What will happen to interest rates?

The big question is whether the RBA will raise interest rates  soon?

In one corner is the Kouk.

In the other is Ricardian Ambivalence.

I am with Ricardian Ambivalence for all the reasons he states. I think fears about inflation are overblown for the reasons RA outlines.

Where I digress with RA is with fiscal policy. He thinks it should be tightened. Given Nominal GDP growth is forecast to be 3% both this fiscal year and next ( and this is less than half its trend rate of growth) then I would wait for Nominal GDP growth to get to trend and then tighten.

Just remember the only reason for tightening  is because of the income tax cuts given by Costello and then Swan as well as  the changes to the excise duties on oil!

Around the Traps 14/2/14 Valentine's day Edition no 7/2/14 actually!

It is time for the Valentine's days edition of Around the traps.
Ricardian Ambivalence is back, Noah Smith is in fine form and Genial Dave Giles is apparently still on strike!! He is back at work. hooray. Andrew Gelman has one fascinating piece!

do not read this until your sweethearts have a rose or you have received one!!

Aussie,Aussie,Aussie,Oy,Oy,Oy

• The Kouk talks sense to the Commision of audit
• Ricardian Ambivalence on is-the-rba-really-neutral,not-so-hawkish-q114-rba-somp
• Ross Gittins on hockey-faces-daunting-budget-challenge, top-10-economic-reforms-that-tranformed-Australia
• Mumble on tos_and_fros_in_griffith, dr_shortens_monster, not_what_shorten_wanted
• Kevin Bonham on griffith-sound-and-fury-signifying-little
• Andrew Elder on the-new-marginals
• Mr Denmore on reframing-freedom, storm-damage
• M0nty almost does a summary of the week

Northern America

• Progrowth Liberal on what-cbo-really-said-about-obamacare 
• Kruggers on cbo-aca-ok, labor-supply-and-the-meaning-of-life
• Mark Thoma gives us Tim Duy on fed-watch-no-end-to-tapering-yet, fed-watch-another-month-another-employment-report
• Calculated Risk on fed-survey-banks-eased-lending-standards-experienced-increased-demand Fancy that!, public-and-private-sector-payroll-jobs
• Menzie Chinn on observations-on-the-gdp-release-and-the-cbo-outlook
• James Hamilton on cbo-deficit-projections

Europe

• Chris Dillow on manufacturings-demise, what-did-tax-cuts-do
• Simon Wren-Lewis on breaking-up-is-hard-to-do, austerity-and-flood-damage

Asia
nuttin

Wonk

• Antonio Fatas on the-conservative-bias-of-economic-models
• Noah Smith on do-economic-facts-have-conservative-bias, how-new-classicals-drankthe-austrians-milkshake, does-trend-chasing-explain-financial-markets, which-is-better-altruism-or-greed
• Barkely Rosser on will-future-fed-policy-be-driven-by-behavioural-macroeconomics
• Noah Smith on separate-capital-budget-to-fix-infrastructure-woes 
• Kruggers on demography-and-employment-wonkish,reverse-notch-blogging-extremely-wonkish
• Edward Lambert on pressure-to-lower-prices
• Robert Solow on the-one-percent
• David Glasner on why-are-wages-sticky and Kruggers on sticky-situations
• Simon Wren-Lewis on speaking-as-old-new-keynesian and then Kruggers the-excluded-middlebrow-wonkish
• Chris Dillow on who-benefits-from-benefits

General

• Noah Smith on krugman-the-moderate related Brad De Long on chris-house-all-opinions-of-shape-of-earth-are-nutty-does-this-qualify-as-thursday-idiocy-yes-i-conclude-that-it-does 
• John Quiggin on some-thoughts-on-energy-storage
• Lord Keynes on the-recession-of-19201921-versus-1929-33, debt-deflation-1920-1921-versus-1929-1933
• Nick Rowe on negative-money
• Chris Dillow on taxes-and-marxism
• Skeptikoi on the-conglomerates-fall-from-grace-two , the-restless-investor-trust-and-the-global-cyclesorry late
• Kruggers on austerity-memories-2
• David Glasner on now-we-know-ethanol-caused-the-2008-financial-crisis-and-the-little-depression

Climate

• Rabette run on is-the-message-getting-through,five-year-average-temps-and-betting, 
• The science of doom on ghosts-of-climates-past-sixteen-roe-vs-huybers-ii
• Tamino on pity-the-fool, antarctic-sea-ice-increase, tiny-graphs

Andrew Gelman( King/Prez? of the P values)

• one-way-street-fallacy-reporting-research-brothers-sisters
• widening-goalposts-medical-trials
• prior-distribution-predicted-probability
• bootstrap-averaging-examples-works-doesnt-work
• outrage-of-the-week
• guys-who-do-more-housework-get-less-sex
• keli-liu-xiao-li-meng-simpsons-paradox

Dave Giles ( Econometrics guru)

• the-february-reading-list
• vintage-years-in-econometrics-1960s
• a-blast-from-past
• the-statsguys-on-data-analytics

Dianne Coyle (Quirky + Book Reviews)

• would-keynes-see-FOX-news-as-progress, implementation, a-fine-innovation-economist,the-invisible-industry,a-dangerous-obsession
• David Glasner on big-ideas-in-macroeconomics-a-review
• Chris Dillow on our-parental-inheritance, politics-as-wrestling
• Tim Harford on the-royal-accounts-are-printed-in-red-and-gold

Voxwonk

• german-resurgence-it-wasn-t-hartz-reforms
• tax-evasion-and-austerity-plan-failure
• where-land-opportunity-intergenerational-mobility-us
• understanding-emerging-market-turmoil
• democracy-inhibits-ethnic-favouritism
• causes-eurozone-external-imbalances
• A-call-for-liquidity-stress-testing
• causes-of-eurozone-external-imbalances
• why-don-t-african-firms-create-more-jobs
• job-polarisation-and-decline-middle-class-workers-wages
• financing-and-investment-decline-uk
• shale-gas-and-housing-market

Hypocrisy at work

look at this.
now take a look at any of the other topics and read what is said.

