New Math

By now you’ve all seen the new spending that’s on the agenda.  As with the US stimulus package, there’s a lot of pork for special interest groups.  Two points from the article, taken together, are somewhat amusing:

“TREASURER Wayne Swan has unveiled a $42 billion Nation Building and Jobs Plan…”

“But the package cannot prevent a more than $40 billion turnaround in the budget…”

Gee, I wonder how they figured that out?!

At a price-tag of $42b, they could have eliminated payroll tax in every state for a couple years… but I’m sure they spent the money wisely.  Amongst other things, the “package” includes:

  • $4.7b for schools (mostly buildings)
  • $6.6b for housing
  • $3.9b for “green incentives”
  • $12.7b in direct payments
  • $2.7b in tax cuts (that’s it?!)

Do they expect this to help?

“It estimates the plan will support up to 90,000 jobs over the next two years.”

$42b/90,000 = $466,667 per job.  Wow!

Of course, they claim that two thirds of the money was on “long-term investments to generate future growth,” so it’s really only $155,556 per job.  That’s better.

Malcolm Turnbull

I’ve expressed my distaste for Malcolm Turnbull in the past, despite the fact that many here seem to like him – even considering him a fellow libertarian.  I’ve yet to see anything that would qualify him as such.  Maybe I was harsh – after all, the Environment portfolio is not exactly the best place to display your libertarian credentials.

Alas, as far as I can tell, he isn’t much better as Opposition Leader.  His latest call is for the government to guarantee individual bank deposits up to $100,000.  (Kevin07 wants to guarantee $20,000).  I’m no economist, but it seems to me, that when people are already dumping shares and other investments to convert to cash, that such a scheme would only hasten the exodus.  Am I missing something?

Why is it that so many of you like this guy?

Financial crisis optimism

The world is not going to end.

This blog has a couple of financial-crisis-pessimists (JC & pommy), so I want to give the other side of the story. I accept that we are facing a financial crisis which is decreasing the access to credit and liquidity. I accept that this will lead to a drop in the share market and a recession. However, I believe that (1) this isn’t such a bad thing; and (2) we’re not facing a “great depression” scenario.

When I say it’s not such a bad thing, I don’t mean that recessions are good. However, in some situations they are inevitable. Austrian economists have been warning for many years that the American monetary policy has been too loose and that this would lead to a recession. I believe they were correct.

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Where to Put Your Money?

In previous blog post, JC wrote:

“Some of you guys think this shit isn’t serious, but it is. If they don’t get the support package, its over.”

The “uneducated” amongst us (of whom I include myself) aren’t really sure what to think.  I’d be lying if I said I understood half the factors at play here.  I hear doomsday stuff from JC, less pessimistic stuff from others, whilst business (for me at least) still seems to be booming – albeit under a cloud of anxiousness over “What Will Happen Next”

I find it hard not to be optimistic, but I like to hedge my bets.  So, just how worried should I be?  Will the finance sector drag us down?  What should I be buying/selling?  What should I be doing with my money?  Is it safest in certain stocks, banks, property, gold, under the mattress?

In defence of the US bailouts

[Edited by Temujin… we do not want personal attacks in the posts, especially against other ALS bloggers. Keep the discussion to the issues.]

There has been a great deal of discussion of the US financial bail-outs recently. Neither the Fed nor the US Treasury have created any sort of moral Hazard up to this point in time in dealing with the crisis.

1. Bear Stearns.

Shareholders were rolled getting a fraction of what their stock was worth. The first instructions from the US authorities was that JP Morgan pay no more than two bucks a share. This was later raised to 10 bucks by JP Morgan as they realized the original price was far too low.

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