Monthly Archives: May 2015

31/5/15: IMF slashes Ukraine Economy Outlook

IMF statement on Ukraine with some pretty ugly forecast revisions.

[Note, emphasis in italics is mine]

"Press Release No. 15/243, May 31, 2015

IMF Statement on Discussions with Ukraine on First Review under the Extended Fund Facility Arrangement

An International Monetary Fund (IMF) mission visited Kyiv during May 12-29 to hold discussions on the first review under the Extended Fund Facility Arrangement (EFF) in support of the authorities’ economic reform program (see Press Release No. 15/107).

At the conclusion of the visit, Mr. Nikolay Gueorguiev, mission chief for Ukraine, made the following statement today in Kyiv:
“The authorities’ commitment to the reform program remains strong. All performance criteria for end-March were met and all structural benchmarks due in the Spring are on course to be met, albeit some with a delay. This good program implementation has been achieved notwithstanding an exceptionally difficult environment, in part related to the unresolved conflict in the East, which took a heavier than expected toll on the economy in the first quarter of 2015.

Accordingly, the mission has revised down growth projections for 2015 to -9 percent and projects end-year inflation at 46 percent. Inflation was mostly driven by one-off pass-through effects of the large exchange rate depreciation in February as well as the needed energy price increases.

“In recent months, signs that economic stability is gradually taking hold are steadily emerging. The foreign exchange market has remained broadly stable. Gross international reserves, although still very low, have increased to US$9.6 billion at end-April. Banks’ deposits in domestic currency have been recovering. The budget outturn in the first months of 2015 was stronger than expected, partly due to temporary factors.

“The authorities recognize that decisive implementation of economic reforms is indispensable for entrenching financial stability and restoring robust and sustainable growth. They are committed to advancing fiscal consolidation and energy sector reforms, including further energy tariff adjustments to eliminate the large losses of Naftogaz, reduce energy consumption, and foster energy independence. They are also moving ahead with the rehabilitation of the banking system, and the improvement of the business environment to enhance the productive potential of the economy.

“The authorities are also determined to complete the ongoing debt operation in line with program objectives. This will ensure that public debt is sustainable with high probability and the program remains fully financed, which are requirements for the completion of the review. More broadly, continued financial support for Ukraine’s reform efforts from official and private creditors is vital for the success of the program.”

Let's hope IMF optimism wins over the reality, but just two and a half months ago, the IMF projected gross international reserves for 2015 at USD18.3 billion, and now they are celebrating reserves at USD9.6bn. IMF programme sustainability analysis was forecasting real GDP decline of 5.5% in 2015 - not 9% decline the Fund now projects. See: for more details.

One has to wonder, just how 'flexible' the Fund became in recent years when it comes to 'hard' numbers underpinning it's 'programme sustainability' arithmetic.

31/5/15: Russian Fiscal Performance: Red Alert in Jan-Apr 2015

Russian Government finances are showing some serious signs of strain in April, lagging the 1Q 2015 outruns. In 1Q 2015, public revenues (the consolidated budget including federal, regional and local governments, state social funds) rose only 1% y/y in nominal ruble terms. Adjusting for inflation and ruble revaluations, this suggests real contraction of around 9-10 percent. Over the first four months of 2015, export duties returns and production taxes in oil & gas sector were down more than 20% y/y with 1Q 2015 decline of 15% y/y. Ex-oil & gas revenues, consolidated revenues were up 8% in ruble terms (nominal) in 1Q 2015.

Real trouble, however, is brewing on spending side. 1Q 2015 consolidated expenditures rose 20% y/y in nominal terms, with defence spending rising 50% y/y in 1Q 2015 and 45% in the first four months of 2015. Pensions and Social Security expenditure rose by around 30% y/y. Nominal spending on education and health remained largely unchanged.

The consolidated deficit for 1Q 2015 was 2.5% of GDP.

Source: Bofit

Now, some of the expenditure items were significantly front-loaded, especially for housing expenditure and defence. Which means that over the rest of 2015 we might see some moderation in these lines of spending and weaker adverse impact on deficits. Still, things are not exactly encouraging, neither in terms of structural nature of imbalances nor in terms of sustainability of such spending given the levels of official reserves.

