Quick Shots - 07/Feb/2017

More On the Liberal Party Split Thing

As it turns out, there's more about Cory Bernardi that's worth knowing. We could have guessed it, but it bears pointing out:

Bernardi first sensed a problem in 2009, when during a heated and divisive partyroom debate on whether the Coalition should support Kevin Rudd's emissions trading scheme, one of his colleagues, the now deceased West Australian MP Don Randall, rose to his feet and said: "I don't give a stuff about the national interest, I want to get re-elected and this needs to go away." 

Bernardi went back to his Senate office and wrote down the quote. He never forgot it. It was the beginning of the end.

I don't know how else to put it but that right there is the mocking gun that these Liberal Party politicians are nothing but hacks sucking on the pubic teat. As if Bronwyn Bishop and Sussan Ley weren't enough proof, here in the segment above is the distilled essence of how these bastards think. 

The late WA MP Don Randall said he doesn't give a stuff about the national interest, he just wants to get re-elected. It begs the question why the hell we need to re-elect such a person; as it turned out, he died shortly before the recent election and truth be told, judging from the quote, it was probably a good thing too, because he certainly had no intention of serving the national interest. It's easily arguable that the most he served the national interest was when he died, thus depriving himself of more opportunities to suck at the public teat. 

That Cory Bernardi thought the quip was worth writing down as quote to which he is going to make his political credo, tells us well enough that he too doesn't think much about the national interest - he too is all about getting re-elected. It's strange that he thinks he has a better chance not as the Liberal Party's No. 2 on the SouthAustralian Senate ticket but as an independent. Maybe there's more money in being a leader of a party of one. It's hard to figure how the dollars an cents work out, but it would be remiss of the media if it didn't investigate this strictly pecuniary angle. After all, the man's motto amounts to, stuff the national interest, he's only in it for himself.

If I may offer a bit of gratuitous advice to Corgi BurntNazi, it is that the ALP have found "Disunity Is Death". Leaving a major party that would put you in as a senator is likely the dumbest move he's made in politics. 

Grexit Again?

If there's one thing that really puts the fear in the markets the world all over, it's the notion that Greece will default on its debts. That being said, the narrative to date has been, the Euro Zone won't let that happen, and the Greeks have to eat a lot of humiliation not to be allowed to default or leave the Euro. This has resulted in the ECB cycling through a lot of money that pays off the debt for Greece in exchange for Greece making immense cuts to its expenditure - some of which might have been reasonable but others that have resulted in terrible cuts to services. There doesn't even seem to be any coherent link between the cuts demanded by the Euro Troika and how the money is spent seeing that most of the money goes to paying off the bonds. And as the Greek economy shrinks and shrivels, it loses any chance paying off the debt.

With that in mind, here's something from Yanis Varoufakis, the ex-finance minister of Greece.

“This two-pronged preparation is the only way to prevent another excruciating retreat by the prime minister in the short term and [German Finance Minister Wolfgang] Schaeuble’s plan in the long term,” Varoufakis wrote. 

In his article, Varoufakis suggested that Schaeuble’s strategy is to lead Greeks to the point of exhaustion so they ask to leave the euro themselves. 

Noting that the “parallel payment system was already designed in 2014”, Varoufakis stresses that Tsipras had “two delusions” that led the government to the current impasse:

• a. that on the night of the referendum, the dilemma was between Schaeuble’s Grexit Plan and the 3. bailout
• b. that the obedience to the 3.bailout could be political manageable through a parallel, society-friendly program.

Both of these “working assumptions” were based only on autosuggestion, the ex finance minister stresses adding that he tried to explained this to the Prime Minister on the night of the referendum 

“In reality there was never a basis for hope that the toxic 3 bailout would be gradually rationalized, in terms that the European Commission would support Athens so that the austerity and anti-social IMF measures would relax, the IMF would force Berlin to accept debt restructuring and lower primary surpluses, the ECB would include Greece in the bond purchase program (QE),” Varoufakis wrote 

He accused leading European negotiators of lying. 

“That Moscovici [EU Monetary Affairs Commissioner], Coerer [ECB] and Sapen [French finance minister] might have given such promises was not an excuse.
Since May 2015 we were fully aware that these gentlemen know how to lie and fail to deliver on their promises when they do not lie.”

Greece remains the thin end of the wedge. If Greece goes, then, the dominoes are in play for the rest of the PIIGS, and will lead to the destruction of the Euro. While it stays in the Euro Zone, the world can live with the fiction that everything is okay, except there is the glaring issue of Brexit, whereby cozy assumptions about the health of the Euro Zone can't be ignored. If the UK can leave, then it offers a practical blueprint for Greece to leave.

The weird thing is that the UK need not ought to have voted to leave, while Greece needs to leave if it wants any semblance of control over its finances. The horror show of bluff and intimidation made by the Troika to keep Greece in the fold and to keep taking the austerity medicine in a sense informed the UK public as to the failings of not having control. Even more ironic may be the case that the UK already had kept its pound sterling as opposed to adopting the Euro, so in a sense it was the state with the least problems of losing control to the Euro Zone. thus if the UK still seems it fit to leave the Euro Zone, then it follows that perhaps Greece needs to reconsider its desire to stay.

If all things are equal, the next time the Grexit show hits the road and world markets panic over the possibility of Greece leaving the Euro Zone, it might be better to put your money on the likelihood that it does leave, and that it's a good thing.

More Thoughts On The Brexit Vote

David Cameron Opened The Door For The Far Right

It's been a couple of days since Brexit happened and I'm still trying to digest it's meaning. Some people are blaming ignorance and fear but I don't believe that covers the surge of votes that took it to the majority. Issues like the NHS have been raised but by the same token UKIP leader Nigel Farage was quick to backpedal from his £350m pledge towards shoring up the NHS.

The Tories really can't claim the vote a victory because it cost them their leader and Prime Minister. Indeed, in the tussle between rightists, the culturally inclined rightists seem to have beat out the economically minded rightists. David Cameron should go down as the worst Prime Minister in British history since Neville Chamberlain when he came home waving a piece of paper with Adolf Hitler's name on it.

And there it is, the rather uncomfortable reminder of the time the far right got centre stage in politics. Adolf Hitler of course snuck into the Weimar Republic government by dressing up his politics as a kind of conservatism - just enough to get Hindemburg to make him a partner in government. I know some of you will jump up and down and say "Ah! Godwin's Law. You brought up Nazis so this blog entry is without merit!" - but that is the very problem: The Far Right have clenched a legitimacy they need out to have been given, and they got it through David Cameron essentially kicking an own goal.

Is Farage Hitler? No. Maybe I should say No, not yet. Yet the stench of fascism and intolerance reeks in the outcome of the referendum, so much so you have to pinch your nose and pretend it is not there just to talk about the outcome in economic terms. My own view is, if it smells like shit, it probably is shit - no need to go tasting it. David Cameron is going to go down as the Prime Minister who let the Far Right into the middle of government, out of his own sheer desperation to stay in power. It's not a good thing.

Everybody Struggles For Relevance, Some More Than Others

The British Labour Party are obviously feeling like the referendum was a loss.   The worse aspect of this might be just how irrelevant they've become in Thatcherite England. Consider for a moment just how much of a sell-out Tony Blair's government was for a leftist concern. Add in the years of Thatcher herself and John Major, as well as David Cameron's stint, and you get the picture of the UK essentially living out the Neo-liberal economic programme for over a generation - 37 years if you count back to Thatcher's first win.

It's been a long time since the Labour Party sounded like the Labour Party.  Of course it doesn't hide the fact that they are very short on experience. The left utterly failed to shore up its base because the truth is that Blair-ite Labour sold those people down the river in order to win a government resembling the Tories. There's a credibility gap in going back to the very same demographic and asking them to support even more of the globalisation and free trade that has decimated those communities.

Arguably, there's a lesson right there for the left in Australia. The Rudd-Ian move to the social right carried within it the seeds of future disconnect with the ALP base.  There's a limit to what kind of political solutions can be achieved if you meet the Tories half way. Especially if the Tories insist on going far out to the right. This problem is also present in the current US elections where the Clinotnian compromises of the 1990s are not sufficient for the Democrat base because they amounted to selling out the base. The base is angry enough it would like to vote Sanders, but is willing to withdraw its support for Clinton, even in the face of Donald Trump. It is a pattern repeating around the world, whether it be the rise of both Syriza and Golden Dawn in Greece, or Podemos in Spain.

It's unclear whether the ALP under Bill Shorten can reconnect with its base. Certainly the Rudd-Gillard ALP government made a hash of it, and justifiably earned the scorned it received. The lesson in all of this is that the left struggles for relevance the more it has sold out its base in the last 40years. The credibility gap is simply too big.

What's Wrong With The Euro Zone?

