Tag Archives: GFC

BoE Says G20 Nations To Enact Bank Deposits Theft Within 12 Months

1 Nov
"The UK at the heart of a renewed globalisation" - Bank of England, 24 October 2013, speech by Governor Mark Carney

“The UK at the heart of a renewed globalisation” – Bank of England, 24 October 2013, speech by Governor Mark Carney

In a speech given in London on 24th October, former Goldman Sachs alumnus, now Governor of the Bank of England and chairman of the internationalist Financial Stability Board, Mark Carney, announced the target date for completion of the new global bank “bail-in” regime (‘The UK at the heart of a renewed globalisation,’ page 5, pdf here):

Systemic resilience depends on being able to resolve failing banks in a way that does not threaten the entire system…

To avoid these risks, we need to make the resolution of global banks a real option…

At the St Petersburg summit in September, G20 leaders mandated the FSB to develop these proposals. The Bank of England is now working intensively with other authorities and the financial industry. Our aim is to complete the job by the next G20 Summit in Brisbane.

The G20 summit in Brisbane is on 15-16 November, 2014.

The terms “resolution”, “resolve”, and “resolving” will be quite familiar to regular readers.

Here at barnabyisright.com, for many months now we have (exclusively?) analysed, and publicised, the secretive international banker plan to “resolve” (ie, “bail-in”, a la Cyprus) insolvent banks across the globe — including Australia. Unsurprisingly, no one in the mainstream media has yet touched the subject.

For those interested to learn more:

G20 Governments ALL Agreed To Cyprus-Style Theft Of Bank Deposits … In 2010

Australia Plans Cyprus-Style “Bail-In” Of Banks In 2013-14 Budget

Australian Banks “Welcome” Cyprus-Style Bail-In Plan

IMF Tells Australian Lawmakers To “Prevent Premature Disclosure Of Sensitive Information” On Bank Bail-Ins

Australian Banks Demand Protection From Derivatives Losses Under Bail-In Plan

Crisis Management: APRA To Be Given Power To “Direct” Your Super

New Zealand Banks “Pre-positioning For Cyprus-Style Bail-In

Canada Plans Cyprus-Style “Bail-In” Using Depositors Money

Timeline For “Bail-In” Of G20 Banking System

IMF Calls For 10% “Tax” On All EU Households With “Positive Wealth”

UPDATE:

My fail. Comprehension fail. I read it wrong.

It appears that the “job” freshly mandated by the G20, the one Carney aims to see completed by the G20 Summit in November 2014, is not the enacting of legislation enabling bank bail-ins. Rather, it is for the FSB “to assess and develop proposals by end-2014 on the adequacy of global systemically important institutions’ loss absorbing capacity when they fail”:

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Nonetheless, the FSB’s Narrative Progress Report on Financial Reforms to the St Petersburg G20 Summit makes clear (page 4-5) that “legislative reforms to implement the Key Attributes of Effective Resolution Regimes [TBI: which includes the plan for depositor bail-ins] are necessary… further actions are needed to give authorities additional resolution powers and … We therefore urge that all G20 countries change legislation as needed to meet the Key Attributes by end-2015” …

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And the St Petersburg G20 Summit Leaders Declaration (page 17) makes clear that our political leaders continue to write completely blank cheques to the private banking industry — using bank depositors’ accounts — by happily going along with every single thing they are told to do by the ex-Goldman Sachs alumni-chaired FSB:

“We renew our commitment to make any necessary reforms to implement the FSB’s Key Attributes of Effective Resolution Regimes for all parts of the financial sector that could cause systemic problems.”

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We will be watching the new laws submitted to Parliament by the Abbott government very closely in coming months. Especially given the banksters’ man, Joe Hockey, is Treasurer, and couldn’t wait to get over to Wall Street to receive his instructions immediately after the election.

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New York Times: Keen Right, Bernanke Wrong

22 Jul
Steve Keen, an Australian economist, used the ideas of another economist, Hyman Minsky, to set forth the possibility of a global debt crisis that now seems prescient. In a 2000 book, Mr. Bernanke briefly mentioned, and dismissed, Mr. Minsky. (Source: Demetrius Freeman/New York Times)

Steve Keen, an Australian economist, used the ideas of another economist, Hyman Minsky, to set forth the possibility of a global debt crisis that now seems prescient. In a 2000 book, Mr. Bernanke briefly mentioned, and dismissed, Mr. Minsky. (Source: Demetrius Freeman/New York Times)

Oh dear.

