The Pool Room, Week Ending May 22nd 2009

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Fans of the Australian movie classic “The Castle” will remember the archetypal line “This one’s going straight to the Pool Room”, uttered by the ever-optimistic Darryl Kerrigan whenever he was given a gift. If you haven’t yet seen the movie, consider setting aside a couple of hours to watch it.

Debtwatch’s “Poolroom gifts” come from the media coverage of the Global Financial Crisis. Some are gems–incisive bits of analysis that are an informative read. Others are … well, best characterised as spin, though they range from outright spin, to delusion derived from thinking like a neoclassical economist.

I used to gather these on a daily basis and put them under the “Gems”and “Brickats” pages of the blog. But the workload got the best of me, given my other activities (the most important of which now are writing an analytic book on the crisis, based of course in Minsky’s Financial Instability Hypothesis). Blog member Evan Harris kindly offered to take over the role, and from now on a weekly collection of items on the GFC will be published on Fridays Sydney time under the title of “The Pool Room”  (or Saturdays, if I have too social a time of it on the Friday, as happened this week).

Entries there will be linked on the same page from then on, and I’ll roll the Gems and Brickbats together for that purpose under the page title of “Pool Room”.

If you’d like to nominate an article or blog report that deserves an entry in The Pool Room, please send them to the gmail.com email address “gfcwrap” (I’m writing it this way to avoid automated email gathering programs). Evan will then check them over, collate them with his own nominations, and pass the copy on to me.

Just one quick observation here on the role of the media in the GFC. I know that a lot of the blog members have a negative view of the media, encapsulated in the acronym MSM for “Mainstream Media”, which sees it as part of the overall “spin cycle” that has led to this catastrophe in the first place. Often this will result in antagonistic attitudes towards particular journalists too, who are seen as regular sources of positive spin on financial and economic affairs.

I have a less cynical attitude towards the “Mainstream Media”, and the journalists who work in it as well. Part of this reflects my own work history: I spent some time as a contributing editor to a computer magazine, an economic commentator for an ABC radio program (Indian Pacific), a conference organiser on coverage of “third world” issues for Australian NGOs and the Australia-China Council, and before becoming an academic I had numerous features published on a sporadic basis in newspapers like the SMH, The Age and The Australian. I also did some semi-academic work on the media: my first published piece in an academic journal reported on a workshop I ran comparing the Australian media’s coverage of the collapse of India’s Janata Party back in the 1980s to how it was covered in Asian journals.

I also have the “Mainstream Media” to thank for the fact that my iconoclastic views on the GFC have achieved such widespread coverage.

So we have a system that on one level gets vilified, and on another does a sterling job–how then to assess its role? My take is to regard the media as another, special industry in the overall market economy, and journalists as its production line workers.

A lot of what they do is dictated by what’s coming down the assembly line–and this will involve reporting opinions on finance and economics uttered by representatives of other companies, and also individuals who have become “newsmakers” in their own right.

This sort of stuff can be treated by journalists just like factory workers might treat a particularly esoteric concept dreamed up by the design staff as they assemble it–“it looks like a load of crap to me, but what can I do about it?” I’m sure there were many workers uttering such sentiments as they assembled the Edsel for Ford all those decades ago, and I know there are many journalists out there today who have to cover a news release in a fairly straight manner, but who privately think “what a crock” as they do so.

Also, journalists are by definition generalists. They will find themselves doing the market wrap at some stage in their career, and covering Canberra politics in another–or the morning cop wrap. They simply have to do it–it’s part of the job. Sometimes, they will feel completely out of their depth because they are generalists, and they’re right to restrain themselves from any cynical commentary that someone who isn’t doing this for a living might add, were they also covering the same topic.

The best that a journalist can do in a situation like that is to try to get a contrary opinion uttered by another “expert” into the story as well. But often there isn’t time to locate someone, or space to run it. So something that a GFC critic can regard as spin gets published. But it’s not necessarily because the journalist who wrote the story, or the media outlet that published it, actually believes the spin.

Then the editor might suggest a balancing story be run at a later date–and of course this cuts both ways: there may be a top critical story on the GFC, quoting someone like myself, Nouriel Roubini, or Michael Hudson, followed by another citing, for example, Craig James or Alan Greenspan.

So generally I’m inclined to regard the media’s role in all this with a less jaundiced eye than many critics of the global financial system, and I certainly won’t take a snipe at an individual journalist for simply reporting a story.

The people I will take a swipe at are those who are themselves economists, or who act as economic journalists for media outlets–hence mentioning Craig James above, who has to be the loudest cheerleader for the “Happy times are here again, please buy stocks (through ComSec) now” perspective in Australia.  These people put themselves forward as experts on the economy, and hence they’re fair game for me to point out when I think they’re less than expert.

That’s enough of a prelude. Below is the first set of gifts for the Debtwatch Poolroom. If you’d like to nominate candidates for future weeks, please send them to that gfcwrap[at]gmail.com. Any feedback would also be appreciated. And thanks again to Evan Harris for taking on this role.

Australian-Related Links:

Push On To Sell Aussie Bonds, Lucy Battersby, SMH, 18 May
Unsustainable debt? No problem. Ramp up the “effective marketing of debt products” budget, retrain those stiff bureaucrats and don’t mention the debt.

