Raven Runs

Ever-Grander Fears

Buy now you've heard about this Evergrande situation where this Chinese real estate developer owes USD 305 billion as it starts to default on some of its bonds.Beijing insists that even if it should default, it won't become a contain to affect global markets. A proper cynic would say, "of course they would say that."

There are two things that really worry me in this situation. One is that Evergrande is not going to be bailed out in anyway by the government because the CCP government intends to make an example out of it. It might be unwise to ignore the significance of letting Evergrande fail or implode. We only have to think back to the Bear Stearns moment during the GFC. That led to a bunch of other moments of sheer financial anguish and terror right up to and beyond the Lehman Shock. The point is, Bear Stearns didn't fail alone. When the tide went out, a lot of firms were exposed without their metaphorical pants on. The noises coming out of Beijing seem to indicate they're not thinking about this as a market problem, they're thinking about this as political problem because to the CCP all problems are political problems. 

So that leads me to think Evergrande and its pile of debt isn't out there on its own. There is a whole flotilla of these kinds of companies, each owing way too much money. The total size of this debt in the real estate  sector in China is pegged to be between USD 50-60 Trillion. The China's GDP is USD 16.6 Trillion

In other words, this thing is huge enough to swallow up China's economy. The calming words of China's central bank is no panacea to the pile of risk. With all due respect, it's a big pile. Evergrande might end up being the only company that goes under in this bubble-bursting moment. Something tells me that would be way too optimistic. Chances are better than even the whole sector in China will be on the receiving end of the stick. If there's no contagion to the globe, that's one thing - but there's no assurance there won't be a contagion of sell orders in China. This could become a massive market crash "with Chinese characteristics".  

The second thing that really has me worried is that the Renminbi is pegged to the USD. This is good for China because it will probably stop a currency crisis from blowing up during the debt crisis for which they have lit their fuse to blow up. It's certainly wonderful for them that their astronomical debt is denominated in USD and so, while it is pegged, cannot blow out against the USD. But it also means it commits the test of the world to be dragged in by the unfolding debt crisis. Instead of China's Renminbi collapsing in value, it will stay pegged to the USD - and through the pressure it puts on the USD, we will feel it everywhere on the globe. This isn't Greece with its GDP of USD 200 billion which cause so much heartburn during the last decade. This is China doing the dragging. It's going to weight everybody down. 

Happy days, no? Some think this won't be the Minsky Moment for the globe. Sure, easy to say. Yet here's another thing on top of all the above. The US markets are ready for another 'Taper Tantrum'. The FRB is trying to taper back the stimulus and rate cuts it brought in to bolster the markets during the pandemic. Just as it happened in the wake of the GFC, the markets have sent signals to the effect it does not like the taper. Combine it with the fact that we're in October, the month of crashes - c.f. 1929, 1987, 1989, 2007, and with the last week of October looming (when these crashes tend to happen), you're made to ponder if you're staring at the crest of the giant wave that's about to break. Is this the moment the global property bubble comes unstuck? And what is that going to do to the economy?

The deferred Evergrande coupon payment date from 25 September comes up Monday next week. The tea leaves say they'll probably default. The FRB will meet on 2nd November. In between those 2 dates, there's a solid week for things to go pear-shaped. Hold on to your hats. 

Come Join The Fun!

View From The Couch - 17/Sep/2015

The Crippling Global Debt

Walk-Off HBP had this little conversation he wanted to share. It's Satyajit Das talking about the problems of our global economy. The gist of it is pretty much in line with the prevailing observations about where we are in the debt cycle. There's a mention of Hyman Minsky in there as well, describing the various stage of debt financing and how the Australian housing market is definitely in the third phase out of three phases wherein it is no capable of paying off the loan principle or interest, and the only hope of making the money back is through capital gains of the underlying asset.

Satyajit Das' cheery interview leads us to understand that there is no real distinction between public and private sector debt, which in turn means our colossal private sector debt in Australia is ergo problem for the government and society at large. Not that it matter much today, but when Tony Abbott was going on about the debt, he really should have looked at the private sector debt instead of the government sector debt.

Even so, Das doesn't think there's much governments can really do to address this problem. After all, when looked at globally, since the peak of the GFC we've leveraged up 17% more global debt rather than pay any of it down. Nobody really deleverages, nobody really get through austerity and austerity in of itself does nothing to address the large mountain of debt. Das doesn't think debt jubilee is even possible without wholesale destruction of value.

