I guess there is some kind of informational osmosis going on. about half a decade ago I was complaining about how the Reserve Bank of Australia miscalculates inflation deliberately in order to suppress interest rates. After all, most central banks benefit from political support if they err on the side of lowering interest rates. Ben Bernanke totally missed the GFC coming his way but once it was underway, he dropped interest rates to maintain liquidity in the market and rode that to the cover of Time magazine. The next time there was a major threat to the economy, central bankers around the globe slashed interest rates and in the case of our own RBA, they made noises to the effect that they didn't see rates going up until 2024.
Now, to be fair they didn't anticipate the Russian invasion of Ukraine, and also the supply shock of China which is still trying to fight the pandemic with a Zero Covid policy which has delivered unto the world a supply chain shock. These things combined have created the kind of inflation that not even the statistical gimmickry can hide.
All the same it's been a solid decade of ultra-low interest rates, and house prices have gone stratospheric. In the same decade, the RBA has been struggling to see wages rise, and so there is an affordability crisis that has supplanted the Global Financial Crisis itself. You can understand that as the bill for the GFC has been handed to the Millennials and nobody is taking responsibility. And, as you know, I'm not a Millennial and even I think it kind of sucks for them.
What really sucks in this turn of events is that the inflation in question still not a demand-driven inflation. It's not like people got massive pay rises and they've gone to spend their pay rises en masse. It's not even all the printed money of quantitative easing because the benefits of those tend to go to banking and other financial institutions and not the regular folks on Main Street. So much for the notion that the RBA wanted to wait to see wages increase before raising interest rates.
Worse still, companies are using the inflation as cover to rase their prices exorbitantly. "oh there's inflation, our costs are up," they say and somehow they're turning in a truck load of profits in their announcements during this reporting season. It all seems like the central banks of the world rig the markets exactly so the ordinary Joe and Jane can't get ahead. It really is worth asking if the RBA really working towards making people's lives better if the outcome is out of control house prices and stagnant wages. If the exchange is that people have to lose jobs to tame inflation, you sort of wonder who exactly it is that is benefitting from this lowering of inflation through raising of interest rates. i.e. If I have to lose my job so interest rates can go up and then inflation gets beat, who is getting ahead here?
In that light, it is unsurprising then that the ALP government has decided to review the RBA's role. It's about damn time somebody looked into this racket.
Russia Ukraine War Drags On Still
The dumb war without any hope of a Russian victory drags on in Ukraine. Still, the deposit in the Kremlin does not accept he doesn't hold a hand resembling a winning hand. The world awaits for the penny to drop (maybe, maybe not), or for a coup to happen (less likely) in the Kremlin. A lot of people are needlessly getting hurt and killed all because Putin has lost touch with reality. Worse still he has insisted on his army proceeding with World War II era tactics and the casualties on the Russian side have been spectacular/ horrifying (depending on how you view it).
A basic comparison of the USSR army that invaded Afghanistan in 1978 and the Russian Army of February 2022 shows that the Russians are weaker now than then, and that they waded into a war with an opponent who is quantitatively and qualitatively much better than the Afghanis they faced in 1978. When you factor in the global first world support for Ukraine, there is not a scenario in the conventional war sense that Russia can win.
None of this couldn't have been how the war was conceived in Moscow. Now that the Russians are finally culminating, it's worth asking if Putin actually has any kind of exit plan. Because staying on in Ukraine is going to kill a lot of young people, and Russia's demographic can't afford that. So really the only question that remains is when the hell is Putin going to realise what we've known for some time?
I guess we're going to have to wait and see. Whoever replaces him is going to have to give up on they 'Greater Russia' horseshit just to get back to the negotiating table.
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.
Testifying at the parliamentary inquiry into banking this week, the chief executives of National Australia Bank, Westpac and Commonwealth Bank all said that while they are worried about elements of the housing market, prices aren't over-inflated.
"I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify," Westpac's Brian Hartzer told the parliamentary committee on Wednesday. A bubble isn't occurring in Sydney or Melbourne, where house prices have risen the most, he said.