Bond Boost For Big Four Banks, Chris Zappone, SMH, 18 May
Our robust and conservative banking cartel receives another taxpayer-funded profit boost. And “because of the state of the markets there’s less competition than there used to be”! More handouts, less competition, “bank fees soar despite slowdown”, “$1 billion in penalty fees”… never waste a good crisis. And what’s $2m between friends?

Shoppers Trade Down, Even Within Stores, Jamie Freed, SMH, 18 May
Deflation watch 1. Bye, bye David Jones, hello Target.

Rents for luxury property in Australia tumble, Bridget Carter, news.com.au, 18 May [via Bubblepedia]
Deflation watch 2. Will sub-luxury rents also be falling “at least 25%” in the near future? Beach shacks also lose their chic as empty properties depreciate (along with their owners’ egos).

First Home Buyers Vulnerable, Chris Zappone, SMH, 19 May
Obviously a property story not vetted by the Domain.com.au sales team. Doesn’t Mr Zappone know that Fairfax is on the ropes?

Recovery This Year: RBA [original title later changed], SMH, 19 May
Glenn Stevens forecasted the worst financial crisis since the Great Depression with unerring accuracy (“no one saw this coming”) and followed it up with an embattled (“recovery by the end of 2008”). He didn’t predict inflation to drop to a decade low as he jacked up interest rates less than a year ago. Here’s his latest foray: “… too soon to say if a recovery had begun, though developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year.” A sage-like Ken Henry stands shoulder-to-shoulder with Stevens evoking happy memories of Bush, Howard and WMD.

Job Well Done Government Tells ASIC, Jacob Saulwick & Ruth Williams, SMH, 19 May
Obviously Kevin and his multi-millionaire Mrs didn’t take out margin loans with our robust and conservative banking cartel (Which Bank?) to invest in Storm Financial.

Home Affordability “Dramatically Better” Than Five Years Ago, Jessica Irvine, SMH, 20 May
“Dramatically better” doesn’t square too well with the verdict of the 2009 Demographia International Housing Affordability Survey, a respected independent survey widely cited throughout the OECD. Guess the great Australian dream isn’t that affordable after all. It would be useful to know the exact methodology behind the Reserve Banks “affordability” calculation.

No Distress in Pub Sales, Says ALE, Natalie Craig, SMH, 20 May
Of course not. The Managing Director of ALE says so.

Bailing On Britain, Jesse’s Cafe Amercain, 20 May
Australia is the number one choice for disenchanted Poms who want out. Maybe they can buy those empty beach shacks.

Diving Shares Teach University a Lesson, Heath Gilmore, SMH, 21 May
What do General Motors and University of Sydney have in common? Both seem to have morphed into wannabe investment funds first, car manufacturers / educators second. Task for University of Sydney Economics graduates: how many full-fee-paying foreign students does it take to plug a 23% capital loss on a $1.15 billion portfolio? (Extra marks for subtracting fund management fees)

Altruism at the Fee Factory?, Ian Verrender, SMH, 21 May
Great article by the ever-critical Ian Verrender. Key quote: “Imagine what would have happened to the profit if the Canadians had not ridden in on a white charger in the nick of time.” Yes, ma and pa pensioners in the land of the maple leaf are propping up Macquarie bonuses this year. The lobbyists help out too. More drivel.

NZ Couple Laughing All the Way from the Bank, SMH (Dominion Post), 22 May
Contributed by Steve Keen. Perfect illustration of how credit money is “manufactured” outside of official Central Bank policy. Whoops! I only meant to make $100,000 boss! Wall St and Hedge funds manufacture US$1,400,000,000,000,000 of derivatives and that’s okay. A couple runs off with US$6,000,000 and it’s time to call the CIB and Interpol. Though maybe the party is coming to an end.

$A Fall the Work of Speculators, Clancy Yeats, SMH, 22 May
Oh my God: the RBA discovers that investors make decisions without reference to “new information about either the global or domestic economy”. We didn’t deserve a currency crash in 2008 on par with Iceland. Their debt-based Ponzi-scheme is also denominated in foreign currency but they don’t have kangaroos.

NAB is $1b breakthrough Offshore Funding Deal, Richard Gluyas, The Australian, 22 May
NAB withdraws from the public teat (for now): “It’s another step towards the return of normal funding arrangements [pre credit crunch].” Yes, it’s normal for total Australian debt to be over 160% of GDP and now it’s normal to jack it up some more. As Chuck Prince said “As long as the music is playing you’ve got to get up and dance”… just before he was fired.

Stock Pickers See Upturn within a Year, The Australian (Times Online except headline), 21 May
The same stock pickers who pushed the stock market to new highs following the credit lockdown in August 2007? The same stock pickers who predicted a sluggish economy in early 2008 that would rebound later in the year? The same stock pickers who’ve shifted the results of their catastrophic bets onto the taxpayer after looting hundreds of billions in bonuses? Perhaps the same stock pickers who manage your pension fund. The sub-editors at the Australian have helpfully sexed-up the original Times’ headline, Alistair Campbell style. Charlie Aitken pours the whisky in the kids’ milk… just don’t scare them with memories of his famous call “the whole sub-prime issue is over-stated and losses/defaults will be nowhere near where the armageddonists believe. “ And be sure not to notice that his argument ignores the role of debt (unlike 23% of consumers). Yes, Charlie, “you appear smarter if you are bearish”. MACCA cites the highly regarded David Rosenburg as a dissenting voice (also on video).