In all of this I decided I'd have a quick think for myself what bothers me about the Euro Zone as it is constructed. The obvious problem is how the GFC revealed the structural problem of how the Euro currency itself is set up, and particularly how it pertains to Greece. Greece is in dire straits because it has large debts, but also because it cannot devalue its currency to balance out its relative weakness of its economy in comparison to the economy of Germany and France.

While this problem was not a problem for the UK who insisted on keeping the pound in the 90s, the fact that the Euro Zone as a whole is pushing globalisation in a way that would beggar the poorer economies is a problem. It's interesting to see if Scotland really think their welfare state would fare any better under Germany's auspices than George Osbourne. Judging from the way Greece has been handled, the last thing you might want to have is Germans in charge of your welfare state.

In general, the Euro Zone has demonstrated that some states are more equal than others. Young Greeks would do well to abandon Greece and head for Paris, Berlin and London for opportunities. Yet this reveals a structure whereby the UK contributes to the Euro but cannot directly assist Greece, all the while having to take on board economic migrants that are created largely out of the austerity that Germany insists upon. And while Germany's insistence on Greek austerity has varying degrees of legitimacy attached to it, one would think such claims would not be accepted in many parts of England suffering under the Cameron-Osbourne austerity policies of its own.

If you add in the fact that Eastern European nations have entered the Euro  exporting massive deflationary forces with their cheap labour, and with Turkey under Erdogan wanting to join, it's very much a good question as to whether it is a club within which the UK would want to stay. If that seems 'xenophobic' to some, it ought to be asked who benefits more from 'xenophilia' and blind acceptance of this cheap labour that is destroying labour value in the UK. Why should the working class continue to cop to the waves of globalisation that seemingly does not care about regional UK? It's simply not as clear cut as saying the rejection of the European Union is ergo xenophobia.

Imagine if you will, that there was a Pacific equivalent of the EU, but without the US. It might look like Australia, NZ, Canada, with the North Eastern Asian countries Japan, Taiwan South Korea. Add in the ASEAN nations, and you would have a pretty big trade bloc. The problem is labour prices across this region would be depressed because labour is very inexpensive in ASEAN. If there is free movement of people in this bloc, it's hard not to imagine there would be a flood of people heading for Sydney, Tokyo, Taipei, Vancouver, Auckland.  And if that cheap labour was depressing the wages of people in Australia, Japan, Taiwan, Canada and New Zealand, it wouldn't be very difficult to imagine a movement built upon getting out of such an arrangement.

The fact that there isn't such a bloc tells you a lot already, but it would have to be extremely obtuse to pretend the European Union which mainly featured France, Germany, Holland Denmark Spain and Italy at its start, is a very different proposition today when it also includes much of the old Eastern bloc, Greece and soon Turkey.

The Future The Young Did Not Want

Something like 70% and more of the younger voters voted to remain. It is the kind of number that reminds us of the support for Bernie Sanders among the younger voters. And just as Sanders didn't get their candidate, the younger voters of the U.K. Got the outcome they didn't want but have to live with, for much longer than older voters.

It is a stark demographic picture where Gen-X and Gen-Y combined could not beat the Baby Boomers and older generations. It's hard to tell what the fallout from this aspect of the referendum will be. One thing I can say is that we're not shooting each other in the streets in some civil war, because that's where the Spanish ended up in the years during the Great Depression. With any luck we won't be glomming into a World War.

Whatever else that can be said about it, on a demographic level, the Brexit vote is not a step towards the future, it's a blind shuffle back towards an imagined past that is not there. It's doubtful it existed and it's doubtful it will come to be as Nigel Farage seems to think. Now that David Cameron has had to resign, there will likely be an election in the UK by the end of the year. One wonders how the next vote will work out for the Tories. I can't imagine this is going to be good.

The World Of The Elite Consensus Is Ending

It's been pointed out elsewhere that the 1% who have all the money and power see borders very differently to ordinary people. The 1% move freely across borders with their capital. Compared to that, people who hang their hats on the sad identity politic of nationalism seem very quaint. This might be because in the past the 1% had their wars where they sent the people to fight and bleed for them on the basis that borders were important. It strikes me that it is somewhat silly of the elites to then be confronted by a popular vote - a revolt even - where they vote is ostensibly in favour of borders.

The promises of Free Trade are quite enticing. The problem however is that in many parts of the developed world, it means that in exchange for cheaper products, you lose your jobs to people in poorer countries. And the Elites, the 1%, the Tories and the big end of town dress up this exchange as a matter of productivity and competitiveness, but in reality it is an exchange the Elites have made, to sell down the future of their own people back home.

If the problem of the idiotic, uneducated, atavistic identity politics of such movements headlined by Farage and Boris Johnson and Donald Trump (and we should add Pauline Hanson to this pile) seems pernicious, it may very well be because the 1% have overly downplayed the importance of borders and identity, having sold it to the very same people as something of inherent value. What the Brexit vote shows is that the people won't be railroaded forever. If the benefits of "hands-across-the-waters" friendship is that everybody's living standards go down to a lower level, a lower common denominator, then you can't fault the people who say "bugger that, I'm keeping what's mine."
It's not quite as idiotic as it looks.

More tellingly, the Brexit vote reveals the middle is broken in British politics. If enough of the people in the middle are willing to throw their lot in with the likes of Farage, if enough of the working people who would have traditionally been Labour Party supporters vote with Boris Johnson, then whatever consensus that might have been in place may as well be pronounced dead. Of course in Australia, we've seen the broken middle consensus with the election of Tony Abbott in 2013, so it's not as if we don't know what this looks like. It's going to be a Carnivale of bad political judgment until such time the public gets another vote. Fortunately for us, Australia goes to the polls next weekend. Let us hope we can restore a sense of consensus by voting out this truly moronic Coalition Government.

Quick Shots - 02/Jun/2016

What Yanis Said About Australia

Walk-Off HBP sent in this one a little while ago. Former Greek Minister For Financial Crises Yanis Varoufakis recently was in Australia and was asked a few questions about our economy. This bit sort of popped out so I'm quoting it here:

“The first thing that has to happen in this country is to recognise two truths that are escaping this electorate, and especially the elites. 

“Firstly, Australia does not have a debt problem. The idea that Australia is on the verge of becoming a new Greece would be touchingly funny if it were not so catastrophic in its ineptitude. Australia does not have a public debt problem, it has a private debt problem. 

“Truth number two: the Australian social economy is not sustainable as it is. At the moment, if you look at the current account deficit, Australia lives beyond its means – and when I say Australia, I mean upper-middle-class people. The luxurious lifestyle is not supported by the Australian economy. It’s supported by a bubble, and it is never a good idea to rely on the proposition that a bubble will always be there to support you.

“So private debt is the problem. And secondly, because of this private debt, you have a bubble, which is constantly inflated through money coming into this country for speculative purposes.” 

Varoufakis is unequivocal in his conviction that current growth – which he likens to a Ponzi scheme – needs to be replaced with growth that comes from producing goods. 

“Australia is switching away from producing stuff. Even good companies like Cochlear, who have been very innovative in the past, have been financialised. They’re moving away from doing stuff to shuffling paper around. That would be my first priority [if I were Australian treasurer]: how to go back to actually doing things.”

I jokingly asked him who this read like and he answered yours truly so... just saying, it's not like the views expressed here are off the planet. At least the former Finance Minister of Greece is espousing them as well. 

Varoufakis is pretty unequivocal about the idiocy of allowing the auto manufacturing industry to leave Australia. It's worth noting that the flip-side of Varoufakis' concern for manufacturing is that the more FIRE - finance, insurance and real estate- sectors grow in proportion to the rest of the economy, the less the economy seems to be able to grow. That is to say, the more 'financialised' an economy becomes a great part of the economy is taken up with the activity of shuffling paper wealth around. This is typically soon the USA here Manufacturing went from 30% of GDP to about 11%, and the FIRE sector went from 13% to about 24%. If the economy is producing things at around 10% and yet the paper shuffling wealth is 25%, it's not surprising you get low growth as well as lo wages growth and gross inequality.

This Damned Election In Australia

The one forgivable aspect of elections in Australia is that under the Westminster system these campaigns tend to go for weeks and not 18months like over in the USA. Even so, Malcolm Turnbull has opted to go for one of the longest campaigns leading up to the polls and well, there's still a good month to go before we show up at the voting booths.

Even so, things are running so tepid and boring, people are conjecturing whether Bill Shorten is - how do you put this? - trying as hard as he can to win this election. That maybe he's secretly going for a two-election strategy instead of trying to seize the day.

Electorally, in the wake of the Rudd-Gillard years, Shorten's approach prioritises the reconnection of the ALP with its disillusioned base over attracting the extra middle-ground voters needed to win an election. And that in turn explains why insiders in both camps report Labor is doing better in its heartland - i.e. safe seats it already holds - than it is in the marginals where swinging voters will decide the election. 