Which is in many ways the crux of the problems. Nobody wants to give up the price tag on what they are sitting on. The people who carry on how there is no property bubble in Australia do so on the basis of trend lines and market relativism (so to speak) but completely ignore the absolute numbers and what they mean. They argue "It's in line with what things are worth" and totally ignore the fact that "worth" might be the most contestable notions - much more so than "I never had sex with that woman" or "I am not a crook". Thus, as Das points out, we're living in houses with price tags that have been 'financialised' and inflated - but we're happy to bask in the wealth effect which is the dtluionary thought that we got wealthier sitting in our houses doing nothing. Worse still, the inflated price represents how global capital tried to find returns and being unable to do so, landed in housing. As the money recedes when debts are called in, people's positions are exposed, and suddenly the price tags don't look so tenable any more.

Yet the world over there are people who borrowed money to buy things and when the debt gets called in early, are forced to cash out on the spot and lose money, or work very hard to stave off the debt collector. The post-GFC world has been marked by one effort after the other to secure these positions of 2007, trying to fix them in amber so people don't have give up their positions, their things, their assets that they got through borrowed money. The reason we kick the can down the road is essentially to preserve those people. And to that end the world has seen Quantitative Easing to facilitate that there is enough cashflow otherwise to make up for the debts that *can't* be called in, added with the monetary easing through low interest rates.

If that's not spooky, I don't know what is. We're doing all this "kicking-of-the-can-down-the-road" so Deutsche Bank doesn't blow up over Greek Bonds and derivative products based on Greek Bonds. Thus the Greeks have to wear austerity to save a German bank except of course in Iceland, they just let the banks fail. It probably worked out a lot better for Iceland to do so. The Greeks have no such choice. But Greece is actually what the future looks like for many parts of the 'Emerging Markets' world. Global debt will rob sovereignty from nations, communities, right down to individual people.

On Tony Abbott Being A Sore Loser

Look, he might be a sook. In the vernacular I grew up with, we call those, sore losers. Being a sook is what my office cat does on Fridays. Sore losers is what humans do, even when they're told not to do it. Kevin Rudd was a sore loser too, but hey, he came back like a champion. At least, my old tennis coach PB would mount those kinds of post-hoc argument: "That's what Champions do!" (Bless you PB wherever you are today.)

Julia Gllard's speech about being a woman wasn't everything and wasn't nothing, but something, was her only sore loser moment. Judging from 'The Killing Season' she does like to kid herself of a lot of things, but she doesn't seem to go sore all that often.

...but Tony Abbott? he's just.... argh...  For fuck's sake he faxed in his resignation to Sir Peter Cosgrove. Who the fuck does that in this day and age?  It says everything about the man who came to power promising ruin the NBN and 'fulfilled that sorry promise". To the end, a techno-loser, unfit to be PM in the 21st Century.

So I get it - he's a sook AND a sore loser. If you don't get it there's something wrong with you. But then this is a nation of sore winners, which is  a category I've never comes across outside Australia. Yes, we as a people can bask in the moments of great defeats and deep humiliation even though we won the war, so make of it what you will. Tony Abbott was in some limited ways, an exemplar of his nation.

Post-Capitalism, And Post-Bronwyn-Bishop

Looking For (A Tangible) Future World

I've been sort of tucked away watching 'Orange Is The New Black' and so have had little time to write stuff here. In the intervening weeks, clearly the world has moved on, but always seems to me there is a fundamental stodginess with the way this government goes about its business. Maybe it is because it's not really conservatism but flat-out intellectual coward dressed up as conservatism, that is being passed off as the framework for all the half-arsed policy decisions being cast about.

Anyway...
Pleiades sent me an article by Guy Rundle a few weeks ago that blasts the Abbott government's position on Renewables. It's behind a paywall so it behooves me to copy the whole thing (Though tempting it certainly is) I will share these bits with you.

The rise of things like household solar presage far greater shifts than alternative energy models and competition to existing supply; such new forms of power undermine the very form of value on which a high-profit energy sector is based. The plain fact is that the spread of household solar and the advance of a two-way grid is not merely an expansion of private competition -- it is the beginning of a socialisation of the grid, and of the production of energy in society. And much more beyond that. 

This radical effect has crept up on people because the only prior model of socialisation we have known is state-nationalised enterprises, a la the old State Electricity Commission of Victoria. Such statist social democracy arose in the 20th century, for a variety of political and economic reasons. In the '80s, it was unbuckled into privatisation -- which produced some efficiencies and investment through profit and competition, which were quickly swamped by higher energy prices and underinvestment as take-away profit margins were widened. 

Thus we became accustomed to the idea that a "socialist" form of managing energy was the old, bad way, and private capitalist methods were superior. So few, least of all Big Energy, saw coming the technological revolution, which would make a form of energy supply possible that was socialised, while being independent of the state. Rooftop solar is 2% of the energy supply. One way or another it will start to grow exponentially. Once it passes a critical point, the grid will be neither a private nor a state entity, but a social one. As other technologies grow and proliferate -- such as the CSIRO's printable solar cells -- establishment and repair costs will plummet. Sooner rather than later, in new build, roofs will be cells, and the distinction will collapse entirely. With the advancing revolution in battery storage, the "grid" will cease to exist in its current form. The "grid" will be a network of shared abundant power, the production/consumption division collapsed.
That's a ways away -- though closer than you think -- but what terrifies Big Energy is the transition to it, which is a long slide zone of unknowable investment and profit effects, headed only one way. Headed only one way, without the intervention of a capitalist state, that is. Where at one stage of national development the capitalist/social democratic state saw its role as connecting science, technology and production together, the neoliberal Australian state now sees its role as decoupling them. 

