The world’s in a ‘global liquidity trap’. What does that mean for Australia?

Last week, something notable occurred.

Two days out from the US presidential election, the chief economist of the International Monetary Fund issued a warning.

She said the global economy was in a “liquidity trap”.

“For the first time, in 60 per cent of the global economy — including 97 per cent of advanced economies — central banks have pushed policy interest rates below 1 per cent. In one-fifth of the world they are negative,” Gita Gopinath warned.

“With little room for further rate cuts, central banks have deployed unconventional methods.

“Despite this effort, persistently low inflation — and in some cases intermittent deflation — has raised the spectre of further monetary easing to achieve negative real rates if another shock strikes.

“It has led to the inescapable conclusion that the world is in a global liquidity trap, where monetary policy has limited effect.

“We must agree on appropriate policies to climb out,” she said.

Ms Gopinath’s warning was published in the Financial Times, the 132-year-old organ of the world’s financial elite.

A day later, the Reserve Bank of Australia cut its cash rate target from 0.25 per cent to 0.1 per cent — the lowest in our history.

It also launched a $100 billion “quantitative easing” program to drive down interest rates across the whole structure of Australia’s economy, and to depress the value of Australia’s dollar.

The day after that, the US presidential election took place and much of the world’s attention has been fixated on the results of that historic election ever since.

But we’ll have to come to terms with Ms Gopinath’s warning — because if she’s correct, the implications for Australia could be profound.

So, what’s a ‘liquidity trap’? And how will it affect Australian households?

Essentially, a liquidity trap is a situation in which interest rates become so low that monetary policy has limited effect.

We’ve seen evidence of the phenomenon here.

For the past nine years, the RBA has been consistently cutting interest rates.

The cash rate target was 4.75 per cent in 2011, it’s now 0.1 per cent, but inflation has been weakening for years.

And last week, the RBA announced it would start buying hundreds of billions worth of Government bonds to pull interest rates lower, and to weaken the currency.

This is another sign of the liquidity trap.

“There is … greater risk of currency wars in a global liquidity trap,” Ms Gopinath warned in her Financial Times op-ed.

“When interest rates are near zero, monetary policy works to an important extent by weakening currencies to favour domestic producers.

“[But] with the pandemic already testing the limits of multilateralism, the world can ill-afford the escalation of tensions that competitive devaluations are likely to generate.”

How do governments get out of this situation?

Ms Gopinath says it will take a coordinated global effort.

She says governments must work together, using their spending power, to re-energise demand on a global scale. They must avoid currency wars.

“It is time for a global synchronised fiscal push to lift the prospects for all,” she said.

Of course, she’s not the first person to say so.

In October last year, in a speech to the IMF, a former governor of the Bank of England, Mervyn King, criticised the current generation of policymakers for failing to concede how much the world had changed since the global financial crisis.

He wanted them to acknowledge that the world’s advanced economies (including Australia’s) had been stuck in a “low growth trap” for at least a decade.

He said policymakers were clinging to a particular model of how monetary policy operated, and it was leading them to misdiagnose our current economic problems.

He believed the global economy was suffering from a sustained lack of demand, and countries would have to work together to reallocate resources around the world to revitalise demand.

“Escaping from this low-growth trap is a different proposition than climbing out of a Keynesian downturn and requires different remedies,” he said.

Other economists have also been onto this problem.

In fact, Larry Summers, a former secretary of the US Treasury, started the conversation in 2013 when he asked publicly why advanced economies had been struggling to grow since the GFC, and why inflation was so low, when interest rates were nearing zero and the world was awash in savings.

“All this requires new thinking and new policies, much as the rapid inflation of the 1970s forced a reset back then,” he then argued last year (also in the Financial Times).

“Today’s core macroeconomic problem is profoundly different from the problem any living policymaker has seen before.

“What is to be done? To start with it would be helpful if policymakers acknowledged … that the policy problem is not smoothing cyclical fluctuations or preventing profligacy.

“Rather the fundamental issue is assuring that global demand is sufficient and reasonably distributed across countries.”

If their combined analyses are correct, there will be implications for Australia.

It means interest rates will be near historic lows for years, and governments will shoulder the majority of the burden for re-inflating the economy — rather than the RBA.

