It's been a while between drinks.

Devil's advocate?

I previously mentioned that the IR reforms would be a very bad thing for the australian economy once we're past the short term labour shortage and we hit an economic downturn. Maybe this isn't so?

Think about it; the thing that will drive inflation further and deepen an oil/interest rate based recession will be inflation. The best way to curb inflation is to take money out of the economy. The IR reforms may just present the solution to that problem. This may sound horrible but a decrease in living conditions and spending in the short run of the recession caused by employees inability to negotiate better pay may be precisely what the doctor ordered to reduce the inflation that caused it - less disposeable income means less spending and money and less inflation. This would present a situation where we would have the opportunity to get over a recession more quickly, however the costs would be huge - large increases in the number of Australians living below the poverty line and all the socio-economic side effects that go with it.

This is just a thought, in reality I cannot forsee many situations in which the benefits would outweigh the costs; but it is an idea, nothing more nothing less.

Don't fear your politicians taking this tack in a recession - it's political suicide with questionable ethics thrown in for good measure. But in reality one must know the costs and benefits of all options

What a Surprise!

No one listens to blogs; I certainly don't, and for good reason - they are poorly written, unthinking drivel that has little or no impact on the world. This blog is no exception. So why then did I spent my precious time writing one?

I'm not going to say I told you so when it comes to the state of the Australian economy, I'll let others tell me I told them so. Here on my blog are the records of my predictions for the Australian economy, backtrack and read them if you wish. But to paraphrase I outlined why the housing boom was a bad thing. Though I originally predicted the major economic downturn would coincide with the decline in the commodities boom (in about two years) it seems that the oil price and those god forsaken tax cuts has sped up inflation and concurrently prolonged the boom, bringing forward the rate rises and prolonging the commodities boom/bubble.

Now that interest rates have risen twice since my last posting and will again by November (guaranteed) the Australian media has suddenly switched - no longer is a mortgage the new "get rich quick" scheme in a method by which "you can't lose!", it has become a way to blame banks for your own stupidity in allocating 28% of your income to paying off a twenty year debt.

As I have said before, almost every economic downturn is accompanied by a bursting real estate bubble, and for good reason

• It contains a huge amount of capital, so small percentage changes mean large changes in real economic terms
• It's very illiquid; hard to sell or buy quickly
• The market has few players, all with large amounts of capitalisation (money)

This means that you don't ever know how much a house is worth on the market, because as the saying goes "everything is worth what its purchaser will pay". So if aggregate house prices change you assume yours has as well, and so does everyone else which rallies the price higher. But there are small numbers of participants so a few people entering the market to buy will rally a price above what it's really worth while everyday people don't realise the price is higher than the value because the market is illiquid meaning prices don't reflect values and people don't understand the different between price and value. But this is nothing new, why the new post?

The impending recession is seemingly inevitable and I believe there are a few good reasons to fear it may be the worst we've seen in a long time:

1. OIL: The Oil price won't come down, we seem to have hit peak oil or will soon. If you don't believe this ask the experts, even market analysts in their ivory towers are starting to say we've hit peak oil. This will drive inflation, driving interest rates higher and increasing the price of everything. My recommendation - if you buy a car, buy diesel
2. LEVERAGE: By this I mean the amount of money the Australian voting public owes in all debt, sum total. This figure is 141% of GDP, as in 41% more than the country earns in a year. This is the reason why this recession will be worse than the 90's. During the famed 18% interest years the average percentage of income devoted to repaying a mortgage was 27%, as I write this it sits at an unhealthy 28% of income today. Why is this? shouldn't this be lower due to the lower rates of interest? No. People paying off a mortgage back when the rates were 18% were paying off a $150k loan max. now the average is twice that because people were misled by the media proclaiming that they can't lose money on property giving them the false confidence to take out a stupidly large loan leaving them OVER-LEVERAGED
3. REALITY OF REAL ESTATE PRICES: In reality people were misled into thinking that the price of property never goes down leading them to buy houses at inflated pices that they couldn't afford. As outlined above the character of the real estate market is one where it is impossible to know the value of a house by any method other than sheer speculation. This lends itself to rapid price inflation from the small number of participants wielding large sums of money in an illiquid market, but those same factors can work in the other direction. It happened in Japan, huge amounts of real estate were bought for amounts far exceeding their value following the crash the properties stayed undervalued for a long time as investors were weary of being burned. If this happens in a period of rapid inflation then defaulting mortgages may be foreclosed for less than the original value lent making a loss for the individual but more likely written off as a loss for the bank. The small number of participants in the market means that if one or two start to be sold for less than their value then all will start to be sold for less, meaning all foreclosures will result in losses for our financial institutions. Large losses in banks have dire consequences, a full blown run on banks can spell the end of many institutions and the only way they can come up with money is to sell off assets and withdraw funding from projects often at a loss and leaving many people out of jobs.
4. IR REFORMS: The way out of a stagnant economy is off the backs of middle class workers - they get money they get spending and then they get the economy moving. But in an era of high inflation this depends on the employees ability to negotiate higher pay to keep up with the inflation rate. Higher pay will guarantee more inflation, or at least its incessancy, but the reality is that without the ability to negotiate higher pay there will be many more mortgage defaults and significantly more losses for banks.

