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Paul Hanly
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Paul Hanly, B.Comm, Ll.B., ACA, has 20 years in banking and finance. Paul has experience in major corporate workouts after 92 recession and commercial real estate bust in Australia.
My blog:
Thorts On Investing
  • Conversation #1 0 comments
    Jul 15, 2010 3:20 AM | about stocks: FLR, KBR

    My wife and I sometimes shorthand our longstanding differences. Conversation # 1 is "Paul, you need to do more housework, I shouldn't have to remind you to shop, cook, clean, wash, mow the lawns and put the garbage out" (She's writing up a masters thesis and I'm retired). When she gets frustrate with me she can just say "Conversation #1"and I get the picture!

    I've noticed that some of my comments on SA have covered the same ground over and over so I thought, maybe a post on a couple of the common comments might be easier.

    Conversation #1
    is about Modern Monetary Theory and why the US can spend its fiat currency without increased taxation or borrowing because it is a sovereign country, issues it's own currency, trades internationally in that currency, borrows at home and abroad in that currency in both the public (government) and private sectors.

    ** Fiat currency:
    ** Billy blog on Deficits and Modern Monetary theory

    Conversation # 2
    is about how the basic macroeconomic identities work.
    (S - I) + (M - X) = (G – T)
    If imports and exports have the same net balance, private saving must equal government deficits.

    ** Employment gaps – a failure of political leadership (with extracts from a Goldman Sachs paper)

    Conversation # 3
    is about how long term un and under employment at levels like 16% U6 (maybe more if the discouraged part of the workforce is added back in) is a social, economic, personal and political disaster.

    The solution is for governent to spend on infrastructure and efficiency in spite of the deficit at times of high un and under employment. The timing is important as that is when labour is cheapest, there is maximum capacity available without crowding out, interest rates are cheaper and the flow on effects are most desirable in terms of social and economic impact. Inflation is not at issue until labour or other capacity constraints are reached.

    Some examples of infrastructure or efficiency spending are bridges, new public transport and roads, the smart grid, cable internet access, energy efficiency measures such as insulation (including in rental houses), ports, hospitals, schools - the time to build these is when the construction and related labour is readily availalble. The fact that it is funded by the government is largely irrelevant. in any event, most of the actual work is likely done by the private sector. The wages then flow through the economy.

    More plasmas, playstations, botox and spray tans through individual choice is not a better investment than replacing the oldest 10% of bridges within the USA through public spending

    Conversation # 4
    is about recognising that not everyone can achieve whatever they want through hard work:
    For every person with an IQ of 125 there is a person with an IQ of 75
    Many if not most of the characterisitics required for success come through genes, family and school and are very largely a result of an accodent of birth.
    Intelligence is largely heritable, if you are in the bottom 25% you are basically stuffed and not through any fault of your own.

    ** Heritability of IQ
    ** The Bell Curve (book)

    Conversation # 5
    is about how the USA comparatively is lightly taxed among OECD, G8 and G20 nations in terms of total taxes to all levels of government from all sources, compared to GDP or GDP-PPP and you really wouldn't want to live in most of the countries that have a lower percentage of taxes as a proportion of GDP. Check out the list yourself. In the OECD only Japan, Turkey and Mexico have lower taxes:

    ** List of countries by tax revenue as percentage of GDP

    Conversation # 6
    is about how the US is no longer providing class mobility and has become like a third world country in terms of wealth distribution. This is shown by the rising Gini coefficient. The top 1% control an incredible proportion of income and wealth. The middle classes are being pushed down into the working poor.

    **Gini coefficient
    ** The Top 1% Control 42% of the Wealth - Servitude for the Rest of US!
    ** Social mobility and class in the US

    Conversation #7
    is about the gross waste and human cost of the inefficient US health care system. In the USA, a serious illness can cost you your home or bankruptcy (or maybe that has changed with the restructure of health. The US has the worst health care system in the world in terms of bang for the buck. As an example have a look at the life expectancy and infant mortality in the US and the amount spent per capita and compare it with eg Australia.

    ** Health care systems

    Disclosure: 30% in stock market through emerging, commodity, Australian and international funds, 70% mixed bonds (plus Australian real estate exposure)

    Stocks: FLR, KBR
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