What does it tell you — particularly about the gross misallocation (and mis-remuneration) of human intellectual resources — when the New York Times declares the most powerful central banker on the planet, US Federal Reserve chairman Ben Bernanke, to be fundamentally wrong, and a humble Aussie economist, (now unemployed) Associate Professor Steve Keen, to be fundamentally right:

For a time, the period before the collapse was known as the “Great Moderation,” a term that Mr. Bernanke helped to publicize in a 2004 speech. Low levels of inflation, long periods of economic growth and low levels of employment volatility were viewed as unquestioned proof of success.

And what brought on that success? In 2004, Mr. Bernanke, then a Fed governor, conceded good luck might have helped, but his view was that “improvements in monetary policy, though certainly not the only factor, have probably been an important source of the Great Moderation.”

In 2005, three Fed economists, Karen E. Dynan, Douglas W. Elmendorf and Daniel E. Sichel, proposed an additional explanation for the Great Moderation: the success of financial innovation.

“Improved assessment and pricing of risk, expanded lending to households without strong collateral, more widespread securitization of loans, and the development of markets for riskier corporate debt have enhanced the ability of households and businesses to borrow funds,” they wrote. “Greater use of credit could foster a reduction in economic volatility by lessening the sensitivity of household and business spending to downturns in income and cash flow.”

At least Mr. Bernanke’s hubris was not as great as that of Robert E. Lucas Jr., the Nobel Prize-winning University of Chicago economist. In 2003, he began his presidential address to the American Economic Association by proclaiming that macroeconomics “has succeeded: Its central problem of depression prevention has been solved.”

In his speech last week, Mr. Bernanke cited several assessments of the Great Moderation, including the one by the Fed economists. None questioned that it was wonderful.

The Fed chairman conceded that “one cannot look back at the Great Moderation today without asking whether the sustained economic stability of the period somehow promoted the excessive risk-taking that followed. The idea that this long period of calm lulled investors, financial firms and financial regulators into paying insufficient attention to building risks must have some truth in it.”

One economist who would have expected that development was Hyman Minsky. In 1995, the year before Minsky died, Steve Keen, an Australian economist, used his ideas to set forth a possibility that now seems prescient. It was published in The Journal of Post Keynesian Economics.

He suggested that lending standards would be gradually reduced, and asset prices would rise, as confidence grew that “the future is assured, and therefore that most investments will succeed.” Eventually, the income-earning ability of an asset would seem less important than the expected capital gains. Buyers would pay high prices and finance their purchases with ever-rising amounts of debt.

When something went wrong, an immediate need for liquidity would cause financiers to try to sell assets immediately. “The asset market becomes flooded,” Mr. Keen wrote, “and the euphoria becomes a panic, the boom becomes a slump.” Minsky argued that could end without disaster, if inflation bailed everyone out. But if it happened in a period of low inflation, it could feed upon itself and lead to depression.

“The chaotic dynamics explored in this paper,” Mr. Keen concluded, “should warn us against accepting a period of relative tranquillity in a capitalist economy as anything other than a lull before the storm.”

When I talked to Mr. Keen this week, he called my attention to the fact that Mr. Bernanke, in his 2000 book “Essays on the Great Depression,” briefly mentioned, and dismissed, both Minsky and Charles Kindleberger, author of the classic “Manias, Panics and Crashes.”

They had, Mr. Bernanke wrote, “argued for the inherent instability of the financial system but in doing so have had to depart from the assumption of rational economic behavior.” In a footnote, he added, “I do not deny the possible importance of irrationality in economic life; however it seems that the best research strategy is to push the rationality postulate as far as it will go.”

It seems to me that he had both Minsky and Kindleberger wrong. Their insight was that behavior that seems perfectly rational at the time can turn out to be destructive.

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Warning Of Global Systemic Crisis 2.0 In Second Half 2013

20 Jul

warning-sign

There are many who take careful notice of the GlobalEurope Anticipation Bulletin (GEAB). I too, have often found it interesting, and insightful.

The latest GEAB is certainly worth reading, and heeding. But not for the obvious, headline reason.