Australian Politics 2015-05-31 15:58:00


"New Matilda"

"New Matilda" is an Australian far-Left site that often amuses me by its crookedness.  I have therefore put up a separate site on which I gather together my derisive comments on their emissions.  It's called: Laughing at "New Matilda"


Five current articles below

The Church of England and Divestment from coal

Grant Goldman broadcast this editorial on Radio 2SM and the Super Radio Network at 7.10am Friday 29 May 2015

As we discussed yesterday the Church of England is part of a push to reduce Australia’s carbon dioxide emissions compared with 1990 levels by the draconian figure of 80% in the next fifteen years, which would make Australia unable to feed, house and clothe Australians.

In Britain, North America and Australia the Church of England has declared war on coal, through a combination of divestment programs and propaganda from the pulpit.

Time for some facts about coal. The gerontologist and evolutionary biologist Caleb Finch tells us that since the early 1800s life expectancy in Europe has doubled. The single greatest factor in the longevity revolution has been coal. Beginning in the eighteenth century and accelerating into the nineteenth century, coal made possible stunning increases in productivity.

Coal saved from destruction the forests of Britain which by the mid-eighteenth century were rapidly disappearing. Coal dramatically reduced pollution caused by cooking and heating with wood and animal dung. Coal permitted large scale smelting of metals. Coal made possible modern medical science and modern agriculture. Coal opened the way to commerce and freedom of movement on a scale never before imagined.

Thanks to coal, for the very first time ordinary workers who were not members of the aristocracy nor of the clergy had leisure time. Life was still tough, but thanks to coal life rapidly improved. Instead of being permanently enslaved to tasks like collecting wood to heat and to cook, women had the opportunity to learn to read and become educated or musical or artistic or political or charitable as they wished.

Coal made possible the growth of democratic institutions and, vitally important, the abolition of slavery. Nineteenth century Britain saw the flowering of culture with bands, orchestras, choirs, drama societies, literary societies, trade unions, and, of course, the flowering of the Church of England. I’ll mention some of the great hymnists of the late eighteenth century and the nineteenth century. In chronological order:

John Wesley (1703-1791)
Edward Perronet (1726-1792)
William Cowper 1731-1800
John Newton (1725-1807),
Reginald Heiber (1783-1826 v
Joseph M. Scriven (1819-1886)
Matthew Bridges (1800-1894)
Carl Gustav Boberg (1859-1940)

Thanks to coal, hymn books could be printed cheaply and thanks to coal there were trees left in the land to make the paper.

In Britain by 1860 around 400,000 coal industry workers were each producing around 175 tonnes of coal in a year for an annual total of seventy million tonnes of coal. In 1913 around 1,100,000 coal industry workers were each producing around 264 tonnes of coal in a year for a total of 290 million tonnes. This great increase in coal production coincided with wonderful progress in every aspect of society. People lived longer, ate better and their purchasing power increased year by year.

As the twentieth century dawned, coal was already popularising the wonderful blessing of electricity. The former major disadvantage of coal-fired power – sulphur dioxide emissions – was overcome with fluidised bed combustion using limestone, and coal has continued as the world mainstay of electrical power.

Tragically, 1.3 billion people – eighteen percent of the world’s population – have no access to electricity and so are deprived of all the wonderful things we take for granted. Expansion of coal production is vital as part of the energy mix necessary to offer the poor and disadvantaged of the world an escape route from poverty, misery and short life spans.

By declaring war on coal, people who purport to represent the Church of England are committing a terrible crime against the world’s poorest people.

My suggestion to the people purporting to lead the Church of England is re-read the Parable of the Talents. It’s still there in Matthew Chapter 25, verses 14 to 30.


The $9b waste that is Australia's solar industry

It's been dubbed 'middle class welfare' of the first order, since it is typically only wealthy households that can afford to install photovoltaic (PV) solar systems, with the higher power costs hurting low income households and renters, neither of which benefit.

As a result, the Grattan Institute reckons it ranks among the worst government disasters of recent years with as much as $9 billion of the $14 billion spent on rooftop solar systems in Australia wasted.

In raw numbers, Queensland - especially the south-east around Brisbane and the Gold Coast, has led the way with the introduction of solar systems, followed by NSW and Victoria.

Splitting the data up to look at the underlying distribution by household, then more than a third of households in Adelaide, Brisbane and Perth have solar, easily outstripping the more populous states.

