Re: Stiglitz on Soros--question for Leigh

["William B. Ryan" <william_b_ryan@xxxxxxxxxx>]

LH:  "The following is a summary of the changes but it is not necessary
to adjust for them if all you are wanting to do is confirm the basic
relationship between the bank credit and the current account deficit..."
---

I am quite willing to admit that there might be a correlation between
bank credit in Australia and its current account deficit for the period
in question.  It appears to me that there has been no net capital formation
in Australia during that period and that net bank credit has effectively
financed an increase in imports even though the bank credit may have
initially been extended to entrepreneurs and paid by entrepreneurs to
Australian consumers in the course of production, who used some of their
wages to purchase foreign goods rather than the "overpriced" goods offered
by "less competitive" Australian entrepreneurs.

Correlation does not infer causation.  The necessary identity between
bank credit and the current account deficit is merely at this stage of
analysis a working hypothesis.  To "prove" your case you will have to
do a great deal more research.  You will have to look at Australia all
the way back into history.  You will have to look at all the other deficit
economies all the way back into history.  If the increase in bank credit
is equal to the current account deficit as a matter of necessity, then
I would think that a reduction in bank credit must be the case for surplus
economies.  I seriously doubt you can establish that to be the case.
 You will have to explain why some economies perennially run deficits
and others perennially run surpluses.  How does your theory explain that?

You must also remember that conclusions always follow from assumptions
even if there is seemingly a great deal of supporting data.  Biases are
always built in to the METHOD of analysis.

Some of your assumptions are patently absurd; in particular I am thinking
of your "pool of goods" metaphor.  The pool of goods is not a constant
nor is the entrepreneurial activity that brings them into being.  Entrepreneurial
activity is fundamentally contractual and money and credit in generalized
form is contractual.  It cannot be "quantified" and placed in a box.


--
William B. Ryan
william_b_ryan@xxxxxxxxxx - email
voicemail/fax - 1-866-678-3967 - toll free



---- "Leigh Harkness" <Leigh@xxxxxxxxxxxxxxxxxxxx> wrote:
> THIS POST EXPLAINS HOW TO OBTAIN THE DATA
> TO COMPARE THE GROWTH OF BANK CREDIT
> WITH THE CURRENT ACCOUNT DEFICIT  FOR AUSTRALIA
>
>
> Bill
>
> You wrote
>
> > Will you not admit that in such an involved analysis it is possible
> to
> > introduce "experimenter's bias?"
>
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