The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
The Forum - On Line Opinion's article discussion area


RSS 2.0

Main Articles General

Sign In      Register

The Forum > Article Comments > It's the best of times, but the party's peaked > Comments

It's the best of times, but the party's peaked : Comments

By Henry Thornton, published 2/8/2005

Henry Thonrton argues our central bank should have been more cautious with interest rates.

  1. Pages:
  2. Page 1
  3. All
"Best of times, but the party's peaked" - for the affluent world, no argument, given most indications.
Our economic system speeds us, as in the Hitch-hikers' Guide to the Galaxy, on a journey to the cafe at the end of the Universe - dependent upon compound interest forever - "which is impossible". But we insist.
Economic growth: if the compound interest rate is too low, pundits get worried; too high, nervous. There is a nebulous somewhere in-between - but compound interest just the same. Growth to the end of the Universe - "which is impossible".
It's been great times for us, the affluent. We have dined well at the expense of the world's resources: wild fish stocks grossly depleted; fertile soils in decline; stores of undergrouond fresh water consumed faster than replenishment; cheap fossil fuel no longer a prospect for future generations, and its wastes leave them a legacy of imperiled climate. The environmental biodiversity to which humanity has adjusted - the fundamental bank from which we make continuous withdrawal - has been placed under serious threat: mined, to the detriment of descendants.
We of the present have never had it so good. It's been wondrous plunder.
Pity those who missed out, never to enjoy this peak from which we are descending. Especially those in destitute communities able to view media portrayal of "Affluenza".
Pity the desperation of Niger. "Failed crops"? Maybe more fundamental is their attempt to sustain compound interest - "which is impossible": Niger's women have, on average, 8 babies, and the population increases at 3.5%.
Our best of times has probably peaked. Yet the economic train carryinig us to that magic cafe at the end of the Universe demands not only compound interest on economic growth, but also on population increase to boost consumption. Niger, a long, long, way ahead, nevertheless has commonality with our pursuit of continuous compound interest "which is impossible".
Rather than concentrating on interest rates, "Henry Thornton" might have benefited from dialogue on more fundamental issues with fellow-traveller Douglas Adams, on their way to the cafe at the end of the Universe.
Posted by colinsett, Tuesday, 2 August 2005 8:11:35 PM
Find out more about this user Recommend this comment for deletion Return to top of page Return to Forum Main Page Copy comment URL to clipboard

Crops in Niger probably need an article in themselves, as does humanitarian intervention in general, but that doesn't take away from this analysis.

Central banks don't perform development functions outside of their own countries, so it is difficult to argue that an article premised on RBA actions should look beyond those influences on Australian monetary policy.

I think you should be heartened by G8 and I'm sure there has been many places to put your views on the table since Blair and Brown raised Africa to the world's foremost attention - well at least until the bombs in London.

In general development of poorer states is a very big task of economics but not its only task - and I'm sure we will get more balance and rightly so post G8 and post Live8.

Ponder this if you will though - it is believed that per dollar returns on investment in Africa are higher than any other continent. Worth a thought - may be invest in a fund of "ethical" African investments - it could help us all to do better.

Posted by Corin McCarthy, Tuesday, 2 August 2005 11:41:48 PM
Find out more about this user Recommend this comment for deletion Return to top of page Return to Forum Main Page Copy comment URL to clipboard
I can only agree that the party is over, but cannot understand why people don't understand why. In a finite world, you cannot expand to infinity. The main privilege that Australia enjoys is we can control our level of population, through the means of controlling immigration. If we continue to expand our population, we cannot hope to control pollution, but an unlikely alliance of extreme left (who think everyone should be able to come here) and the extreme right (who want as many people as possible to maximise their real estate invenstments) we seem doomed to an indefinite expansion. Again, elementary logic dictates that we should ensure that we live within our income, but the same forces condemn us to continually expand our foreign debt. It is going to be an interesting century.
Posted by plerdsus, Wednesday, 3 August 2005 7:08:27 PM
Find out more about this user Recommend this comment for deletion Return to top of page Return to Forum Main Page Copy comment URL to clipboard
As usual Henry Thornton is all over the shop. However there is some small glimmer of monetary wisdom in the article.

Oil and many other commodities, most asset prices plus the overall strength of economies are at levels that signal increases in goods and services inflation down the track.

Part of this is rubbish. Strong economies need not create inflation. Britian did not in the 1800s. China did not in the 1990s. Weak economies (like Britian in the 1970s) frequently do suffer inflation. Europe did during the Black Plague in the middle ages when output plummeted and the price level increased.

However commodity prices can and often do signal future consumer price inflation. So Henry Thornton got half of it right.

The most significant commodity that signals future inflation is the gold price. An increase in the US dollar price of gold preceded the increase in both US dollar oil prices and US dollar consumer prices in the early 1970s. The gold price was, is and shall remain the number one early warning system on inflation.

Too often though people look at the US dollar gold price when they need to be looking at the domestic gold price if their concern is in domestic inflation and the nature of the monetary policy setting. And of course as the most sensitive signal of future inflation it is also the most volatile signal because it registers every switch in policy direction and error even before those errors flow through to consumer prices.

If our monetary policy was used to target the Australian dollar at a fixed and constant value equal to 58 milligrams of gold then we would have near zero inflation moving forward and interest rates could float downward to meet the leasing rate on gold.

Monetary policy should manage the VALUE of MONEY not the PRICE of CREDIT. By managing the VALUE of MONEY relative to sensitive commodity signals like GOLD we could have lower interest rates and MONEY that remained stable in value.
Posted by Terje, Wednesday, 3 August 2005 9:02:11 PM
Find out more about this user Recommend this comment for deletion Return to top of page Return to Forum Main Page Copy comment URL to clipboard
  1. Pages:
  2. Page 1
  3. All

About Us :: Search :: Discuss :: Feedback :: Legals :: Privacy