"There are increasing risks, but I still believe the answer is no," National Australia Bank's Andrew Thorburn said when asked if houses in Sydney and Melbourne are overpriced. Commonwealth Bank, which is the nation's largest mortgage lender, is seeing "lending at levels we are comfortable with" across Australia, Chief Executive Officer Ian Narev told the committee when he testified on Tuesday.
Funnily enough that reminds me of the scene in 'The Big Short' where a market bull tells Steve Carrell's character that he's going to buy more shares in a bank that is about to get smashed. If history is any guide, it's going to look perfectly fine until the moment it isn't.
John Hewson Says The Risks Are Greater Than The GFC
Former Opposition Leader and famous driver of Ferraris as well as a note economics academic John Hewson thinks there is a problem. He closes his column like this:
However, our whole system is at risk of a significant drop in house prices as, indeed, was the US/global financial system in the run up to the global financial crisis, where the mountain of debt was built on a US sub-prime housing loan, which was simply a punt on house prices not falling.
Our banks are, today, heavily exposed, having become essentially building societies that also issue credit cards. These exposures are over and above their considerable climate exposures – not just to mortgages on coastal properties, and to fossil fuels, but more broadly.
The risks being run actually dwarf those of the GFC. If it goes bad, the government will be called on to intervene.
I imagine John Hewson's kids have grown up and suddenly he's had to have a closer look at this housing affordability for his kids. That must have led him to believe there is a problem brewing. Certainly the OECD's warning wouldn't be falling on deaf ears with him.
What The OECD Thinks Of All This
The OECD were pretty rosy aboutAustralia except this property bubble thing.
The survey says in real terms house prices have climbed to 250 per cent their level in the 1990s, with much of the increase taking place in the past few years, "straining affordability, especially for first-time buyers in Sydney".
"A continued rise of the market, fuelled by both investor and owner-occupier demand, may end in a significant downward correction that spreads to the rest of the economy," it warns.
(edit)
Sydney house prices climbed another 4.5 per cent in the three months to February to be up 18.4 per cent over the year. Melbourne prices climbed 5.5 per cent to be up 13.1 per cent. Australia's ratio of household debt to GDP has climbed to 123 per cent, an all-time high and the third-highest in the world.
The OECD report argues that it is mainly local investors and owner-occupiers, rather than foreign buyers, that are pushing prices high. It says the markets are vulnerable to a sudden rush for the doors should prices start to falter and investors believe capital gains are no longer to be certain.
I was talking to an old friend who said to me he had $400k to put towards a house. He could get a loan for $400k. If his spouse does the same, it comes roughly to about $1.6m which is the price of a house in Sydney, with nothing left over. There's no money for innovation or investing in other things.
It's astronomical money for a house in Sydney when you consider what you can get for that money in other parts of the world. As we were driving around the inner city, he pointed to arrow of tiny workers' cottages and said they were all going for well over a million. He's probably right because he's been looking. I told him "it's not really sustainable, given how low wages growth are and how more and more people are getting forced out of full time employment."
"So it has to all end in tears, right?" he asked.
The rational part of my thinking says absolutely. But then I've been writing that for like a decade now and it keeps going on, so maybe those banks are right. And yetI can't help but think of 'The Big Short' and just how much people must be stretched to take out million dollar mortgages. The economy's growth is sluggish because any amount of discretionary spending goes towards paying off the mortgage, so effectively the low interest rate thing doesn't help the consumer one bit. It only helps baks that get to make out the silly-money loans.
We live in interesting times. If you see things that are once in a generation, then live long enough you might see it twice. There are people who presumably experienced the Great Depression firsthand, and are now experiencing the GFC audits aftermath. Yet, even they would never have witnessed the Bank of England settler interest rates this low. That would be because it's the lowest 322 years.
The central bank's Monetary Policy Committee voted unanimously to lower its benchmark interest rate to 0.25 per cent, the lowest level in the bank's 322 years. The rate had been at 0.5 per cent since March 2009.
further this year, but he ruled out the possibility of negative interest rates. The committee's next meeting is set for November.
The bank also said that it would introduce a series of additional measures to support the economy, predicting that there would be little growth in the second half of this year and that economic growth would decline sharply next year compared with its earlier forecast for 2017.