The result could be a repeat of 1998 - a sizeable swing to Labor for only a modest return of new seats. Yet for Shorten personally, that would bring an upwelling of affection from the Labor faithful, casting him as a defeated leader who had fought the good fight for "Labor" values - very useful if your challenger is the darling of the rank-and-file, the Left's Anthony Albanese.

All of this suggests Shorten may well be already thinking about his own survival as leader beyond the horizon. Don't expect him to use the term or even to accept the logic, but the inescapable conclusion is that he has a two-election strategy having concluded months ago that gaining the 19 Coalition seats needed to win on July 2 is unachievable.

In other words, he's really not putting the hard yards into winning the middle. It's a bummer because of the thought of Turnbull getting a full term and then continuing with these Abbott-esque policy positions is going to be a real drag. You kind of wish Shorten would go hard for the Lodge this time around, if only to make up for the ridiculous loss in 2013.

The more interesting news to do with the elections coming from fringier areas. Like ABC friends who want to target Coalition seats. 

View From the Couch - 17/Jul/2015

Greek Drama Day 2,190

I've been on holidays for a couple of days so I didn't catch much news. That was sort of the point of the holidays: to get away from it all, and that sort of included this business of blogging stuff.

Anyway... Greece seems to have gone into a political meltdown. First, the Syriza PM Tsipras negotiated for Greece a worse settlement that was on offer for Greece before the 'Greferendum'. somewhere around 30-40 MPs of his side refused to back the deal, but with cross-bench support, Tsipras shepherd the changes Greece had to make, through its Parliament. The only way to understand this turn of events is that Grexit - to the consternation of many - was simply too hard to do and Greece would have plunged into being like an African nation where nobody lends them money and nobody goes there because everything has been looted.

And believe me, everybody will be looting everything the moment Grexit happens and there's not enough of food or medical supplies or oil or cash. There won't be a police force because they won't be able to pay them; and schools will shutdown, infrastructure will shut down. How is the complete and utter capitulation better than that? At least the banks will open again.

You have to understand that the oligarchical rich Greeks who brought about the conditions of Greece to be in the Euro and so much in debt still have lots of money in those banks. All the MPs on the conservative side of politics have that problem - they need the banks to reopen even if only briefly so they can take whatever cash they can and get it out. I know it's a terrible thing to ascribe such a terrible motive to these lawmakers but these are extraordinary times. And let's not forget, conservative lawmakers in any land are the rich, if not the proxies for the rich. They will take any amount of financial pain to their fellow citizen as long as they can keep their rents going; something that's true even in Australia, but that's another story.

All this hollows out the 'Greferndum' as well as underscores why Yanis Varoufakis might have resigned at the point he did. It simply didn't matter what the Greek people - the demos! - wanted. There was no real negotiation, it was simply terms being dictated to Greece by the ECB, EU and to a lesser extent, the IMF. Leading the assault (so to speak) was Angela Merkel who on behalf of Germany essentially gave nothing and got everything. Unfortunately Tsipras now looks like an asshat clown instead of the modern day Themistocles; but all of this might be part of a greater strategy to better engineer a good Grexit rather than a bad one.

Angela Merkel and the northern alliance of countries, banksters and technocrats - the modern day barbaroi - have essentially cited the rule of law as the cornerstone from which they are making their demands and refusing to give any debt relief. Hidden in there somewhere is still the trillions of dollars worth of Greek Bond derivatives that would blow up on a Grexit, so getting this deal done without the haircuts is a great boon for them. It means Germany won't be plunged into the kind of chaos seen on the streets of Athens, and by extension it means the world markets won't be roiled in another GFC so soon after the last one.

Old World Problems

The European Union isn't looking too flash hot these days. Given the choice of kicking out Greece or keeping it and helping it as one of their own, they opted to keep Greece so they can keep kicking it which combines the worst aspect of both options. This does not look good to anybody. Since its inception in the early 90s, the European Union had argue its wide, pan-nationalistic cause against nationalist right wing nutjobs in each and every country. By approaching Greece the way it has for the last 5 years, they've opened up a front to the left as well as to the right, whereby Syriza and Podemos in Spain have now split off to the left of the EU andean demonstrate that the loss sovereignty in the EU project is a major problem for countries with great debt and great unemployment.

Inadvertently, the winningness of Germany on its own has redistributed its low-industrial high-unemployment problem to the PIIGS nations, where they don'thave the control to ameliorate the unemployment being exported out of Germany. All these countries in the advanced, old-world share the problem of not knowing where future growth is going to come from, and so interest rates have fallen to zero, just to keep the economy going and from asset prices from collapsing. In this light, it makes sense that banks become gamblers locked in a zero-sum game (low to no growth) and making money/saving money involves taking it from somebody else (hello Liberal Party of Australia).

The world is running out of growth because there are so few spaces in which to grow. We can chop down all the forests in Amazon and clear out the last remaining wildlife sanctuaries in Africa, but there is not enough space into which the globalised economy can grow. The emerging markets are a higher grower right now, only because they're starting from a lower base. Even their growth will run down, just as it has in China. It's what it means to have a developed economy.

In the absence of a physical frontier, there is only the cyber frontier until space opens up. This explains Google, Amazon, Apple, Microsoft and Facebook, and how Elon Musk is busily building up SpaceX. It should tell you something about where the smart money thinks things are at.

As for Europe, this dynamic is playing out in a new way. Europe will now cannibalise Greece to keep the rest afloat. But it also means the PIIGS are next in line to be cannibalised once Greece descends into the pit of depression. And if the same treatment descends upon the PIIGS, how soon will it become like 1930s Germany where Leftists and Fascists fight in the streets? Or there is a new civil war in Spain? Many of these conflicts now echo older ones, precisely because they're being fought over old settlements that are now being undone in the light of zero growth, ZIRP, and high unemployment. Economic settlements are only as good as the money spent to maintain them. When it becomes cheaper and expedient to let the people starve and fight it in the streets, we'll see some realpolitik and class warfare as a certainty.

News That's Fit To Punt - 12/Jul/2015

Are They Petty? Or Are They Just Bog Stupid?
It turns out all that weird attacking of wind farms calling them ugly, was covering fire to cut investment into wind power in this country.

Treasurer Joe Hockey and Finance Minister Mathias Cormann​ have issued the so-called green bank with a directive to change its investment mandate, prohibiting new wind funding. It's understood the directive was issued without the approval or knowledge of Environment Minister Greg Hunt, angering the minister.  

The decision is another blow for the multibillion-dollar wind industry, which has just started to recover from the uncertainty created by the government's Renewable Energy Target review. Analysts say $8.7 billion is expected to be invested in wind power in the next five years, while the corporation has invested about $300 million in wind projects to date.

And international investors are warning the government's move sends a bad message about how safe it is to do business in Australia.
The directive is just the latest salvo in the government's attacks on the wind industry.

Good grief. So much for "Open for Business". We know they're fighting a rearguard action against the eventual move from fossil fuel to renewables that must inevitably take place so it's not that difficult to see that the top level of this government is deliberately mismanaging an issue to suit their crony-capitalist friends. But then there seems to be a belief in this government that Tony Abbott's own unpopularity gives him carte-blanche to just do what his cronies want because he's never going to be popular for ever doing the right things. If the electorate is not going to reward you for doing the right things, then it seems they're willing to damn the electorate and do their corporate masters' bidding and secure themselves a lucrative after-political-life. 

Which is to say, under Tony Abbott, Australia's polity has become no better than Indonesia. At this point in time, we're Indonesia-without-the executions. This place only looks respectable to people because it's white middle-aged men in suits running these crappy policies up the flagpole. You'd think this was the 1950s - which is exactly what Tony Abbott wants. Tony Abbott only needs look to his own faith to see how far off base he is on the issue, in this day and age when the Pope issues encyclicals about protecting the environment and curbing carbon emissions, slamming corporate greed as the Devil's own Droppings. You sort of wonder how he can sustain his opposition to things like Renewable Energy and kinder treatment of asylum seekers on the basis of his religion and not listen to his Pope. Evidently, it has nothing to do with his faith, it's all to to do with uncompromising cultural prejudices.

Using Federal Money To Tar The Opposition

This lousy circus that is the Royal Commission into union corruption keeps rolling like an unwanted circus caravan, waiting to find its miserable end. Earlier in the piece it was Julia Gillard who fronted the commission to explain her time at Slater and Gordon working as an IR lawyer, wherein she might have been a little irregular with some paperwork. Now it is Bill Shorten in the dock, being asked whether he short-changed his union members to cut a deal with the business sector. It's kind of weird that the Abbott government is asking these questions, seemingly-suddenly-amazingly interested in the welfare of the rank and file union members. We'll put that bizarre irony aside for a moment and ask the simple rhetorical question, what does this look like?