It may be flagging in advance a “reform” agenda, to be triggered as a response to a new, bigger crisis. A reform that some, including myself, have long expected (excerpt-only below):

A situation which is now out of control

The illusions which have still blinded the last remaining optimists are in the process of dissipating. In previous GEAB issues we have already laid out the world economy’s grim picture. Since then the situation has got worse. The Chinese economy confirms its slowdown (1) as well as Australia (2), emerging countries’ currencies are disconnecting (3), bond interest rates are rising, UK salaries are continuing to fall (4), riots are affecting Turkey and even peaceful Sweden (5), the Eurozone is still in recession (6), the news filtering out of the United States is no longer cheerful (7)…

Nervousness is now clearly palpable on all financial markets where the question is no longer knowing when the next record will be but succeeding in getting out soon enough before the stampede. The Nikkei has fallen more than 20% in three weeks during which there have been three sessions with losses exceeding 5%. So, the contagion has now reached the “standard” indices such as the stock exchanges, interest rates, and currency exchange rates… the last bastions still controlled by the central banks and, therefore, totally distorted as our team has repeatedly explained.

In Japan this situation is the result of the over-the-top sized quantitative easing programme undertaken by the central bank. The Yen’s fall has brought about strong inflation in the price of imported goods (particularly oil). The huge swings in the Japanese stock exchange and currency is destabilising the whole of global finance. But the implementation of the Bank of Japan’s programme is so new that its effects are still much less pronounced than those of the Fed’s quantitative easing. It’s primarily the Fed which is responsible for all the current bubbles: real estate in the United States (8), stock exchange record highs, bubbles in and destabilisation of emerging countries (9), etc.

It’s also thanks to it, or rather because of it, that the virtual economy has got going again with even greater intensity and that the necessary balancing hasn’t taken place. The same methods are producing the same effects (10), an increased virtualisation of the economy is leading us to a second crisis in five years, for which the United States is once again responsible. The central banks can’t hold the global economy together indefinitely; at the moment they are losing control.

A second US crisis

If the months of April-May, with a great deal of media hype, seem to agree with the US-UK-Japanese method of monetary easing (to put it mildly) against the Euroland method of reasoned austerity, for several weeks now the champions of all-finance have had a little more difficulty in claiming victory. The IMF, terrified by the global impact of the economic slowdown in Europe, doesn’t know what else to come up with to force Europeans to continue spending and make deficits explode again: even empty boutique World must continue to give the impression that it’s still in business, and Europe isn’t playing the game.

But the toxic effects of central bank operations in Japan, the United States and the United Kingdom now demolish the argument (or rather propaganda) touting the success of the “other method”, supposed to allow recovery in Japan, the US and the United Kingdom (incidentally, the latter has never even been mentioned).

The currently developing second crisis could have been avoided if the world had taken note that the United States, structurally incapable of reforming itself, was unable to implement other methods than those which had led to the 2008 crisis. Like the irresponsible “too big to fail” banks, the “systemically” irresponsible countries should have been placed under supervision from 2009 as suggested from the GEAB n° 28 (October 2008). Unfortunately the institutions of global governance have proved to be completely ineffective and powerless in managing the crisis. Only regional good sense has been able to put it in place; the international arena producing nothing, everyone began to settle their problems in their part of the world.

The other crucial reform advocated (11) since 2009 by the LEAP/E2020 team focused on taking a completely new look at the international monetary system. In 40 years of US trade imbalances and the volatility of its currency, the dollar as the pillar of the international monetary system has been the carrier of all the United States’ colds to the rest of the world, and this destabilising pillar is now at the heart of the global problem because the United States is no longer suffering from a cold but bubonic plague.

Absent having reformed the international monetary system in 2009, a second crisis is coming. With it comes a new window of opportunity to reform the international monetary system at the G20 in September (12) and one almost hopes that the shock happens by then to force an agreement on this subject, otherwise the summit risks taking place too soon to gain everyone’s support.

——–
Notes:

(1) Source: The New York Times, 08/06/2013.

(2) Source: The Sydney Morning Herald, 05/06/2013. Read also Mish’s Global Economic, 10/06/2013.

(3) Source: CNBC, 12/06/2013.

(4) Source: The Guardian, 12/06/2013.

(5) Read Sweden’s riots, a blazing surprise, The Economist, 01/06/2013.

(6) Source: BBC News, 06/06/2013.

(7) Read Economic dominos falling one by one, MarketWatch, 12/06/2013.

(8) A bubble in current market conditions; normally this would be considered a thrill. Market Oracle, 10/06/2013.

(9) On the consequences of worldwide QE in India: Reuters, 13/06/2013.