When these factors are pieced together the future seems to be spelled by one word STAGFLATION (stagnant economy plus rapid inflation). In real world terms, homebuyers' stupidity may make them homeless and destitue in the net decade.

This is still a minority opinion held by some economic analysts, but it is valid and plausible and I hope it's so very very wrong. But the factors seem to be moving in all the requisite directions.We'll see what the future holds.

Lets get fiscal

Peter Costello announced the budget yesterday and I'm not entirely unhappy with it, but for the most part it could be much better.

When analysing the budget you must cosider the state of Australia Financially, that is you must consider.

1. The high level of household debt (mainly mortgages) and by extension the interest rate risks posed on the economy
2. The high price of oil and its infaltionary pressure
3. The commodities boom and it's timing
4. The ageing population
5. Export gluts
6. Skill Shortages

Super

On point 4 Mr. Costello has changes the superannuation system and whilst I agree with Mr. Costello's changes to the super system, it's not for the reasons he mentioned. The point of conjecture is his removal of exit tax on super funds; many have said that a removal of contributions tax would be more effective in stimulating contributions. One analyst summed up the changes perfectly when he said that the removal of exit tax would inrease super contributions in the mid to long term but do litte for them in the short term, and that is exactly why I think it's a good idea. Think of what happens when people put money into a super fund - the money goes to a superannuation fiduciary trustee who then invests it in the capital markets (long term investments), the increase of money supply in the capital markets makes more money available in the money markets (short term investments), this increase in the supply of money means a decrease in the value of that money (lack of scarcity - basic supply and demand) which leads to inflation, inflation leads to higher interest rates. That's why the bulk of this money must be kept away from the markets, to prevent point 1 from becoming a larger problem than it poses for the economy already.

Taxes

The tax cuts to householders in this budget represent perhaps one of the single most reckless examples of populist politics I've seen. Don't get me wrong I understand why Costello wants to decrease them, especially for middle income earners.

Costello's logic: Many Australian workers are currently working in part time work, the rise of the part-timers has been a major contributor the decrease in official unemployment rates and is a direct result of the increase in the retail economy. Lower taxes are a incentive for the part-timers to increase the number of hours worked and also an incentive for unemployed to seek skills training to enter the new, reduced tax economy.

Intuitive analysis: The actual cuts are so small that they barely represent an incentive for part-timers to work more at all (a few dollars per shift isn't a really large incentive) nor is an extra carton of beer a week a good enough reason for someone to go out and change their entire lifestyle. In reality the real effect is likely to be related to point 2, in that the rising price of oil will inflate the price of all commodities and therefore raise the price of household bills - so in effect the tax cuts will be an injection of cash into the economy. The last point I made on superannuation therefore still holds - more money in the economy, lower value of money, higher interest rates, economic recession.

Why cuts then? Because people either don't undertand supply and demand or can't effectively apply that knowledge to the money supply. All they see is a government bank balance that is high whist they still pay taxes, they'll vote for a guy they pay less so the government lowers taxes. More to the point is why isn't labour disagreeing? it's a great opportunity to spot an election lie - that the focus of the Howard govenment was going to be to keep interet rates low. Populist backflips of leaders trying to please all of the poeple all of time and not standing up for logical reasoning

The RBA Code

When the RBA announced the rate rise it gave two main reasons, which any financial analyst could see was a clear message to the government about what it needs to be working on if it's to maintain it's election promise of keeping interest rates low. The two thing it mentioned overall were Infrastructure gluts holding bac exporters and skills shortages, holding back, well, everyone. It doesn't take much to decode this message:

Infrastructure: The new budget announced $5 Billion in infrastructure development over the next year, which is good right? but where is this investment, check the stats:

http://www.abc.net.au/news/newsitems/200605/s1633160.htm

Half of this is going into roads - read as oil intensive infrastructure, the utility of these sytems depends on the price of oil which shows no signs of downward pressure. Only a fraction of this money is going to be spent on rail infrastructure and only on one rail line. The infrastructure investment will do little to ease the strain on export gluts.

Skills shortages: These shortages are holding business back. it means that to employ the people they need they have to pay more than their competitors. The allocation of funds into the education budget is mainly focused in one area though:

http://www.abc.net.au/news/newsitems/200605/s1629768.htm

The thing about funding education is that this deals with long term skill supply, but not short or mid term. The real necessity is in adult education systems which are currently non-existent in this country - this would deal with the skills shortages in the short term whist the creation of these systems would, in the long run, mitigate the effect of the ageing population.

More next time

Straight faced deception

Anyone that has read the straight faced lies published on http://www.icr.org has come away thinking one of two things. Either you came away thinking "Hey, why are we teaching evolution in schools" or you, like me, came away thinking "What the fuck? are these people retarted?". Which one you come away with seems to depend largely on how deep you probe into their arguments.