Federal and state and territory governments will be able to borrow at the cheapest rates in history, but they’ll still have to spend the money wisely, otherwise they could do more damage to the economy in the long term.

“Fiscal policy must play a leading role in the recovery,” Ms Gopinath said.

“The importance of fiscal stimulus has probably never been greater because the spending multiplier — the pay-off in economic growth from an increase in public investment — is much larger in a prolonged liquidity trap.”

But there’s a problem here.

See how governments are facing a collective action problem?

We have the chief economist of the IMF, a former governor of the Bank of England, and a former US Treasury secretary all saying global leaders will need to work together to pull the world’s economies out of this low growth, low interest rate, high debt trap.

But just last week, the RBA began a multi-billion-dollar bond buying program to drag Australia’s interest rates lower, to keep the value of Australia’s dollar down.

It’s pursuing the same strategy as other countries: competitive currency devaluation.

That’s the opposite of what’s advised.

But it has no choice (at the moment).

In a world of open trade and near-zero or negative interest rates, if other countries are dragging their interest rates even lower and Australia doesn’t follow them, Australia’s dollar will strengthen and it will hurt our domestic producers.

So what’s the end-game?

Australian policymakers haven’t articulated one.

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‘Booby trap’ bomb injures man at home where bombs were previously found, Utah cops say

A man was critically injured by a “booby trap” explosion at the same Utah home where another man was previously arrested for allegedly stockpiling bombs, police said.

The South Jordan Fire Department responded to a call Saturday and found a man “in critical condition with lower leg injuries,” according to a news release. The man was transported to the University of Utah Medical Center for treatment and the home was investigated.

Two homes were evacuated, but authorities said there is no outstanding threat to the community. An investigation is being conducted into what led up to the explosion, according to the news release.

The home was also where, in July, Ryan Lynn McManigal was arrested after a standoff with the police for allegedly manufacturing explosives, The Salt Lake Tribune reported. McManigal was charged with felony use of a weapon of mass destruction and attempted murder after 20 pounds of explosives were discovered, according to the publication.

Bridget McGanial Black, McGanigal’s sister, said Saturday her cousin was at the home working on repairs when the bomb exploded, KSTU reported.

“Jacob was over at Ryan’s house trying to do repairs on the home. As we recall back in July, I think Pioneer Day, his home had to be partially detonated due to some bombs [Ryan McManigal] was making, so what I’m hearing is that while he was making these repairs there was a booby trap bomb set and it went off on him,” Black told KSTU.

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S&P’s trap door, strong credit markets, the election setup

Traders with masks work on the first day of in-person trading since the closure during the outbreak of the coronavirus disease (COVID-19) on the floor at the New York Stock Exchange (NYSE) in New York, U.S., May 26, 2020.

Brendan McDermid | Reuters

(This story is for CNBC PRO subscribers only.)

This is the daily notebook of Mike Santoli, CNBC’s senior markets commentator, with ideas about trends, stocks and market statistics.

  • Respectable bounce keeps the S&P 500 in the uptrend above the former range near the correction lows. The index is a few points above where the trap door opened up yesterday afternoon around 3460.

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DPIPWE gave salmon farm giant Tassal green light to trap seals

Newly released documents reveal a Tasmanian government department gave aquaculture giant Tassal a permit to keep up to 20 trapped seals in empty salmon pens, at the same time as the department was investigating allegations the company broke the law by doing exactly that.

The documents also show department staff discussed with Tassal how they would answer questions from the media about the investigation.

The documents were released as a result of a Right to Information (RTI) request about the treatment of seals at Tassal fish farms in the D’Entrecasteaux Channel and Huon River in south-east Tasmania from a community member, who was helped by Environment Tasmania and the Environmental Defenders Office.

They document an investigation by the Department of Primary Industries, Parks, Water and Environment (DPIPWE) into allegations Tassal workers kept up to 20 Australian fur seals in an empty salmon pen without food for multiple days.

RTI documents show DPIPWE staff consulted Tassal about how to respond to questions from the media.(Supplied: Tassal)

The investigation started in September 2016 after two DPIPWE wildlife rangers, acting on a tip-off from an industry source, observed about 20 seals in a salmon pen at a Tassal lease at Roberts Point.