Why? Because all that capitalism now has on its side is the maintenance of scarcity. That becomes all the more urgent as technological development, driven in various areas by the exponential advances governed by Moore's law, swamps existing scarcity so comprehensively as to destabilise basic rates of profit. Property and the market were once forces of innovation -- now, with so any committed to spontaneous tech development, open-source sharing and hybrid involvement/investment models, there is a faster mode of co-operation and innovation. So capital must put the brakes on. On everything. Which is why a government like Abbott's now gives the appearance of being a gangsterish bunch of rent-seeking enforcers. Their only job is to hold innovation back. They abolished the minister of science position, because science itself is now their enemy. 

Why isn't there anyone in the Labor Party who can speak to this, with some form of vision, tying amazing technical developments to families in the burbs having easier, more prosperous, cleaner, greener lives? Quite aside from Labor paralysis, there is labour paralysis too. The labour movement doesn't know what to do about these rapid shifts, even if it recognises them occurring. The Labor/Labour complex needs to come up with a comprehensive answer to the imminent crisis of jobs and work about to envelope half a dozen industries, including energy. If they stay isolated and simply defend increasingly low value -- and often boring, dangerous and unpleasant -- jobs as they are, without any sort of transition plan, then they will find their only ally is Old Capital, which makes its money by exploiting them.

Yes, what does future industry look like? How are we going to find meaningful employment in a world where machines ill soak up the menial or repetitive jobs? The world on the other side of capitalism isn't exactly clear, and the tenor of discussions in this country has been more barren than bleak, mindlessly resistant rather than embracing of the future and more stupid than clever (although that last one can always be sheet home to the current government).

Renewable energies and supplies aren't just some fad dreamed up by the lunar left. It's a necessity born of our own civilisation. If we are to accept our place in a civilised world ti all its trappings, then we have to understand the consequences of such acceptance. One of which has been global warming. We may have hit the point of nu return, and yes, Australia's economy is heavily weighted towards export of fossil fuels, but it doesn't mean it has to always be that way, nor is it any good reason to stay so reliant on the export of energy and infrastructure commodities. It's not as if this is a particularly subtle observation. The fact that the Abbott government much prefers to indulge in a kind of double-think, double-speak, where they try to please the mining lobby at all costs consigns us to the kind of crony capitalism rampant in Asia which gives rise to tremendous social inequalities. 

But worse still is that when it really gets down to brass tacks, this government has no vision for how Australia is going to survive climate change induced by Global Warming, let alone have an industrial policy with a bunch of actions plans. So much for the adults benign charge, if by adults they meant people with a view to enrich themselves at the expense of the nation. And if that seems too harsh an assessment, keep in mind that the businesses they've helped the most seem to be either mining or foreign.

The RBA and Treasury have been waiting for sometime for a non-mining sector led recovery, but it is simply not manifesting itself. Part of the problem is that measures to boost consumer confidence are also disproportionately pushing up house prices and rent, so people are not willing to spend any more money than they have been when the real wages remain stagnant. And while this may be a short term situation (unlikely given the state of the world economy), it is disturbing that the non-mining sector simply hasn't regained its mojo even in the era of TwIRP.

What's even more vexing is that while mining delivers only around 10% of the GDP, it earns around 65% of Australia's income from overseas. The Australian economy in effect has become one big life-support system for the mining sector, and everything else we do is kind of irrelevant to the world. We don't do tech or Hi-Tech; we don't do manufacturing any more (those jobs got eaten by the rise of Asia); we don't do science or research, and we're refusing to move over to renewables. The ironies that we're producing more and more tertiary educated people - and charging them a motza for the privilege of getting educated - and sending them into a world where their chosen fields of expertise are most likely in declining demand.

Worse still, the process of dumbing down has progressed to the point where most of these newer graduate cannot be trusted to be competent as graduate even 10years ago. So maybe it's not such a bad thing - but it's also product of the kind of wall-eyed scatter gun approach to how, the tertiary sector is sold as a product as opposed to education being respected for being education on its own terms. And worse still, we're exporting this 'education' while we busily run down funding to our universities. It is perverse to say in the extreme.

It is exactly as Rundle says - the government is so afraid of the future, it is pretending it does not exist. Yet time has a way of simply marching on; and all these acts of denials are going to come home to roost, with tangible price tags that will make us rue the day we elected the Abbott Government.
Clearly I'm not writing something earth shatteringly new or amazing here. 