What we're seeing, is the Bank of England moving to the point where it no longer has any means of adding stimulus to a moribund economy.
The Bank of Japan has been doing this for over 20years. There's a whole generation of people in Japan who grew up under low interest rates and low inflation that they cannot imagine a world with 6%-8% interest rates and 5-9% inflation. You wouldn't be saying it too loud, but it appears the British economy has entered a similar twilight zone where no amount of interest rate cutting and stimulus spending can reflate the economy.
It's a strange state of affairs, when you think about it. The central banks are virtually giving money away to banks so they can lend into capital investment. The place where most of the money ends up is in fixed assets, namely housing, and businesses just hoard cash instead. The consumer expects prices to drop in the future so they too hold on to cash; and together they form an environment where demand is low. The rest of the heartache and sorrow, about which you know, so I won't go into it today. I just thought it was worth noting that if you see an institution doing something it hasn't in 322years, you're seeing something very extraordinary; something they'll be talking about in a thousand years' time.
The question I want answered is how do we get to the other side of this malaise without wars and revolutions and killing each other? Because that's what usually happened in the past.
About Those Jobs In America That Were Lost To Free Trade
I caught this during the week and it's an interesting little article because it shows we might be overstating the extent to which globalisation is eating up manufacturing jobs. If you go through to the Op Ed it is citing, you get this:
The number of manufacturing jobs in the United States has indeed been in a long decline since the late 1970s, but that disguises the true story of American manufacturing. Nostalgia for a bygone era blinds politicians and voters alike to the reality of a revitalized sector of the American economy that is thriving in a global market.
American factories and American workers are making a greater volume of stuff than ever — high-tech, high-value products that are competitive in markets around the world. In the last 20 years, which include enactment of the North American Free Trade Agreement and China’s entry into the World Trade Organization, real, inflation-adjusted U.S. manufacturing output has increased by almost 40%. Annual value added by U.S. factories has reached a record $2.4 trillion.
What has changed in recent decades is what our factories produce. Americans today make fewer shirts, shoes, toys and tables than we did 30 years ago. Instead, America’s 21stcentury manufacturing sector is dominated by petroleum refining, pharmaceuticals, plastics, fabricated metals, machinery, computers and other electronics, motor vehicles and other transportation equipment, and aircraft and aerospace equipment.
We produce more manufacturing value with fewer employees than in years past because today’s workers are so much more productive. They are better educated, equipped with more sophisticated capital machinery and turn out more valuable products than their parents’ generation. And as a result they are better paid, with total manufacturing payrolls rising during the last decade even as the number of workers declined.
The article in a nutshell says it's technological progress that has eaten the jobs, not trade. I'd imagine that this is true in Australia as well. There are good trade deals and bad ones (like theTPP they keep trying to pass), but in most part the economy has had rational players when it comes to manufacturing goods.
I've had a number of discussions with people about this very phenomenon. It has been argued by empirical economists in the past that technological development does not kill jobs, it more than creates more jobs. That when the car came about, the horse-drawn buggy makers went out of business but lots of people found employment making cars; and so when the Australian automotive industry closes, those people will inevitably find employment in areas of higher technology. It makes sense that this has happened, but it seems unlikely that re-training auto-manufacturing workers into high tech workers of unspecified industries is the same as retraining buggy makers into auto-manufacturing workers.
Similarly, the past performance is no predictor of future performance, and so we cannot simply subscribe to the view that it will happen again because it happened before. The implication being derived out of the empirical numbers, seem to be technological progress is happening in such as way as to cut the rate at which future jobs are created. We're now on the incline where each new development will likely destroy more job than they create, which is a new phenomenon.
"What I don't respect is, having pursued this campaign for United Nations secretary-general for such a long period of time in absolute good faith, to then see that good faith dishonoured and trust broken,"Mr Rudd told The Australian.
Arguing he had no interest in pursuing a "quixotic venture", Mr Rudd claimed his continued campaign to be the next secretary-general was based on assurances and underlying assumptions of support from both the Prime Minister and Foreign Affairs Minister Julie Bishop.
For his part, Mr Turnbull has again insisted that he told his predecessor that it was a decision for cabinet and warned him in May that the chances of his nomination going ahead were not good.
