Neolib­er­al­ism and eco­nomic break­down

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Australia’s pre­vi­ous Lib­eral Party Prime Min­is­ter John Howard “came out swing­ing” last night in sup­port of the pol­icy agenda his gov­ern­ment shared with the pre­ced­ing Labor Party gov­ern­ment of Bob Hawke and Paul Keat­ing:  “neolib­er­al­ism” (for non-Aus­tralian read­ers, the Aus­tralian Lib­eral Party is closer to the US Repub­li­can Party or the UK’s Tories than the US vision of the word “Lib­eral”, while the Aus­tralian Labor Party is akin to the US Demo­c­ra­tic Party or the UK’s Labour Party).

In Five great reforms are an essen­tial legacy, Howard defends “neolib­er­al­ism”, and argues that the finan­cial cri­sis was actu­ally the result of dis­tor­tions to the finan­cial sys­tem by well-mean­ing but ill-advised gov­ern­ment tam­per­ing with the finan­cial sys­tem:

The world, includ­ing Aus­tralia, will not respond effec­tively to the global finan­cial melt­down unless we prop­erly under­stand its ori­gins.

The sub­prime deba­cle orig­i­nated in the United States, where the reg­u­la­tions about the mak­ing of loans were far too lax. It was a laud­able social goal to spread home own­er­ship as widely as pos­si­ble, but the method involved the dis­tor­tion of the finan­cial sys­tem. Fail­ures of reg­u­la­tion have con­tributed to the severe eco­nomic cir­cum­stances we now face. I do not seek to defend the excesses on Wall Street and else­where. How­ever, these fail­ures and the chal­lenges we face do not rep­re­sent a sys­temic fail­ure of cap­i­tal­ism or indeed of the mar­ket sys­tem…

There is no doubt that gov­ern­ment enthu­si­asm for pro­mot­ing home own­er­ship added to the cur­rent cri­sis, and much of this emanated from gov­ern­ments keen to reap the polit­i­cal ben­e­fits of extend­ing home own­er­ship to its elec­torate. A proud new home owner is likely to vote for the incum­bent gov­ern­ment whose “reforms” enabled him or her to gain the title deeds to a house, rather than merely hand­ing over rent to a landlord–or so politi­cians appear to believe.

In the USA, this took the form of suc­ces­sive Repub­li­can and Demo­c­ra­tic admin­is­tra­tions pro­mot­ing home own­er­ship via the (to non-Amer­i­cans!) laugh­ably named insti­tu­tions Fan­nie Mae and Fred­die Mac. In Aus­tralia, we had a panoply of entice­ments into home own­er­ship that went beyond even the Amer­i­can bias, includ­ing encour­age­ments not only to own one’s own home, but to be a land­lord as well (I won­der how many politi­cians truly grasped the irony–and ulti­mate futility–of that com­bi­na­tion?):

  • A “First Home Buyer’s Grant” that gave those who had not pre­vi­ously owned a home a cash grant of, at var­i­ous times, A$7,000, and $A14,000 to help them pur­chase that house. In an attempt to revive the now flag­ging Aus­tralian hous­ing mar­ket, this grant has yet again been increased from $7,000 to $14,000 for the pur­chase of an exist­ing house, and $21,000 for the pur­chase of a new dwelling. This boost is sup­posed to be tem­po­rary…;
  • State top-ups of this scheme that increase it to $24,000;
  • At var­i­ous times the scheme has been tem­porar­ily boosted. Howard’s Gov­ern­ment intro­duced the scheme as an allegedly tem­po­rary off­set to the impact of intro­duc­ing a Goods and Ser­vices Tax [GST] in 2000. He then dou­bled it in an attempt stim­u­late the econ­omy dur­ing 2001. Now Rudd’s Gov­ern­ment has done the same–and topped it by tripling it for the pur­chase of a new dwelling.
  • No cap­i­tal gains tax on sales of an owner-occu­pied house–so that the entire cap­i­tal gain from sell­ing your home on a ris­ing mar­ket is tax-free;
  • Tax deductibil­ity of inter­est pay­ments on pur­chases of addi­tional houses, with the expec­ta­tion that this will encour­age the con­struc­tion of accom­mo­da­tion for renters. Known as “neg­a­tive gear­ing”, it allows a land­lord to deduct inter­est pay­ments from his/her rental receipts, and get a tax deduc­tion if the rental income is less than the inter­est bill; and
  • The rate of cap­i­tal gains tax is half the rate of income tax–which encour­ages peo­ple to spec­u­late on cap­i­tal assets rather than work.