Goodbye Farewell, Piss Off, Bronwyn Bishop

For a few weeks now, Bronwyn Bishop has catapulted herself into the headlines as the poster child of what is wrong with this government. In that time, the Prime Minister has tried to protect her and let her keep her job as Speaker of the House, but he's basically had to abandon her over the weekend, and so her time as Speaker of the House came to an end.

For as long as we've known her in public life, Bronwyn Bishop has been a ratbag; a hard right fascist with nary the wit to mount a sensible argument; in fact she may be the original politician who brought down the tone of politics in this country through her un-nunaced, unsophisticated sloganeering. She is also the original Ayn-Rand-influenced nut-job with nary a conscience or compassion or common sense. She's always been the woman who, whenever you saw her on television you thought, "Ugh, she's still there," with all the personal revulsion you normally reserve for turds in the swimming pool.

It has been entertaining seeing all the social media memes with helicopters, but more importantly, it has been most excellent that she has been exposed as the biggest of rosters amongst rosters in the government. That somehow, the fact that she seemed to think and operate under the misapprehension that rules of accountability din't apply to her, finally got to see the light of public scrutiny was wonderful thing. Furthermore, it showed that this government really isn't any kind of government to end entitlements any more than it is a government of adults. Witless, shameless and gormless, the government tried to ride out the impossibly scandalous as some minor glitch in proceedings.

If anything can rob the government of its dignity, authority and gravitas, it is these kinds of scandals. Bronwyn Bishop and her travel perks have singlehandedly reduced this government to a joke.

Between July 1992 and June 1993 the backbencher had spent $93,456 of taxpayers' money on airfares and car hire while criss-crossing the nation and – at the same time – undermining John Hewson's leadership of the Coalition. 

Bishop had form when it came to travel. On one occasion, between 1987 and 1988, she had allegedly hired a helicopter – again at taxpayers' expense – to take her from a fete to a dog show because, as her staffer Ellis Glover told me, she didn't want to be late.
But it was not just Bishop's travel expenses that caused concern amongst her colleagues. It was also her fund-raising methods. 

Four months before the 1990 federal election the state executive of the NSW Liberal Party ordered Bishop to stop going outside the organisation to raise funds for her re-election campaign. This followed a cocktail party in which she reportedly received pledges of up to $5000 a head, money she wanted to put into a private bank account for use as she saw fit. 

Bishop was told this breached party guidelines. No member of parliament, or candidate, was entitled to accept money on the party's behalf for their own campaigning. That was the responsibility of the finance committee.

These are not failures of the system as claimed by Tony Abbott; they are rightly - as characterised by Malcolm Turnbull - Bronwyn Bishop's own character failings writ large, driving right by common sense with pedal to the metal. 

One wonders how she could have carried on like this under John Howard. It's amazing that people like Peter Costello, Brendan Nelson, or Malcolm Turnbull didn't rein her in. As for the Prime Minister who once claimed to be the ideological love child of this woman, it seems salient now to question what exactly this ideology might be, and of what substance it is constituted. As far as we can tell, it is a government formed by a bunch of hungry rorters trying to fill their pockets quickly before they are inevitably voted out for their sorry performances. 

At this point in time, it is a tragedy that there is still so much more time before they have to call an election.

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.

Doubting The Economists

You Sort Of Wonder About These Economists

This article has economists warning the RBA against going further with lowered interest rates. And it's pretty weird because the underlying assumption seems to be that eventually interest rates will head back to what have been historic averages.

Merrill Lynch senior economist Alex Joiner said that households who take on too much debt in the low rate environment could be caught out once rates rise. 

"Inevitably rates will move back to a more normal level and that is when we see the debt servicing ratio-income used to service debt, moving higher - households they will be much more sensitive to upward moves in interest rates," said Dr Joiner. 

Mr Montgomery noted in a website post on independent publishing service, Cuffelinks, that eventually "the price of those assets (stocks and property) will be pushed way too high," said "After that, a large number of investors will, sadly, suffer financially again – from buying too late and paying too much."

Basically, they're worried about asset bubbles. They're the same economists who weren't worried that property market was bubbling, not that long ago. It is true that if you borrow money and buy high  in an asset class, you stand to lose a lot of money when prices go down (like, duh). Yet it doesn't seem like that is what is fuelling the ASX; it's the yield of the shares that, even at 3%, sit higher than the 2.6% offered on term deposits. I'm sure the elderly with their nest eggs would rather not be there, but they're forced to be there for the yield. If the RBA cuts rates some more, it's not going to change that calculation. The point at which they had to take that risk came a long while back; way back when the RBA and these economists were busy denying there was a bubble in property.