Great Southern Crash Fells Expert Opinions, Michael Pascoe, SMH, 22 May
The assumption seems to be that expert opinions (this time KPMG) can be relied upon for anything other than bloated fees. A tip for young players: now that’s just silly.

Australia’s Debt Mountain Pales Into Insignificance, SMH, 22 May
That ol’ chestnut: when downplaying debt, be sure to only focus on government debt. Yes, Australia’s government debt is tiny compared to other countries. But so was Iceland’s before it imploded (all the debt was held by the over-sized banks). Even the US, the undisputed debt behemoth, doesn’t look too awful when you only focus on official government debt (ignoring unfunded liabilities). So record credit card debt, record auto financing, Harvey Norman 48-month interest free loans, massive mortgages (requiring two income earners to cover the monthly payments), highly geared commercial real estate, record corporate debt and now record government stimulus spending matched with shrinking government revenues are all nothing to worry about? Has anyone noticed Aussie government bonds have leapt above 5% in the last week? A great way to end the week.

Global Economy:

“US Homebuilder Confidence Rises To Eight Month High, SMH/Bloomberg, May 19
Well, that’s how Bloomberg spun the story. Quite a headline considering the confidence index rose from 12 (out of 100) to a mighty 14. In 2005 the index was 72. Now for some context that you won’t find in this article: surging prime delinquencies, OptionARM loans are re-setting, limited jumbo financing, few move up buyers and even more shadow supply.

“The Worst Is Yet to Come”: If You’re Not Petrified, You’re Not Paying Attention, Yahoo Finance, May 15
Over-the-top? Perhaps. “The stress tests were a ‘con game to get private money to finance these institutions because [Treasury] can’t get more money from Congress. It’s the ‘greater fool’ theory.’” And lo and behold here comes the private money… “You have to do it while things have improved and you’re really running the gauntlet if you don’t.”

The Night They Re-read Minsky, Paul Krugman, NYT, May 17
Contributed by blog member hbl. It aint often that Minsky makes an appearance in the NYT, the US’s trusty “Newspaper of Record”.

S&P500 Earnings Decline: 90%, The Big Picture, May 17
Note second comment: “Reminds me of the line from Crocodile Dundee…”Now that’s a knife!” Check out this simple graph while you’re at it. Those green shoots require vats of industrial weed killer.

S&P500 Swings [since the peak in Oct 07], Chart Store, May 19 (via The Big Picture)
As one of the comments says: “it’s a traders market”. The buy-and-hold strategy is dead, along with your pension. Lucky that the insiders know where the S&P is headed, though these days who the hell knows?

Japanese Economy Shrinks At 15.2% Annual Pace in 1Q, Naked Capitalism, May 19
Excellent citing of ridiculous spin in the FT article referenced at the bottom of the post. More intelligent views from FT Alphaville. A post in Japan Economy Watch notes that Japanese government debt is not held by foreigners – in stark contrast to our sun burnt country.

Fed Sees Hopeful Signs But Downgrades 09 Forecast, Yahoo Finance, 20 May
The sub-title says it all: “Fed expects improvements in months ahead, even as it downgrades the economic outlook for 2009.” The Fed steps into the green shoots fertiliser as it re-forecasts unemployment significantly higher than it did only 3 months ago. Blog member MACCA cites a Mish article which begs to differ with the party line.

Here Comes the OptionARM Explosion, Clusterstock, 21 May
Perhaps we should ask Charlie Aitken for a quote, with or without pastries.

Global Banking/Finance:

Egan-Jones Takes a Dim View of Morgan Stanley’s Health, NYT, 8 May (via Naked Capitalism)
This lesser-known but vastly more reputable ratings agency says MS needs $40bn of new capital to remain solvent… just a teeny weeny bit higher than the $1.8bn claimed by the government (following the Stress Tests). Yet MS wants to repay TARP funds.

Meredith Whitney Interview, CNBC, 12 May
Brilliant interview discussing the state of US banks and the impact of government intervention on investing. Here’s another video outlining the mortgage fraud underpinning the major banks balance sheets. There was little mention of systemic fraud in the Stress Test scam.

Treasury Plans Help For Muni Bond Market, Financial Times (US), 15 May
“Rating agencies would also come under pressure to improve state and local governments’ credit ratings, with the SEC tasked with checking that they are not assigning too high a risk of default compared with corporate bonds.” Hold on a minute? Aren’t these the same ratings agencies that Kevin described as “a tough bunch of customers”? Surely they can’t be pressured to improve government credit ratings? Let’s not even mention the unfortunate fact that Aussie councils are losing millions as they watch their synthetic CDOs – triple AAA rated by these “tough customers” – go down the toilet. $12m for a single council adds up to a lot of parking tickets.