It looks like one of those show trials seen in military juntas and theocratic councils when they put the opposition on trial for being the Opposition. The Kim Dynasty did this a lot (now they just shoot them). Malaysia keeps doing it to Anwar. The Gang of Four in Communist China did this sort of thing to purge the enemies of Maoism and ended up in their own show trial. It goes on in Iran to this day and heck, even South Korea does this to presidents who leave office at the end of term. What all those countries have in common is that they don't have democratically functioning states. Even the ones that purport to be democratic and have elections can't be said to be functioning properly if they're doing show trials of the opposition. 

However, "a loyal opposition" is a difficult concept for a lot of countries that simply don't understand the adversarial system of law that developed in the English speaking world. Its underpinnings are culturally alien to them and so they concoct these kinds of show trials. It's a dead giveaway that they don't get democracy. 

Imagine my grievance and dismay then to see the Opposition Leader of this land, sitting in the dock over this stupid political show trial in Australia; Australia, the once most progressive nation in the English speaking world, reduced to the spectacle of a political show trial. You'd think we were Indonesia-without-the-executions; but no, we're even worse than that because they've stopped doing these for now in a sign that they've begun to get democracy. Clearly, our own political leadership has lost the plot. The exasperation in that photo says it all. 

What Yanis Varoufakis Has To Say About The Debt Deal For Greece

Pleiades sent in this nugget. Yanis Varoufakis has a piece in the Guardian. 

In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent. 

Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability. A debt restructure would have implied losses for the bankers on their Greek debt holdings.Keen to avoid confessing to parliaments that taxpayers would have to pay again for the banks by means of unsustainable new loans, EU officials presented the Greek state’s insolvency as a problem of illiquidity, and justified the “bailout” as a case of “solidarity” with the Greeks. 

To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in “tough love”, record austerity was imposed on Greece, whose national income, in turn – from which new and old debts had to be repaid – diminished by more than a quarter. It takes the mathematical expertise of a smart eight-year-old to know that this process could not end well. 

Once the sordid operation was complete, Europe had automatically acquired another reason for refusing to discuss debt restructuring: it would now hit the pockets of European citizens! And so increasing doses of austerity were administered while the debt grew larger, forcing creditors to extend more loans in exchange for even more austerity.

And that's about as succinct as it can be put. In the 9 years since the GFC broke, I've had to think a fair bit about what the bail outs and Quantitative Easing meant. The best explanationI can give you is that it is an attempt to freeze the clock so that the participants in the world's greatest casinos have time to take their chips of the table and walk away without cashing in the losses, while the bill is sent to Joe Q Public. In the aftermath governments ran out of money do their normal government-y things, and so they committed to 'austerity' which further shrunk the economy and made things worse. Iceland, which refused to give the bankers a pass, has recovered nicely, which tells you something about all this glorious QE I II and 4Eva we've seen. 

David Cameron of course did have one standup moment where he declared he would not balance the books of the United Kingdom on the backs of the poor and needy. It's a great line, whether he actually followed through on it or not. It perfectly describes what Germany is doing- balancing its own books on the backs of the poor and needy in Greece. Whether 'Grexit' happens or not, the world's sympathies are with the Greeks on this fact alone. If Grexit should happen, the Greeks at least would have a fighting chance. As for Deutsche Bank that has trillions in derivatives tied to Greek bonds, I don't think we'll give them much sympathy when it all blows up, and Angela Merkel has to clean up that mess. 

News That's Fit To Punt - 08/Jul/2015

The Optimists' Corner

The really funny thing is that when things are going wildly in a bad direction, somebody will come up with a contrary opinion in wildly the opposite direction. It's hard to fathom it, but on a day where the Shanghai index had to suspend trade on 40% of their blue chip firms to stop people trying to squeeze out the door at the same time, Goldman Sachs said that it sees no bubble in the Chinese equity markets.

Goldman Sachs is sticking with its optimistic forecast in the face of record foreign outflows, the biggest-ever selloff by Chinese margin traders and a chorus of bubble warnings from international peers. The call hinges on the success of unprecedented government efforts to revive confidence among individual investors who watched equity values tumble by 3.2 trillion over the past three weeks. 

"It's not in a bubble yet," Lau said in an interview. "China's government has a lot of tools to support the market." 

Lau, who set his CSI 300 target on July 1, confirmed on Tuesday that the projection still stands. He's been forecasting gains in Chinese shares for much of the past year, a stance that paid off as the CSI 300 surged to a seven-year high last month.

Heck, they may be right. Maybe there will be an almighty bounce soon, what with China's government pumping in liquidity, but... there's just this chart here:

...which sort of paints a picture of how these kinds of things don't work out too well. 

Just to be sure, I sort of poked Roger in HK who - as his living - gives investment advice to the stupendously rich in Asia. To which he replied:

The Chinese can't go to the Macau casinos because of govt crackdown on corruption, so the money's gotta go somewhere. It's like one big wet market where you can get leverage financing. Buy10 bananas for the price of one now and pay later? Yeah give me a hundred!

After lunch, he sent back two phrases. The first, as the market opened was, "Meltdown". A few hours later he told me "It's a Bloodbath." I told him to tell his clients to BTFD ("Buy The Fucken Dips"). I only got a smiley-emoticon back. I'm sure Roger's laughing-out-loudly, because that's his natural nervous reaction to anything out of the ordinary.  

The other wildly optimistic article was this one that said there is no housing bubble, Australian property prices were 30% undervalued. 

What has changed since then is that real long-term interest rates have fallen substantially. That fall made housing more attractive relative to renting, despite the increase in prices." 

Dr Tulip and his co-researcher compared the cost of renting and buying identical properties, avoiding the common trap of comparing national average rents with national average prices. Because owned homes are typically "bigger and nicer" than rented homes, a lot of the apparent price difference reflects a quality difference. 

They calculated the annual cost of a bought home from the purchase price, the transaction cost, the expected mortgage rate and the running and depreciation costs offset by expected capital gains. 

The annual cost of owning a home bought in April was likely to be 2.7 per cent of its value. The annual cost of renting the same home was likely to be 3.9 per cent. 

"So you can either pay 2.7 per cent of the value of the property to buy, or you can pay 3.9 per cent of the value to rent," Dr Tulip told the conference.
"The undervaluation is 30 per cent. 

"It's unusually wide, the widest in at least 30 years. I can take you back further but the data quality deteriorates the further we go back.

Ri-i-i-ight. I can follow the maths where 3.9% is 30% over 2.7%. But this is based on TwIRP. I wonder what it would look like under ZIRP - probably even better. Mathematically speaking, the gap would open up even wider as interest rates asymptotically reached towards Zero. While mathematically being true, you sort of wonder whether the real world economics would reflect such calculations. When we get down to ZIRP, we may no longer have banks that are willing to lend to people wanting to buy multimillion dollar homes as their first homes, given that the economy is at a zero-sum game. 

Anyway, I just thought you'd be amused by those two wildly optimistic views of what we are looking at: a market crash in China and a property bubble in Australia.

The 'Greferendum', Revisited

Walk-off HBP thinks this one's a bit alarmist, but it contains some really interesting information that is a little disturbing. 

Greek premier Alexis Tsipras never expected to win Sunday's referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation - and intention - of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 "ultimatum" and suffer the opprobrium.

This ultimatum came as a shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors' cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc.

They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis. They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the International Monetary Fund validating Greece's claim that its debt is "unsustainable". The IMF concluded that the country not only needs a 30pc haircut to restore viability, but also €52bn of fresh money to claw its way out of crisis.
They rejected Greek plans to work with the OECD on market reforms, and with the International Labour Organisation on collective bargaining laws. They stuck rigidly to their script, refusing to recognise in any way that their own Dickensian prescriptions have been discredited by economists from across the world.

"They just didn't want us to sign. They had already decided to push us out," said the now-departed finance minister Yanis Varoufakis.

So Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx.

Mr Tsipras is now trapped by his success. "The referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise," said Costas Lapavitsas, a Syriza MP.

"Tsipras doesn't want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him," he said.

Holy cow. So basically, the Euro creditors do want a Grexit, and sent terms that would be rejected by Greece and stuck to their guns. Tsipras didn't want to go to a Grexit so when he called a referendum, he was hoping to 'lose' to a 'yes' vote and use that as a catalyst to take Syriza out of government and the ongoing non-negotiations. But of course, the 'No' vote won which meant that Tsipras wasn't able to get his ticket to get out of the ongoing non-negotiations and had to head back. This explains Varoufakis' exit better, and how on Monday a new Finance Minister arrived Brussels without a plan. Yep. The Greek cabinet war gamed the Grexit and didn't like what they saw, so they tried to get back to Brussels with a white flag, but of course, there can't be a plan because they didn't expect the 'No' vote to win so resoundingly. 

Knowing all this now makes me more frightened. Thanks to both Greece and China, commodities have tanked as has the AUD. We may well not notice it immediately, but our balance of payments got worse by default in Australia. All this stuffs made us collectively poorer, and it's just the beginning. Economists are now readjusting the RBA outlook, thinking there's more than likely a interest rate cut coming. If it does, well, so much for TwIRP. 