The wildlife officers filmed and photographed the seals before releasing them and questioning Tassal employees at the site.

One of the wildlife officers noted two of the seals appeared “extremely lethargic, consistent with having low energy due to having no availability to food for an extended period”.

Large ship next to a fish farm pen in the ocean.
DPIPWE’s investigation did not result in any charges being laid against Tassal.(Supplied: Tassal)

At the time, Tassal had a permit to trap live seals that were threatening fish farm workers or infrastructure so they could be released in other areas, but under the terms of the permit and Tasmania’s Seal Management Framework, they had to remove them from the water and put them on land or under effective control within six hours.

The seal management framework also mandates that only approved holding cages may be used, only one seal at a time can be in each holding compartment, and the compartments must have shade and running water during warm weather.

The company also had a permit to take wildlife for scientific purposes for research into new seal-proof barriers, but was only allowed to keep one seal at a time inside a salmon pen with a food bait for up to seven days.

The wildlife ranger who observed the seals in the pen and led the investigation commented in a September 26 email to colleagues there was strong evidence of a breach.

An investigation running sheet also recorded Tassal’s request that same month for a new permit to keep up to 20 seals in fish pens for seven days before relocating them.

Salmon in a fish farm enclosure, seen from underwater, image from Tassal.
A community member had submitted a Right to Information request about the treatment of seals at Tassal fish farms in the D’Entrecasteaux Channel and Huon River.(Tassal)

DPIPWE granted the permit in October 2016, but it was subject to the Animal Welfare Act, meaning seals would have to be fed if kept for longer than 48 hours.

In response to an email from the investigating officer, a DPIPWE employee considering the permit request commented: “It’s obviously tricky because they appeared to be doing this without consulting us and potentially in contravention of their current permit conditions.”

The investigating officer replied: “My informant has let me know that the holding of seals in fish pens had been occurring two weeks prior to our discovery.”

The documents show investigators formed the view the seals were being kept in the pen because so many were being trapped so quickly, staff could not relocate them fast enough.

The investigator set out the allegation during interviews with Tassal employees: “It was stated to me that the seals were put in the properly secured fish pen with no fish it, segregated from the rest of the fish pens on the Roberts Point lease and I quote, ‘We can’t relocate them fast enough, so we hold them there to relocate when we can.’ Is that why the seals were being held in the fish pen?”

The investigation did not result in any charges being laid.

Department consulted Tassal about answers to media questions

The RTI documents include emails between DPIPWE staff about how to respond to questions from the media about the investigation.

An Australian fur seal caught in a fishing net in Tasmania.
Hungry seals are a problem for salmon producers.(Department of Environment)

Referring to an October 26 email from News Corporation with questions about the investigation, a DPIPWE staff member told colleagues:

“I gave Tassal’s comms person a call as he contacted me last night to let me know they had also received the same query.

“He advised that his view is that they be as transparent as possible on this and acknowledge that there was an issue, it was about process involved in relocation of seals and they are working with the department to resolve the issue … with that in mind, he said he couldn’t see any issue with what we propose to say.”

In a later message in the same email chain, the staff member said: “Just fyi … Tassal will be acknowledging they have a temporary permit in their lines.”

Environment Tasmania says granting of permit during investigation ‘disturbing’

Environment Tasmania said the new documents showed there should be an independent parliamentary review of aquaculture companies’ treatment of seals.

“The aquaculture companies are industrialising Tasmania’s coast where protected wildlife exists. They cannot avoid interactions with seals,” Environment Tasmania’s strategy director, Laura Kelly, said.

“So that they [salmon companies] can defend operations in these waters, they’ve effectively declared war on the wildlife that call these waters home.”

She said it was concerning DPIPWE granted a permit to Tassal to keep seals in salmon pens at the same time as the department was investigating the company.

“Basically, the government went and permitted a criminal activity for which Tassal was under investigation for breach of the animal welfare act,” Ms Kelly said.

“It looks pretty disturbing and there are massive questions that this raises about if the Tasmanian government just dropped the criminal prosecution after they permitted Tassal to trap seals.”

Salmon pen at Tasmanian open water fish farm.
Tassal says: “We take the protection of our people, our stock and wildlife very seriously.”(Supplied: Tassal)

Department says permit process handled separately to investigation

A DPIPWE spokesperson said it undertook an investigation into the allegation and no charges were laid.