But apart from the 'feelgood factor' does solar really make that much of a difference? Most solar electricity is produced around the middle of the day which pushes down wholesale electricity prices and hurts the big carbon emitting power generators, but solar doesn't help much at the peak demand period for electricity in the late afternoon and early evening.

And despite the optimism of its supporters, only around half of all houses may be suitable for solar systems, AGL reckons. But while the take up has been high thanks to government subsidies, only a modest portion have solar systems installed.

On AGL's numbers, without subsidies and if the changes to the network charges being debated take effect, then it could take around thirteen years for a solar system to cover the cost of purchase and installation.

But that may change if solar PV prices continue to slide, as many predict. But the real cut through for solar will come if it manages to boost the efficiency of converting solar heat into energy, which remains low.

The Grattan Institute reckons greater savings in carbon emissions could have been achieved far more efficiently with other policy measures, than the solar subsidies.

Germany also had heavy subsidies for the introduction of solar for a time, but because its subsidies applied not just to households but also industry, more than 85 per cent of its solar come from systems of more than ten kilowatts, while in Australia more than 90 per cent of the systems are small household systems. So Germany now has a quarter of global installed solar capacity, the Grattan Researchers say.

"Government's have created a policy mess which should never be repeated," it said in a study released on Monday.


Australia welcomes UNESCO decision on Great Barrier Reef

The Great Barrier Reef will not be listed as endangered but will remain under watch because of "major threats" to its health, a draft recommendation to the UN's World Heritage Committee says.

The federal and Queensland governments have welcomed the draft report released by UNESCO on Friday, with Environment Minister Greg Hunt calling it "an overwhelming endorsement" of their approaches to reef protection.

But environmental groups say the report puts both governments on notice to deliver on their promises to protect the reef.

The UN's conservation agency said it noted "with concern" the state of the reef which has had World Heritage Site status since 1981.

UNESCO warned that the "in danger" label wasn't off the cards as "the overall outlook is poor" and it urged Australia "to rigorously implement all of its commitments" and submit a progress report by December 2016.

The report said measures that represent significant progress to protect the reef included restoring water quality, "restricting major port development" and "a permanent ban on dumping of dredged material".

Mr Hunt welcomed the report, saying it recognised the "unprecedented" work by the federal and Queensland governments to protect the reef, including a ban on the dumping of dredge material and port development restrictions.

"Indeed, all references to in danger have been dropped and Australia and Queensland's efforts have been praised," he said in a joint statement with Queensland's Deputy Premier Jackie Trad and Environment Minister Steven Miles.

"This is an overwhelming endorsement, but we want to make sure that we keep the pressure up on ourselves and inviting a little bit of long-term international scrutiny, I think, is a very valuable thing,"

Ms Trad said the decision reflected the commitment made by the Palaszczuk government.

"We were elected with a mandate to save the reef for generations to come and we intend to deliver on those promises," she said.

The Queensland Tourism Industry Council said listing the reef as "in danger" would have been catastrophic for the tourism industry, as it would have discouraged tourists.

The Queensland Resources Council said the report recognised Australia's huge strides in the management of the site.

But Greenpeace said the decision by UNESCO to demand a report on progress within 18 months showed the federal and Queensland governments were on notice.

"The Australian government can't talk about protecting the reef while aggressively supporting the licensing of mega-mine and expansion of coal ports along the Great Barrier Reef coast," said Shani Tager, Greenpeace Australia Reef campaigner.

WWF-Australia's CEO Dermot O'Gorman also pointed to the measures demanded of Australia in the draft decision.

"The Australian and Queensland governments must now deliver on their promises to better protect the reef,"he said in a statement.

The 21 nations in UNESCO's World Heritage Committee will decide whether to accept the report's recommendations at a meeting in Germany at the end of June.


The green movement’s role in the sorry Reef debacle exposes them as frauds

Last week’s UNESCO report accepted that enough has been done by Australia to stop the destruction of the Great Barrier Reef.
THOSE conservationists and wacky scientists who waged a jihad against Queensland by falsely claiming that the Great Barrier Reef was in danger because of degradation and over-development should leave the state and go and live somewhere else.

With UNESCO giving the Reef a clean bill of health in a long-awaited report, the likes of Greenpeace, WWF, GetUp and the Australian Marine Conservation Society have been discredited and should not be permitted to peddle their lies in Queensland. In fact, the green movement’s role in this sorry debacle exposes them as frauds.

