Joe Hockey has finished playing the congenial host to the G20 Meeting of Finance Ministers and Central Bank Governors.
Joe’s affable nature must have been instrumental in galvanizing support for a global GDP growth target of an extra US$2 trillion (a real 2%) over the next five years.
You can just hear Joe saying, ‘C’mon fellas let’s agree on something otherwise the past couple of days will have been a waste of time. It’s not like it’ll be binding or anything like that. No one is going to get into trouble if they miss the lowball target.’
After Joe’s stirring words, I imagine Christine Lagarde – Managing Director of IMF (Invariably Missed Forecasts) – stands up and says, ‘Oui, Monsieur Joe is absolutely correct. Look at the IMF’s appalling track record on global growth (the chart below courtesy of Zero Hedge is flashed up on screen) and I still have a very well-paying job and people take my every utterance seriously. People really are “stupide.”’
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The Finance Ministers and Central Bank Governors nod in agreement. The general consensus on the room is: ‘It’s true, people really are “stupide”. They still think we are credible even though (unofficial) unemployment and (official) public debt are rising in tandem.’
And just for good measure Janet Yellen jumps up and makes a very valid point:
‘Greenspan didn’t see the housing bubble, Bernanke thought sub-prime was contained, neither of them saw the GFC coming and both of them are making a fortune from book sales and the speakers circuit. C’mon you guys let’s get behind Joe’s idea of a growth target. What have we got to lose? Certainly not our jobs!!’
The crowd erupts into laughter with that last line.
After the mirth dies down, everyone nods in agreement. The consensus is – pick a figure, any figure, and a date well into the future so no one is really accountable, and all in all have a wonderful stay in Sydney.
Joe’s Curve and the Hockey Stick Graph
My sources tell me that earlier in the meeting Joe Hockey impressed his fellow financial wizards with his economic credentials.
Firstly there was his explanation of the J-curve – appropriately renamed for the G20 meeting to the ‘Joe-curve’.
Here’s the Investopedia definition of the J(oe)-curve: ‘A type of diagram where the curve falls at the outset and eventually rises to a point higher than the starting point, suggesting the letter J.‘
The following J-Curve diagram is Joe’s view of where we have been and where we are headed…provided the other 19 nations follow Joe’s advice. ‘Each country will bring its own plan for economic growth. Each country has to do the heavy lifting.‘
As life teaches us there is the theory and there is the reality.
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Source: Econ blog
Crestmont Research shows that in spite of the US doing some very ‘heavy lifting’ (printing money) the current recovery is the most anaemic in eighty years. Why? The world is awash with debt and hardship.
Getting the uptick of the J is proving a lot more difficult with each passing year.
The twin Ds of Demographics (aging boomers) and Debt are proving to be real obstacles to the formation of a J.
So Joe’s-curve was bound to play out well with a room full of academics whose incomes (and first class travel expenses) are paid for by the taxpayer.
While Joe was on a roll (and I don’t mean a sausage roll or bread roll) he followed up the Joe-curve with the Hockey stick graph.
The crowd went nuts (no, not beer nuts). Another graph named after the Australian Treasurer!
Scientist Michael Mann created the original hockey-stick graph to demonstrate the impact of global warming over the past thousand years.
At the time of its release in 2001 by the IPCC, the ‘Hockey Stick Chart’ had us all convinced the world was literally going to hell. Apparently the 1990’s was the hottest decade in history.
A couple of Canadians, Stephen McIntyre and Ross McKitrick, questioned Mann’s assumptions and the validity of the Hockey Stick chart was suddenly placed under a ‘big cloud’.
Long story short – to find its version of the truth the US established a senate committee of inquiry under the chairmanship of Professor Edward Wegman. In 2006 the Wegman Report stated:
‘Our committee believes that the assessments that the decade of the 1990s was the hottest decade in a millennium and that 1998 was the hottest year in a millennium cannot be supported by the MBH98/99 [the technical name of Mann’s original Hockey Stick paper]’
In the world of finance we also have versions of the ‘doctored’ Hockey Stick chart:
– Unemployment figures that bear no semblance to reality.
– GDP growth figures that include massive amounts of stimulus in order to post positive numbers. For example, mailing out $900 cheques may produce positive economic numbers but delivers very little productive value to the economy.
– Stellar share market performance courtesy of an abundance of cheap money and suppressed interest rates.
Adopting the discredited Hockey stick chart for economics is a graphic way to paint a picture of the ambitions of Joe and his 19 amigos. However, the reality is we are likely to see far more ‘handle’ and much less ‘blade’.
Away from the rarefied atmosphere of the G20 Finance Ministers and Central Bank Governors, the real world Ds (Debt and Demographics) are probably going to win out over the J.
Deflation, not jubilation, is the more likely outcome.
You have to give credit where credit is due. Joe has already done his bit to boost local GDP with all that wining, dining, chauffeured cars, five-star accommodation, etc.
Perhaps that is the solution to global GDP growth; hold more of these wonderfully productive meetings.
for The Daily Reckoning Australia