The Royal Wedding Bash 2011

The Royal Wedding Through A History Prism

It's weird watching the spectacle of a Royal getting married because the main thing it brings to mind is in fact Henry VIII who married six times. Henry so wanted to marry Anne Boleyn, he split off the Church in England from Rome to 'accomplish' this deed. Perhaps the better way to do it is, to do as he pleased.

So, watching the service was rather interesting, what with all the glorious gold robes and the high vault of the cathedral and whatnot; all of it a remnant of the ties to the Catholic Church. I wondered what Pope Benedict XVI would have made of this spectacle. He probably sees it the way the Queen sees America - all that glory used to be ours. And oh, look, there's Sir Elton John - singer, raconteur, and famous gay person - with his partner. In a Church. And the Archbishop of Canterbury Rowan Williams who has no problems with Gay Bishops! This stuff is priceless and writes itself, as does history, it seems.

Royalty is a strange business with all that symbolism. Their main job is to procreate the next generation so that the symbolism can be carried on. It's a little like sport where in essence, you're rooting for the laundry. In this instance, you're rooting for lines of DNA.

I also noted that everybody knew the words to 'God Save The Queen' except Her Majesty. Then again, she wasn't about to sing "God Save Me", though she might have felt like it. God knows how she feels about the whole Diana thing now, now that the son she begot is headed for the throne and fully committed to the family business of trying to push out the next-next-next heir out of Kate Middleton's womb. Oh, joy.

The People Allegedly Not Invited

Notably absent were Fergie, Tony Blair and Gordon Brown. Victoria Beckham and hubbie David were invited. That's got to be an odd invitation list. Oh, and Elton John with partner.

The Royal Wedding Through A Diana Prism

I had no interest whatsoever in the Royal Wedding of Kate & Wills and all the hoopla until this morning when I saw an old reel of when his mother Diana  wed Prince Charles 30years ago. It struck me as tremendously sad and beautiful through the distance of 30 years gone by and how that marriage unraveled spectacularly, publicly and most importantly, in the most humiliating manner for both Diana and Charles. And knowing how Princess Diana died made the footage even more poignant. If that's not quaint enough knowing that Princess Diana dies in an accident at the midway point between the two weddings bridging two generations, then the years since have been tainted with the sadness of watching the two younger princes left behind, grow up in the public glare without their mother.

Weddings are a horrible ritual in my books. I think I mentioned this before but I find them far more uncomfortable than christenings or funerals. But for once, all the symbolism made sense if not but to bring the narrative of the Royal Family back to a positive point. At least all that bad blood that surrounded Diana and her demise can be put to rest. The future of the Throne is secure, her son will ascend to be King one day. If there isn't one day in thirty that the Royal Family could enjoy, this day should have been it.Then again, I doubt they have too many bad days.

I don't know what Princess Catherine's role is going to be in history, but one thing is for certain, her name is writ into the history books as surely as the wives of Henry VIII. People might find the Royal Family an anachronism, but one thing was certain, they still own the process of history in the making.

Did The Media Learn Anything?

That's the big question. The media practically hounded Diana to her death. Of course she was complicit with some of the media, but you couldn't blame her trying to take some control over something that was always threatening to ruin her life.

I wonder if the media is going to go hard at it with Princess Catherine as it did with Princess Diana. I guess they will. Did I hear a starting pistol go off?

The Chaser And That Censorship

I don't like censorship at all, so I'm going to agree with those who say it is medieval of Clarence House to have put the gag on the boys. But then, the Royal Family think things should work around them as when there was a Great British Empire. Clearly they do not think incorrectly. I am no less a Republican, and I am deeply resentful of the gag order. The Chaser boys should do a show in guy Fawkes masks, the next time they do a show.

Blast From The Past - 13/Apr/2011

Remembering Gagarin

Not that I was around when Yuri Gagarin made his famous flight, but his name has always been the beacon of promise. Anyway, as yesterday marked the 50th anniversary of his big moment in history - and damnit I was going to blog it except I got distracted - it seems a appropriate to pay tribute with Gustav Holst's 'The Planets'.