This per­verse com­bi­na­tion of incen­tives encour­ages both home buy­ers and spec­u­la­tors to com­pete against each other with lever­aged funds on the Aus­tralian hous­ing mar­ket.

Howard him­self con­tributed to this farce by intro­duc­ing the First Home Buy­ers Grant in the first place, never remov­ing this “tem­po­rary” scheme after the GST adjust­ment phase was over, dou­bling its rate as an eco­nomic incen­tive dur­ing the 2001 down­turn, and by set­ting the cap­i­tal gains tax rate at half the income tax rate. His attri­bu­tion of blame for the finan­cial cri­sis to gov­ern­ment inter­ven­tion would have been some­what more believ­able if his speech had included a “mea culpa” for his own con­tri­bu­tions.

But even so, he pre­sented a half-baked the­ory of what caused the cri­sis, and a view of eco­nomic reform that, in future years, will be derided as naive. He pro­posed that “five great reforms” were the core of the neolib­eral agenda:

In 1980 our nation needed five great reforms. We needed to dereg­u­late our finan­cial sys­tem, fun­da­men­tally change our tax­a­tion sys­tem, make our labour mar­kets freer, reduce exces­sively high tar­iffs and rid the gov­ern­ment of own­er­ship of com­mer­cial enter­prises that would be bet­ter run pri­vately. By 2007 these five great reforms had been achieved.

Those five reforms were an essen­tial Aus­tralian con­tri­bu­tion to what one might prop­erly describe as the neo-lib­eral exper­i­ment of the past 30 years…

The mer­its of Howard’s final four “reforms” are still open to debate, but how any­one could cham­pion the first reform–the dereg­u­la­tion of the finan­cial system–as a “great” reform in today’s cli­mate beg­gars belief.

As I argued in the Rov­ing Cav­a­liers of Credit, finan­cial dereg­u­la­tion was based on a mis­guided belief that the finan­cial sys­tem oper­ated like an ordi­nary mar­ket for goods, where the mar­ket itself would work out a sen­si­ble vol­ume of and price for credit. A proper analy­sis of how money is cre­ated shows instead that a dereg­u­lated finan­cial sys­tem will pump out as much credit as bor­row­ers can be enticed to take on. In a world in which lever­aged spec­u­la­tion on asset prices is pos­si­ble, that will lead to the econ­omy tak­ing on so much debt that it will ulti­mately fall into a debt-induced crisis–which is where we are now.

Once in this sit­u­a­tion, dereg­u­lated finance then ampli­fies the prob­lem by going from sup­ply­ing too much credit to cut­ting off the credit tap in a man­ner that reduces over­all eco­nomic activ­ity.

So the finan­cial dereg­u­la­tion that Howard cham­pi­oned last night, and that suc­ces­sive Labor and Lib­eral gov­ern­ments intro­duced, led not to a bet­ter func­tion­ing eco­nomic sys­tem, but to a finan­cial cat­a­stro­phe that is still in its infancy.

To argue that the entire cri­sis was due just to the sub­prime scam, and lax finan­cial reg­u­la­tion, is to ignore the obvi­ous signs in the data that too much credit was being gen­er­ated rel­a­tive to income. These signs go back to mid-1964 in Aus­tralia, and to Armistice Day in the USA.