The UNESCO report accepted that enough has been done by Australia to stop the destruction of the Reef. The trigger for the UNESCO probe was the Port of Gladstone expansion to cater for the boom in coal and coal seam gas exports, featuring the biggest dredging project in Australia’s history. Despite heavy conditions and environmental regulations, the greenies jumped on the issue which allowed them to link coal exports to climate change and the Reef.

For the Queensland tourism industry, the possibility of a UNESCO listing of the Great Barrier Reef as endangered would have had catastrophic implications for the state. It would have sent a message to tourists that the Reef had lost its lustre. But of course, the conservationists don’t have time for the trivialities of an industry worth billions every year to the economy.

Cult-like zealotry to save the world from capitalism is all-consuming and factoring in economic effects is not part of the charter. The Greens are a major threat to the Queensland economy, fuelled by the Labor Left’s love affair
with the movement and its capacity to stop progress.

Most Greens in Queensland are watermelons – green on the outside and red in the middle. They tend to take a BANANA approach (Build Absolutely Nothing Anywhere Near Anything) to development, Their warped ideology and passion for power won’t allow them to even see, for example, a cruise ship terminal built on the Gold Coast. Not the Broadwater, not The Spit, not anywhere, thanks very much.

The Great Barrier Reef tick of approval from UNESCO has exposed the state’s eco-warriors as the kings of deceit and lies. They should not be given a platform for their views because they have proven they are not capable of being honest and candid. This win-at-all costs mentality is dangerous and their currency has now depreciated to the point where we can’t believe a word they say


Australia primed as heartland for battery-storage revolution

Low cost, high capacity batteries alone could make solar and wind power viable but we are still a long way off that

The battery-storage wars are breaking out, with Australia in the thick of it. Tesla, while the highest profile, will not be short of combatants.

The mass popularity of rooftop solar – more than a third of Queensland houses have solar PV – and the way people pay for the power make Australia a much more attractive market than the United States.

Raghu Belur, co-founder of Silicon Valley start-up Enphase Energy, which will launch its home battery in Australia in early 2016, points to the wide gap between the typical "feed-in" tariff that a household in Australia will receive for its excess solar power and the price of power from the grid.

Prices for mains-supplied power more than four times as much as the feed-in tariff in some cases make battery storage worth a look.

Not so in the US, where electricity is charged by "net metering", so a household will pay for the power consumed from the grid over a set period of time, less any electricity they generate themselves.

The US battery market, for now at least, will be driven mostly by demand for back-up power, not economics, Belur says.

No surprise, then, about Tesla's early focus on Australia for its Powerwall system, with its sleek, coloured wall-mounted 7-kilowatt-hour or 10kWh batteries to be available in 2016.

Bernstein Research, a bull on the lithium-ion battery space, says that at $US350 ($455.46) a kilowatt hour installed capacity for the 10kWh model, Powerwall is well below the $US550/kWh it had been modelling for storage costs. In optimal conditions, Powerwall could supply power at US27¢ a kilowatt hour, ranking Tesla on the scale – though admittedly at the high end – of residential retail power prices in large markets around the world.

Bernstein describes Tesla's system as already "modestly attractive" in Australia – the 20¢ a kilowatt hour spread between wholesale and retail power prices gives a five-year payback.

But the Grattan Institute puts the realistic cost of a Tesla battery, including inverter, charger and installation, at more than $7000 in 2017, too expensive for most. It says the price would have to fall to about $1600 before it made economic sense in Brisbane, Adelaide and Perth, and by more in other cities.

Yet lithium-ion battery costs have fallen 94 per cent since 1991, while the energy packed into them per kilogram has increased. Bernstein sees usage costs continuing to fall by 20 per cent a year, cannibalising competing technologies for the next decade.

Belur won't talk dollar costs yet for Enphase's 1.2kWh battery, which comes with built-in inverter and software to communicate with the grid. But he insists that all up, the "plug and play" system will be competitive with Powerwall. Australia will be its global launchpad.

Meanwhile, Panasonic, a battery supplier for Powerwall and one of the "big three" lithium ion players alongside Samsung SDI and LG Chem, will launch next week an alliance with Australian electricity retailers targeting home storage.

Yet to be seen is how these suppliers align with local retailers. AGL Energy launched recently a 6kWh lithium-ion battery and is due to make larger sizes available later in 2015. Origin Energy is understood to be bringing forward its battery launch plans, potentially to the third quarter, while EnergyAustralia is in talks with Enphase on its battery, to add to their solar panel alliance.