Varoufakis Resigns

Notes From The Eye Of The Storm

A bit of a curious gesture from the Greek government upon finding validation at the ballot box, is that Finance Minister Yanis Varoufakis has resigned. Heck, I may as well quote most of it here:

The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage. 

Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms. 

Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. 

I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum. 

And I shall wear the creditors’ loathing with pride.

It's pretty self-explanatory. In exchange for making some kind of deal to stick, he took himself out of the picture. It's an extraordinary turn of events, but then again, so is the whole situation where by a European nation has defaulted and its citizens have voted 'no' to more austerity.

I would hazard a guess and say that Mr. Varoufakis saw things through to their logical conclusion. It's now up to the European Central Bank to come to the table, and recognise that debt reduction is going to be there as a legitimate bargaining point. Watching things from the great distance here in Australia, it strikes one as being an important moment in the aftermath of the GFC where perhaps bankers in Europe have to face the music for their failures instead of being bailed out and collecting their bonuses while enforcing austerity on a whole nation. 

There was this interesting little panel doing the rounds today on Facebook:

Oddly enough, Deutsche Bank has already been bailed out for about the same amount of money it would take to bail out Greece. I know they're sitting on trillions of derivatives that could blow up as a result of a Grexit, but surely they don't want to blow themselves up that badly. 

Quick Shots - 05/Jul/2015

Communist Manifesto & Thomas Piketty

I've been re-reading this thing from Penguin Classics. The actual manifesto is relatively short. There are reams of writing in the introduction part of the book trying to contextualise the thinking and social forces that made the important points of the book so important to so many for decades.

Why am I reading this now? Partly because I like reading Penguin Classics, but also because I'm about to read Thomas Piketty' book' Capital in the 21st Century'. The Manifesto is a thunderously loud book as it pronounces so many things about testate of capital, the bourgeoisie and the proletariat. I'm getting the whiff of 1848. I'm also getting a mechanically-minded refresher on how Marx thought the Revolution was inevitable. When you read this as an older person, you tend not to be persuaded by the energy of the thing.

Speaking of which, I've actually got Piketty's book on Kindle - I'm trying something new. I'm trying to read big serious book electronically. My experience of trying to read books on phones has notion great. At the end of the day, no matter how big the phone screen gets, it's still not quite size of a proper book so you get tired all the squinting or flicking. I've read PT Barnum's book on the iPhone but I haven't had the patience to read Pete Townshend's autobiography - it's just too big.

So far the Kindle is proving to be a delight. It's a very different experience to reading a fat book, but that's probably the best thing about it. I'm slow on the uptake when it comes to gadget-gizmos so this might strike others as incredibly backwards but basically, I'm barely getting to understanding the upside of digital ownership of media.

Greek Referendum

It's the day of the vote as we speak. For a nation that could be the undoing of the European Union, the government has a weird sense of due diligence about it. The vote represents the government seeking a final mandate to tell the Troika to stick their non-deals where the sound doesn't shine. During the week it came out from IMF economists that indeed if Greece were ever to get out of its position of debt it would need more money for a bailout and its demands to have some debt reduced would ave to be taken aboard. One imagines the boffins in the ECB and by extension the German finance ministry thought this was a bit of friendly fire, while Tsipras and Varoufakis did a little fist pump in being validated.

That being the case, it would be a crazy Greek voter to vote 'yes'; they all ought to vote 'no' and get on with either getting a better deal out of the troika or doing the Grexit. In any case, the Germans are surprised that the home of democracy has a leftist government that actually went to its people for a mandate. They should've seen it coming, given that they gave no ground whatsoever in the five months they've been talking to this sam government.

I'm not a betting man on things like this, but my best guess is that the Greeks do vote 'no' and put the Grexit on the table for Tsipras. I imagine that around lunch time Sydney tomorrow, we'll be seeing the results.

UPDATE: And it's looking like a resounding 'No'. Markets are going to open to chaos today, they think. The view is the 'no' vote puts the entire country at risk, but then, a 'yes' vote with continued austerity was not going to make things better in Greece either. Caught between rock and a hard place, then' option allows the Greeks to have a sense control over their doom. The reports also say that the Euro negotiators have lost faith in the Greek leadership, but when you think about the logic of the bailouts, it was inevitable that Greece was going to walk away from an arrangement that does not actually help ordinary Greek citizens.

Insisting On Being Stupid

I don't know what more ca be said about all this 'Q&A' business, but Tony Abbott has ordered his front bench not to appear on the ABC's panel talk show. Yes, he ordered them, and by god they will obey their Fuhrer of Foolishness, the Sultan of Stupid, the Master Moron, the Id Yacht himself. Hooray for Australian politics.

"The Prime Minister has communicated that he does not want any frontbencher to appear on Q&A," the spokesman said.  

"Barnaby was told this tonight and apologised to Q&A that he would not be able to appear." 

Communications Minister Malcolm Turnbull - who has said he opposes a boycott of the program - is scheduled to appear on next week's episode of Q&A. The Prime Minister's stance leaves Mr Turnbull with a difficult decision: to defy his leader or to act contrary to his previously-stated position.   

Mr Abbott's parliamentary secretary Alan Tudge withdrew from last week's episode ofQ&A, saying it was inappropriate for him to appear while a government inquiry into Mr Mallah's appearance was underway. The Department of Communications inquiry has been finalised and a summary of its investigation was released on Friday. 

Fairfax Media understands the ABC will not seek to replace Mr Joyce with another government frontbencher. Host Tony Jones is expected to address the issue on air on Monday night. 

Good grief. The shame of it is more petulance rather the evasiveness and the desire to be unaccountable that is driving this boycott. But that's what you get when your politicians know no shame.

Meanwhile it appears Bill Shorten has nose-dived in his popularity in the polls. Mr. Shorten now has a negative approval rating, much like the fine PrimeMinister of the land. I don't know that Bill Shorten is doing such a bad job, given that his jobs to give the government as small a target as possible until the election is called, and then go and recite and reprise all the slip ups the government has made when the election comes. I'd imagine it was the fallout form 3 weeks of 'The Killing Season' bringing back memories of his role in the Rudd Removal and the Gillard Removal as well as how he lied to the media saying he was backing the Gillard as he quietly switched horses to Rudd in 2013. Yes, it was dastardly business for all involved, but you can't expect that one to stick.

Quick Shots - 01/Jul/2015

Greece Is Now In Default

It's weird how they've been beating about this bush but Greece is in default as of last night when they failed to pay that 1.6billion euros. They couldn't pay it because the IMF wouldn't lend them any more bail out money unless they cut pensions instead of raising taxes. The weird thing of course is that the people Greece failed to pay was the IMF. Yes, that's right, all these 5 years, the money has been cycling through Greece to keep paying its debts right back to the people bailing them out. The apparent convoluted and seemingly redundant move of money is of course because the IMF bought the Greek bonds to stop bond holders getting a haircut except those Greek bonds are tied to trillions of derivatives sitting on Deutsche Bank's ledgers and if they blow up, it really will be Europe's Lehman Bank moment.

So what happens now? There are many scenarios, but they're all made doubly complicated because Alexis Tsipras announced a referendum for his people as to whether Greece should or shouldn't accept terms from the Troika. In a nutshell, if the referendum votes No, it opens the door to the Grexit and backs Tsipras' hardball tactics with the Troika. If they vote Yes, it sort of steals the thunder from the Syriza Government. Either way it's nice to see the country that gave us words like drama and democracy is going to the mats with both.

'Prexit'

Unbeknownst to most of he world, Puerto Rico is also about to default. Once again, this one is mired in some strange complexities that make the situation worse than it appears on paper. Basically, Puerto Rico is not one of the states of the USA. It is a 'commonwealth' which allegedly means it can't declare bankruptcy like a city the USA, which means it is a little like Greece in that it can't get out of its functional union with the USA and it can't pay its debts. It's a little interesting this is coming to a head at about the same times Greece is trying to wind up its farce.

China's Share Market Crash

It was only a couple of weeks ago in the middle of June people were noticing how much the Chinese share markets had risen in such a short span of time. All kinds people were coming out of the woodwork to place bets on the markets and lo-and-behold they had share bubble going in no time flat. Now there's a big correction going on and it has sunk 20% from the peak, which is of course the definition of the start of a bear market.

I bet a lot of mum-and-dad investors in China would be spooked by that; but you had a market with terrible fundamentals drawing enormous amounts of money. Some of the companies being listed were no better than shell companies with nary a product to their name. It's the classic model of bubble behaviour when too much money is chasing not enough good stuff; that show yo get the kind of frothy market you have in China. It's like that anecdote about Joe Kennedy who sold short on equities in 1929. It is said that once he saw a shoeshine boys giving stock advice, he knew the bubble had to be over. Let me tell you they had articles about exactly that in April this year.