(10) The return of financial products at the origin of the 2008 crisis is not insignificant. Source : Le Monde, 11/06/2013.

(11) Cf. GEAB n°29, November 2008.

(12) Source: Ria Novosti, 14/06/2013.

Hmmmmm.

September 2013.

That would be convenient timing.

Since we have now seen the irrefutable evidence that, as agreed at Seoul in 2010, the G20 nations — in particular, the EU, UK, USA, Canada, Australia, and New Zealand — are all now well advanced in their preparations to implement a Cyprus-style “bail-in” of banks.

See Timeline For “Bail-In” Of G20 Banking System.

I’ve said it before, and will again.

Any “new” monetary system that is suggested by the usual suspects — the internationalist IMF, World Bank, FSB, etc, which are all little more than elitist bankster covens — is NOT the new monetary system we should want.

Because it would only ever be, as now, their system. Of their design. For their benefit.

What the world needs is something very different to anything that the bankers would ever promote –

Imagine A World With No Banks

“Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”

– Napoleon, 1815

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Looking For A Root

28 May

one-root-to-rule-them-all-fa41dc-e1341482332407

“In Keynes’s view capitalism’s driving force is a vice which he called ‘love of money’ … in the General Theory ‘the propensity to hoard’ or ‘liquidity preference’ plays a vital part in the mechanics of an economy’s rundown, once something has happened to make investment less attractive. And this links up with Keynes’s sense that, at some level too deep to be captured by mathematics, ‘love of money’ as an end, not a means, is at the root of the world’s economic problem.”

– Robert Skidelsky; “John Maynard Keynes: Vol. 2, The Economist As Saviour 1920-1937″ (1994)

“There are a thousand hacking at the branches of evil to one striking at the root.”

– Henry David Thoreau

Would you be inclined to agree, that the best way to solve a problem, is to begin by looking for a root?

Economy

Definition of economy

1. the state of a country or region in terms of the production and consumption of goods and services and the supply of money

– Oxford Dictionary

Who is responsible for the “supply of money”?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

– Federal Reserve Bank of Chicago, Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion

How is “money” supplied?

The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

– Federal Reserve Bank of Chicago, Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion

Why is money supplied (by banks)?

…banks basically make money…

– Investopedia

How do banks “make money” (ie, make profits)?

…by lending money at rates higher than the cost of the money they lend. More specifically, banks collect interest on loans and interest payments from the debt securities they own, and pay interest on deposits, CDs, and short-term borrowings. The difference is known as the “spread,” or the net interest income…

– Investopedia

Er… let’s hear that again … HOW do banks “make money” (profits)?

They make money just like any other business. The difference is that their product is money. In other words banks sell money, mostly in the form of loans. Their profit is the difference between what they pay in interest on your deposits and what you pay them in interest for the loan they made you. Banks also charge fees for services.

– National Australia Bank, How Banks Work

What is “interest”?

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.

– Investopedia

Is interest on money natural?

The most hated sort (of money-making), and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural use of it. For money was intended merely for exchange, not for increase at interest. And this term interest (“tokos”, i.e., “children”), which implies the birth of money from money, is applied to the breeding of money, because the offspring resembles the parent. Wherefore of all modes of money-making, this is the most unnatural.

– Aristotle, Politics, Book One, Part X (c. 350 BC)

DIGGING DOWN

  • The global economy has a problem.
  • The supply of money is a defining component in the functioning of the economy.
  • Banks supply the money in the economy.
  • Banks supply the money by creating it ex nihilo (“out of nothing”).
  • Banks create new money when they make loans.
  • Banks make loans in order to make profits.
  • Banks make profits by charging interest on money they create.
  • Banks make profits by charging more in interest, than they pay in interest.
  • Interest is a charge for the “privilege” of borrowing money.
  • Making money out of money, by charging “interest” / usury on money … is not natural.

Would you be inclined to agree, that it is not a “privilege” but a burden, to have to borrow money at interest?

Would you be inclined to agree, that it is banks who have an incredibly privileged position and role in the functioning of the economy?

Would you be inclined to agree, that it is immoral and unjust to charge “interest” for the “privilege” of “borrowing” something that was created out of nothing — mere electronic digits, typed into a computer?

Would you be inclined to agree, that because banks are legally permitted to make profits from the production of money — “their product is money” — that bankers are likely to have a vested interest in selling as much of their product — that is, creating as much debt — as they can get away with?