Same Ol Same Ol JP Morgan, Bank Impode-O-Meter, 17 May
It’s the little details that never seem to reach newspaper reports. “Armed with their new “Mark-to-Mickey Mouse” accounting sub-standards, JP Morgan felt free to report their fiscal first quarter 2009 earnings in the traditional manner of the credit bubble. They frontloaded profits with one time gains, papered over losses, and beat phony prearranged expectations.”

Chasing the Shadow of Money, Zero Hedge, 18 May
Brilliant if somewhat lengthy article. Also contributed by blog member hbl. Sample quote:

“It is immediately obvious that the expansion of public shadow money is no match for the massive contraction seen in the private side… the question of the efficacy of the QE rollout and other public shadow money expansion has a tinge of futility to it…”

The Wreck of Modern Finance, Martin Hutchinson, Prudent Bear, 18 May
Contributed by blog member Lyonwiss. A scholarly explanation of the problems of assessing risk in high finance and its contribution to the GFC. Similar to Taleb’s Black Swan thesis.

No Option On Financial Pain, Option ARMaggedon, 18 May
Excellent analysis of BankUnited’s troubles first published last October. It collapsed on 21 May. The article discusses the Option ARM debacle, soon to be screening in a theatre near you. Only 9% of BankUnited’s customers signed to Option ARMs were making full payments on their mortgage. 9%! These mortgages are the reality underlying the toxic securitised assets that the US Fed now has on its balance sheet. Oh, and leading Private Equity players like Blackstone and Carlyle got to pick up the pieces dirt cheap including billions in retail deposits… never waste a crisis.

The Flagrantly Visible Hand, Zero Hedge, 19 May
Every now and again there’s a glitch in the matrix. Using $10 to $20 billion to move a market isn’t that much money when the US government has bankrolled its too-big-to-succeed banks by $12.8 trillion. Relax, your superannuation relies on this game continuing. Some more manipulation. And more. And more.

Pensions Benefit Guarantee Corporation Deficit Increases, Calculated Risk, 20 May
Bailout alert. The US pension fund implosion should be on everyone’s radar. Denninger chips in and Pension Pulse provides more in-depth analysis and notes “… rising stock markets will not save pensions. As interest rates fall to historic lows, future pension liabilities have soared. You need higher asset values and higher interest rates to reign in those ballooning pension deficits.” I wonder how much improper influence goes on in Sydney’s CBD.

With Media Absent, A Senator Reports the News, Deep Capture, 5 May
Deep Capture is the ultimate market manipulation blog. Its primary focus is naked short selling (stock counterfeiting). Spare some time and a lot of motivation to read The Story including the incredible Wikipedia fine print (towards the end of Part 1). Also read one of the all time great blog posts from a related commentator and watch this video on naked short selling and its link to the Bear Stearns and Lehman collapses.

Geopolitical:

US Debt Clock, real time
Wow. I honestly don’t know what else to say. Time for a new currency (hush, hush)?

The Collapse of the Neoliberal Model: Where Russia Went Wrong, Michael Hudson, Counterpunch, May 14
Contributed by blog member Marvenger. Stellar article critiquing the monetarist model promoted by the West and its impact on commodity countries (whoops – Australia is a commodity country).

Different Conceptions of China’s Future Role in the Global Financial System, Brad Setser, 15 May
Solid article by the “CFR-approved” Setser. Key quote: “Is a stable international financial order one defined by large-scale Chinese financing of the US, in dollars, to sustain a large US current account deficit?”

Global Systematic Crisis: June 2009, Leap2020, 16 May [subscription required for full article]
Well, well, well, one for the bear’s bear. Ballsy forecasting indeed. Note that Leap2020 is strongly affiliated with the EU. Blog member Lyonwiss contributes an interview from January with David Korton who calls for a “new economy dedicated to serving life”.

Asia Will Author Its Own Destruction If It Triggers a Crisis Over US Bonds, Telegraph (UK), 17 May
Didn’t the neoclassicists preach that countries should build up their export sector above all else to reduce reliance on Western aid? PD Bower’s comment (see same page) is a classic: “So let’s get this straight. Asia has all the productive capacity and savings pool, the west has a Ponzi scheme economy based on speculation and vendor financing using worthless fiat money and they [Asia] are the ones in trouble!” See also a better article from Michael Pettis writing in the FT (he’s usually at mpettis.com) and an NYT piece entitled China Becomes More Picky About Debt. Blog member ak links the present geopolitical environment to the Opium Wars of the 19th century.

China To Pump Billions Into Brazil To Ensure Energy Security, Wall St Journal, 18 May
Another example of the potential for China to replace the US as the dominant super-power. This has huge implications for the future of the USD. Now China and Brazil “plan to axe the dollar” according to the FT – major news and very candid headline for a mainstream newspaper. But the UAE gives Uncle Sam a reprieve.

Will the Dollar Standard Collapse?, Clusterstock, 18 May (via Naked Capitalism)
Useful analysis of the impact of a trade surplus on a country’s domestic economy. Blog member Bullturnedbear contributes David Walker’s concerns about the US retaining its AAA rating (awarded by those “tough customers” at Standard & Poor –  – so you can have a $60 trillion debt mountain and still keep the AAA bumper sticker when you’re the world’s biggest but sickest.