USA and Australian Debt to GDP Ratios

USA and Aus­tralian Debt to GDP Ratios

Right from day one of the post-WWII period, the US finan­cial sys­tem grew debt faster than than the USA econ­omy grew its GDP. As a result, the ratio of debt to GDP rose from a man­age­able 45% of GDP in 1945, to 290% now (with­out fac­tor­ing in the impact of deriv­a­tives, etc., which will surely require dras­tic upward revi­sions of the recorded level of debt). In Aus­tralia, we prac­ticed 20 years of pru­dent finance–from 1945 till 1964, all under a Lib­eral Government–before the days of prof­li­gate finance began–also under the same Lib­eral gov­ern­ment.

Finan­cial dereg­u­la­tion sim­ply assisted the finance sector’s own innate ten­dency to pump out as much debt as it would man­age, and each “res­cue” of the finan­cial sys­tem by reg­u­la­tors like the Fed in the USA and the RBA in Aus­tralia sim­ply encour­aged the cen­tre of finan­cial spec­u­la­tion to move from one asset class to another. The Sub­prime Scam was sim­ply the last gasp of the sys­tem, which was pushed so far by the naive belief that con­ven­tional (“neo­clas­si­cal”) econ­o­mists have in free mar­kets for every­thing that they stood by while the finance sec­tor pre­tended to make money by lend­ing money to peo­ple with a his­tory of not hon­our­ing their debts.

Even though the Sub­prime Scam was extreme, it was sim­ply the cur­rent sys­tem pushed to its extremes: it was not an aber­ra­tion due to lax reg­u­la­tion, but the final gasp of a sys­tem that was always pump­ing out too much debt, and had already many times overex­tended itself into what should have caused a cor­rec­tive cri­sis.

Now we are being held in a per­ma­nent finan­cial cri­sis by gov­ern­ments attempt­ing to revive the sys­tem while con­tin­u­ing to hon­our debts that should never have been issued in the first place.

The one aspect of Howard’s defence of his eco­nomic agenda that is plau­si­ble is his argu­ment that Rudd “cherry-picked” his­tory to describe every­thing the Lib­eral Party did as neolib­eral, while por­tray­ing the Labor Party (ALP) as non-neolib­eral. In real­ity, both par­ties sup­ported a neolib­eral agenda–the Lib­er­als merely went fur­ther in fol­low­ing that “logic” to its inevitable denoue­ment.:

How­ever, it is not plau­si­ble for the Rudd Gov­ern­ment to argue on the one hand that Aus­tralia has entered the finan­cial cri­sis in bet­ter shape than just about any other nation, and yet declare my gov­ern­ment guilty of the extreme neo-lib­er­al­ism which has allegedly brought about the cri­sis. The strength of the Aus­tralian bank­ing sys­tem is a direct result of a sen­si­ble bal­ance between mar­ket forces and pru­den­tial reg­u­la­tion adopted by my gov­ern­ment not long after it came to office…

The con­struct of Rudd’s essay in The Monthly is clear. The wicked neo-lib­eral gov­ern­ments of Mar­garet Thatcher, Ronald Rea­gan and John Howard pur­sued poli­cies of total dereg­u­la­tion that let the mar­ket rip, yet the more benign social demo­c­ra­tic admin­is­tra­tions such as the Hawke gov­ern­ment, the British Labour gov­ern­ments of Tony Blair and Gor­don Brown and the Amer­i­can Democ­rats under Bill Clin­ton fol­lowed a dif­fer­ent path and got the bal­ance right. It now falls, accord­ing to Rudd, to the social democ­rats to unite to save cap­i­tal­ism.