31/5/15: Remittances from Russia Sharply Down in 1Q 2015

Latest Central Bank of Russia data shown decline in private forex outflows in 1Q 2015 as migrants and Russian citizens cut back on transfers abroad. In 1Q 2015, based on CBR data, private money transfers from Russia were down to USD2.1 billion - the lowest level of transfers since 1Q 2010 and down on USD3.9 billion in 1Q 2014 and USD4.3 billion in 4Q 2014. The data covers only cash transfer (wire transfers) and does not include bank transfers. Still, the number is significant for two reasons:

  1. In 2014, cash wire transfers amounted to USD21 billion - or nearly 1/3 of total private residents transfers (USD69 billion).
  2. Transfers decline signals slowdown in remissions from migrant workers - a major problem for a number of countries net senders of migrants into Russia (see an earlier note on this here:

Transfers outside the CIS zone amounted to USD348 million (down 39% y/y and down 45% q/q), transfers to CIS zone states fell 47% y/y and 51% q/q to USD1.8 billion.

Net transfers deficit was USD1.1 billion in 1Q 2015, down from USD3 billion in 1Q 2014 and 4Q 2014. Reminder: net outflow of capital (corporate and households, plus banks) fell 31% y/y in 1Q 2015 to USD32.6 billion (see earlier notes on this here and here:

Key drivers for slower rate of capital and forex outflows are:

  • Ruble devaluation impacting earnings of migrant workers, while Ruble strengthening in 2015 so far reducing demand for forex accounts amongst Russian depositors and improved confidence in Russian banking sector (in part due to doubling of deposits protection levels to RUB1.4 million). Higher deposit rates offered by the Russian banks also helped.
  • Decline in real earnings (
  • External debt redemptions (see earlier links)
  • Exporters reducing overall demand for forex deposits

A side note: in 1Q 2015 household deposits in Russina banks rose RUB537 billion (+2.9% y/y to RUB19.6 trillion) in contrast to 1Q 2014 when deposits fell 2.3% (to RUB16.6 trillion). CBR projects deposits rising 8% over 2015 y/y.

Another factor responsible for improved outflows is change in the migration laws. Prior to January 1, 2015, citizens from countries with visa-free entry to Russia were allowed to remain in Russia for 90 days and could re-enter any time after exiting the country. From January 1, the new rules require them to stay maximum 90 days and after exiting the country, remain outside Russia for 90 days before re-entering. It is worth noting that this is identical to similar rules applying to visa holders in many Western countries. As the result, based on Federal Migration Service data, inflow of migrants into Russia fell 70%. One outcome of this is that unemployment levels in Kyrgyzstan, Tajikistan and Uzbekistan - three key net senders of migrants to Russia - jumped, while remittances from Russia to Uzbekistan fell 16% in 2014, and to Tajikistan  by 8%. Third largest net sender of migrants to Russia was Ukraine, with remittance to Ukraine down 27% y/y in 2014.

HAWB 1801 – Alexander Hamilton and Albert Gallatin – How America Was Built

I just wanted to share something from a book written by Henry Adams in 1879, The Life of Albert Gallatin. Alexander Hamilton was our first Secretary of the Treasury, serving under George Washington. Albert Gallatin was the fourth, and longest serving, under Thomas Jefferson, then James Madison. They were political enemies - Washington's presidency, after all, was the triumph of the Federalists, while the administrations of Jefferson and Madison were the triumph of the Democratic Republicans. But that's not what I want to draw your attention to.

This excerpt from Adams' 1880 book does an excellent job of capturing the importance of Alexander Hamilton. Why is this noteworthy? Because Hamilton has been basically written out of mainstream economics. Which is pretty amazing, when you consider that Hamilton basically created the U.S. economy, from scratch, which surely has to be the greatest achievement in political economy in the past half millennia. I mean, we're talking about the USA economy here. And the guy who basically designed and launched it is not even mentioned in, for example, the most used introductory economics textbook? Which was written, please note, by conservative Harvard economics professor, H. Gregory Mankiw, who advised George W. Bush, and George Romney, and who actually published a paper in the Summer 2013 Journal of Economic Perspectives entitled - and I'm not making this up - "Defending the One Percent."