Oh, I dunno what to say. This Parliament hasn't even sat yet and they've managed to make a problem out of a trifle.
Here's a goodie! Satyajit Das, one of the few people who had a grip on why the GFC unfolded tells us that we're ripe for another one but we've really not accomplished the damage repair we promised ourselves.
The signs are obvious to all. The World Bank estimates the ratio of non-performing loans to total gross loans in 2015 reached 4.3 per cent. Before the 2009 global financial crisis, they stood at 4.2 per cent.
If anything, the problem is starker now than then: there are more than $US3 trillion ($4 trillion) in stressed loan assets worldwide, compared to the roughly $US1 trillion of US subprime loans that triggered the 2009 crisis.
European banks are saddled with $US1.3 trillion in non-performing loans, nearly $US400 billion of them in Italy. The IMF estimates that risky loans in China also total $US1.3 trillion, although private forecasts are higher. India's stressed loans top $US150 billion.
Once again, banks in the US, Canada, UK, several European countries, Asia, Australia and New Zealand are heavily exposed to property markets, which are overvalued by historical measures.
In addition, banks have significant exposure to the troubled resource sector: lending to the energy sector alone totals around $US3 trillion globally.
It sure doesn't get any better. For all the talk about fixing balance sheets and prudential lending and all the excess printing of money to reflate assets, we're not really in better straits than at the peak of the GFC. QE bought time, but instead of using that time to really fix things up, the banks have gone with business as usual.
The asset price issue is probably the elephant in the room. The asset price slide brought about the bubble burst of the subprime mortgage bonds. To shore up the banks, the asset price drop had to be stopped, and so the massive amounts money printed was injected into banks as liquidity, essentially to keep the music going in the musical chairs. While the music keeps playing we don't have to find out just who it is that is without the chair.
It's kind of funny because Australia being so far away from the centre of this mess, our own property bubble was barely touched by the GFC. Everybody who was in property has essentially been able to keep their asset price, and even with more ridiculous gains. It's easily arguable that for all the storm clouds over the horizon, the GFC didn't hit Australia at all - thanks even to Kevin Rudd. It's one thing to have nice asset prices but if it's being held up by tricky central banking, you might want to think about what prices might look like if theydroppes around 30-40%.
Oh, and wonder about the fundamental cogitation going on when the RBA looks to be cutting interest rates again soon. Maybe what it's doing is exactly what they say they're not doing, which is pandering to the interests of the banks who want more asset price rises in the housing sector.
The French Are Asking Questions
It turns out the guy who went and slit the throat of the priest in Normandy was known to the French authorities and yet was left free to roam free and do as he did. Now questions are being asked.
A Mass at the Cathedral of Notre-Dame, reserved for the most solemn state occasions, was held Wednesday evening in memory of Father Hamel, 85, whose attackers forced him to kneel before killing him in the old stone church of St.-Étienne-du-Rouvray in Normandy. Much of the government and two of France’s three living former presidents attended.
At the same time, a new feeling of helplessness was setting in. One of the attackers, Adel Kermiche, 19, had tried twice to go to Syria. On Wednesday, the Islamic State released a video that it said was recorded before the attack by him and his accomplice in which they pledged allegiance to the group.
Mr. Kermiche, like the Nice attacker, Mohamed Lahouaiej Bouhlel, had a documented history of psychiatric troubles, according to the newspaper Le Monde, which leaked his judicial files in Wednesday’s editions and whose report was confirmed by the Paris prosecutor’s office, which leads terrorism investigations.
But unlike Mr. Lahouaiej Bouhlel, Mr. Kermiche was also already in the government’s books as a terrorist threat.
Indeed, barely four months ago a judge released him from detention, convinced by the young Franco-Algerian’s arguments that he was ready for a normal life and no longer wanted to become a jihadist.
At the time, the Paris terrorism prosecutor’s office appealed the judge’s decision, arguing that Mr. Kermiche should stay behind bars.
The prosecutor was contemptuous of the judge’s arguments for limited surveillance, calling them “perfectly illusory, given the context,” according to the documents quoted in Le Monde. “He’s claiming a mistake, and arguing for a second chance. But there’s a very big risk.”