Go Figure that one out! They suddenly noticed everything is looking a bit peaky rather than say, rosy? 

The problem is that in the long term, we are likely headed for a ZIRP regime in Australia because once the mining boom is truly finished and run its course, and commodity prices fall to historic norms - which is more inevitable than interest rates in Australia - then we won't have an economy worth investing in, which will reflect itself in the low to zero interest rates. ZIRP is - in extremis - the capitalist end game where winner takes all. This is what is not understood by this current Federal Government, which is quickly losing revenue and unable to make the cuts it wants to make on ideological grounds and not on practical grounds (and won't compromise either, which is an even worse story). 

Yes, in theory a lot of people would be in trouble if they borrowed money and thought interest rates would never go back up to say, 6-7%. but we haven't had the kind of economy to justify 6-7% interest rates since when Kevin Rudd was PM the first time around. we'd love that kind of economy compared to the post-GFC "new normal".  Worse still, the RBA is never going to raise interest rates just to scare off speculative investors when it thinks it needs to cut to stimulate the economy. I mean, when has that ever happened? If it's true the RBA won't be raising interest rates to scare off speculators, then it's only going to raise the rates if the figures are genuinely looking like the economy is overheating. For that to happen, unemployment needs to drop to under 5%. Again, that hasn't happened since Kevin Rudd was PM the first time around, and it would be a nice problem to have. 

You can only conclude these economists have got it ass-backwards. The Bust - the mining bust that follows the boom - has already set in. The economy is sliding downwards in growth and facing deflation. The Federal Government is crazy, clueless and crap. Industries are closing or declining and unemployment is rising. Older people have been forced to stick their term deposit nest eggs into shares (for dividends) and property (to collect the rent in cash) - the only two ways that pay better than the term deposits. Credit can hardly expand any more. China can't buy any more because they've crashed against the debt limit too. For various reasons the economy is already in much worse situation than say, even 2 years ago when Julia Gillard was still fending off Kevin Rudd the second time around. 

The markets might look bullish today, but it's against a stark backdrop of a long term secular bear market. Nobody is getting out unhurt; but for the older generation, they have to be in it just to pay their way in retirement. In that scheme of things, cutting the interest rate again is hardly the problem. The real problem is that we have a boatload of problems and this Fe'ral government hasn't go a plan except tax the poor and punish the poor and spread the misery amongst the poor. 

Importing Delfation

Nobody really talks about it much but you can get some amazing things at Daiso. Yes, the chain store that sells Japanese designed generic stuff for $2.80 each. From kitchen utensils to handkerchiefs to pens to hammers, they sell all kinds of things for $2.80 each. And it's not all crap; in fact far from it. 

I bought a kitchen knife from Daiso about 3years ago and it sees daily use. I compare it to the $25 (pre-GST I might add, English steel with 25year guarantee) thing I bought in the mid-90s and have to report that the Daiso knife is probably even more useful as the day-to-day kitchen knife. Forget the hundred dollar Global knife, this thing rocks. So essentially the kitchen knife cost has dropped 90%, if you're willing to use a Daiso knife. Bowls, ditto. Plastic containers, the same. Crystal glass wine glasses, handkerchiefs, LED torches, glass jars, the list goes on and on. Unless you're hooked on branding for your goods, you can outfit a house on $2.80 stuff from Daiso and get decent use value. Heck, I even got a pair of ebony chopsticks. Ebony! For $2.80!

Which all goes to show how much produced goods have been commodified. True, one can show off with one's Global knife set but everything one paid above $2.80 is suddenly suspect as marginal value. Yes, the Global is sharper and more durable. Yet I can sharpen the Daiso knife and when its edge is totally spent I can go get another one for $2.80. The value added on the Global knife has got stiff competition if all one does is slice vegetables, peel some fruit and cut up bits of meat. Getting value out of the value added in the Global knife is going to take serious skill and dedication. Which is fine if you're a chef, but I'm just not one of those guys. 

They haven't yet started selling electric guitars at Daiso, but even electric guitars have collapsed in price thanks to manufacturing in South Korea, China, Indonesia and Vietnam. You can get an archtop for $500. Think about that, and the price tag on a Gibson ES-175 (around AUD$5500) and you can see it's 90% down. They're building cars in India to be sold for $2000.00. They're still crap but it won't be long before they perfect it and it would be road-worthy here, and suddenly it would be 90% down on the Toyota or Ford or GM offering. Eventually you'll get a choice of a branded car with all kinds of extras or something for 10th of the price that gets you from A to B and not much style. It's not that far into the future, and it's going to kill branding. 

So deflation for goods is everywhere thanks to globalisation. It's pulverised our manufacturing sector in Australia. It's going pulverise a lot more. When I go out on weekends I see lots of people shopping furiously. But if they're buying bargain goods in huge quantities, I can see how retail would be having a difficult time, trying to grow profits. Margins would be flattering and you'd have sell a truckload of stuff before you made good profits. But that's just a problem for today and tomorrow. 