Yeah that's right they are all class!

They simply have no shame at all!

Current Account Surpluses: The Norm for Australia?

Michael Blythe the Chief Economist at CBA Economic research has  this hypothesis for the future for Australia.

Current account surplus – or banana republic no more? ■ Australia may be at the start of an era of current account surpluses. ■ Funding flows, trade flows and income flows are evolving in a way favouring a shift to surplus. ■ Countries that run current account surpluses typically have strong currencies – the AUD could trade well above parity with the USD again. Current account deficits are the norm in Australia.  Deficits have been recorded in 128 of the past 150 or so years.  The relatively rare surplus is typically associated with extreme economic events.  Wars and recessions seem quite effective in producing surpluses!  The historical experience has conditioned expectations and large current account deficits are expected to persist.  But we see a significant probability that surpluses emerge over the medium term.  Current account deficits, like budget deficits, are widely seen as a problem.  They need to be funded and they lead to an accumulation of debt over time.  We need to tap into the savings of the rest of the world, leaving us exposed to the whims of global financial markets.  From this financing perspective, the current account deficit reflects a shortfall of domestic savings relative to domestic investment.  The gap reflects high investment rather than low savings.  By running current account deficits we have been able to sustain a higher investment rate than otherwise.  Economic growth rates and living standards are higher than otherwise as a result.  Looking ahead, the flow‑of‑funds will evolve in a way that could produce a current account surplus (or net lending to the rest of the world).  Households will remain significant net lenders.  The change in household behaviour was underway before the financial crisis hit.  The pickup in household savings and reduction in borrowing appetite looks permanent.  Business net borrowing is set to decline.  The mining construction boom that drove business funding requirements to exceptionally high levels is ending.  Government net borrowing should decline.  The recent mid‑year review shows the Commonwealth budget deficit slowly declining.  We suspect, however, that the government will proceed further and faster than the baseline projections suggest.  These shifts will narrow the gap between domestic savings and investment and reduce net borrowing from the rest of the world.  We may be generating small current account surpluses within five years.  From a real world perspective, the move to current account surplus requires a shift to trade surpluses and a narrowing in the net income deficit.  A sharp rise in resource export volumes and a marked reduction in resource‑related capital goods imports as the mining construction boom winds down will drive the move into trade surplus.  The expanding middle income population in Asia should lift demand for Australian services exports as well.  On the income side, the broad macro backdrop suggests foreign liabilities should grow reasonably slowly.  But the expansion of Australian superannuation funds will boost foreign assets by more.  The net income deficit should narrow as a result. Countries that run current account surpluses typically have strong currencies.  Examples include Switzerland, Japan and Singapore.  The argument is reinforced from the deficit perspective.  The fears about global capital flows generated by the Fed tapering debate in 2013 had a bigger negative impact on those emerging economy currencies with large current account deficits.  As a result, we would expect the AUD to strengthen should a persistent current account surplus emerge.  Abstracting from USD‑specific influences, the combination of a AAA rating and a current account surplus would likely see the AUD again trade well above parity to the USD. Another feature of current‑account‑surplus countries is that average interest rates are lower than otherwise.  There are two reasons.  By definition, surplus economies have national savings running ahead of national investment.  They do not need higher interest rates to attract capital.  And the lack of reliance on global funding sources means surplus economies are often seen as safe havens and have lower risk premiums.'  very very interesting.

Paul Krugman - The Moderate

no I am not saying that. Noah Smith is.

If you always wanted to know how Krugman thinks etc this article is a real ball-tearer.

It is also pretty good to understand where the economics profession is at present and has been.It has plenty of links as well.

All round a really good read

Sinclair Davidson. He is an expert on Mistakes

Here is Sinclair Davidson opining on ABC  mistakes.

Well he is an expert on mistakes.

Take:

• this or
• this or
• this is a beauty  or
• this or
• this  or 
• this  or 
• this  or 
• this  or 

Just remember your taxpaying dollars are paying for his mistakes!!!

Wow. Judith Sloan is now getting into the act. She of the NBN is not on the the balance sheet fame. Except it was and has been ever since its inception right there in the budget papers!

A pity no-one fact checks her statements!

Global Temperature. The post 1998 Surprise

Sorry this is not original.

It is in fact the title of one of the best posts in Around the Traps from Friday.

Tamino wrote  it here.

This is a gist

'It’s clear that if we expected a pause, we would expect most of the following years’ temperatures to be below the red forecast line, but about half above and half below the blue forecast line. On the other hand, if we expected continued warming, we would expect most of the following years’ temperatures to be above the blue forecast line, but about half above and half below the red forecast line.

So … how did it turn out? Were subsequent years about half above and half below the red (warming) forecast, or the blue (no warming) forecast? The answer is: neither.

What actually happened is that, according to the HadCRUT4 data, most of the data are above both forecasts. Twelve of sixteen were hotter than expected even according to the still-warming prediction, and all sixteen were above the no-warming prediction:'

Now go back and read this again.