Holst's 'The Planets' is of course the collective cycle of music that formed the template for John Williams' soundtrack for the original 'Star Wars', which if nothing else means it has much more reach than we ordinarily give it credit. It's probably more meaningful in recent history than say the doodle of Erik Satie or something like the 'Bolero'.

Today I present to you my favourite recording of this cycle of orchestral bombast.

This one is Charles Dutoit conducting the Orchestre Symphonique de Montreal, originally released in 1987. What do I like about this recording? Let's see... It's fully digital from the recording to the mix to the mastering. And it has one of the fastest renditions of 'Mars,  the bringer of War'. The 'Jupiter, bringer of Jollity' is dynamic and rich. The whole album is clear, it's evocative and energetic and actually sounds quite a bit like its idiot bastard son, the sound track to 'Star Wars', which in its own way has an unique sonorous quality.

Because the piece is so popular, there are many performances of this thing in recording. Over the years across LPs and CDs, I have owned 4 versions of this thing by different conductors. Heck I have more of these than Goldberg variations or Bach's Orchestral Suites or sets of Beethoven's symphonies. I can only conclude by this numerical evidence that I must really like this bit of music.

What always amazes me is just how different these same pieces can sound with different conductors and orchestras and rooms. The differences can be quite surprising when listened to and given A/B testing. In many ways this album is an artefact of its time with its crystal clear, bell-like digital tones with somewhat jagged lower mids, but I do like how the dynamic range plays out in the recording as well as the gusto in the performance. It almost sounds reinvigorated as a result of the advent of 'Star Wars' movies and the renewed interest in the source material. Anyway, on the day after the day commemorating the first man into space, I thought this one might be of some interest.

Steve Keen Says...

Some Sobering Graphs

Pleiades pointed me towards this last week and this week. Having read through the 2 installments I couldn't tell you which one was more frightening. Lets try a taste from the first week first:

While wages have risen, the 2.8 times increase in loan repayments means that mortgage payments on an average first home loan have gone from taking 40 per cent of after-tax income of the average worker in the 1990s to 64 per cent now – after reaching a peak of 74 per cent in late 2008 before the RBA slashed interest rates (the ratio fell to 53 per cent, and it would have fallen further had the first home vendors boost not caused house prices to skyrocket again).

In the early 1990s, a young wage earner could aspire to financing a house purchase using his or her income alone. Now, that’s out of the question.

Faced with this level of potential debt-servicing costs, young would-be house-buyers are giving up on the dream of home ownership – and its attendant nightmare of debt peonage. Recently there have been calls for a first home buyers' strike. A 'buyers’ strike', whether organised or not, is what will end the Ponzi scheme of debt-inflated house prices, because like all Ponzi schemes it only continues to work so long as new entrants outweigh those trying to cash out.

That's it in a nutshell. There are some interesting graphs that follow but the take home point of the first article is that yes, there's a bubble going on, and it's gettng to the point where the bubble can't be supported by the willing participation of the market. Cutting to the chase, the growth in mortgage debt is at once the secret of our banking sector's success. Here's the elaboration in the second article:

Looking back over past data there are several consistent patterns that can be seen.

Firstly, house prices and bank shares are correlated. There was one aberration – the 1970s – but that was marked by peculiar dynamics arising from the historically high inflation at the time. Generally, bank shares go up when house prices rise, and fall when the fall.

Partly, this is the general correlation of asset prices with each other, but partly also it’s the causal relationship between bank lending, house prices, and bank profits: banks make money by creating debt, rising mortgage debt causes house prices to rise, and rising house prices set off the Ponzi scheme that encourages more mortgage borrowing. The bubble bursts when the entry price to the Ponzi scheme becomes prohibitive, or when early entrants try to take their profits and run.

