The Pool Room, Week Ending May 22nd 2009

flattr this!

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.

Bookmark the permalink.

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. 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:

    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.

Leave a Reply