Here's what I can't figure out. What happens if China crashes, and the excess capacity for production dries up? Would that wind up the Globalised market in such a way as to deny us these cheap goods? If so would inflation suddenly kick in? It may well do. Or maybe China with all its state interventions never crashes, in which case everything is just going to keep deflating. That just doesn't seem feasible though, does it? Can we really have a world economy that produces more and more for less and less profit? In any case, I watch the Daiso effect of deflation with a certain amount of trepidation. The picture it paints about the globalised world of paper slim margins is quite frightening. 

Hostages To Their Own Bullshit

Chasing Unicorns

There's something fundamentally unhinged about the conservative agenda in this country. First off is the obsession with returning the budget to surplus, which is one of those notions that sound great but don't stand up to scrutiny. If a government returns to surplus, it essentially shifts debt to the private sector off the government's own books.

A very simple explanation can be found here.

There are only so many Australian dollars. If the government taxes more than it spends (a surplus), it is taking more dollars out of the private sector than it is putting in. Assuming exports equal imports those dollars can come from only one place – private domestic savings. Everyone’s surplus is somebody else’s deficit. 

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The arithmetic is very simple. Total net financial assets in Australian dollars is the sum of government assets, plus net private domestic assets (individuals and businesses), plus net foreign assets. If the federal government runs a surplus then the money has to come from one of the other two. Given the government has virtually no control over the foreign component, a surplus will usually be accompanied by a reduction in savings in the domestic private sector (households and businesses) as they pay more in tax than the government is spending into the private economy. 

When the federal government runs a surplus, private debt almost always increases. In other words, the banks create the money to fill the hole left by the government surplus. The much heralded surpluses of the Howard/Costello government were precisely matched by non-government deficits. These budget surpluses were partly supported by trade surpluses (foreign sector deficits) but even so, private debt increased dramatically.

So the call to cut the government deficit is in effect a call to increase private sector debt. At a time when private sector debt combined is at a record high, it seems incredibly abstruse for the Coalition Government to be putting so much emphasis on getting back to a surplus. Yet any time a Coalition member talks about the deficit, they don't say anything much more cogent than "Deficits = Bad".

The reason they say this is because they don't have the ability to communicate the may aspects of a deficit and so they decided long ago to treat the electorate with contempt and instead go with slogans. And the slogans seem to get dumber each election, so at some point we were going to have the kind of problem where we have to ask if the Prime Minister has any core competencies.

Worse still, the electorate eats up this simplified, un-intelligent patter and vote with their prejudices intact. It is then, entirely without surprise that this current government has foundered on the rocks of its own devising, as it tries to somehow put into place its self-destructive policies and wondering why the economy is failing to grow. The self-proclaimed proficiency with managing the economy is mere propaganda, a line of bullshit that they themselves believe. Now that they are hostages to their own bullshit, they are in effect doing a marvellous job of vandalising the economy.

Is it any wonder Tony Abbott is considered the least competent head of government in the western world?

Springtime For GM & Chrysler

Obama Sends Them Back To Drawing Board

The best indication as predicted some itme ago is that the Obama administration will let General Motors and Chrysler go to bankruptcy.

President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.

Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, said members of Congress who were briefed on the GM and Chrysler situation before the president said two days ago that the automakers’ viability plans were insufficient.

The president gave GM 60 days to come up with deeper cost and debt reductions than the biggest U.S. automaker proposed in its plan submitted last month. The “quick and surgical” bankruptcy his administration said was also an option appears to be inevitable, said the members of Congress and two other people familiar with the matter. Obama personally signed off on asking GM Chief Executive Officer Rick Wagoner to step down, which he did on March 29, they said.

A GM bankruptcy would mark the fall of a corporate icon that as recently as 2004 posted a $2.8 billion profit and in 1962 controlled 51 percent of the domestic car market. A plunge in sales of sport-utility vehicles and pickups as gasoline prices soared, coupled with the seizing up of credit markets, caused GM to lose $82 billion in the last four years and seek government help to survive.

Kind of makes the eyeballs hurt, just reading that. There are erstwhile voices asking whether it really would be good to let GM, Chrysler and their investors go to the wall, but it is also the case that the US government can't continue to just keep on handing over money to keep them afloat, month by month.

The smart money seems to be that if and when GM goes into bankruptcy, it will have to be broken up into 2 companies in the restructuring process - the profitable parts of the business will be bundled together and emerge from bankruptcy quickly while, the problem children of the business will be shepherded through more slowly. GM Holden in Australia is most likely to be in the former group, but it maybe the case that sections of GM might simply be sold off to interests who can afford them. Chrysler seems to be headlong on its way to bankruptcy, "don't pass go, don't collect $200.00", as Monopoly would tell us.