Secondly, the fall in the bank share price is normally very steep, and it occurs shortly after house prices have passed their peaks. Holding bank shares when house prices are falling is a good way to lose money – and conversely, if you get the timing right, betting against them can be profitable. That’s why Jeremy Grantham – and many other hedge fund managers from around the world – is paying close attention to Australian house prices.

Thirdly, house prices and bank shares are driven by rising debt, and when debt starts to fall, not only do house prices and bank shares fall, the economy also normally falls into a very deep recession or depression. This is the crucial role of deleveraging in causing economic downturns, including the serious ones where debt falls not just during a short cycle prior to another upward trend, but in an extended secular decline.

There is also one cautionary note about the current bubble: though history would imply that there is a very large downside to bank shares now, it’s also obvious that bank shares fell a great deal in 2007-09, so that much of the downside may already have been factored in.

It's well worth checking into those pages to have a good look at the graphs because they're very scary. The graphs bear very close inspection. The numbers clearly tell us we're in one big mighty property bubble. The rest of what is said to describe it is window-dressing.

I'm wondering how all this leveraging into mortgages is going to get de-leveraged when we fully switch into the 2speed economy where miners will  boom and drive inflation while the rest of the economy gets taken for a ride. There's some pain up ahead if you aren't somehow hooked into the mining sector, and if your career's all about finance and banking, then you may well be in for a mighty wallop when the bubble bursts. It's going to be the Australian financial crisis. We're going to hate every bit of it, just as people  in the rest of the developed world are hating their post-GFC medicine right now.

Fail Safe Part II

Aeschylus Was His Name...

I've been arguing a lot about the inferences that can be drawn from the Fukushima plant going into meltdown and a category 6 disaster in the wake of 12m high waves as well as a magnitude 9.0 earthquake. What I find most annoying is the group of anti-nuclear types citing that given the failure of Fukushima, it conclusively proves nuclear power should never be used. I've pointed out that there is an epistemological problem with risk management in my previous post here.

The people saying that Fukushima proves nuclear power plants cannot be safe are ignoring the freakishness of events that befell the plant to send it into its current condition. And this is is what I have for you.

Aeschylus was a playwright. He famously - and apocryphally - died when he was sitting in a forest reading a book when he was hit on the head with a turtle that was dropped by an eagle.

It's exactly that sort of freakishness that led to the events at Fukushima; the off the charts unlikelihood of a series of events overcoming all the fail safes. So if we were going to argue that Fukushima does indeed *prove* nuclear power is an unacceptable risk, then we have to draw the same inference and say that the death of Aeschylus proves sitting in the forest reading a book is an unacceptable risk.

People sit in the forests all the time. They don't get killed by eagles dropping turtles. There are around 2000 reactors around the planet safely supplying power, day in, day out. If we use Fukushima as the yardstick and make all nuclear power generation unacceptable, it would be like making Aeschylus' death the reason why we can't sit and read books in a forest. It's like taking the most outlier statistical abnormality and claiming it should occupy the middle.

Again, I'm not pro-nukes. I find radio-activity and human error and fallibility to be frightening risks. But I can't stand listening to people expressing their fears of nuclear power using the Fukushima disaster as the conclusive reason why we should stop all nuclear power stations. It's the worst kind of opportunism and it is inherently unscientific.

Vandalising Government

If Society Doesn't Matter, Then It's a Great Social Plan

There's an old joke back at AFTRS that the place would have run much better without students. Or the Royal North Shore Hospital would run much better if it didn't need to deal with patients. There's a certain mindset that says government would be so much better if it simply didn't have to service its citizens. Along those lines comes this little nugget:

Mr Ryan has answered the question today by unveiling a budget plan that, at least superficially, is almost as bold and painful as the  Roadmap for America that he has flogged for years. It claims to slash the federal budget deficit from a little over 9% of GDP this year to just 1.6% by 2021. By contrast, the Congressional Budget Office reckons the deficit would fall to just 4.9% under Barack Obama’s budget. He does this without, on net, raising taxes. By closing loopholes, he would pay for a cut in the top personal and corporate rates. So how does he shrink the deficit? Through an eye-watering assault on entitlement spending, in particular health care. Mr Obama’s health care reform would be ditched, Medicaid would be converted to block grants, and traditional Medicare would be replaced with vouchers.