Is it possible that usury — the making of gains (profit) on the lending of money; the unnatural “birth of money from money” — is the root of the problem in the global economy?

For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

– St. Paul, 1 Timothy 6:10

…no one shall deposit money with another whom he does not trust as a friend, nor shall he lend money upon interest; and the borrower should be under no obligation to repay either capital or interest.

– Plato, Laws, Book V (c. 348 BC)

And if you lend to those from whom you hope to receive back, what credit is that to you? For even sinners lend to sinners to receive as much back. But love your enemies, do good, and lend, hoping for nothing in return; and your reward will be great, and you will be sons of the Most High.

– Jesus Christ, Luke 6:34-35

See also:

Imagine A World With No Banks

A Tale Of Usury, Explosions, And A Used Car Salesman

Babylon = Usury: We Want Interest-Free Money at realcurrencies.com

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“Money Has To Serve, Not Rule!” – Pope Francis Is Right

17 May

From the Age (my emphasis added):

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Vatican City: Pope Francis has denounced the global financial system, blasting the “cult of money” that he says is tyrannising the poor and turning humans into expendable consumer goods.

In his first major speech on the subject, Francis demanded Thursday that financial and political leaders reform the global financial system to make it more ethical and concerned for the common good. He said: “Money has to serve, not to rule!”

I suggest that, if ‘Frank’ is frank about his rhetoric, that he begin by carefully, prayerfully, and conscientiously reexamining ‘his’ church’s teaching, right back through its entire history, on the key question of Usury.

He might like to purchase Michael Hoffman’s “Usury In Christendom: The Mortal Sin that Was, and Now Is Not” to save him spending an eternity in research purgatory.

When ‘Frank’ humbly recognises that he, along with all his preceding “Infallible’s” since the Renaissance, are — by practice and decree of the church in its first millennia and a half — all flagrant heretics on the question of Usury, then this blogger might begin to take his preaching seriously.

In the meantime, I will continue pontificating my own “vision” for an alternative “money” system. One that would indeed “reform the global financial system to make it more ethical and concerned for the common good” –

Imagine A World With No Banks

The People’s NWO: Every Man His Own Central Banker

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Decaying Monument To The Epic China Bust To Come

15 Dec

From Reuters:

China’s deserted fake Disneyland

Along the road to one of China’s most famous tourist landmarks – the Great Wall of China – sits what could potentially have been another such tourist destination, but now stands as an example of modern-day China and the problems facing it.

Situated on an area of around 100 acres, and 45 minutes drive from the center of Beijing, are the ruins of ‘Wonderland’. Construction stopped more than a decade ago, with developers promoting it as ‘the largest amusement park in Asia’. Funds were withdrawn due to disagreements over property prices with the local government and farmers. So what is left are the skeletal remains of a palace, a castle, and the steel beams of what could have been an indoor playground in the middle of a corn field.

All these structures of rusting steel and decaying cement, are another sad example of property development in China involving wasted money, wasted resources and the uprooting of farmers and their families. It is a reflection of the country’s property market which many analysts say the government must keep tightening steps in place. The worry is a massive increase in inflation and a speculative bubble that might burst, considering that property sales contribute to around 10 percent of China’s growth.

And here is little old Australia, staying (barely) afloat in unprecedentedly turbulent global economic seas, by wearing Floaties bought with the proceeds of flogging iron ore and coal to China.

A China whose steel mills apparently aren’t needing so much of our product anymore.

From ZeroHedge (emphasis in original, underline mine):

Forget Copper; Steel Is The True Indicator Of The Chinese Hard Landing

“The investment landscape for industrial metals is becoming increasingly more difficult to navigate. As highlighted in last month’s letter, we are continuing to see a rapid deceleration of growth in China, specifically within the cyclical industries. A recent trip to visit steel companies outside Beijing underlined the impact of extremely tight liquidity and continued restrictive policy in the Chinese housing market. Steel capacity cuts – through idling or accelerated maintenance outages – are now commonplace and the speed of these cuts has certainly surprised the market. Construction is the principal end-market blamed for this weakness…

…

Zoomlion, China’s second largest construction machinery company, recently said, “Demand for construction  machinery has shrunken drastically and growth will no doubt continue to slow next year.” Within the context of declining housing starts, plummeting transaction volumes and the beginning of a meaningful move down in housing prices, these shifts in the steel market have been an interesting harbinger of more substantial problems in the Chinese economy. Our principal concern is the extension of housing weakness into the banking system through the mechanism of both failing developers as well as the opaque and informal lending. We are concerned that the recent strength in iron ore, steel and copper has been misinterpreted by the market. In our view, any suggestion that the Chinese market is undergoing a substantial restock is misplaced.” Today, we get a confirmation of just this warning courtesy of Citigroup which has charted weekly Iron Ore China port inventories and of broad steel inventories. Needless to say, domestic steelmakers, who better than anyone know the state of domestic end product demand, have seen the writing on the wall, and have one message for the world: short Brazil and Australia.