Dollar Stops Being Russia’s Basic Reserve Currency, Pravda, 19 May
“The euro-based share of reserve assets of Russia’s Central Bank increased to the level of 47.5 percent as of January 1, 2009 and exceeded the investments in dollar assets, which made up 41.5 percent.” More revealing insights from Pravda.

S&P: UK Outlook Revised To Negative, Zero Hedge, 21 May
More from those “tough customers” – maybe Kevin and Nafen Rees were right after all! “The sovereign downgrade monster is back on the rampage… S&P fired a blank shell straight at the heart of the usurper formerly known as the developed world, when it put UK’s credit outlook on negative.” Let’s take a look at that US Debt Clock one more time.

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21 Responses to The Pool Room, Week Ending May 22nd 2009

  1. Pingback: The Pool Room, Week Ending May 22nd 2009

  2. Philip says:

    Michael Hudson has an interesting article entitled “Bogus “Solutions” to the Financial Crisis: The Latest in Junk Economics”. He mentions:

    “But no one is going so far as to suggest attacking the root of the financial problem by removing the general tax deductibility of interest that has subsidized debt leveraging, taxing “capital” gains at the same rate as wages and profits, or closing the notorious tax loopholes for the finance, insurance and real estate (FIRE) sectors.”

    How big a part does the tax deductibility of interest play in our economy?

    http://www.globalresearch.ca/index.php?context=va&aid=13702

  3. tommyt says:

    Dr Keen, Now I am depressed!! If any ‘change’ to understanding of the crisis ‘oz’ finds itself cannot EFFECTIVELY rest with Journalists (i.e. the daily storytellers) THEN we are all (as they said in a famous sylvester stallone movie)’F.U.B.A.R.’!!How can we (yes I know the just wait and see what happemns when all crashes around us argument)obtain a POLITICAL expression of our own future if not through Journalsts? They are the (unfortunately) the purveyors of the ‘ECONOMIC NEWS’ and as a recent friend said to me (a professional none the less)well ‘that is the way the world just IS!(I.E. THE ‘RECESSION’)!!Reluctantly he is not aware of this blog or yourself Dr Keen BUT reads the Fin. review religiously!!His views are ‘set in stone’ NEVER TO BE CHANGED OR CHALLENGED! This economic conservative WILL never receive the volume nor qulaity OF THE BALANCE OF ECONOMIC NEWS WORTHY TO MAKE A DIFFERENCE!Maybe we are all destined(unfortunately( to be ruled by the ‘IMF’ and their ECONOMIC AGENTS!!the MASS MEDIA!!OR when this mess is OVER we can start again on the ‘Australian Journalists ASSOCIATION’!!

  4. ak says:

    On China.

    Obviously things may and will change in China in the future (hope for the better) – but probably in the decades not years to come. The GFC will unfold in years not decades.

    The article regarding stability and democracy in the context of the Communist Party rule – from the series I recommended:

    http://www.guardian.co.uk/world/2009/may/20/china-changing-communist-party

    “In mainland China, 53.8% believed a democratic system was preferable.

    Then came the kicker. Asked how democratic it is now, on a scale of one to 10, the Chinese placed their nation at 7.22 – third in Asia and well ahead of Japan, the Philippines and South Korea.

    ‘Chinese political culture makes people understand democracy in a different way, and this gives the regime much manipulating space,’ concluded Dr Tianjin Shi.”

    I used the term “systemic problems” in my previous post the context of the long-term GDP growth.

    Nobody can say that they have no social problems but my point is that they are positioned to deal with their socio-economical problems much better than the US during the next phase of GFC. They can and will put the economy on artificial life support when the export collapses. They can afford to. If one method fails they will try another. “Doesn’t matter whether cat is white or black”.

    I can write more on this issue but time is the constraint.

    MACCA,

    Could I kindly ask you to read the full series from the Guardian site before making any further comments regarding communism and economy in China, please?

    These articles may or may not be biased but at least they contain a lot of facts which are consistent in general with what I learned from my Chinese friends living here in Australia.

    I made a disclaimer in my post regarding freedom in China. I have never supported or accepted any violation of human rights anywhere.

    This doesn’t mean that I cannot make certain observations about the efficiency of their economical model.

  5. MACCA says:

    Steve, Evan,

    Many thanks indeed! This a really great addition to the blog. Great job Evan on putting it all together.

    ak,

    You do mean THIS Guardian Newspaper?;

    “The Guardian, Britain’s leading left-wing newspaper, has—naturally!—a policy of “diversity” in hiring newsroom staff”

    http://findarticles.com/p/articles/mi_m1282/is_14_57/ai_n15631102/

    My views on China are on the previous thread. China is a good customer of Australia, but their current “system” is immature , oppressive and phony. It also has not withstood the test of time. We need not waste out time modelling it.

    Also on prior thread- “Your (ak) admiration for the benefits bestowed by China’s system is very well articulated. Thanks.”