“This included seeking expert veterinary opinion, who advised that the animals were in good body condition, bright and alert and did not appear to be suffering from any signs of illness or disease,” the spokesperson said.

“The investigative brief was provided to the Director of Public Prosecutions and the department acted on advice from the DPP,” the DPIPWE spokesperson said.

The department said the process of developing and issuing the special permit was undertaken separately to the investigation, and well before the investigation had been completed and its outcomes were known.

“It is the department’s understanding that the activities allowed under the special permit were not undertaken,” the spokesperson said.

A Tassal spokesperson said the information relating to an allegation in 2016 was investigated with the full cooperation of the company and did not result in any further action being taken.

“We take the protection of our people, our stock and wildlife very seriously,” they said.

New Tassal pen in place at Okehampton Bay
Tassal is the largest of several salmon farming companies in Tasmania.(ABC News: Scott Ross)

The Tassal spokesperson said the Seal Management Framework and measures available to reduce seal interactions were regularly reviewed, and the company continued to operate within the framework.

“Our $90 million investment in world-leading wildlife-excluding sanctuary pens has significantly decreased our interactions with seals while keeping our people safe,” they said.

Investigators questioned Tassal staff about seal-relocation service

During the course of the investigation, the investigators interviewed several Tassal employees.

The RTI documents include lists of questions for each interview subject, but their identities and answers are redacted.

The investigators questioned staff about their use of one of two local seal-relocation companies, asking why one had been used exclusively even though it could relocate only about half the number of seals as the other company.

They also questioned whether the owners of the preferred seal-relocation company were Tassal employees who worked at the same lease site where the seals were being kept in the pens.

“My question to you is, if Tassal are having such a problem with seals at the NW bay lease … and Tassal can’t have the seals relocated quickly enough, why did they not use both of the approved seal-relocation service providers available at the time?”

The investigators also asked Tassal employees whether keeping the seals in the fish pen for an extended time might affect their behaviour when they were released in other areas.

“If Tassal has been holding seals for several days without feeding them then relocating the seals in the north of the state close to the city of Devonport, what has been Tassal’s duty of care to the general boating and fishing public in the Devonport area when releasing starved and potentially desperate seals who identify humans and human activity as providing a food source?”

In 2017 ABC News reported complaints from NW fishers about the behaviour of relocated seals.

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When a car crash decimated his finances, Royce started investigating Australia’s ‘debt trap’

Royce Kurmelovs swears there was no car coming.

But there was. He hit it.

His car spun out into three lanes of traffic.

“It was a perfectly ordinary day to be quite frank and it was also possibly one of the worst in my life,” he says.

The crash would push his personal finances to the brink, open his eyes to our complicated relationship with money, and ultimately … see him writing a book about debt, in part to get out of debt.

Thankfully, no-one was injured. Then the conversation turned to money.

A police officer asked in a hopeful tone — did he have insurance?

He didn’t and the new Mazda he’d hit was a write-off.

“I was on the hook for everything,” Royce tells ABC RN’s Saturday Extra.

The Adelaide-based freelance journalist and author says he still finds it hard, and embarrassing, to explain why he didn’t have insurance.

Royce says a little mistake, like not signing up for or renewing your insurance, can prove costly.(Getty: Ian Waldie/Bloomberg)

Starting out as a “precariously employed” freelancer he’d had to make decisions about what he could and couldn’t afford.

But as the years went on and he eventually could afford insurance, he still didn’t sign up.

“And so I was caught out,” he says.

“Many people are in similar situations. With car accidents, in particular, people sometimes miss a payment or forget to renew their cover. Something’s going on in their life and people just don’t sign up.

“Then something goes wrong and you wind up in trouble.”

He thinks the embarrassment he felt has a lot to do with the way our society views debt.

“The way we talk and think about debt has an incredibly long history … there’s a sense of guilt associated with it and that’s hardwired into our language.”

He says the expectation that everyone should be able to be perfectly across their personal finances is absurd.

“It’s not always possible to be able to handle your financial affairs like you were an accountant,” he says.

“My experience and the experience of people I talked to in the book was this sense of frustration that one little mistake can be so costly.”

The cost of Royce’s mistake was going to be $25,000.

