While the front-pages are shouting about the rather obscene salaries of Macquarie Bank executives, a couple of MacBank economists are telling more important stories.

Interest-rate strategist Rory Robertson has updated his Federalism Watch using the Budget figures and finds that, despite the tax cuts, Peter Costello remains our biggest taxer and breaches his own charter of budget honesty.

On the still bigger picture, international economist Mark Tierney is making a very brave call: this time the US business cycle really is different. That’s based on US Treasury cross-border capital flows numbers overnight that show the world is still throwing money at the American economy despite the greenback weakening. Writes Tierney:

  • The details in the latest data show that the US does not need capital flows from Japan. There is so much investment pouring in from the rest of the world that a downturn in Japanese investment means absolutely nothing.
  • Indeed, so much capital poured into the US in Q1 2007 that it more than funded the current account deficit. It allowed the US to fund this deficit as well as export a huge amount of capital into other markets.
  • These capital flows are critically important because they are boosting growth and offsetting weakness in some sectors. For example, the NAHB survey of homebuilders in the US has fallen back to its low point. Yet despite a bleak outlook for new housing, the US economy is still growing. Huge cross-border flows that depress interest rates and boost asset values is the foundation of this growth.
  • This cycle is different to any other cycle.

Japan and Euroland took money out of the US, but inflow from the UK, “other” Asia and Brazil more than made up for it. Long-term net inflows totalled US$302 billion in the March quarter.

Tierney makes another interesting point in examining last night’s benign CPI numbers. As usual, energy and food prices are stripped out of the headline figure to give the low “core” inflation reading of 0.2 per cent. The MacBanker wonders whether food should be left out as it’s likely to remain expensive — a reference to the M. Mouse US ethanol policy.