  6. Effit says:

    Thanks Steve

    Lots of reading to catch up with! I’ve spent the morning following up a lot of the links, and have downloaded the book from the ‘Deep Capture’ site for some ‘light’ bedtime reading soon…

    tommyt

    Yes – it all seems a bit depressing. But did you watch the video from the ‘Deep Capture’ site that Steve recommended above. At the end the commentator says that ‘Michael Moore is doing a movie exposing the Wall Street biggest Financial Swindle in history’. Perhaps that will be a wake-up call for those in denial, including your friend with the ‘set in stone’ views.

    ak

    Thanks for the link to the Guardian UK site on the China series. I’m in the throes (or should be if I wasn’t reading Steve’s site) of producing an essay on China, and this site should give me lots to think about and follow up, along with all the other articles I have in order to try to arrive at some conclusions.

  7. Philip says:

    Effit,

    Speaking about financial swindles, I found this short and concise article to be quite interesting off the Lew Rockwell Austrian blog.

    “It turns out–you may have to sit down for this–that the MPs have been lying to extort even more money from the taxpayers. This has had a huge and salutary effect on the voters, while being a body blow to the MPs. How sweet it is. There is also a lesson here. When the Fed prints up $11 trillion for its friends on Wall Street and in big banking, no one can comprehend it (though the effects will impoverish us all). But when an MP is revealed to have been reimbursed $25 for dirty-movie rentals, or $25,000 for non-existent apartment rent, people explode. So, will someone please leak Bernanke’s and Geithner’s expense reports?”

    http://www.lewrockwell.com/blog/lewrw/archives/026904.html

  8. horsome says:

    Hi guys

    First of all, “pool room”, great name pinched from an awesome movie.

    Philip,

    I believe you’re on the right track when it comes down to tax. The revenue raising techniques of the country are a hot topic at election time… too much of a hot topic. The fact that a political party can use the offer tax cuts to get themselves voted in to parliament is a dangerous concept. It is a deceitful ploy to win over the public to deter attention away from their spending policies. The policies that essentially determine how our society runs.

    I don’t think that the general public, let alone politicians, are qualified to decide on how much we should be taxed, just like how the public are not qualified to determine what the target cash rate should be. However, of course the public are more than entitled to vote on how revenue is spent.

    I believe the root of the GFC problem is in politics. I think that taxes need to be raised immediately. I’m pretty certain the treasury believes that too. But how can taxes be raised when if it is too much of risk getting booted out of parliament.

    I would also be interested to see who would get voted in if all election issues were public spending based not tax based. I’m pretty sure Iraq would be able to live in peace.

  9. Philip says:

    horsome,

    The way it should work is that the public democratically decides what they want and then it should be the jobs of economists to figure out the most effective and efficient method of taxation. Unfortunately, what people want and what the corporate class want are generally separate.

    We see this most glaringly in US, where the public will doesn’t translate into public policy because the state and corporate elites are opposed to the public will. On many of the budget items, where there is an increase, the public wants a decrease, and where there is a decrease, the public wants an increase. Economic education matters little when state and corporate power usurp policy.

    The Program on International Policy Attitudes (PIPA) http://www.pipa.org/ is one of the leading polling and survey institutions in the US, though I am not sure that Australia has an equivalent. These programs keep an accurate and in-depth pulse on public matters.

    The root of the GFC is actually economic, as Steve’s analysis has shown, though, of course, economics is always intertwined with politics. If it wasn’t for the failure of markets in creating an immense private debt bubble, then the government wouldn’t have to intervene in the first place with public debt spending.

    As for Iraq, that was going to take place even if the public were 100% opposed. State power was not going to budge on this issue, and corporations (defense, construction, security, etc) were no doubt pushing for it as well. Perhaps I’ve mistaken what you meant by “election issues were public spending based not tax based.”

    There is of course corruption in the political sphere of society (the shadow) but even more in the private sphere (the substance). Democratize the substance, and the shadow will become a whole lot more responsive to the public will and less corrupt.

    Rudd will most likely call for an early election. The earlier the better for Labor as our economy is only going to get worse. Rudd still remains popular, though this could be due to the Liberals not being the cohesive/strong party they were under Howard/Costello.

  10. Effit says:

    Thanks Philip for the link.

    What concerns me is that despite our criticism of the ‘media’ at times, if newspapers are about to disappear as I keep reading, what will happen to ‘investigative journalism’.

    Call me old-fashioned but I still prefer to hold a real newspaper in my hands and read it from cover to cover.

    I can ‘flit’ through on-line newspapers and news reports, but it’s not the same as turning the pages and having some item catch your eye.

  11. ak says:

    Effit,

    We are the media.

    My only concern is whether anybody except for Chinese Embassy officials reads Steve’s posts.

    I hope that at least a few big fellows from ALP do that as well. And they are not blindfolded completely by the conventional economics so they can apply the method of reasoning proposed by Steve to craft the political vision for our country.

    Otherwise the unfettered free market will do its job and we will pay the full price for the neoliberal product we bought with all the interests compounded.