I expect that the belief that the Aus­tralian bank­ing sys­tem is immune from the prob­lems that have beset the rest of the world will be sorely tested in the next year or two, as the macro­eco­nomic cri­sis caused by finan­cial dereg­u­la­tion strikes at the heart of Aus­tralian home­own­er­ship. The level of house­hold debt in Aus­tralia is as high as in Amer­ica (when mea­sured in terms of each country’s GDP), and though all the focus has been on the USA’s irre­spon­si­ble lend­ing to the Sub­primes, in fact house­hold debt in Aus­tralia grew three times as fast as it did in Amer­ica in the last twenty years.

The Aus­tralian finan­cial sys­tem is thus depen­dent on all Aus­tralian mort­gage hold­ers being able to ser­vice their debts, when the only source most of them now have to do that is their jobs. As jobs go as the cri­sis deep­ens, the sol­vency of the Aus­tralian finan­cial sys­tem will be sorely tested.

No-one will then claim that finan­cial dereg­u­la­tion was a “great reform”.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • ueber­baer

    Regard­ing infla­tion in Ice­land…

    Maybe not infla­tion, just higher prices for imported goods which some may call infla­tion.

    BTB — “What sup­plier in their right mind would risk send­ing prod­uct to Ice­land? They will never get paid” 

    Well how about ask­ing for upfront cash?

    How­ever, I am con­fused with the terms Infla­tion and Defla­tion..

    In mon­e­tary terms I am quite sure they mean an increase or decrease of the money sup­ply.

    But it seams that both terms are also used for the increase/decrease in values/prices not directly relat­ing to the money sup­ply..

    Clearly there are many fac­tors that have an effect on the CPI other than money sup­ply. (the way govt. cal­cu­lates it for starters). For exam­ple exchange rates, credit rat­ings, geopo­lit­i­cal sit­u­a­tion (risk), tax­a­tion etc.

    Is the delever­ag­ing process remov­ing any of the money sup­ply or is it just destroy­ing debt?

  • joshua

    Per­haps Dr Keen can explain what is hap­pen­ing with Ice­land and why?

    It seems there are already reports that the US reces­sion is com­ing to an end soon.

    This was the same thing dur­ing the dot com bust. Atleast 2 years went by and the mar­ket econ­o­mist advis­ers were talk­ing that the mar­kets were recov­er­ing until they offi­cially acknowl­edged a reces­sion.

    After that it took around 2 years for it to recover.

  • john c. halasz

    Er, folks, when a coun­try under­goes a cur­rency crash, it’s called from the out­side a defla­tion­ary cri­sis, but domes­ti­cally it involves mas­sive price infla­tion, due to higher import prices, as the large imbal­ance of imports over exports and/or of for­eign lia­bil­i­ties over domes­tic assets is at the root of the crash. And Ice­land imports every­thing except cod, cows, and geo-ther­mal,- (NB Alcoa built an alu­minum smelter there). The over­all result of such a cri­sis is that the entire out­put of the coun­try is deval­ued com­pared to RoW and stan­dards of liv­ing are sharply cur­tailed, until the coun­try can export its way out of the cri­sis. Care for some cod?

    Some­how a small clique of insid­ers got con­trol of the tiny coun­try of Ice­land and effec­tively turned it into an inter­na­tional hedge fund. The Amer­i­can pro-labor econ­o­mist Dean Baker, a good egg, recently caught out for­mer Fed gov­er­nor Prince Mishkin in a quote from a cou­ple of years ago, prais­ing Ice­land as the very model of a mod­ern neo-lib­eral major gen­eral. But I wouldn’t worry my head, were I an Aussie, over the exam­ple of Ice­land, as a rel­e­vant prece­dent. Yes, you’re bound to be f**ked, but so is the RoW. And mis­ery loves com­pany.

  • BrightSpark1

    On the ques­tion of Ice­land and Aus­tralia. Aus­tralia has 50 times the pop­u­la­tion of Ice­land per­haps the dif­fer­ence comes from the old adage.

    if you owe the bank $300,000 and you can’t pay, you have a prob­lem, if you owe the bank 1 bil­lion dol­lars and you can’t pay, the bank has a prob­lem”

    We, Aus­tralia as a whole, (not just the dumb gov­ern­ment) owes going on for $1 tril­lion and we will never be able to pay. With Ice­land their prob­lems have occurred, with Aus­tralia the inter­na­tional bankers’ prob­lems have yet to occur, per­haps because,it is unthink­able.

