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 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] 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,, 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 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.


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 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?

  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. THERECESSION’)!!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:

    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.


    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.


    You do mean THIS Guardian Newspaper?;

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

    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…


    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.


    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:


    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?”

  8. horsome says:

    Hi guys

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


    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:


    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) 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:


    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!

  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.”

    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”,25197,25531187–5015025,00.html

  16. ak says:


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


    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:


    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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