Let's look at an example: http://icr.org/index.php?module=articles&action=view&ID=2608 14th February 2006

The article states that the complexity of eye mechnisms in Trilobites shows a great deal of design early in the history of life on earth, it then incinuates that this is too early in history of life on this planet for evolution to have occured and it therefore must have been designed. Fair enough, lets see the argument then:

"Twenty-first century research has now revealed that bee vision is more complex than anyone thought. According to science, arthropods have always been complex—and they have always been arthropods. One of the first arthropods found in the fossil record is the amazing trilobite, common in Cambrian and Ordovician sediments. Many of these creatures are so well preserved that a detailed analysis of their eyes has been possible:

The elegant physical design of trilobite eyes employ Fermat's principle, Abbe's sine law, Snell's laws of refraction, and compensates for the optics of birefringent crystals. Thus, trilobites could see an undistorted image under water. Imagine being able to see with undistorted vision in all directions, being able to determine distance in part of that range, while, at the same time, having the optimum sensor for motion detection."

Sounds fair enough yeah? must be true, but just to be sure lets do some background research on the "relevant" laws of science they mentioned that the Trilobite employed to maximise vision:

Fermat's Principle:  "The actual path between two points taken by a beam of light is the one which is traversed in the least time."  http://en.wikipedia.org/wiki/Fermat%27s_principle

Fermat's principle is derived from the principles of quantum mechanics. In Quantum Physics a particle is so small that its exact position cannot be determined by any means we currently have, the act of reflectin light off a particle will energise it enough to move the position to a new one. Photons (light particles) are also very small and are therfore subject to the same limitations, Fermat's Principle states simply that the path a Photon will take will always be the shortest distance between the start and end point of its journey. THIS IS IRRELEVANT

Snell's Law:  "is the simple formula used to calculate the refraction of light when travelling between two media of differing refractive index. It is named for one of its discoverers, Dutch mathematician Willebrord van Roijen Snell (1580-1626)." http://en.wikipedia.org/wiki/Snell%27s_law

Snell's Law is an extension of Fermat's Principle. It applies to refraction of light  - where Light enters a new medium and changes speed due to the maximum speed of light changing. Snell's law is a mathematic formula used to determine the angle by which the direction of light changes when entering a new medium. THIS IS NO MORE RELEVANT TO TRILOBITES AS IT IS TO ANY OTHER CREATURE WITH EYES

Abbe's Sine Law: "In trigonometry, the law of sines (or sine law) is a statement about arbitrary triangles in the plane." http://en.wikipedia.org/wiki/Sine_law

Sine Law is basic high school trigonometry formula for calculating the unknown lengths of the sides, and interior angles of a triangle given a few known variable. It is a formulaic statement of the relationship between the interior angles and side lengths of a triangle. This is high school geometry and is used in such fields as engineering to define various heights and lengths required for structures etc. WHAT THE HELL HAS THIS GOT TO DO WITH ANYTHING?

Birefringent crystals: "Birefringence, or double refraction, is the decomposition of a ray of light into two rays (the ordinary ray and the extraordinary ray) when it passes through certain types of material" http://en.wikipedia.org/wiki/Birefringent

Birefringence is an effect that can only occur in anisotropic materials, which is kinda wierd because there is no way of knowing that Trilobites had to deal with any anisotropic materials in their vision, in fact there is no evidence pointing to any anisotropic materials anywhere in either the eye of the trilobite or in its natural environment. THERE IS NO BASIS WHATSOEVER FOR THINKING THAT THE TRILOBITE COULD HAVE SINGLE VISION THROUGH ANISOTROPIC MATERIALS WHATSOEVER. MY ONLY CONCLUSION HERE IS THAT THIS ABILITY OF TRILOBITES IS COMPLETELY FICTIONAL.

Imagine being able to see with undistorted vision in all directions, being able to determine distance in part of that range, while, at the same time, having the optimum sensor for motion detection: Yes, imagine that. It seems that Trilobytes had spectacularly great vision all those aeons before bees and other such anilmals developed them, but wait a second:

"Many trilobites had eyes and they had antennae that perhaps were used for taste and smell. Some trilobites were blind, probably living too deep in the sea for light to reach them....

...The rigid calcite lenses of a trilobites eyes was unable to accommodate to a change of focus like the soft lens in a human eye would......

...the number of lenses in such an eye varies, however: some trilobites had only one so they could only distinguish between light and dark."

http://en.wikipedia.org/wiki/Trilobite#Sensory_organs

The conclusion is that this atricle is full of shit. It makes no statement about creationism, it only tries to draw holes in evolution which aren't there. The reason is because cretionists know that if thy were to make a single claim then real scientists would come and tell them they're wrong, show them why and grade their homework. Creationists need to grow some balls and publish some articles in scientific journals about thir work, but they won't because making these kinds of schoolyard claims works on the illiterati, but that shit won't fly with anyone who has seen the inside of a university science department.

Mr. Boy