    Aus­tralia is con­sid­ered one of the bet­ter debtors but we haven’t paid our way for 33 years! What does that say about the other debtors? 

    Just like the gen­eral store keeper that extends credit to many cus­tomers in a fail­ing com­mu­nity hop­ing for a “recov­ery” long after this becomes futile the gov­ern­ments of the world are try­ing to patch up a “Titanic” econ­omy with­out a dry dock.

    I hope that with the com­mu­nists com­ming on to the scene, we won’t be replac­ing the stu­pid extrem­ist neo­clas­si­cal dogma with some stu­pid extrem­ist dogma such as com­mu­nism.

    Intel­lec­tual effort must be mus­tered and applied. This to soften the inevitable land­ing and then plan for a sta­ble future. The actions being taken seem to be push­ing us to an episode of very rapid col­lapse a “stall”.

  • Bull­turned­bear

    Thanks for post­ing the graph Con­trar­ian,

    Granted Iceland’s infla­tion rate shot for the moon. They were on a debt binge of mas­sive pro­por­tions.

    I’m won­der­ing about what’s hap­pen­ing to Ice­land now and going for­ward. When no one has a job, no one has sav­ings and no one can sell a sin­gle thing. Every­one has no money. If no one has money, no one can buy things. If no one can buy things the shops must drop price fur­ther and fur­ther. This is mon­e­tary defla­tion and price defla­tion. More busi­nesses fail ans unem­ploy­ment con­tin­ues to rise. Where does the future infla­tion come from?

    The price infla­tion was his­tory. I think the infla­tion graph as very telling, it is very old now though. Iceland’s growth and infla­tion boom is over!

    I’m try­ing to find info on what is hap­pen­ing now in Ice­land.

  • Hi BTB!

    I think the infla­tion graph as very telling, it is very old now though. 

    The price infla­tion fig­ure for Ice­land is 18% in Jan­u­ary 2009.

  • Bull­turned­bear

    Hi Con­trar­ian,

    Can you please explain how prices will hold up going for­ward in Ice­land?

    Where will the money come from to buy things?

    What do you pro­pose will hap­pen to the prices of prime real estate in Ice­land?

  • pru­dentsaver

    To make it worse, Ice­land have exchange rate con­trols, with a black mar­ket. The offi­cial exchange rate that have col­lapsed, is not what you get on the black mar­ket. The dis­count is around 40 % to an exchange rate that is already around 50 % off. I know, because there is a flood of used cars hit­ting Nor­way, from Ice­land, and the deal­ers typ­i­cally exchange their Nor­we­gian cur­rency, to Iceland’s cur­rency through the black mar­ket. The cars are dirt cheap.

    This Argentina, Ice­land sce­nario is defin­i­tively a worry I have for coun­tries like the UK. THe US seems to be a lit­tle more con­ser­v­a­tive, so this far, I’m a bit in doubt as to what will hap­pen there. Even if the text book might say defla­tion, I think when you get a bank­rupt coun­try like the US, UK or Ice­land, or coun­tries like in East­ern Europe, at some time I think that is infla­tion­ary, as the exchange rate col­lapse because of defla­tion­ary forces.

  • pru­dentsaver

    One thing about Ice­land is that they have all this 2,5 % infla­tion target’s as every­one else. All that bull about finan­cial sta­bil­ity, looks just like any other cen­tral banks home­page. They even had what ini­tially looked like very low infla­tion, track­ing the infla­tion rate in most other coun­tries until their cur­rency blew. I think it’s scary, and I really think the Ice­land sce­nario is the black swan event for the US and other coun­tries.