Now, speaking of colossal failures in capitalism...

Back In Ostraya, Remember John Hewson?

Does humor belong in music? Or does the Pope live in the Vatican?

John Hewson has recently written some article on a pay- site that basically says there's no going back to the way it was before because it was all so screwed up to begin with - or words to that effect. He's been makin some noise lately, Dr. Hewson, so I also wanted to link to Gerard Henderson having a go at him here.

Hewson lost the "unlosable" election that year. After leaving for the corporate world, he created a resume littered with disputation. Last week there was more bad news about the collapse of Elderslie Finance Corporation, where Hewson was chairman before matters slid out of control, leaving 4000 investors behind.

Before that, Hewson departed from the board of Pulse Health Group in a shake-up. Before that, he quit as chairman of Natural Fuel amid a boardroom battle. Before that, he lost a bitter boardroom struggle for control of Sports & Entertainment Limited. Before that, he departed Belle Property amid a dispute. Before that, he resigned as chairman of Network Entertainment prior to the company's collapse. Before that, as dean of the Macquarie Graduate School of Management, he had a spectacular falling out with the university. Before that, he helped lead a Macquarie venture in Singapore, which collapsed. Before that, CBD Online, where Hewson had been chairman, failed.

When it comes to authority in the worlds of business and politics, Hewson is a dead man talking. Only one field would treat this resume as a qualification for authority - the media - and so it was that Hewson provided the most lurid example, thus far, of the self-generated, self-feeding media speculation around Costello for the past month.

Pretty funny. Nothing makes for such fine autumn reading as old politico-warhorses having a jab at one another.

Capitalism On The Brink

Watching Stocks Fall


Back in 1997, I had a conversation with my old man about the Dow Jones. The gist of it had to do with whether it would break 10,000 by the millennium. It didn't even take that long. In the last day, it has fallen to 1997 levels. One of the things that lent it a great deal of in-credibility was the fact that the share prices were rising in spite of the fact that dividends were not.

The point of investing in shares as a proper capitalist venture is that you expect to share in the venture's profits. Dividend are those annualised share of profits. This is capitalism in its purest form. Forget what the new paradigm might be or what bonds traders might say, the point of the share market is to connect investors with the right ventures. The fact that share prices kept climbing in spite of the fact that they weren't paying a great dividend didn't seem to matter, and the company bosses insisted that the rise in share value reflected their good work; and that the investor should be the one to benefit equally for having the share price rise, left my father incredulous in 1997.

That is to say, my father would have much preferred getting the 6% in dividends rather than in the increase in share value. Since then, we may have seen a continued bubble on shares, thanks to the need for funds handling Superannuation monies to park investments *somewhere* and why not put them in shares? Those rises in share prices we've seen since 1997 may have had nothing to do with good corporate management, or innovations being rewarded, but just a blunt sum result of people's superannuation money building into a momentum with nowhere to go.

Let's face it, it's actually hard to do the proper capitalist thing. It takes hard work from all involved. It's easier to cut costs than to develop a new profitable venture. In the rush to create apparent profits, first world industries have been farming out manufacturing to places with cheap labor, thus cutting out the option of being competitive in the long term. Now that times are tough, there's not much in the way of management that can save those firms. What good is a company whose share prices have collapsed and their dividends are still only giving at best 1% return?

It's even more dire than that for capitalism itself. Thanks to the stopped flow of credit, the Detroit 3 are on the brink of elimination, taking with them a whole armada of sub-contractors. Whatever its ills and misdeeds, the US automotive industry represents one of the few last lines of manufacturing in America. If those 3 companies go down, and the suppliers who make parts go down with them, just how much manufacturing power is going to be left in the USA?

Yes it's true they've been making cruddy cars for years and years and have only themselves to blame as they inch ever closer to oblivion, but you have to think somebody has to prop them up. Like who? Try the oil companies. After all, it was the automotive industry's tacit alliance with the oil money that made them deny global warming, or not pursue alternative energy sources or fuels, to essentially lollygag all the way into this millennium without addressing fundamental issues about just what a car is in the scheme of life. When you think about it, the oil companies ought to be the ones who fork out the money to prop up their old allies-in-global-warming-denial. However, that is a side issue.

Here's the thing that really irks me in all of this Global Fried Chicken thing. What if all the major manufacturers of most anything simply go under? What if all the car manufacturers of America, Japan, Europe and Asia simply vanish? What then? And when administrators come in to sell off the assets, who is going to be there to buy them that can make a better car than the existing manufacturers? And what if it wasn't just car manufacturers, but computer manufacturers and chip manufacturers and electronics manufacturers and anybody nd everybody that actually assembles anything gets hung out to dry by the failing financial system?

Is it possible? Probably not, but then I didn't think what we're seeing now as probable.

