m allowed to be equally pretentious (hell I even used his first sentence as the base of mine – in case it wasn’t obvious 😉 )

Let’s ignore his excessive claim that Greece didn’t have a debt problem prior to the crisis – when it did, and the problem was exacerbated by informational issues (something that is key to the article he is criticising).

To be honest, I’m in love with the idea of an independently set tax rate – something that is closely related to the idea that is being criticised.  And its not because I’m a dictator and want technocrats to rule my life.  The reason I love the idea is that the COST associated with the spending politicians promise is made TRANSPARENT.

By having such an authority, politicians can redistribute and spend – they just have to be elected.  By having an authority that states the costs associated with scheme (through the given tax rate), people in society can vote with full information.  This IMPROVES the democratic process.

Beaglehole shows himself incapable of thinking about transparency and information with regards to politicians, and accuses other people of being undemocratic for daring to give society more information about government spending.  If you ask me, his faith in government officials to just ‘do what is right’ without transparency is more akin to a belief in philosopher kings than anything Mr Worthington stated.