  • pru­dentsaver

    There is also a lot of peo­ple from Ice­land com­ing to nor­way look­ing for job as their econ­omy have col­lapsed. Another thing is the push in Ice­land to get a mem­ber­ship or a cur­rency like the euro intro­duced, well let’s hope the Euro is around when that time comes. How­ever, I sus­pect, that the market’s are around a level, that might turn out to have been the ulti­mate low, the weak­en­ing YEN is a sign of a low in the mar­kets. Unless this fiat money thing still have fur­ther to go. the CDS on most coun­tries are just going up mak­ing it more and more expen­sive to insure against default, I think that is a hyper­in­fla­tion­ary trend, like defla­tion­ary first, until it just sud­denly pops. How­ever that must be the black swan sce­nario, we prob­a­bly will avoid.

  • pru­dentsaver

    In Latvia, they are tak­ing around 20 % wage cuts in the gov­ern­ment, and pen­sions does not get paid out. It have stopped, as I know all this from some­one liv­ing in the coun­try. They are des­per­ate to keep their exchange rate sta­ble against the euro because of all the euro loans. They are effec­tively forc­ing defla­tion to keep the rate sta­ble, after years of 30–50 % year on year money growth. I think it will crack badly. UK hedge fund spec­u­la­tors are push­ing down the Swedish cur­rency very badly. It’s at an all time low against the Nor­we­gian cur­rency. The rea­son is that Swedish banks have expanded heav­ily into Latvia and the other baltic coun­tries. The hedge­funds see it as a one way bet. They look for the big profit in the swedish krone, when latvia pops, and it will. I just don’t know when. It’s a des­per­ate sit­u­a­tion in east­ern europe. Ukraine is prac­ti­cally already bank­rupt, with the mar­ket pric­ing a 40 % default risk, in Rus­sia how­ever it’s just a 10 % risk.

  • Hi BTB!

    Can you please explain how prices will hold up going for­ward in Ice­land?

    Firstly, I’m not mak­ing any pre­dic­tions on the price lev­els for Ice­land going for­ward. All I’m doing is to pro­vide for the facts on hand on what is cur­rently hap­pen­ing in Ice­land.

    Cur­rently, given the data on hand, Ice­land is suf­fer­ing price infla­tion. The best rea­son for this is the plung­ing Ice­landic cur­rency.

    But the ques­tion is, how can coun­tries like Ice­land have debt defla­tion and price infla­tion simul­ta­ne­ously?

    Well, under the con­ven­tional demand-sup­ply equi­lib­rium model, prices should come down. But in this case, as Steve Keen men­tioned about the idea of equi­lib­rium, the sys­tem is out of equi­lib­rium and can­not return to equi­lib­rium.

    Where will the money come from to buy things? 

    If there’s no money to buy imported things, that does not mean the prices of things must come down. What will hap­pen is (1) demand destruc­tion and/or (2) the seller goes out of busi­ness (and con­tribute to higher unem­ploy­ment). The remain­ing few sell­ers that sur­vive will most likely sell to the richer Ice­landers who can cough out the higher prices.

    What do you pro­pose will hap­pen to the prices of prime real estate in Ice­land?

    I do not know enough about Ice­land. So, what I’m offer­ing here is just my guess. I guess in this case, we can have simul­ta­ne­ous asset price defla­tion and price infla­tion.

    In fact, the price infla­tion can even con­tribute to asset price defla­tion. Why? Let’s say the price inelas­tic things go up in prices (e.g. food), this will impose fur­ther pres­sure on the bud­gets of Ice­landic fam­i­lies. Those who are in mort­gage stress will be in greater stress. As a result, some mort­gage hold­ers will fold and forced to liq­ui­date their house.

    That’s just my the­ory.