That would wipe out his savings — a safety net he relied on as a freelancer living pay cheque-to-pay cheque.

Then came a knock on his door from a debt collector.

A close-up image of a hand, with a closed fist, knocking on a door.
The physical presence of someone at your door creates a fundamental power imbalance, Royce says.(Getty: Katarzyna Bialasiewicz)

Suddenly faced with navigating the debt industry, Royce decided he should write about it.

“I’m a journalist. So the best way for me to pay my bills is to write about stuff,” he says.

The resulting book, Just Money, explores the “great Australian debt trap” and how class, power and the effects of ‘financialisaton’ in the 1980s shape our relationship with money.

‘Overwhelmed and ashamed’

Katherine Temple from the Consumer Action Law Centre says the organisation is often approached by people who are really struggling with debt.

“They don’t know where to turn, they’re feeling very overwhelmed and ashamed,” she says.

“It can have a huge impact on people’s mental wellbeing and their relationships.”

Katherine is blunt — Australia has a debt problem.

“Even just listening to the rhetoric around COVID. It’s all about needing to ‘maintain the flow of credit to keep the economy going’, without really acknowledging that unaffordable debt will not help to get our economy back on track,” she says.

“It essentially kicks the can down the road and it’s been the approach to debt for a long time — eventually that unaffordable debt catches up with people.”

Blue credit cards labelled 'debt' fall like dominoes onto a man in a suit.
Once debt gets on top of you it can be difficult to find a way out — but help is available.(Getty: Peshkova)

She says we need to stop blaming people who are doing their best in a complex financial system, and start casting a critical eye on the behaviour of lenders, especially as the effects of coronavirus are being felt.

“We’ve seen plenty of marketing from short-term lenders, some even suggesting they’re offering ‘COVID relief loans’, which is obviously very problematic,” she says.

“We’ve also seen lots of marketing from unregulated debt advice firms offering quick fixes to debt issues, which really don’t tend to live up to the promises made.”

A power imbalance

In researching his book, and trying to find his way out of a debt spiral, Royce realised he was better equipped than most.

The journalist knew he needed advice. He needed to ask questions, “even silly questions”, to work out what his options were.

“For a lot of people, you don’t have the information. You don’t know where to go.”

He was also grateful for his law degree.

“It gave me the skills and capabilities to be able to handle this situation — other people may not be so lucky,” he says.

When the paperwork arrived along with photos of a completely different car than the one he hit, he was able to push back and make the company go through the process of proving the debt figure was accurate.

“From that basis, I was able to negotiate over time with the company and kind of draw out the process a little bit to give me time to recover and prepare and plan, which a lot of people when they deal with the debt industry struggle with because it’s a very scary thing.”

Royce also spent time hanging out with debt collectors, who he says were generally nice, interesting people — not all big muscly guys with tattoos.

But he says having someone at your door asking questions still creates a fundamental power imbalance.

“When it comes to actually doing the work, debt collectors are masters of euphemism,” he says.

“They have way of talking that delivers a message without saying it.”

He says a lot of them see themselves as legal agents who are collecting evidence.

They will commonly ask questions and if someone lies or panics and says something wrong, the debt collector can be called as a witness later in court if they refuse to pay.

Katherine agrees there is a power imbalance around debt.

“People often feel powerless when they’re speaking to their lenders. But the important thing is for people to realise they do have rights and lenders have responsibilities in how they deal with people,” she says.

There are options available for people struggling with debt — including hardship arrangements, and support programs.

But she says the first step — one that can be really tough — is asking for help.

“My advice would be to call the National Debt Helpline to speak to a financial counsellor if you’re worried about debt,” Katherine says.

“They’re free, they’re independent, and they can provide you tailored advice on what the best options are for you.”

Katherine says while the JobSeeker and JobKeeper payments have allowed some people to pay down debt, or put some into savings, the worry is what happens when they’re wound back.

“The payday lending industry is gearing up to really take advantage of that financial cliff that we’re approaching and we’re really worried about what we’re going to see once that hits.”

After a long, drawn out process, Royce was able to come to a settlement with the company.

He is still paying off the debt month-by-month — though he was able to negotiate it down to $20,000. He also has a HECS debt in the range of $40,000.

He’s working hard to try to get ahead.