You think this doesn't mean anything? Well, I firmly believe one reason President Barack H. Obama persists in pushing the TPP and other free trade agreements is precisely because he was never taught that the ideas of Alexander Hamilton are a quite viable alternative to the market fundamentalism of asshats like Mankiw. An unblinking faith in the mystical ability of "free trade" to rain benefits and riches on everyone is an absolute, non-negotiable requirement, not only for inclusion in the mainstream economics profession ruled over by charlatans like Mankiw, but also for being included and counted among the "serious people" who are allowed to make economic policy.

Hamilton doesn't make the cut, because Hamilton, in word and in action, rejected all the tenets of modern neo-liberal economics. He believed a weak central government would result in the destruction of the new republic, and elaborated the concept of implied powers. He believed that the restless energies of entrepreneurs, financiers, and craftsmen needed to be given direction by statesmen who contemplated the good of the whole nation. And in a couple of important reports to Congress, which are basically the foundational documents of the USA economy, Hamilton demolished the arguments for free trade. Interesting: Bob Rubin's Hamilton Project never mentions that.

Henry Adams, by the way, was the grandson of John Quincy Adams and the great-grandson of John Adams. In his time, HA was one of the most influential political journalists and writers in the country.

The Life of Albert Gallatin, by Henry Adams. Published 1879, by J. B. Lippincott & Co. Text from the online version made available by Project Gutenburg.

 [Note: Emphasis are mine, not original.]
THE TREASURY. 1801-1813.
In governments, as in households, he who holds the purse holds the power. The Treasury is the natural point of control to be occupied by any statesman who aims at organization or reform, and conversely no organization or reform is likely to succeed that does not begin with and is not guided by the Treasury. The highest type of practical statesmanship must always take this direction. Washington and Jefferson doubtless stand pre-eminent as the representatives of what is best in our national character or its aspirations, but Washington depended mainly upon Hamilton, and without Gallatin Mr. Jefferson would have been helpless. The mere financial duties of the Treasury, serious as they are, were the least of the burdens these men had to carry; their keenest anxieties were not connected most nearly with their own department, but resulted from that effort to control the whole machinery and policy of government which is necessarily forced upon the holder of the purse. Possibly it may be said with truth that a majority of financial ministers have not so understood their duties, but, on the other hand, the ministers who composed this majority have hardly left great reputations behind them. Perhaps, too, the very magnitude and overshadowing influence of the Treasury have tended to rouse a certain jealousy in the minds of successive Presidents, and have worked to dwarf an authority legitimate in itself, but certainly dangerous to the Executive head. Be this as it may, there are, to the present time, in all American history only two examples of practical statesmanship which can serve as perfect models, not perhaps in all respects for imitation, but for study, to persons who wish to understand what practical statesmanship has been under an American system. Public men in considerable numbers and of high merit have run their careers in national politics, but only two have had at once the breadth of mind to grapple with the machine of government as a whole, and the authority necessary to make it work efficiently for a given object; the practical knowledge of affairs and of politics that enabled them to foresee every movement; the long apprenticeship which had allowed them to educate and discipline their parties; and finally, the good fortune to enjoy power when government was still plastic and capable of receiving a new impulse. The conditions of the highest practical statesmanship require that its models should be financiers; the conditions of our history have hitherto limited their appearance and activity to its earlier days.
The vigor and capacity of Hamilton’s mind are seen at their best not in his organization of the Treasury Department, which was a task within the powers of a moderate intellect, nor yet in the essays which, under the name of reports, instilled much sound knowledge, besides some that was not so sound, into the minds of legislature and people; still less are they shown in the arts of political management,—a field into which his admirers can follow him only with regret and some sense of shame. The true ground of Hamilton’s great reputation is to be found in the mass and variety of legislation and organization which characterized the first Administration of Washington, and which were permeated and controlled by Hamilton’s spirit. That this work was not wholly his own is of small consequence. Whoever did it was acting under his leadership, was guided consciously or unconsciously by his influence, was inspired by the activity which centred in his department, and sooner or later the work was subject to his approval. The results—legislative and administrative—were stupendous and can never be repeated. A government is organized once for all, and until that of the United States fairly goes to pieces no man can do more than alter or improve the work accomplished by Hamilton and his party.
What Hamilton was to Washington, Gallatin was to Jefferson, with only such difference as circumstances required. It is true that the powerful influence of Mr. Madison entered largely into the plan of Jefferson’s Administration, uniting and modifying its other elements, and that this was an influence the want of which was painfully felt by Washington and caused his most serious difficulties; it is true, too, that Mr. Jefferson reserved to himself a far more active initiative than had been in Washington’s character, and that Mr. Gallatin asserted his own individuality much less conspicuously than was done by Mr. Hamilton; but the parallel is nevertheless sufficiently exact to convey a true idea of Mr. Gallatin’s position. The government was in fact a triumvirate almost as clearly defined as any triumvirate of Rome. During eight years the country was governed by these three men,—Jefferson, Madison, and Gallatin,—among whom Gallatin not only represented the whole political influence of the great Middle States, not only held and effectively wielded the power of the purse, but also was avowedly charged with the task of carrying into effect the main principles on which the party had sought and attained power.
In so far as Mr. Jefferson’s Administration was a mere protest against the conduct of his predecessor, the object desired was attained by the election itself. In so far as it represented a change of system, its positive characteristics were financial. The philanthropic or humanitarian doctrines which had been the theme of Mr. Jefferson’s philosophy, and which, in a somewhat more tangible form, had been put into shape by Mr. Gallatin in his great speech on foreign intercourse and in his other writings, when reduced to their simplest elements amount merely to this: that America, standing outside the political movement of Europe, could afford to follow a political development of her own; that she might safely disregard remote dangers; that her armaments might be reduced to a point little above mere police necessities; that she might rely on natural self-interest for her foreign commerce; that she might depend on average common sense for her internal prosperity and order; and that her capital was safest in the hands of her own citizens. To establish these doctrines beyond the chance of overthrow was to make democratic government a success, while to defer the establishment of these doctrines was to incur the risk, if not the certainty, of following the career of England in “debt, corruption, and rottenness.” In this political scheme, whatever its merits or its originality, everything was made to depend upon financial management, and, since the temptation to borrow money was the great danger, payment of the debt was the great dogma of the Democratic principle. “The discharge of the debt is vital to the destinies of our government,” wrote Mr. Jefferson to Mr. Gallatin in October, 1809, when the latter was desperately struggling to maintain his grasp on the Administration; “we shall never see another President and Secretary of the Treasury making all other objects subordinate to this.” And Mr. Gallatin replied: “The reduction of the debt was certainly the principal object in bringing me into office.”
I think I would be remiss were I not to dwell, however quickly, on Adams' observation that Jefferson and Gallatin saw the greatest danger to be a national debt. Besides the historical irony that it is now, in our day, the conservatives and Republicans who are similarly afrighted by a national debt, I will point out that Jefferson and Gallatin were proven wrong by history, in quite brutal fashion, by the War of 1812, and in more congenial fashion, by their recourse to debt financing to complete the Louisiana purchase.