If you can't read tea leaves, the least you can do is read history.

News That's Fit To Punt - 22/Jun/2015

The Narrative Has Turned

The recent talk on property bubbles in our capital cities has been getting more intense. Housing affordability is becoming one of those bugbear stories in the news every week as politicians and vested interests try to talk it down. Of course when the Treasury Secretary and RBA boss say Sydney prices are crazy and there's definitely a bubble going on, it's the-Emperor-has-no-clothes moment of perspicacity for most of us. There is an elephant in the discussion room - and so now people are talking about it fairly openly.

"Contrary to the analyses of the vested interests, the data clearly establishes Australia is in the midst of the largest housing bubble on record. Policymakers are caught between a rock and a hard place, as implementing needed reforms will likely burst the bubble," Mr David and Mr Soos state in a submission on behalf of real estate and financial services research house LF Economics.

They believe the current bubble is worse than those in the 1880s, 1920s, mid-1970s and late 1980s.

"Australian economic history and recent international events illustrate collapsing housing bubbles can quickly increase the number of unsold properties [stale stock], shattering the pervasive myth of a deleterious dwelling shortage," they wrote.

"Falling housing and rental prices, including sales, would be a doomsday trifecta for investors as they suffer losses in both capital prices and net rental incomes.

"This calamitous outcome is especially likely in Melbourne where rents have not increased in real terms since 2010. Melbourne is primed to become the epicentre of a legendary housing market crash due to the combination of a staggering boom in real housing prices [178 per cent]. Perth is also in a serious predicament.

"Housing prices across all capital cities remain grossly inflated relative to rents, income, inflation and GDP. What event or set of events triggers the beginning of the end of the housing bubble is not yet known. A bloodbath in the housing market, however, appears a near certainty due to the magnitude of falls required for housing prices to again reflect economic fundamentals."

'Bloodbath' sounds a touch apocalyptic. These two gents think the officials have underestimated the coming collapse, and that there's so much speculative money in the property sector it's going to blow up with a bang. It's curious there is now such drastic talk. Back in the days shortly after the US subprime burst, there was much talk that Australia was somehow different, and that narrative has prevailed for years. The only person to point out that private sector debt was the problem indicator was Dr. Stephen Keen and he of course lost his bet. He of course lost his bet because the Rudd government guaranteed the banks and spent up big on the stimulus when it mattered; but what that did was merely kick the can down thread indefinitely. 

Since then the political landscape has changed around the bubble, and now we have an idiotic government that can't seem to distinguish between government/public sector debt and private sector debt. The Federal government under Tony Abbot is furiously (or languidly depending upon to whom you speak) trying to rein in the deficit in the hopes controlling Australia's debt levels, but of course that's not where the problem debts reside. The colossal ballooning of Australia's debt is in the private sector, and much of it is tied up in property. Yet that is all by the by.  

The way this government will go will be no different to other governments in history that faced down a bubble and lost. They won't do anything to remove the laws that are encouraging it - like negative gearing and capital gains tax breaks; and they will go lockstep with the vested interest groups who are denying it is there because it is better to keep ushering in the greater fool to keep buying their wares at inflated prices on money loaned by banks. This happens because all the vested parties want to keep their vested interests and bake it in to the pricing. And of course MPs are rarely renters or outside the  property market, so they're not exactly incentivised to do the right thing. 

I will share an anecdote from Tokyo just to give you a picture. For five years leading up to the Bubble bursting in Tokyo, housing affordability was the hot topic every day. The newspapers reported, statistical analyses were tabled, developers and real estate agents denied it, politicians acknowledged it, and yet no policies or laws were passed to ameliorate the factors causing the Bubble to inflate. Valuations went through the roof and people felt so threatened by the pace of the rise, they hocked themselves to the eyeballs to get into the market. Once it burst, everybody with an unrealistic mortgage was wiped right out - and naturally that was a significant portion of the market, who hadn't seen it coming. Prices collapsed to a fraction of peak valuations, and Tokyo housing has been at historic norms and trends for 25years since. 

Not many people want to hear about it, but there is life after the bubble bursts. It's better to admit it's a bubble and make plans rather than deny it's there and get wiped out. 

Grexit - The Revenge

Michael Pascoe thinks the potential Grexit is no big deal. He may even be right except the greatest creditor bank in all this is Deutsche Bank. And DB has 50trillion dollars worth of derivatives tied to the Greek Bonds. I don't know if people have been able to get out of those positions, but last I looked into it over at Zero Hedge, Deutsche Bank was the primary candidate to blow up when Greece defaults. So as the can keeps getting kicked down the road for Greece and its debt, it occurs to me that they - as in the IMF, ECB and EC - are going to have to invent a new narrative to keep giving the Greeks money to pay themselves back lest Deutsche Bank goes up in smoke. 

Greece and her leaders at this point probably don't care. They've put yet another final final final proposal to the Troika, but it's probably not going to go far enough in concessions. This austerity business not only doesn't work, it's creating a lot of unnecessary pain for the person on the street in Greece as well as shrinking their economy. So you sort of wonder why the Troika keep on insisting on the fiction that somehow cutting pensions and services in Greece is somehow going to grow the  Greek economy to be able to pay back the debt. At this point in time, everybody needs to come up with a better way to kick the can down the road. 

Double Disillusion And Other Follies

Could Be Good To Tip Over The Table

Some months ago when it became clear that even the Liberal Party had grown a little browned off with an Abbott Prime Ministership, I had this wicked idea that maybe Tony Abbott might forestall his own backbench rebellion and call for a Double Dissolution election, just to spite his disloyal minions and get a jump on the situation. Of course I was 1) joking 2) speculating wildly 3) guessing he was crazy enough to cut off his own balls topside his dick.

Turns out, Tony Abbott is thinking of a Double Dissolution as an option.

Tony Abbott and some of his cabinet ministers have canvassed the prospect of an early double dissolution election to be held in the next few months. 

A minister who was present at the discussion over a private dinner on Monday night said that the idea was talked about but "not under serious contemplation".

And the Prime Minister told Fairfax Media that "the government intends to serve a full term". 

But the mere fact that it was mooted has had an unsettling effect inside an anxious government. 

"The concern is that Tony might consider it to forestall any move against his leadership," said a minister. 

"Given his increasing desperation, there could be a rush to the Governor-General," with the implication that Mr Abbott would gamble government to preserve his position.
The scenario canvassed at dinner was that the government would bring down its second budget in May and then quickly call a double dissolution election, ostensibly to clear an obstructionist Senate.

... and thereby forestall another possible spill. From this we can gather that Tony Abbott is indeed 1) a joke 2) Wildly speculative and 3) crazy enough to cut off his own balls to spite his dick.

Like I say, this stuff writes itself.

Stop The Lies, Please

I've been following this GFC thing and its aftermath as closely as I can here and I have to say that Greece is the canary in the coal mine of the post-capitalist world. If Greece goes, then Portugal, Italy, Ireland Spain are not far behind and this is all because these countries rebound up in the Euro, owing too much to German and French banks. If Greece 'goes', so do the other PIIGS countries, the Euro is finished, and so are some of the biggest banks in Europe. Financial Market hell will be unleashed upon a long-suspecting (and suspect) world, resulting in "scenes from 'Rise of the Planet of the Apes' but without the apes".

So far, the world has managed stave off this spectre. The neck of the question has been what it means for Greece to 'go', in the sense that it is enough to unravel the Euro. Greece has many reasons to quit the Euro, but the best reason of them all is so that it can issue its own currency, and devalue it against the Euro so that it can get some breathing space. Without this 'Grexit', Greece has no option but to listen to what the Germans tell them and this is no longer viable because what the Germans are telling them is wrecking the Greek economy and society.

The three big points to remember about Greece is that it is a member the Euro and therefore cannot set its own currency policy; it is a member of the Euro in such a way that it has no control over the greater economic policy and conditions; and its government is in debt to the tune of 164% of its GDP.

It is then, mighty insulting when the Prime Minister of Australia says that Australia was somehow a likely candidate in becoming like Greece.

"Under the former Labor government we were heading to a Greek-style economic future," the Prime Minister told 2SM host Grant Goldman. The Greek economy has been notorious in recent years for high levels of spending and debt, culminating in the Greek government-debt crisis.

I mean, how? How on Earth is Australia going to get remotely close to where Greece now finds itself? It's like saying I am in danger of driving off The Gap in my Range Rover wearing a Chelsea FC jersey when all I own is a Mazda 2 and I commute to the South from the Inner West, and I hate Football. I mean, yeah, I might, but a lot of ducks would have to line up before that happened.

