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  1. Herman O Hermitage
    May 27, 2013 at 4:03 pm

    Dr Parkinson, I quote;
    “The mean absolute percentage error in our nominal GDP forecasts over the past 20 years has been 1.6 percentage points”, either
    1.6% of actual., or
    1.6% of an outcome around about 3%.

    I read that to be a standard deviation of nearly 50% of treasury forecast GDP to actual;
    In terms of tolerances that is woeful, and what work is being done to reduce it? Why shroud it with “percentage points” rather than more commonly understood variance and deviation.

    Swan is a goose,
    given;
    yet he relies upon the bureaucracy;
    who live in fools paradise; (Canberra)
    so this really is the blind leading the blind.

    In commerce, those bureaucrats would be sacked. This is a great episode of “Yes Minister”. Again today Swan answered a question in question time from Hockey, attacking Hockey for attacking the treasury. Who is accountable for this mess?

    Sad part is come September 14, we can vote Swan and this government out, and when the likes of Dr Parkinson choose to retire, they will be replaced with other stool pigeons from the political machinery

  2. Herman O Hermitage
    May 28, 2013 at 1:35 am

    About 15 years ago BHP was reeling from 2 massive investment write offs. They started to see how their guestimating currency and spot commodity prices were not working. Separate divisions were highly likely hedging against one another, say finance selling yen buying USD, while iron ore was selling USD buying AUD, while gold did the opposite through forward hedging. Worst of all, each division had limits and would speculate on prices. Each division would have abnormal losses from time to time and each time the losses were reported, they were reported as extraordinary, whereas +ve results were natural. We are clever.

    BHP started a 5 year project to adopt Entreprise Wide Risk Management. Then as the project was nearing completion Billiton did their reverse takeover. The value added was slightly set back by the process but the benefits, while shared the logics are very poorly understood.

    Why did it take 5 years? It was cashflow based. Cashflow was not estimated beyond the next years cycle en globo, only on individual projects, where IRR logics meant assumptions were flaky.

    Where the proto type is working after 18 months there is also an education process to get the line managers to better understand how the process is working to help them. When coca cola did something similar, they found whole business lines could not meet target returns on capital employed. In this case (BHP) steel manufacture had to go. Bluescope. Billiton was managing by the time they decided BHP would only be a commodity producer/trader/exporter.

    I am getting off the point.

    This is where the treasury needs to go. Don’t predict nominal GDP, but shock it. If we expect 2.8% then what happens if it goes to 4%, and 1.6% even 0.5%.

    To have 10 different forecasts, AUD/USD, terms of trade, inflation so on, each one is an excuse.

    We have been here before. In 1961 when RBA and Commonwealth Banks were separated, RBA needed to target;
    Nominal GDP,
    inflation, and
    full employment.

    The only core measure missing is currency, because at that time it was fixed to GBP, then later USD. It was managed by devaluation and revaluation and termed a closed economy. When the currency was floated, there was massive debt overhang. The currency volatility was extreme, and depreciation obvious. High interest rates were strangling entreprise, and inflation rampant.

    Today, Japan USA and EURO want to try to get GDP +ve and are desperately fighting deflation. It is choking Australia’s manufacturing base, death by a thousand cuts.

    We have to get real, not find excuses for under performance. As pointed out above, who is responsible for GFC? The banks, the regulators, the ratings agencies, the investors or government. Only answer all of them!

    This is also true of Australia’s structural deficits. Who is responsible? The RBA (only targeting CPI, ignoring currency), the Treasury, the Treasurer, multi nationals shifting tax, welfare mentality. They don’t blame one another, they play nepotism and sycophancy. The experts are doing their best, in adverse conditions. (Really read we will address that after the election).

    What a load of baloney. Particularly “the experts”. We shouldn’t feed them.

    Australia the clever country better get over their shit real soon. We want to be nothing but a junked out island continent, through stupidity.

    We can start controlling foreign investment. When inflation starts to go rampant in JPY, the parking offshore will be in question, yet again. Will we let our banks get undermined like Cyprus? (or Slovenia)

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