  • pru­dentsaver

    A guy I feel sorry for is tim­o­thy gei­th­ner. I think he knows that his rep­u­ta­tion can get destroyed on hav­ing his job, no mat­ter what hap­pens, out­side of his con­trol. I think he looks sick on pic­tures, like if he wants to be some­where else. Like he really knows he is rear­rang­ing the decks on the Titanic. If it’s the titanic, then I think insol­vency, fol­lowed by the Iceland/Argentina style hyper­in­fla­tion is the most likely sce­nario.

  • GSM


    Sorry for Gei­th­ner? I am sur­prised.

    Gieth­ner is a gate­keeper for the Banksters, ensur­ing that they have access to the pub­lic trough of US tax­payer bailout money.He is a pro­tege of Rubin and Summers(of Glass-Stea­gal repeal fame which was instru­men­tal in set­ting up the GFC, back in 1999) who along with the many other NY banker elite need the ponzi US econ­omy to suck in yet more debt , in order that they may pros­per.

    Gei­th­ner could care less about the aver­age US cit­i­zen. The rea­son why he looks so haunted is that he prob­a­bly knows that the US bank­ing sys­tem as he knows it is about to die and with it the power, influ­ence and riches that it pro­vides to him and his supe­ri­ors.

  • pru­dentsaver

    I don’t see him that way. He was a guy that was of the ear­li­est to warn of deriv­a­tives and tak­ing ini­tia­tive to reg­u­late them. He stud­ied and lived in Asia, speaks chi­nese, and is not as the other guys in Wall Street. He prob­a­bly have the out­sider per­spec­tive, that means he knows, that he don’t what he is doing. That’s what makes him look so scared. The trou­ble for the US vs Japan, is that the US breaks into hyper­in­fla­tion at some point if they go down the japan path due to insol­vency.

  • GSM

    From Wiki;

    After com­plet­ing his stud­ies, Gei­th­ner worked for Kissinger and Asso­ciates in Wash­ing­ton, D.C., for three years and then joined the Inter­na­tional Affairs divi­sion of the U.S. Trea­sury Depart­ment in 1988. He went on to serve as an attache at the US Embassy in Tokyo. He was deputy assis­tant sec­re­tary for inter­na­tional mon­e­tary and finan­cial pol­icy (1995–1996), senior deputy assis­tant sec­re­tary for inter­na­tional affairs (1996–1997), assis­tant sec­re­tary for inter­na­tional affairs (1997–1998).[8]

    He was Under Sec­re­tary of the Trea­sury for Inter­na­tional Affairs (1998–2001) under Trea­sury Sec­re­taries Robert Rubin and Lawrence Summers.[8] Sum­mers was his mentor,[10][11] but other sources call him a Rubin pro­tégé.

    In 2002 he left the Trea­sury to join the Coun­cil on For­eign Rela­tions as a Senior Fel­low in the Inter­na­tional Eco­nom­ics department.[14] He was direc­tor of the Pol­icy Devel­op­ment and Review Depart­ment (2001–2003) at the Inter­na­tional Mon­e­tary Fund.[8]

    In Octo­ber 2003, he was named pres­i­dent of the Fed­eral Reserve Bank of New York.[15] His salary in 2007 was $398,200.[16] Once at the New York Fed, he became Vice Chair­man of the Fed­eral Open Mar­ket Com­mit­tee com­po­nent. His some­what caus­tic and arbi­trary man­age­ment style was often evi­denced dur­ing his tenure with the Fed­eral Reserve. In 2006, he also became a mem­ber of the Wash­ing­ton-based finan­cial advi­sory body, the Group of Thirty.[17]”

    That doesnt read like an outsider’s CV to me (Or a per­son qual­i­fied for Sec­Treas for that mat­ter), and I havent noted his father’s priv­eliged posi­tion in US pol­i­tics and finance. Tim Gei­th­ner was groomed for his cur­rent position.Kissinger and Asso­ciates along with CFR are well known Neo Con and Bankster type “New World Order” devel­op­ment estab­lish­ments. Obama was told to put him where he is now. By whom? Well, you can guess.….…..