To be like Greece, Australia would have to give up its own RBA to a body like the European Central Bank (doubtful and unlikely), give up its own currency and start trading with a shared currency with much larger economic bodies (possible but not any time soon), and then proceed to rack up debt in that shared currency to 4 times the debt we currently have - and that's an overly generous estimate. If you look at the OECD chart, it thinks the Greek debt is 147% of GDP while the Australian  government debt is 11% of GDP, making the different more like 14 times than 4. Our economy - with all its faults and problems - is as close to Greece's economy as Bondi Beach is to the Acropolis.

In short, the Prime Minister is lying.
He's not cherry picking stats or fudging numbers approximating or reducing arguments to talking points, or playing semantics, no. No benefit of the doubt goes to this one, he's lying to scare the ignorant, and scare them into not voting ALP, and thereby hope to pickup some loose votes from the stupid and ignorant. It truly is pathetic.

Thus I say bring on the Double Dissolution to end the Double Disillusion of this mendacious miscreant government. We've really had enough of this stupidity. Really, we have.

UPDATE: More Folly - Pyne Wants To Fine Universities

After I put this entry out, it turns out Christopher Pyne has been working on a diabolical plan whereby universities are punished if the graduates don't pay up with their student debt.

Universities churning out graduates who do not repay their student debts would face financial penalties under a proposal by Education Minister Christopher Pyne aimed at securing Senate support for fee deregulation. 

Despite a 34-30 Senate defeat on Tuesday, Mr Pyne vowed to reintroduce legislation this year to allow universities to set their own fees.
"We will not give up on ensuring that Australia has the higher education system it needs - the best in the world," he said. "Great reform takes time." 

Universities Australia chief executive Belinda Robinson warned that without increased revenues university vice-chancellors would consider increasing class sizes, shedding staff, closing campuses and discontinuing some courses.

-----------------

Mr Pyne proposes "a mechanism to make a proportion of each higher education provider's direct grant funding contingent on its performance against a key set of indicators" - including the debt not expected to be repaid (DNER) by their graduates.
"We are confident that the higher education sector will be responsive both to transparency of data in this area but also to a relatively modest amount of their annual grant funding being at risk in relation to their DNER performance," he said.
The government aims to have proposals ready for discussion by July. They would take into account repayment differences based on gender and rural and regional factors.

Graduates do not repay their debts if they are earning under $56,000, exit the workforce or move overseas.

The value of student debts not expected to be repaid is forecast to grow to $12 billion by 2017-18 - 23 per cent of all outstanding debt.

Which is all very plant-your-face-in-your-palms crazy. Education is an investment a society makes in its own people. There's just no two ways about it. You only have to look at the terrible third world nations where governments opt not to make these investments and how the lack of education perpetuates poverty and low economic growth. It's bizarre and ideological buffoonery for this government to cary on as if the money invested into education is somehow a terrible cost and impost on government. With that kind of illogic, nobody would do anything to get educated - which is clearly not what these conservative politicians have done for themselves. So this attempt to narrow the doorway to tertiary education is doubly pernicious as it contains within it a hostile streak that can only be described as class warfare, as well as this moronic obsession to off-load government investment into education.

If money spent on education really wasn't an investment but some kind of loss-leading loan, then surely students would have the option of bankrupting themselves out of this debt - a surely as some of the wealthy do in this country. The fact that they don't allow this to happen means the government agrees that the money spent on educating and training people is an investment from which the government hopes to benefit through higher earnings leading to higher taxes upon that individual.

If there ever were self-defeating, contradictory position, it would have to be the conservative impulse to cut taxes and sell off government assets that earn revenue and complain when government is always in deficit. Ignore for the moment the perennial problem of people carrying on like the national budget is some kind of private household ledger that needs balancing, minutely on a constant time scale.

Basically, Christopher Pyne wants to encumber students with student debt in such a way as to cut government investment in education, cut government support for people getting education, and somehow magically produce growth out of a population that either has too much student-debt to do any consumption, or produce a population that is so averse to getting an education thanks to the threat of the student debt they cannot produce the economic growth the government seeks. He's socialising the debt, but he's doing the debt-loading as a pre-condition of adulthood. And he thinks this is somehow a fantastic idea.

Its so stupid. But this stupid thing is exactly what these idiots want to implement. It's not even an issue of fairness (which it also is, but I'm putting it aside for a moment), but an issue of basic logic. It's like these people can't think through the ramification of their own stupid ideas.
This is what happens when you put an ideological idiot in charge of higher education.

Behold The Emptiness Of Political Promises - I Blame The Media

My New Rhetorical Toy

This week saw me in a bit of an argument about the merits of Jean-Paul Sartre's philosophy with a Christian who just came in with "Behold the moral emptiness of French Existentialism. I blame Nietzsche". That was a red rag to a bull, but the alarmingly funny thing (as in not hah-hah) was that the Christian didn't even know how deeply fucked up and offensive his rejoinder was, and kept digging himself into the ground. He just didn't get it until I turned the rhetorical device on to him to ridicule him.

So if you're wondering why I'll be saying "behold the empty" and "I blame (x)" in the coming weeks, it is to rub more salt into the wound and have a little fun with the outright obnoxiousness and insouciant petulance in the device.

Years ago at BTF, somebody quipped that they were getting sick of movies where a bearded wizard would appear and say "Behold!" You know those movies. LoTR, Harry Potter and any number of the rip offs. After that it became a bit of a joke where people would sign in to BTF as 'the Bearded Wizard' and type "Behold!" and nothing else.

So Who Are We Beholding?

Pleiades sent in this link because he would like you all to know that if debt was a problem, Tony Abbott and his sidekick Boy Blunder and Worst Treasurer Ever Joe Hockey have racked up even more debt than at any time under the previous ALP government. It's a pretty telling article so don't miss it.

That chart above tells us where we sit in the wide world of government debt. Greece is bad, so is Portugal, and Italy. Their problem is that they can't devalue their currency to get back into the export game and start paying off debt because they're Euro nations. Japan is - to put it bluntly - trying to inflate away the problem by printing money and calling it Abenomics. There are lots of other countries sitting above 50% GDP.

This raises a couple of questions. One is, is it really all that bad to be in this kind of debt as government? Sovereign risks aside, like where Argentina is being barred form paying creditors by a New York court, Governments of countries can't do the bolt. It's not as if you turn up one day and Japan or Italy have moved elsewhere like some failed business leaving behind an empty shop. And contrary to the people who make back-of-the-envelope calculations and doom-laden pronouncements about public sector debt, nobody has ever figured out really how much is too much debt to carry into the future, given that a sovereign country can always inflate away the debt. Public debt is not like private debt in that crucial sense.

In one sense public debt is more like a mortgage.
People take out mortgages that are way above their net worths all the time. And banks figure that's okay because the people are going to keep paying money like rent. If governments make sound choices in infrastructure investment, then they can borrow money and the infrastructure would provide the lift in productivity to help pay off the investment at an accelerating rate. What low debt says about Australia is that for all the talk of being the infrastructure Prime Minister, Tony Abbot is actually unwilling to be that infrastructure Prime Minister in his deeds. Instead, he wants Australia to pay for its way through direct taxation (i.e. your PAYG), shunt out the GST receipts to the states, and see what the returns are like on mining.

Given that commodity prices falling are directly impacting mining-dependent states like Western Australia and Queensland, it's become a recipe for a recession. The Federal government is going to let the states twist in the wind while it happily cuts away at things they oughtn't. We'll leave that discussion for another day.

The second question it raises is how can they move the discussion forward into borrowing to invest when they've demonised government debt to the degree that they have? I'm not asking how they sleep at nights. I'm sure it's crooked with a side order of shitting their beds. I'm asking how on earth this eminently inept government is going to do anything that actually involves infrastructure investment that increases productivity? Remember, this is the same bunch of luddites who want to dumb-down the NBN and dismantle the Green energy sector; let the automotive industry leave and shutdown whole swathes of manufacturing in Australia; sold off agribusiness to the Chinese; allowed rampant property speculation that has resulted in killing the margins of businesses - their alleged base. Having established fine economic-vandal-credetials, how in the name of Schumpeter are they expecting to encourage economic growth without investing in the economy?

We all know how mendacious and scurrilous these people were in their election campaign when they claimed Australia was in danger of becoming Greece. When you look at that chart above, I can't stop laughing at how asinine their campaign claims were. Look at all the countries we would have to pass on the way to becoming Greece. Some of them are powerhouse economies, even with great amounts of debt. I guess it's like that Forrest Gump adage: Stupid is as stupid does. We sure elected a bunch of stupid-doers.

News That's Fit To Punt - 10/May/2012

The Greek Situation

The elections held last weekend in France and Greece tell us a lot where things are going. Where they're going is not to a better place but to more chaos and turmoil. The French have kicled Nicolas Sarkozy out of office, and installed a Socialist President who will wind back on the austerity and aim for growth. The Greeks have not only hung their parliament, they have sent in extremist parties who promise to junk the deal made by the previous government.