“That’s part of the experience of debt for a lot of people. When you have these sorts of bills and these sorts of payments you end up in a situation where you’re working harder, working longer, with little to show for it,” he says.

“That’s the kind of universal experience when people become strained by [the weight of] their obligations.”

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Richmond’s AFL dominance is shrinking — here’s how the Tiger trap was sprung

Much of Richmond’s recent success — and there’s been plenty — has been built around a devastating ability to counterattack.

Damien Hardwick’s men lured their opponents into a Tiger trap: pressuring them when they had the ball and feasting on the turnovers.

But so far this season that feast has turned to famine.

In its five appearances since the competition’s resumption, Richmond has averaged just 51 points per game. In three of those contests it’s been held below 40 points.

The once terrifying Tigers have suddenly become toothless.

Last weekend, Hardwick sought to deflect the blame, pointing the finger at the Sydney Swans for what he described as a “horrendous game of football”.

“There’s not much I can do,” Hardwick said.

“We’re attacking and we’ve got 75,000 people in our forward 50. It’s pretty hard.

“It’s become a tactic in the AFL — that ‘fold back’ mentality is really keeping sides in games.”

Indeed, the Swans weren’t the first side to employ such tactics against the Tigers.

Increasingly, teams are opting to counterattack the counter attacker. It’s not pretty, but it’s effective.

The Tiger trap has been sprung.

Trying to beat ‘the wall’

Even with the advent of 6-6-6 starting positions at the centre bounce, most teams deploy spare men behind the ball at some stage during a match.

Some prefer an extra number near the stoppage, while others prefer to bolster their backline.

These structures are usually fluid and will change depending on where the ball is and who has it.

When a team loses possession, players tend to either flood back to defence or take up a zoning pattern around the ground.

Most teams have tended to favour the former against the Tigers, opting to run back hard and early.

In the clip above, the Hawks get seven defenders back against two Tigers forwards.

Although the Tigers eventually scored from this passage of play, at other times the Hawks, Swans and Magpies have managed to suffocate Richmond’s attack with similar defensive commitment.

Unless their counter attacks are precise and rapid, the Tigers are often finding they’re outnumbered up the ground.

With their options stifled, the Tigers are resorting to kicking for territory — gambling on being able to retain possession or at least force a stoppage.

If they do can that quickly, sometimes it works.

But they aren’t drilled to be able to patiently work their way through tight presses or zones with controlled short kicks.

That means they’ve struggled to score when their opponents have set up with a spare or two behind the ball, such as after stoppages or a chain of turnovers.

Unthreatening at the coalface

Although Richmond is considered a contested ball side, it’s not big on winning clearances from stoppages.

In fact, the Tigers have often been happy to concede in that area to place a greater emphasis on winning turnovers.

They’ve regularly deployed undersized ruckmen and have pulled midfield weapons such as Dustin Martin away from ball ups.

But after studying these tactics for the past three years, teams have had time to digest and nullify Richmond’s methods.

They now know that they’re less likely to be hurt by Tiger clearances than by Tiger intercepts.

Often the result is a stalemate. Richmond games can quickly become unattractive bore-fests if both it and its opponent remain intent on waiting for the other to make a mistake.

How can the Tigers beat ‘75,000’ defenders?

Well, maybe they can’t quite beat 75,000 men — but there are ways to overcome extra numbers flooding the backline.

It all comes down to space and how to manipulate it.

Richmond’s best forward entries this season have invariably come when they’ve moved the ball quickly, catching defenders out of position.

But if that’s not possible and the defence is able to set itself, the Tigers need to choose the right option.

While Lambert and Lynch make it look easy here, it takes skill and courage to bypass the nearer shorter options for the deep mismatch.

When the ball goes to ground in Tigers’ forward line, however, they’ve regularly been outnumbered at the contest and struggled to apply pressure.

They sit last for tackles inside forward 50, after leading the league in 2017. Their small forwards and crumbers have struggled to find room for a quick gather and snap on goal.

This may necessitate the need for riskier and more erratic forward entries to unsettle the opposition’s plans.

True, “risky” and “erratic” are hardly adjectives associated with this Tigers dynasty.

But in this crazy season of 2020, all bets are now off.

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Radical innovation or trap for the Left?