So going back to the capitalist thing... this is where I think we've run into problems. We've mistaken speculators for capitalists. The definition of a capitalist isn't somebody who speculates on the prices of things. That's a speculator. The middle man who buys low and sells high - the distributor in most instances - is a mercantilist at best. The True Capitalist is the guy who goes and secures the capital to assemble the means of production. That's it. It doesn't matter whether it's Apple, Nike, GM or Microsoft.

When banks foreclose on these guys, while themselves getting bailed out by the government for their bad debts, this isn't just some crisis of confidence. This is the moment on which the whole premise of what capitalism is, and was, and ever should be is put at risk by all the speculating punters, all the parasitic middlemen, all the bond-traders and day-traders and short-sellers and 'financial engineers'. All that stuff should get a new and separate term: Financialism.

True Capitalists make stuff - and sells them for a profit. They should print Tee-shirts with that slogan, just to remind people. It's not a bad thing. It's very creative, and challenging. It's by no mistake that Nintendo is posting record profits even in these times. They make some seriously good stuff. True Capitalism is a good thing that brings much wealth to many people.

And you know what? As a film maker and sometime musician, I am more of a capitalist than a guy who has been pulling down a job in the finance sector. This is why I get really really angry at the way things are going. Governments are giving banks too much credit for being banks and not enough to manufacturers. It's amazing things have gotten away from the original concept so far. Maybe when the shares bottom out, people will get the proper perspective back. You want to be capitalists? First, you gotta make good stuff, second, sell them for a profit, and third, payback the investors, and only then collect your profit. That's the only way. The rest is all just 'Financialism'.

House Rejects Bailout Package

Principled Stupidity

You have to admire people who live by the sword and then die by it. You just wish that they'd acknowledge the dying part. The House voted down the bailout package.

WASHINGTON — In a moment of historic import in the Capitol and on Wall Street, the House of Representatives voted on Monday to reject a $700 billion rescue of the financial industry. The vote came in stunning defiance of President Bush and Congressional leaders of both parties, who said the bailout was needed to prevent a widespread financial collapse.

The vote against the measure was 228 to 205, with 133 Republicans turning against President Bush to join 95 Democrats in opposition. The bill was backed by 140 Democrats and 65 Republicans.

Supporters vowed to try to bring the rescue package up again as soon as possible, perhaps late Wednesday or Thursday, but there were no definite plans to do so. A former Treasury Department official predicted that the administration would try to get another House vote before the end of the week, and with only “tiny tweaks” to the package, given the relative closeness of the vote.

Stock markets plunged as it appeared that the measure would go down to defeat, and kept slumping into the afternoon when that appearance became a reality. By late afternoon the Dow industrials had fallen more than 5 percent, and other indexes even more sharply. Oil prices fell steeply on fears of a global recession; investors bid up prices of Treasury securities and gold in a flight to safety.

The vote was a catastrophic political defeat for President Bush, who tried to muster national support for a recovery plan in a televised address last Wednesday, then lobbied wavering Republican legislators in intensely personal telephone calls on Monday morning.

“We put forth a plan that was big because we got a big problem,” the president said afterward. “And we’ll be working with members of Congress, leaders of Congress on the way forward. Our strategy is to continue to address this economic situation head on.”

I've hardly ever sided with George W. Bush on any issue, but this was a rare instance I could see the point. Even many of the Democrats saw the point. The Republicans who saw the point, knew it flew against their credo of small government and not spending up big deficits, but voted for it. That leaves the Republicans who simply said "no, it's socialism, and that's un-American".

I'd like to say, "For fuck's sake, you're playing with the worlds economy and most of the world is 'un-American' - as in not of the USA - so why let that get in the way f a good deed?"

I've been keeping a close eye on this because it augurs for the marketplace for films that I work in and this is a disaster. The last thing I need in my life now is a 'Great Depression II - The Return of the Hunger'. This is giving me the shits today, along side other aggravations in life.

Of course then these back-biting idiots start playing partisan politics with it, mostly because they ca, at other people's expense.

Immediately after the vote, many House members appeared stunned. Some Republicans blamed Ms. Pelosi for a speech before the vote that disdained President Bush’s economic policies, and did so, in the opinion of the speaker’s critics, in too partisan a way.

“Clearly, there was something lacking in the leadership here,” said Representative Eric Cantor, Republican of Virginia.

Democrats, meanwhile, blamed the Republicans for not coming up with enough support for the measure on their side of the aisle.

Members of both parties, doing a quick political post-mortem, said those who voted no had encountered too much hostility for the bill among their constituents, and were worried that a vote in favor would be political suicide.

Get that? Instead of doing what's right for the country, and by extension the world economy, they chose to sit on their meal tickets - and blamed the other side for the failure.
This is actually worse than the Yankees not making the post-season.