  • pru­dentsaver

    He have lived in Zim­babwe, that needs to count for some­thing, maybe that’s why he looks like he is extremely scared. I’m wor­ried that this cri­sis poten­tially, worst case could evolve into some­thing that will cause Ron Paul to be elected in 2012. That will mark the end of the fed­eral reserve and a return to the gold stan­dard. I think Paul might be cap­tur­ing an anti-semi­tism that will prob­a­bly deven­lop if the sys­tem really goes down hard.

  • pru­dentsaver

    I have a ques­tion for Steve, it’s really a yes/no ques­tion.

    If the Amer­i­can peo­ple ever allow pri­vate banks to con­trol the issue of their money, first by infla­tion and then by defla­tion, the banks and cor­po­ra­tions that will grow up around them (around the banks), will deprive the peo­ple of their prop­erty until their chil­dren will wake up home­less on the con­ti­nent their fathers con­quered.” –Thomas Jef­fer­son

    Do you feel that this is what have hap­pened now?

  • Well, only in the sense that pri­vate banks nec­es­sar­ily con­trol the cre­ation of credit, so this is in effect inevitable rather than some­thing for which there is an alternative–like State-con­trolled money or com­mod­ity money. As soon as loans of any sort are allowed, the genie is out of the bot­tle.

    The alter­na­tive I pre­fer is to accept reality–that money will always be credit-dominated–and then remove the temp­ta­tion the non-bank pub­lic has to bor­row too much money by redefin­ing the sec­ondary mar­kets for assets so that lever­aged spec­u­la­tive prof­its are much less likely to occur.

  • pru­dentsaver

    One trend that have been devel­op­ing for the last two weeks is that US oil con­sump­tion is beat­ing fore­casts, or a trend rever­sal. I’m not sure of what to make of it yet, but it’s the only indi­ca­tor that are cur­rently bull­ish for the US.

  • doju­fitz

    Tim­o­thy Gei­th­ner has known the score for a long time — i don’t feel for him at all.

    That Bozo like all in the Team Obama should sit down and be hon­est with them­selves and the US peo­ple and say ‘lets just announce the fact that we are stone moth­er­less broke!’

    Stuff it!

    The quicker we go bank­rupt the quicker we can start the process of rebuilding.….lets stop pretending.…the phony US Empire has to collapse.….we stuffed it up and its all over.

  • sir­ius

    yet the more benign social demo­c­ra­tic admin­is­tra­tions such as the Hawke gov­ern­ment, the British Labour gov­ern­ments of Tony Blair and Gor­don Brown

    I don’t agree with you and here< I am a UK cit­i­zen and left the UK three years ago, whilst hat­ing Blair and Brown for cre­at­ing grosss infla­tion of house prices and deby­ing it year after year.
    When the cri­sis hit I finally started to research myself and cre­ated my own web­site at

    I think what the gov­ern­ments have done is stu­pid for us (not for them and the banks — keep the party rolling what?)

    I amust say it took a child to see what was going on if they just decided to look at house price graphs and eran­ings of peo­ple).

    Sad really

  • sir­ius

    Mes­sage to Christo­pher­Brooks.

    I maybe ask­ing a stu­pid ques­tion here but can I con­tact you? You seem to be along the same lines as me.

    I am an engi­neer and to me the whole idea of a vir­tual money sys­tem in the hands of human beings seemed absurd when we live on a phys­i­cal resource of lim­ited resource.

    I love physics now and have come to know the laws of the con­ser­va­tion of energy and stuff like that as well as solar radi­a­tion lev­els and the power of the sun. I believe that this eco­nomic ‘smoke­screen’ impedes from behav­ing in a rea­son­able man­ner and the desire to be the owner of ‘paper’ seems absurd. 

    I am not a crank, I just decided to sit down a piece every­ht­ing together that I could and realised that we ignore sim­ple solu­tions that are there but peo­ple do not care because ‘paper’ is the god.

    Sir­ius Blade of

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