There are many problems with this strategy but it’s worth keeping in mind how remarkable it still is: a legislative proposal that takes dead aim at the real source of the long-term fiscal imbalance, namely, entitlements.

It's weird how health welfare and education come under 'entitlements' when Paul Ryan's plan doesn't exactly address how these things would become better by cutting these budgets. He even proposes to cut taxes for the rich, and one wonders how this is ever going to help government coffers, when there isn't a federal level sales tax in the USA. The point of cutting the top tax rate is that it theoretically frees up their spending. So without a consumption tax or sales tax or a VAT or a GST in place, there's nothing to replace the lost tax on direct taxation to indirect taxation. But of course, as George Bush the elder once said, "read my lips, no new taxes".

The same applies to cutting the top corporate rate. The cutting of direct taxation is fine provided that there is an equivalent collection of indirect taxation. Otherwise, there's no replacing the lost revenue. Granted that all government is a kind of 'robbing Peter to Paul' sort of affair, it doesn't really make any attempt to explain how these cuts will therefore translate into proper Federal revenue - but then he doesn't seem to be interested in that either because being Republican, a small government is best. In that sense, this is just another ideological whitepaper to tax less spend less screw over the poor and pretend the world's problems will go away, when the previous 8 years of the Bush administration essentially ran with that policy into a brick wall. Which is also the experience in many states in the USA where they keep cutting taxes and eventually they can't pay their employees, but then they can't raise any taxes for ideological reasons.

Doing the same thing over and over and expecting a different result is the working definition of stupidity. In this instance, the intransigence is breathtaking. This is the bright hope for the Republicans. America sounds less enticing by the day.

The World Is A Con(spiracy)

Try This On For Size

Alan Greenspan was the consummate Reaganomic Federal Reserve bank chief of our time. What if he was secretly an un-reconstructed acolyte of Ayn Rand? That's exactly what Peter Hartcher is postulating in the SMH today.

So why is Greenspan opposed, as a matter of principle, to any attempt at reform? Four possibilities come to mind. First, he is senile. But although he is 85, his statements were not the product of a wandering mind. Second, he is in the thrall of the big banks that oppose change. But while he has been taking handsome speaking fees from them in recent years, he has never been interested in money, selling his profitable Wall Street business to work at the Fed on a relative pittance.

Third, he is a blind ideologue who will not concede that any regulation could be good regulation. This is entirely possible. But he knows full well the terrible damage he inflicted on his country.

Or fourth, he is not a fool but a fox, playing a double game.

Greenspan's view is so absurd that it tempts us to wonder. In 10 days we will see the premiere of a movie of the Ayn Rand novel Atlas Shrugged. This cult 1957 novel is a warning against government intervention, a sermon on the virtues of laissez faire, and a reminder that Alan Greenspan was once a close acolyte of Rand and her Objectivist movement. Her 1966 book Capitalism: the Unknown Ideal included an essay by Greenspan on the virtue of the gold standard.

The young Greenspan advocated a return to a system where a government could only issue currency backed by a physical hard asset - gold. He wrote that "gold and economic freedom are inseparable". He derided the current system of fiat money, where a dollar is backed by nothing more than a government promise to honour its debts, as "paper reserves".

In Atlas Shrugged, the libertarian heroes smoke cigarettes branded with little gold-coloured dollar signs. It's unsubtle. The cigarette represents freedom of choice over government regulation; the dollar sign is a campaign message for economic freedom in the form of a gold standard.

It has often been observed that it was ironic that Greenspan, a leading critic of the paper money system, went on to become its chief, his signature appearing on every dollar bill.

