What is Gyromancy?

Gyromancy is divination through use of circles. In the case of this blog, it refers to using cycles that are quite clearly present in the past to predict the future - only a slight stretch.

This blog is aimed at providing short and snappy news about the economic future of Australia - given the interconnected nature of the global economy, much of it will be global economic news.

The past globally:

• US investment banking has crashed, with the taxpayer footing the bill for much of it
• In Europe, a large proportion of banking has been nationalised, especially in the UK
• All interest rates are falling
  
• The people running things all argue that no-one could have seen this coming, to excuse their completely inaccurate predictions, but still confidently act upon the future

The past in Australia:

• Resource prices have collapsed
• Interest rates have been slashed halfway to zero
  

The present globally:

• Countries are getting IMF bailouts (Iceland, Hungary, Ukraine, Pakistan)
• States in the US are heading toward bankruptcy very quickly (California, Nevada, Arizona, Florida)
• Essentially all solvent countries are throwing money at the debt monster to make it go away, in the form of both banking bailouts and economic stimulus, whist attempting to "avert recession"
  
• There is much post mortem analysis of the crisis that is in progress - it seems strange

The present in Australia:

• Housing is being bailed out with an A$8 billion purchase of RMBS (residential mortgage-backed securities) by the Australia Future Fund - all AAA rated, of course
• Housing is being bailed out with an increase of the first home buyers grant, to the tune of an estimated A$1.5 billion increase - I guess that means the subsidy is now A$2.5 billion per year
• Banks are being supported by purchases of debt from the Australia Future Fund - A$500 million for ANZ, unknown amounts for NAB and Westpac - the CBA is not involved due to a conflict of interest from the director of the Fund
• Banks (the big four, Maq Bank and Suncorp) are receiving free government guarantees for newly issued debt - US$11.2 billion as of Dec 17 - and it is getting issued in currencies including US Dollars and Yen
• In spite of this, we still have declarations that the banking system here is strong
  

The future globally:

• Everywhere seems 100% committed to throw as much money at the debt monster as it takes to make him go away - but he keeps coming back bigger and hungrier

The future in Australia:

• A recession is to be averted using the same techniques that have proven ineffective everywhere else
• Housing will not be allowed to correct to realistic prices without a fight - ZIRP (zero interest rate policy) may be used
  

According to governor of the RBA, Glenn Stevens:

"I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it."

If you could not see the inevitable consequences of past policy, how do you expect to engineer future policy with favourable consequences?