While “movement” MMT economists are presently on the side of mainstream economists in supporting big deficits all through the economic disaster, the difficulty is who need to pay back, writes Professor John Quiggin.

It’s BEEN HARD to stay clear of the subject of Modern Financial Theory (MMT) these days, but equally really hard for most people today to get the job done out what it is.

That’s partly since of a deceptive title. MMT is neither notably fashionable (courting again to the first fifty percent of past century), nor generally financial. And it comes in two rather distinctive variations, only one particular of which can effectively be named a concept.

The concept, which could be identified as “textbook” MMT, given that it is mainly embodied in the lately released Macroeconomics by William Mitchell, L Randall Wray and Martin Watts, is a restatement and progress of Keynesian economics as it stood in the early postwar time period, drawing especially on the perform of just one of the finest Keynesian economists, Abba P Lerner

Significantly a lot more consideration has been compensated to an insurgent political motion, designed about the perception that it is probable for governments to produce an bold plan agenda, typically phrased in conditions of a “Environmentally friendly New Offer”, without escalating tax income and notably without taxing high-income earners. In this version, taxes on the ultra-loaded generally presented as appealing, for a selection of reasons, but optionally and politically problematic.

Movement MMT shares a lot of similarities with other monetary reform actions, most notably that bordering Ron Paul’s advocacy of a return to the gold conventional, which flourished a decade in the past. Motion MMT-ers get the opposite see, focusing on the gains of fiat funds, but they share with the “Paulbots” a belief that they have access to fundamental truths no a single else can see. As with other political actions, MMT advocates inform diverse tales to diverse audiences. In unique, they interact in ‘motte and bailey’ strategies, generating solid statements to helpful audiences (the bailey), then retreating to identical-sounding, but considerably much more defensible statements (the motte) when subject to criticism.

When textbook MMT is the province of academic economists, the central determine in motion MMT is Warren Mosler. Mosler is a hedge fund operator, who life in the Virgin Islands to keep away from U.S. taxation. Mosler’s funding has been vital for MMT lecturers but raises the issue of whether or not, and how, his own resolve to minimise taxes is influencing the movement.

Before discussing this, let’s seem at “textbook” MMT, which is centered on the notion of “purposeful finance” developed by Lerner in 1944. Lerner gave a significantly sharp presentation of the normal Keynesian view that spending budget deficits are not a trouble when the financial state is in economic downturn or has sustained extra capacity as is the scenario at the very least half the time. Dismissing the plan that taxes are required to “fund” public paying out, Lerner argued that their role is to cut down non-public expenditure (consumption and expenditure)  to the issue in which greater community expenditure is dependable with the effective capacity of a completely utilized financial state.

Textbook MMT largely dismisses theoretical developments in mainstream macroeconomics due to the fact the 1950s, starting with the “discovery” of the Phillips Curve in 1958, which was interpreted as demonstrating a steady negative partnership amongst unemployment and inflation. On the total, this isn’t a bad matter. I share the perspective that the period of time considering the fact that 1958 has been a single of retrogression in macroeconomics. Although others would day the decline a little bit later on, the check out that macroeconomics went terribly off the rails in the next fifty percent of the 20th Century is greatly shared by primary economists together with Robert Gordon, Paul Romer and Joseph Stiglitz.

Still, there are troubles with this retro tactic. In specific, the experience of higher inflation in the 1970s and 1980s is downplayed, with a large amount of reliance on “cost-push” models, well known in the early levels of the inflationary upsurge. These versions proposed reaction these as wage and rate controls which usually unsuccessful, apart from where (as in the Hawke Government’s Accord of the 1980s, inflation was currently declining).   

The normal Keynesian check out of the 1970s inflation was that it started with tries by the U.S. Federal government to operate each the Vietnam War and ambitious social guidelines with out increasing taxes. As a final result, the merged source demands of the general public and private sectors exceeded the effective ability of the overall economy, building inflation. This is completely dependable with the evaluation of “textbook” MMT, but is performed down because of its political implications for “movement” MMT.

The typical Keynesian investigation implies that, if the current need for a renewal of radical reform is to be attained it will be needed to raise the resources taken from the private sector by means of intake, with these on bigger incomes generating the most significant contribution. As by now stated, it is specifically this summary that “motion” MMT attempts to prevent.