Once before, in 2015, after his first failed effort to go to Syria, Mr. Kermiche had been allowed to go free but was required to check in with the police and probation authorities. He violated that order within about six weeks trying a second time to go to Syria. This time he made it as far as Turkey where authorities arrested him.
When he was caught the second time, he was put in preventive detention until March 18 of this year, when he came before the judge who ultimately let him go.
This time he was fitted with an electronic ankle bracelet, forbidden to leave his local department of Seine-Maritime and made to report to a probation officer at the police station once a week, and ordered to live in his parents’ house, where he was allowed to leave only between 8:30 a.m. and 12:30 p.m on weekdays.
You can't make this stuff up. They had him. Twice. And they fitted an electronic tracking device on the guy. They knew he was dangerous. They denied him access to Syria. They gave him curfew to follow. He violated his probation, twice, which put him behind bars for a little while but the same judge that freed him the first time let him go again. And of course this happens while the whole country is under 'heightened security' thanks to the Nice truck driving bastard. You'd think somebody somewhere would have done something about this guy. But they didn't, and so we have yet another instance of state incompetence in apprehending a terror perp.
Get your head around that one. The French at least are trying and they're finding it awfully hard. I don't blame them; I find it hard.
It may even be that we're getting the whole thing wrong. The cross over between the spree-killing and terror act is really quite small. Many of these people around he world doing these spree-killings are probably adding on an ideological dimension to what is simply an act of mass violence. After all, it is a very fine distinction between killing 50 people in a spree killing and killing 50 people in an act of terror. The latter merely appears to have a plausible motive. What if this were an illusion?
What if what was really going on was simply spree-killings giving themselves the cover of ideology? Then it would be easier to understand the danger of crazy people walking around on the streets, and in some countries, being able to purchase weapons of tremendous destructive power. It suits the government far more to have narrative where a crime can be made out to be a political problem than a medical problem. Consider for a moment a lot of spree-killings are done by people who struggle to find meaning in their lives. Whether that be Wade Frankum in Strathfield or Eric Harris and Dylan Klebold in Columbine. Ideology offers an ad hoc assignment of meaning to such acts. This offer politics a tremendous amount of leeway to then enact things that maybe need-not-ought to be enacted.
Back in the 90s, - way before 9/11 made terrorism a front line issue - with the cases of Wade Frankum in Sydney and the Columbine boys in Colorado, the state had no such recourse. Thus back in their day, the governments respectively went after things like 'American Psycho' by Brett Easton-Ellis and violent computer games while completely ignoring the problem having weapons readily available to the general population - something the USA under the threat of the NRA is still insisting upon to this day. At the moment the discourse has turned availability of weapons in America, but all the same it misses half the point.
It is laughable to think 'American Psycho' or 'Crime and Punishment' caused somebody to go on a killing spree. It is equally laughable to think the problem in Columbine was computer games or the Rap music the boys listened to. In the same way, it is laughable to think the attacks in Nice and Normandy were because of the Koran. These acts of 'terror' in Nice and Normandy were done by people who were willing to exchange their meaningless lives for a sliver of metaphysical meaning. That's desperate, violent and crazy, but not driven by ideology first.
There are a lot of desperate people walking around this planet without much meaning in their lives. Some of them are mentally ill, and filled with violent mentation. Demonising an ideology merely offers these people an excuse in an otherwise meaningless, lacking life. If the state thinks it is getting closer to the ideological problem through anti-terror laws and going after radicalised people, they're missing the point because they release the mentally unstable ones back into the public. As the cases in Nice and Normandy amply demonstrate, it is the crazy people who are willing to do this stuff. This can be corroborated with Man Monis of the Lindt Cafe siege who also fell off the AFP watch list exactly because he was deemed crazy.
I'm sure the politicians don't want to hear it but the real problem is mental illness, not ideology. That would be because they've been cutting mental health budgets to support budgets for 'Anti-Terror' for a good decade and a half. Nobody wins elections advocating for sanity; they only seem to win on the basis of being tough on other people. They need an army of mental health workers, not guys with guns and bulletproof vests.
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.