  12. tommyt says:

    Hi ‘Effit’This is our ‘real’ problem, that with ‘media monopoly’ has come NO INVESTIGATIVE JOURNALISM! All gone!(it is left to enterprising intelligent people like Dr Keen and others here) None at all, it is now all ‘pop culture’ keeping everyone’s mind tied up with entertainment (marketing and consumerism)This is the ‘media’s’raison d’etre’ now! Politics (unlike this blog) is no longer about ‘ideas’which is slowly but surely disappearing from our culture! just try and do your own ‘polling’ around your own friends and acquaintances, see what you get it, will be made up of ‘selfish consumerism i.e. “my house”;”my car”; “my dream holiday” etc etc!No sense of ‘community nor country! This trend will result in the end of ‘democracy’ as we have known it as well as the ‘media’ is now treating ‘pollies’ as a commodity to be ‘sold’as best suits the ‘free marketeers’ and multi-‘corporates’ own business needs and wants!! What is needed is this ‘blog’ to appear in ‘the tele’ for a change to occur over many years! and the likelihood of that is the same as me getting a seat at nasa’s next MARS probe!!

  13. Effit says:

    Hi ak and tommyt

    I know we all get quite disillusioned towards the media at times, but don’t forget that Steve says he is less cynical because of his previous work history with quite a lot of experience in ‘media’. And as he says, ‘I also have the “Mainstream Media” to thank for the fact that my iconoclastic views on the GFC have achieved such widespread coverage.’

    I like his analogy to journalists being like people on a production line – involving ‘reporting opinions on finance and economics uttered by representatives of other companies, and also individuals who have become “newsmakers” in their own right.’ As he says many journalists are generalists and just reporting a story, and may not agree with what the editor wants them to write, but like an assembly line worker they can’t stop the relentless production line.

    Steve, I hope I haven’t mangled what you meant – this is what I understand you’re getting at!

    As for trying to convince your friends, I and others on this site have said before that there are a lot of people who like to live with their heads in the sand, and isn’t there some old saying that it takes a long time to turn a big ship around? Just reading what I’ve typed I’ve realised that I now have friends say things like ‘I saw that Steve Keen you’ve been talking about on TV the other day’ etc… So I think word is getting around!

    I’m hoping that when ‘The Pool Room’ is up and running we’ll be able to find a good balance of the Gems and Brickbats, with hopefully more Gems as more people in the media ‘get it’.

    And tommyt you might yet get your seat on NASA’s next Mars probe!

  14. webstem2 says:

    The assertion that companies raising capital makes “easy money” just makes me laugh!

    Stephen Mayne – tell us about your losses!

    http://business.smh.com.au/business/how-to-make-75000-in-three-months-20090519-bdfd.html

  15. MACCA says:

    Despite global rising unemployment, the collapse in global trade, falling asset values, the destruction of credit and creditworthiness of consumers – all of which are highly deflationary- bond market yields are rising substantially. Why?

    Could it be that recent open discussion of sovereign downgrades and the great tide of incoming Govt debt issuances is leading the bond markets to believe that monetization is increasingly the only ultimate option left? (unless of course profligate Govts can reign in their absurd levels of spending).

    Massive deficit spending supported by monetization is a road to nowhere. In this environment bond markets set the terms, not economic theorizing. Perhaps a standard Maths lesson on the powers of compounded interest is in order for those who believe in the healing powers of QE. I could not have picked a better title for this article;

    “The price of panic”
    “Simon Johnson, described this as the “third stage” of the credit crisis: the first was last year’s financial implosion, the second was the economic crunch that followed and the third is a government debt crisis.”

    “The Australian Office of Financial Management is now selling $1.5 billion a week in bonds to finance the Rudd government’s massive blow-out in the deficit and the yields are steadily rising – so far so good. The yield spread between the US and Australia is holding.”

    “But by raising yields during a massive contraction in global GDP, the bond market is telling us there is trouble ahead – that the extra government debt may not all be able to be financed.”
    http://www.businessspectator.com.au/bs.nsf/Article/The-price-of-panic-pd20090525-SCSSG?OpenDocument&src=sph

    And if Australia hopes to avoid a disaster funding it’s 30% of GDP in debt, locked in with the Govt’s latest Budget, we had better hope that commodities return to boom prices- or else;

    “We’re sunk if commodity prices fall”
    http://www.theaustralian.news.com.au/story/0,25197,25531187-5015025,00.html

  16. ak says:

    MACCA,

    I agree with your observations. However I think that only foreign-denominated debt is what really matters:

    http://www.aph.gov.au/library/pubs/rp/2008-09/09rp30.htm

    If we look at table 5 I think we should only be seriously concerned about the currencies which can potentially rise. USD and GBP are potentially much weaker than AUD. We cannot print USD but this will be done for us for free. We will still have repay this debt but this should be doable once our trade balance is fixed. You know (and hate the idea) that we can and probably will have to print AUD to repay the debt in AUD. This may happen after the imminent collapse of USD – tomorrow or in 5 yeras time. Somebody has to be the first.

    Our situation is pretty much similar to Argentina in 1999. They got away easily form a much deeper trouble. The currency had to be devalued and it was it.

    Oh by the way they got rid of neoliberals in power and IMF. And clamped down on real pests – multinational corporations.

    If you are concerned about the long-term fate of your investment – there are multiple ways you can hedge. Since you are aware of the problem now and well educated I am sure you have already undertaken correct hedging steps. I sincerely hope that you as MACCA will personally not lose much.