A national debt is not in and of itself a danger. It all depends on what you use that debt for.

One final note. I was directed to Adams' summary of Hamilton and Gallatin by a footnote in an excellent book by another Harvard professor, Thomas K. McCraw: The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy (Harvard University Press, 2012). McCraw concludes that for all their political differences, Hamilton and Gallatin actually held remarkably similar views of the USA economy. They both strongly supported federal funding of internal improvements. Gallatin tried, but he could not sway Jefferson, and especially Madison, to his view on this issue (Madison would veto an internal improvements bill in 1817).

Both Hamilton and Gallatin wanted to promote domestic manufacturing, and as Treasury Secretary, both wrote a detailed report to Congress on the issue. Here is Hamilton's 1791 report. There is no similar copy on the internet I see for Gallatin's 1810 report, but here is an extremely brief summary.

McCraw writes that "the most revealing of all the views they held in common" was their support for the Bank of the United States.
Each expended herculean efforts on its behalf, and each had memorable disagreements with Thomas Jefferson, not only about this bank, but about all banks. Hamilton, with President Washington's support, was able to establish the Bank of the United States in 1791 and to make it an immediate success. Gallatin, without similar support from President Madison, could not get its charter renewed in 1811 - to the great detriment of the nation's financial situation as the War of 1812 began. Madison realized his mistake and in 1816 signed the bill creating the Second Bank of the United States.
Dr. McCraw passed on in November 2012. I can't help wondering if Mankiw and McCraw had spitball fights when they saw each other....