But maybe it wasn't historical irony. What if Greenspan never did change his view, instead covertly dedicating his life to destroying the system he so despised? Could it be that he remained a secret agent of Ayn Rand all these years?

Talk about wild speculation. Long time readers would know that I've had a high opinion of Mr. Hartcher in the time I've been keeping this blog. He's always struck me as astute and level-headed to the point of boring. It's nice to see that he actually has a wildly imaginative side. This is the stuff of conspiracy theories and spy novels. We may never find out for sure, but if it's true Greenspa might have been a mole for the ideological lunar right all these years. If not true, then we have to face the other 3 possibilities - that he is senile, greedy or caught up in his old ways - none of which seem unreasonable in of themselves. That being said, it's a remarkable bit of connecting the dots. Ayn Rand to Alan Greenspan to Gold Standard vs. Fiat Money and the Fed to Cheap Credit and Low Interest Rates to Global Financial Crisis. The guy in charge was the guy trying to destroy it all. It wasn't the butler, it was the chief banker at the Federal Reserve!

It's all pretty good and makes for a gripping conspiracy theory-in-the-making. I think Mr. Hartcher missed April Fools by 4 days.

The Social Contract In Australia

Our Very Own Quango

There's some discussion about a buyer's strike being put forward by the Get Up! crowd. I tend to think if you cant afford it, then you're already at the picket line of a buyer's strike. If you can afford it, then you're a scab, but hey, you only have to look after your own interests in a market.

Anyway, in light of the campaign, some articles have popped up, but this one had this interesting passage:

Australian housing doesn't have anything to do with economics. It long since ceased being a “market” at all.

Rather, it is a political complex - a quango - that represents the single largest page in the socio-economic contract between the government, the Australian financial system and an ageing baby-boomer population.

When the baby-boomer generation first took power and reshaped Australia in the 1980s, the promise was for a new kind of meritocracy.

The old “Australian Settlement” described brilliantly by Paul Kelly in The End of Certainty - a protectionist social contract between unions, industry, government and the people – was swept aside in favour of a neoliberal vision.

That bit kicks off an interesting historical analysis of just what happened to the Australian property market, which is now experiencing historically anomalous prices. The rest of it makes for interesting reading so do stick with it. For those who think that the Property prices aren't artificially propped up by the government, the RBA and the banks, then this passage alone might help you understand that it's been propped up very nicely:

The final death knell of the new vision surely came in 2003 when the old national good luck arrived in the nick of time.

As the housing quango lay dying in 2003, along came a commodities boom the likes of which nobody had seen in century. The transformation was complete.

The entrepreneurial vision of those pioneering '80s baby-boomers replaced with happy-jack dirt salesmen and a bloated entitlement state that now had the money to keep its most hideous progeny, the great, quivering housing sack that hung from its belly, alive.

Staying alive

In 2008, when the world woke up and the mutated vision was revealed in all its horrible form, the government deployed every available mechanism to keep the thing alive.

Unheard of guarantees across the financial system, moral hazards like leaves in the wind, wholesale immigration, massive direct subsidies, huge general stimulus.

This might be forgivable if it was at least honest and openly declared. But it wasn't and isn't. Instead, those that had sat outside the system, hoping for a house or sagely planning to swoop when the bubble burst, are insulted with blandishments about how robust the system is, how they missed out on the “market”.

Even though this so-called “market” long since ceased to bear any relation to laws of supply and demand.

Rather than let it be a market, and fall, authorities insult them again and again with “affordability” programs. Just yesterday, a reader sent me a link to a Victorian government program that is running a lottery for first-home buyers to win a new home at 25 per cent off.

I don't really know if the absence of affordability immediately translates into a crisis as such. I am, however, quite suspicious of a 'market' that keeps staying aloft in light of the global financial crisis that has brought property prices crashing in other parts of the world. The absence of corrections, as engineered by the Federal Government clearly is an artificial, distorting force in the market place.