It's cool when stars get together and appear in a morally righteous movie. The omnibus casting in both of these films is something to behold. The All-Star lineup in 'Spotlight' makes for an interesting ensemble while the split narrative of 'The Big Short' demands a distribution of war power across three narrative threads.
Both these films deal with a tragedy that came about because nobody thought to question a big institution. People had way too much faith in the Catholic Church, and they had too much trust in banks. Both the Catholic Church and the banks ended up making a lot of people look very foolish for their faith and trust; and delivered devastating consequences for that misplaced faith and trust.
We live in amazing times when you think about it. The revelation that the Catholic Church was covering up for paedophile priests was an apocryphal joke for a long time. The fact that we got any proper investigation that has led to global uncovering of such activities would have been unthinkable not so long ago. Similarly, the notion that banks through their greed and stupidity could manufacture the condition for the greatest financial crisis since the Great Depression was unthinkable right up until it happened. Both topics deserve some kind of narrative reconstruction to get a sense of how these things came about. These stories are at their core, remarkably alike.
And so... here's the usual spoiler alert. Don't read on if you hate spoilers.
The Tradition Of Investigation
Both these films have long roots that reach out from beyond the screen. 'Spotlight' actually has many echoes of the other great newspaper movie, 'All The President's Men' where Robert Redford and Dustin Hoffman playing Woodford and Bernstein went in hard against the authoritarian Nixon Administration which was trying to cover up its criminal tracks. Similarly, 'Spotlight' shows four news reporters going after the Catholic Church that indulges in systematic coverup of paedophile priests. If you are into even more interesting connections between these two films, the editor at The Washington Post who backed Woodford and Bernstein during the Watergate investigations was Ben Bradlee. The editor at The Boston Globe presiding over the Spotlight investigations into the Catholic Church was his son Ben Bradlee Jr. Rachel McAdam follows her performance from 'State of Play', another film that tried to capture the newspaper news room dynamic.
'The Big Short' is actually based on the book of the same title by Michael Lewis. Lewis was able to navigate the complex world of Wall Street banking because he himself was once a Wall Street banker and penned the great tome 'Liar's Poker' which explained the invention of mortgage bonds. We are enlightened of the strangeness and incongruous opacity of banking terminology thanks to Lewis' abilities as an investigative writer and part-insider to the world of Wall Street investment banking. The pedigree of this film carries previous Michael Lewis adaptations which include 'The Blind Side' and 'Moneyball', and we even have Brad Pitt playing a role in one of the narratives.
Both these films are thus built on accounts and testimonies from the very frontline of fact-collecting. Because both these films go to great lengths to explain the problems of exposing or capitalising on the issue at hand, we are given tremendous insight into America as an immensely complicated society.
Too Big To Scrutinise
In the wake of the Global Financial Crisis, we were made to understand the term "too big to fail". It was a terrible thing that we had to suffer the GFC because of these big institutions. Once the crisis as underway, we discovered that they had racked such astronomical sums of money in debt, had we let them fail it would have taken the world economy with them. And so we let these bastards continue to just be these very same bastards. As it turns out in the telling of 'The Big Short', an alarming few people scrutinised the situation where there was a combination of subprime mortgage bonds, a property bubble, credit-rating agencies that simply rubber-stamped credit ratings, and very greedy and stupid people throwing money around.
The Catholic Church too is a monolithic entity. The closer one's faith resides with the Catholic Church, the more moral authority the church takes on to the point here it has absolute control over the discourse. This allows conditions of absolute unilateral power to be exercised against the faithful when needed - something that dates back to medieval thinking on authority - but also silence issues. Again, investigations revealed that the church had known it had a problem with paedophile priests as early as 1962, but opted to suppress the information and with it the scrutiny.
In both instances the lack of third party scrutiny allowed the problem to snowball. The lack of scrutiny came from the fact that the institutions - the Church and Financial institutions - were deemed too big to tackle. In most instances that would be factually correct, but also place these institutions in a space of utter moral hazard because of it. The fraudulence of the church covering up paedophile priests is in fact the same fraudulence of selling subprime outage bonds rubber-stamped as AAA. They're doing it because they can pull the wool over the average punter's eyes, and comes from a space of contempt so deep it's hard to contemplate the depth of that evil.