This can be noticed in Stephanie Kelton’s greatest offering e book The Deficit Myth. Kelton presents some handy correctives to rightwing claims about the evils of price range deficits (statements that are conveniently deserted every time tax cuts are proposed). The core of her e book is the assert that ‘We can and need to tax the wealthy, But not simply because we can not pay for to do anything with out them.’  

‘My rich friend doesn’t want to shell out for your youngster treatment … And he certain as heck doesn’t want to shell out the major bucks for a multi-trillion-dollar Environmentally friendly New Offer.’

The to start with sentence sounds progressive, but it is the 2nd that matters. The claim, spelt out in the book is that, if everyone requirements to pay out a lot more taxes to cost-free methods for the Inexperienced New Offer, it is the working and center courses, who consume most of their earnings. The loaded, in this story, invest their dollars on stamp collections, so taking it absent won’t release effective means. If they are to be taxed, it is only to cut down their social and political power.

And, even though Kelton backs the strategy of soaking the loaded when conversing to a broadly progressive typical general public, she usually takes a distinct line when speaking to the prosperous by themselves.

In a piece in the enterprise section of Bloomberg Information, printed in 2019, Kelton argues that:

‘To escape bigger taxes, they must embrace deficits.’ 

The crucial estimate, displaying some amazing cynicism is:

‘My wealthy close friend does not want to spend for your baby care … And he guaranteed as heck doesn’t want to shell out the huge bucks for a multi-trillion-greenback Green New Deal.’

For the minute, MMT economists are on facet with the vast the greater part of mainstream economists in supporting significant deficits as a response to the economic crisis. But if these initiatives be successful, and the overall economy approaches whole work, the query will come up: who have to give up their incomes so that we can meet up with social needs?

Progressive economists will solution that people on higher incomes are finest positioned to give some thing up. On previous variety, motion MMT will dodge the question, making sure that the burden is ultimately borne by all those unable to dodge it.

Frydenberg exhumes Thatcher and Reagan to bring back morbid inequality

John Quiggin is Professor of Economics at the College of Queensland and the creator of ‘Zombie Economics and Economics in Two Lessons’. You can comply with John on Twitter @JohnQuiggin.

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Coronavirus: Young people ‘face trap of world without work’

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Liam McBurney/PA

The economic damage of the coronavirus crisis will hit young workers hardest, an Ulster University study has suggested.

It estimated that youth (ages 16-24) unemployment in Northern Ireland could jump from 8% to 26% in 2020.

That compares to an estimated unemployment rate of about 10% for workers aged 25-49 this year.

The study uses official labour market data to estimate which groups are most at risk of unemployment.

It was produced by Ulster University Economic Policy Centre researchers Mark Magill and Marguerite McPeake.

The study showed that young people are disproportionately employed in hospitality, which is likely to be the last sector to emerge from lockdown.

‘Unemployment rate could spike’

Just over 10% of all employees in Northern Ireland are under 25, but that age group accounts for 36% of hospitality employees.

The study said the impact of the lockdown on hospitality has been “intensively felt by young people”.

It also estimated that 45% of under-25s have been furloughed or laid off since the start of the crisis, compared to 25%-30% for older age groups.

A large proportion of furloughed workers will hopefully get their jobs back, but the study said “jobs within sectors significantly impacted by the restrictions are at a higher risk of being permanently lost”.

It also warned that the youth unemployment rate could spike in the autumn when students leaving school, colleges and universities will be seeking to begin their careers.

In a typical year, about 25,000 young people enter the Northern Ireland labour market.

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The study was carried out by Ulster University researchers

“With the number of vacancies collapsing and high numbers of jobs in the existing labour market at risk, such a large number of young people entering the search for work will put upward pressure on the youth unemployment rate,” the study said.

“It risks long-term scarring effects on the labour market prospects of an entire cohort of education leavers.”

The study recommended that a set of measures be targeted at young people.

These include uncapping undergraduate numbers to keep more young people in education and offering a job or training guarantee for all young people unemployed for three months.

It said these policies would be expensive but “given the extent of the risk to young people being trapped in a period of worklessness and the associated scarring effect over the course of a person’s working life, the long-term benefits may well outweigh the costs”.

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