When I think about it, I don't mind property speculators speculating, even, but the fact that the government and the RBA and banks won't let property prices go down according to the market's dictates, means those speculators are all protected. People go on about the moral hazards for banks, but it seems people with mortgages in Australia are being bailed out by the very same moral hazard. That part of it does seem incredibly unfair, given that nobody bails out renters, stock speculators and people with money in dodgy Superannuation schemes who then get told they owe the tax office tons of money.

That's not the only thing going in the SMH today. Here's yet another interesting article on the same topic but on a different tangent, covering Negative Gearing.

By contrast, the Australian income tax system provides substantial incentives for people to borrow money to acquire property, shares or other assets with a value they expect will appreciate over time. Unlike most other countries, it has always been possible in Australia to deduct any excess of interest payments on loans taken out to fund an investment over the income produced by that investment to reduce the tax payable on wage or salary income.

Since the Howard government's decision in 1999 to tax capital gains at half the rate applicable to the same amount of wage and salary income, a decision that was supported by the then opposition, ''negative gearing'' has become a means not only of deferring tax, but also permanently reducing it.

In 1998-99, when capital gains were last taxed at the same rate as other types of income (less an allowance for inflation), Australia had 1.3 million tax-paying landlords who in total made a taxable profit of almost $700 million. By 2007-08, the latest year for which statistics are available, the number of tax-paying landlords had risen to 1.7 million, but they collectively lost more than $8.6 billion, largely because the amount they paid out in interest rose more than fourfold (from about $5 billion to more than $20 billion over this period), while the amount they collected in rent ''only'' slightly more than doubled (from $11 billion to $24 billion), as did other (non-interest) expenses.

If all the 1.2 million landlords who reported net losses in 2007-08 were in the 38 per cent income tax bracket, their ability to offset those losses against their other taxable income would have cost more than $4.8 billion in revenue forgone; if (say) a fifth of them had been in the top tax bracket, then the cost to revenue would have been more than $5 billion.

This is a pretty big subsidy from people who are working and saving to people who are borrowing and speculating (since those landlords who are making ''running losses'' on their property investments expect to more than make up those losses through capital gains when they eventually sell them).

That right there is the Quango the earlier article was talking about. That's our social contract in this country. If the speculators are encouraged to speculate by tax law AND they can't lose, is it really incorrect to say the system is rigged? I guess the answer is that you'd be an idiot not to jump in, and that is exactly what's been going on for years and years.

As David Llewellyn-Smith says in the first article, a buyer's strike isn't the answer. But it's going to be a hell of government that's going to find the will power to break out of the Quango.

Don't Look Away, Deflation Is Here

It's been an interesting week with Colorado going bankrupt thanks to Private Equity Fuck-ups, much like how the Borders/Angus&Robertson chain has gone into administration. Suddenly they're flogging their wares at cut prices. A&R will  close another 12 stores and 102people will lose their jobs.

In amidst of all that is this article saying heavy discounting buoys retail sales.

Retail spending increased 0.5 per cent in February, to a seasonally adjusted $20.535 billion, the Australian Bureau of Statistics (ABS) reported today.

Economists’ forecasts had centred on a 0.3 per cent rise in the month.Unlike the 0.4 per cent rise in January, sales in February were driven higher by spending on discretionary items, such as household goods, and on items excluding food, said JPMorgan economist Helen Kevans.

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‘‘That suggests consumers are showing less caution than we thought,’’ Ms Kevans said.

The rise in household goods sales suggested a strong increase in sales volumes, due to heavy discounting, she said.

‘‘In the wake of the rate hike (in November 2010), they weren’t even attracted to discounting, but now they are.’’

That's curious, but then again if Borders and Angus&Robertson and Colorado and JAG and all those stores are hurling goods out at a discount, then there's going to be a discount war; it's not surprising at a certain price point people felt like it was worth spending the money.

I hate to break this to people but this kind of price war is going to lead to the sort of deflationary spiral Japan experienced. This is exactly how it started. You read it here first.