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Pedal To The Metal – Gillard Shows Rudd How To Drive Up Debt

13 Dec

As an avid motorcyclist and former GT Falcon owner, your humble blogger can certainly vouch for the thrilling adrenalin rush one experiences from serious acceleration.

But it seems I have a thing or two to learn from our flame-haired PM about getting thrust in the back.

Former PM Kevin Rudd knows all about it, as the chart below demonstrates:

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Interesting, is it not?

The epic acceleration in government debt under Kevin Rudd abruptly halted for two months, immediately after Gillard knifed him.

She was distracted, you see. Eyes off the road.

Too busy bending over trying to quickly tune in radio 1ETS and 2MRRT before the 2010 election.

Election over, and deal done with the Greens and “Independents” to form government … then instant pedal to the metal.

Given it was then 2 years since the first GFC peak had passed us by, one can only wonder just what Julia was accelerating away from.

It is certainly clear what we are now rapidly accelerating towards.

In case you were wondering, that little flat spot about $20 billion below the $200 billion line?

Yep … it’s the period around the May 2011 budget.

Can’t be racking up the debt at a rate of $1 – $2 billion per week when the big Budget night is coming up. Especially when you are trying to distract everyone’s attention from the upcoming record deficit announcement, by lying about jobs creation.

Budget passed, provisions to steal your super enacted, debt ceiling raised by 25%, financial year ended … and it’s pedal to the metal again.

On the fast track to hit the $250 billion debt wall by mid-2012.

The chart above shows monthly CGS outstanding up to end November 2011.

So far this month, Julia has added another $4.5 billion to the total – now $223.4 billion.

With another $3 billion to be added this Thursday 15th.

$7.5 billion in a fortnight.

Forget CO2 … I reckon she’s flicked on the N2O.

Otherwise known as “laughing gas”:

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Company Bankruptcies Exceed GFC Peak

11 Nov

Yup.

It’s a perfect economic climate to introduce the bankers’ carbon derivatives scam otherwise known as a tax-on-thin-air (h/t MacroBusiness):

ASIC released September quarter bankruptcy data today and despite what Fairfax’s cheerleader in chief would have [you] think, company bust number surged past GFC levels…

And in pictures:

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When “Outspoken” Is A Perjorative For “Truth-Teller”

12 Aug

Outspoken former RBA board member Warwick McKibbon (emphasis added):

Ditch the delusion that stimulus saved us from GFC

The sell-off in global sharemarkets reflects the realisation that debt problems in advanced economies are serious, but it reflects more than this. For some time the fiscal fragility in the global economy has looked like a slow-motion train wreck …

Australia is now likely to be hit with a second global shock. This is different from the GFC in a critical respect. It is a concern over excessive government debt so the response in Australia should not entail a new fiscal package …

Bad fiscal design always has an unexpected cost. Why is a flood tax being introduced just as the economy slows? The forecast that this would help dampen the boom is now likely to be wrong. There clearly should be an urgent review of the mismatch between spending commitments in the pipeline and highly uncertain revenue. This is essential to better understand future fiscal vulnerability.

The delusion that what saved the Australian economy from the GFC was entirely fiscal policy needs to be jettisoned.

Outspoken chairman of the Future Fund – the government fund containing public servants’ super, that Barnaby has warned will be raided to pay down debt – says that the global sovereign debt crisis could take 20 years or more to “play out” (emphasis added):

The chairman of the $75 billion Future Fund has warned the debt crisis engulfing Europe and the United States could take at least 20 years to resolve, causing ongoing market volatility.

David Murray warned the post-global financial crisis environment would continue to be characterised by a series of market shocks, with investor uncertainty heightened by concerns over the ability of political systems to contain any emerging meltdown.

And he sounded the alarm on the level of government and private sector debt in Australia, saying they both needed to be reduced, given the capacity of Australia to be caught up in a new global financial rout.

