Behavioural Economics - Greed is Good

The "Greed is Good" mantra lies at the heart of asset bubbles. It is not possible, and democratic societies do not want excessive regulation of human behaviour, therefore each generation learns the hard way. The cycle of life and the boom/bust mentaility needs to be more closely incorporated into macroeconomic modelling.


 

Globalisation

The trend to an integrated global economy is unstoppable. Those countries that invest in education, lower their tariffs, embrace technology with the consequential improvement in productivity will flourish. Higher cost of production countries like Australia must continually upskill and invest in new ideas as we will not be able to compete in the medium term. Whereas, economic blocks with high tariffs and boundaries to entry, e.g. Eurozone are ultimately doomed to fail.

Currency & Interest Rates

The appreciation of the Australian dollar against the US dollar, along with the push by many countries to devalue their currencies supports Chairmont's long held view that interest rates should be kept on hold, if not lowered. Australia has one of the highest yielding currencies in the world and further increases in interest rates will only add to the Australian dollar going higher. The higher dollar assists in relieving inflationary pressures as imports are cheaper, thus stimulating consumer expenditure. It is recognised that exporters suffer through the higher dollar, however our terms of trade are at historical highs and improvement in productivity along with limited wage growth should assist export driven companies adjusting. There appears to be limited house price growth and OECD economies particularly Japan (Bank of Japan reduced rates last week)and the US economy (increasing unemployment) are struggling and are double dipping.