What nobody is saying is how magically this growth is going to manifest for France and at the same time cut back on France's deficits, let alone how the Greeks are even going to be able to form any kind of government to deal with the impending drying up of funds.

One sympathises with the ordinary Greek voter - sold down the river by their politicians years ago, they now have nobody to turn to but the extreme fringe. This is kind of how the Nazis got a foothold in the Weimar Republic back in 1933, 4 years out from the crash of 1929. Not that the Greeks are about to re-arm and invade the rest of Europe, but we can see the rise of the extreme parties in Greece as a kind of history repeating. This is how it goes.

In the short term, this is leading to talk of Greece leaving the Euro. The laughable thing is that polls in Greece reveal they don't want to leave the Euro. So if we're to get this straight, they don't want to pay back money they owe, but they want to keep all the benefits from being part of the EU. I can really see that one working....not.

The Budget & The Libs

Wayne Swan brought down a predictably beige budget, claiming a $1.5b surplus. The basic gist of this year's budget is that a lot of high income earners are going to have their perks cancelled. Tony Abbot predictably jumped up and called it 'class war', which is inflammatory rhetoric, but I don't know if Tony Abbott knows of any other kind. I don't normally talk about the budget every year, but I thought it was worth mentioning that along with Joe Hockey's notion of entitlement, it's a bit rich of Tony Abbott to call this budget 'class war'.

There's a deeper problem with the conservatives even reaching for the term - as their American brethren do - because if there really is a class war, then it means there is a class system operating in our society. Forget the myth of an egalitarian Australia, if Tony Abbott is saying there is class war being waged by the ALP, then that sure as hell means there is a class system in Australia, and that the Liberal Party approves of this class system and would like it to continue undisturbed.

So, without being as inflammatory as Tony Abbott, is this really what he wants us to understand when he uses the term 'class war'? That Tony Abbott thinks there is a class system in Australia and that it is a good thing and by logical corollary, egalitarianism is not something the Liberal Party support? I tell you, Occam's razor says the simpler explanation is no, he's just an idiot.

 

 

 

News That's Fit To Punt - 08/March/2012

Thought We Were In The Clear Did We?

One of the mysteries of the GFCs and the stupendous amount of mass debt that we as a civilization accrued, and brought down Lehman Brothers, Bears Stearns Northern Rock and all of Iceland amongst other things, is what happened to all those CFDs and CDOs. It turns out a lot of municipal councils bought them exactly because they were rubber-stamped AAA by the ratings agencies. And yes, those would be the very same ratings agencies suddenly handing out very tough marks to governments of the world here and there; but once upon a time before the GFC blew things up, they would rubber stamp AAA on to all kinds of things at the behest of the banks.
Today's lovely article then is this one here about Ku-ring-gai Council, and how it is hounding the one councilor who dared to ask what the huge hole in the accounts were and why these CDOs were blowing these holes into their accounts.

His interest in the matter of CDOs was first aroused in 2007 when he noticed a $1 million loss in Ku-ring-gai Council's investment portfolio.

“All councillors have a duty under the NSW Trustees Act 1925 to investigate finances,” he told BusinessDay. Although, he didn't actually know at the time what a CDO was, he began asking questions of the then Mayor and the council's Director Finance.

“They wouldn't admit that they had bought derivatives. But then, who would know what a derivative was?” As far as Hall and his fellow councillors knew, the councils were just supposed to buy AAA-rated investments. He has some sympathy for the original investments, just not with the way it had been handled since.

“Well-backed investments, was what we were told. CDO lines such as Oasis and Black Rock. Both of those are gone now. Maple Hill was another. That's still alive.”
Ku-ring-gai also bought the deadly Rembrandt CPDO's from the local arm of Dutch bank ABN. These were even more poisonous than a regular CDO and are subject of the above-mentioned court battle.
When Ku-ring-gai was approached to join the action, it found it owned a different issued note (no2) .

“The Rembrandt No.3 note lost 90 per cent of their value within one year,” says Hall. “With the No 3 note suffering a 96 per cent loss, ABN came back to my Council and said, we can save yours if you put in another 200 per cent of your original investment and we will capital guarantee your product with quarterly paid interest, to maturity in 2016”.

Lehman had struck similar deals, one by one with its various council clients whose investment values were plummeting. “Restructuring” it was called and it often involved buying more of the same product but with the promise of greater security. Hall said it was another form of gambling but using public money.

Tony Hall didn't see this as much of a deal. After all, ABN was later bought by Royal Bank of Scotland (RBS) which was bought by the UK government and whose ownership may soon change hands again soon. “The prospect of having such a commitment honoured seemed to be a risk”.

The article then goes on to describe the council turned on Mr. Hall even though he was trying to bring to light just how exposed the council was to the GFC. Unfortunately, there are $300million dollars of these CDOs still waiting to blow up , owned by assorted councils. When they do blow up, these councils are going to be incredibly distressed all of a sudden. Which would be a rather interesting sight to behold but only if you like watching slow motion train wrecks.

Tony Hall is proposing a debt swap with the NSW Government to get the councils out of the mess but one wonders if the current NSW Government is philosophically capable of seeing the merits of the argument when the remedy essentially amounts to what conservatives called a moral hazard back in 2008 when the GFC was kicking in.

Whatever the case, you know it's going to be the tax payers who will pay for these losses through raised rates by councils or heavier duties imposed by the state government. Of course it will have knock-on effects as asset prices will have to fall in the wake of such payments. If you thought we dodged the GFC bullet, perhaps we only kicked the can down the road. The ramification of these CDOs blowing up in the faces of our councils is going to be very expensive for our country. It goes to show the GFC really hasn't played itself out at all.

The article is worth a read, if you can stomach the scary nature of it.

In Case You Were Wondering, Greece May Yet Default Totally

The ugliness that is the Greek situation rolls on. Today is the day the debt swap deal has to take place. The problem is that the deal set in place months ago back in December may still topple over if not enough of the creditors sign up for the deal.

So this is it. After three years of high drama, the European Union is staring at its first ever sovereign default and, ironically, unlike every other deadline so far, this one looks set to be adhered to.
At 8pm GMT tonight (7am, AEDT, Friday morning), the authorities will know - or have a very good idea - how many of Greece’s international creditors have accepted its 206 billion euro ($256 billion) bond-swap offer.
The results will probably take a few days to come out - Athens has to put its decisions through Brussels’ sluggish decision making processes - but this time it isn’t up to the politicians so the possible outcomes are clearer.

So if more than 86% don't sign up for the deal, it could all fall apart. It's hard to understand what that *means* because as Bill Clinton famously observed, "that would depend on what you mean by 'mean'". If it's short of 86% who sign on for the miserable debt swap that socks 69% of value off the bonds, then there is no deal and Greece defaults 'totally'. Banks immediately go into crisis, global credit seizes up, the clock of financial sectors hits midnight and everything turns into a pumpkin. Which is fine, because you can take that pumpkin, issue a derivative against the pumpkin maturing and on-sell it in debt parcels...

Anyway, jokes aside, the Greek government is pretty adamant about the "this deal or no deal" stance. You can hardly blame them. After two years of being told what nincompoops they are for not being able to manage their finances (and, yes they are the said nincompoops), and having the deal thrust at them from the 'The Troika' of the IMF, World Bank and the ECB, and having to push through hideous austerity measures one after the other (against the will of their own people) to attempt to meet these demands, just to get a cash float, it would be hard to imagine the same crew of people would be sympathetic to stragglers who want a better deal. Everybody wants a better deal, but in these circumstances, nobody's going to get one. Would you be open to separate side deals if you had to live through the torment and insults of the Greek leaders for the lats two years?

So, there you have it. Debt swapping, even if agreed upon is this aggravating. Can Ku-ring-gai and other councils even stomach a single directive from the NSW Government if they had to undergo a debt swap deal? One wonders.

Where Did All This Water Come From?

Jeez that was a lot of water.

Sydney has suffered its heaviest rainfall in five years, bringing the city's transport system to a halt and causing hundreds of rescues and evacuations.
About 120 millimetres of rain fell on parts of the CBD this morning, with the Bureau of Meteorology's Observatory Hill weather station recording its highest daily rainfall total since 2007.
In the city's west, 146mm fell on Merrylands.

There's a La Nina going on at the moment so we're bound to get a lot of rain. but parts of NSW are seeing rain that hasn't been seen in 160 years. As anomalous weather events go, citing 160 years is pretty wild. You shouldn't really expect to see weather events that happen in that scale of time in one's lifetime. We've seen worst in 30year events followed by worst in 60 year events. now we're hitting once in 160 years. It's worth pondering if this is even statistically normal in a lifetime to witness so many events that smash record books. Either that or the weather is on steroids, competing for something.

What nobody is saying is that all this water is now in the system thanks to global caps melting. There are a bunch of idiots who still want to argue that there is no such thing as man-made climate change, but this mad rainfall event can serve as an extra data point.