“The global financial crisis was caused by excessive debt which had built up in the world at both the government level and in the private sector in developed countries,” Mr Murray told ABC radio.

“The sorting out of that problem is something that could take up to 20 years. As that post crisis environment unfolds we will see continuing events such as we’ve seen in the past couple of weeks.”

“Outspoken” is another of those words wielded as a weapon.

In modern, politically-correct Unspeak, it is the latest putdown label for “truth-teller”.

When someone speaks the truth, contrary to the “mainstream wisdom” – especially someone like Warwick McKibbin or David Murray holding a public position, who cannot be “politely” attacked more viciously – then they/their viewpoint is labelled as “outspoken”.

The unspoken implication of labelling someone as outspoken … is that we should not speak out.

That we should all be good, silent, obedient slaves.

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Barnaby: “Waiting For Swan Dude To Mutter The Word ‘Surplus'”

11 Aug

Senator Joyce writes for the Canberra Times (emphasis added):

Debt is now a long-term problem

In the mall outside the City Hall gathered the Socialist Action Alliance; speeches, placards, all fairly predictable, about 80 of them.

The zealot loud hailer core were looking a little tired, and a bit passe, but the students were revelling in experimenting with another illicit substance, communism.

Across from them was the Ban the Burka group. There were fewer of them, all in blue, special King Gee Ban the Burka shirts with a motif on them that looked like they wished to ban Pac Man.

Then there was just a cacophony of noise which, from where I was standing, while waiting for my wife and daughter to return from a shop, sounded something along the lines of “Bigot stoning Moslem ban”. The amalgam of the two mantras had led to a perfectly reasonable request.

Into the midst of this came another undergraduate dressed all in black with a cape and a black-winged motorbike helmet. “Bat Thief” was emblazoned across his chest.

He cut quite a dashing figure. Beside him stood plain clothes Boy Wonder with a placard on a stick offering “free hugs”. They were obviously a duo – it was outside City Hall after all.

Bat Thief stood beside me, observed the scene and muttered “racism”.

Which group he was referring to and exactly what he was going to do next shall remain a mystery.

Anyway it appeared to be either too much or too inconsequential for Bat Thief.

He and his coterie of skateboard super heroes exited behind the Ban Pac Man crowd.

The constabulary was also there and had managed to apprehend three felons; the charge, riding a push bike in the mall, mitigated by their combined ages being less than that of the youngest protester.

This was the day that Standard & Poor’s downgraded the US Government. The mall appeared oblivious to the fact that the world had changed. A fire that was lit by debt and had never gone out had come raging back over the horizon and could financially take all before it.

Australia has been distracted from the main issue. I have more faith in Bat Thief and the Free Hugs boy wonder than I do in Wayne and Julia to get us through this one.

If you put your face too close to the painting you can’t see the picture, and to see this picture you have to go back to 2008.

I remember reading some very prescient articles that formulated my belief that debt had gone from a transient problem to a long-term structural problem.

William White, from the Bank of International Settlements, started to raise serious concerns about interbank liquidity. Dr Paul Woolley and Eric Janszen argued that people had been borrowing money to gamble on derivatives. A very dangerous thing.

I remember when studying for my CPA, it was one of the first lessons taught, learning that Toyota once decided they could make more money trading options than selling cars and almost went broke. Unfortunately we had whole nations trying to do it.

It always amazed me that if a humble accountant from St George was reading this then why wasn’t the Treasurer? At the time he seemed too busy fighting a war on inflation, in an attempt to embarrass the previous government, rather than tackle the problems facing the world.

Now, the problem then was debt and the problem now is debt.

Southern Europe doesn’t want to pay their taxes but they want the social protections of a benevolent government. The problem for the Germans is that they are sick of bailing them out. They may no longer have a choice because the problem is becoming too big for anyone.

America’s debt is at a level that is beyond the human mind to actually fathom; it has become a form of mathematical metaphysics worthy of Donne or Dryden.

Here in Australia we are led by an apparently fiscally conservative government that has increased public debt by 150 per cent since 2007.

Only those other noted fiscal conservative governments in Iceland and Ireland have grown their debt at a faster rate.

Our Treasurer’s promise to deliver a surplus is as much of a show as Bat Thief’s cape and skateboard trick. I am waiting for Swan dude to mutter the word “surplus” and then disappear down the street with the Labor party on their skateboards.

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