    Why should we be so concerned about a certain group of mum-and-dad investors who will lose for sure if the likely scenario you are talking about unfolds? The same group of people benefited from the current bubble for example by buying real estate or participating in super funds – was it fair? “Easy come easy go”. Believe me or not but for some other groups of society like Generation X , workers or fresh migrants it is not so “easy come”.

    What worries me is not the wealth destruction but the destruction of real productive economy. It started with the bubble and globalisation but depression can make it even more severe. This is what I really mean by destruction of our future.

    If this destruction continues then we may be trapped with the foreign debt for decades.

    The only way to restore the trade and capital flow balance is by getting rid of false wealth created by borrowing and leveraging – you would prefer by stopping spending now and deflation but I would still consider inflation because there is an additional price tag associated with the deflation.

    Anyway what has to happen will happen regardless whether we like it or not.

    Disclaimer: my very limited personal wealth will not be affected much whether this is a deflation of inflation. I don’t have much to lose. So my opinions are not affected by my position.

  17. hbl says:

    Is the new gfcwrap email address now the preferred method for sharing off topic links, versus in blog comments?

    In case you didn’t catch Paul Krugman’s follow up Minsky post, here, he goes so far as to say “…I really am gravitating toward a Keynes-Fisher-Minsky view of macro…”

  18. Bullturnedbear says:

    Hi guys,

    A new discussion point. That’s fun!

    Went to the Hunter Valley for a weekend away and a wedding. Beautiful place with lots of productive farming land. Interesting to see how much the wineries must have borrowed in the last 10 years. The amount of money spent on gigantic, showy buildings and fresh plantings is phenomenal. Would love to see some numbers on gearing levels in the wine industry. My guess is that debt levels are through the roof.

    In terms of the MSM. I like that term, because it implies that the views are mainstream. I am very interested in what the “herd” thinks and I see that regularly reflected in the media. I am not shocked by the MSM reporting. Nor do I believe that the MSM leads debate. Mostly the MSM follows the herd.

    I agree there is vested interest in the MSM. So what? you’ll never remove that. I just live with it. The knowledge that vested interest exists also helps me to be more careful about who I believe and for what reasons I need to be sceptical.

    Steve Keen has vested interest. We all do. We have to earn a buck to feed our families. That also is a given. Steve should be able to earn a buck from the media. He has spent a lot of time developing a theory that has value. Also Steve is good at articulating that theory. People now want to hear Steve’s theories and they should pay to get it. I hope Steve is being paid for his time. The public will benefit and so will Steve. Being in business is not evil! We all just need to be careful who to believe.

  19. Steve Keen says:

    Yes; pass them on here as well by all means, but to help Evan out, also copy them to the gfcwrap email address too.

  20. MACCA says:

    Ak,

    Suffice to say I cannot agree with what you advocate;
    – confiscation of private wealth is acceptable
    – structural devaluation of the AUD is preferred
    – massive deficit spending and QE to fund short term political opportunity is good financial planning.
    – it is healthy and morally acceptable for citizens to choose to be a burden on taxpayers via Govt handouts and largesse

    All are repugnant options IMO. And thankfully enough other Aussies who care about our future think so as well.

    Yes, I can hedge and do, but unfortunately many Australians don’t have that expertise available to them.

    Your disclaimer (which I had already surmised) misses the real point. Inflation/deflation has nothing to do with impacting your “limited wealth” obviously. It is your proposals on taxation and Governance on the other hand that seek to materially improve that position primarily through confiscation of citizens’ wealth. I know it’s an old fashioned notion , but I still believe it is right and only fair that one has to first earn your income and then save/sacrifice over time in order to grow wealth. Rather than gain it “now” by confiscation through inter-generational theft and sticking a tin cup out to the Govt.

    My disclaimer- No uni degree (as I’m sure is evident) , a trade began mid teens , Management experience- well traveled- worked full time for almost 4 decades- saved for retirement.

  21. ak says:

    MACCA,

    I highly regard your sincere responses. You are not trying to trick anyone into believing in any rubbish. That’s why I want to convince you that there is no easy way out and any method should be considered even if it smells unpalatable.

    I just have a simple question – do you think that we can grow productive economy in this country with the current current wages/salaries and current exchage rates with currences like RMB (or even Polish Zloty PLN or Czech Koruna CZK) and without imposing tariffs?

    I have not invented the problem which is the GFC and globalisation.

    Do you agree that either we will have a purely colonial economy (mining and agriculture) or we have to adjust our trade balance?

    Do you believe in post-industrial service-based economy – banking, investment, reas estate? I don’t. I believe we must have a diversified economy not making everything (since we can trade) but manufacturing at least some hi-tech goods.

    How can we adjust our trade balance if wages here are 2-3 times higher than in Poland where making cars actually makes sense? (and they are made there).

    Do you think that we are 2-3 times more efficient here?

    So what is better? To forget about manufacturing / making anything in Australia forever (including IT, energy-efficient cars and high-tech) or just become sober again, stop misleading ourselves that we can live forever on borrowed money/time and looting our natural resources? Even if we don’t like idea this is in my opinion the reality. We may hate it but the reality will come and bite us.

    So what is your proposal? Lower the wages or let the exchange rate fall?

    Or am I wrong and there is another possibility.

    I would really, really like to be wrong. I will lose as well on the adjustment. I haven’t invented this GFC.

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