The Pompous Appeal To Normalcy
It's also interesting that in both films, the institutions resepctively resort to what can only be called the 'pompous defence'. When the Catholic Church is challenged and the defenders of the Church try to convince the investigators to drop the story, they mount a particularly pompous defence trying to categorise the victim's accusations as somehow a minor irritant or a minority crank position. At every turn, the people who want it not to be true put on the air that because the Catholic Church is too important an institution, the allegations can't possibly be credible.
Similarly, at the climactic moment of the Bears Sterns collapse during the GFC, a banker gets up at a conference and says everything is fine and any attempt to categorise the critical situation as exactly that, is somehow misguided and a crank. Of course in one of the great ironies, Bears Sterns bank collapsed that very day as he was speaking. In both instances the pompous appeal is made to the public to present and pretend that everything going on is normal.
Perhaps these responses are natural. It's a bit like being confronted by bad news and you go into the grief cycle. Given the horrible evidence presented, some go straight to the denial stage - and when doing so, do look stupid and pompous defending the indefensible in public. For the Church the allegations turned out to be all too real with repercussions around the world, and for banking too the repercussions became the Global Financial Crisis. Maybe when the scale of the problem is so huge, people have to pretend the threat is nothing and thus the pomposity comes to the fore.
Institutional Evil Is Institutional Stupidity
In each instance the films reveal something very interesting about institutional malfeasance, and it is that it relies greatly on the stupidity others not to notice what is going on. The people who uncover the great mass of subprime mortgages that are fed into high end mortgage bonds were the people who actually undertook proper due diligence. In a sense, the great fraud of the mortgage bonds based subprime loans relied on the stupidity of people not to admit they did not know what was going on and to go looking for facts. It seems simple enough, yet so many bankers and lawyers let these mortgage bonds written in complicated language, make them stupid and not do due diligence.
Equally, the Roman Catholic Church had insiders warning the Church for decades and instead of heeding the warnings, opted to go for the cover up. Once again, the coverup relied on people opting to be stupid by not noticing a pattern that was carried out in the roster of priests. The evidence was right there on public record if people could put the pieces together. Equally, the press failed to follow up when given evidence earlier because they too opted to be stupid and not look into the evidence being presented. The deep regret from the press in 'Spotlight' is the acknowledgment that it too forms part of the circle of institutional stupid that allowed the institutional evil to flourish.
The pairing of institutional stupidity with institutional evil is right around us. Take Australia's stance on asylum seekers. It relies entirely on making sure that people cannot carry out due diligence to make sure human rights are not violated. In the face of many allegations Peter Dutton pompously pretends that nothing untoward is going in places like Manus Island and Nauru. The middle part of the electorate is now opting to go with stupid silence and back both major parties because it cannot exercise the due diligence an discover the problems going on. Thus we're setting up the scenes for The Great Embarrassment that will surely follow the events on Manus Island and Nauru.
With Great Power Comes Great Corruption
At the end of the day both major institutions were avaricious to the point of disaster. The Roman Catholic Church sought to limit the financial damages as much as possible. The pattern we see in 'Spotlight' where they paid off people who alleged these crimes and sent them away with tens of thousands instead of incurring millions in damages was repeated elsewhere around the globe. We know this from the recent Royal Commission that Cardinal Pell himself was part of the institutional evil by playing the institutional stupid card very hard to secure his own promotion. In the mean time they sewed up the mouths of victims and lawyers with confidentiality clauses in these private settlements. Those in the public who sought public redress received a great amount of harassment and vitriol - another pattern that was repeated around the globe.
Banking, equally brought itself to the knees through excessive greed. Yet, the most telling part in 'The Big Short' is when Mark Baum realises that the banks knew fun well they would be bailed out because they were too big to fail, And so the moral hazard had always been there right form the beginning. The collusive nature of those who investigate banks and those who work for banks also made it very hard to stop the endemic fraudulence. And the scale of the fraudulence being so endemic was such that it looked like this situation was normal to many onlookers. This is the genuinely crazy part of the story. People like the Federal Reserve Bank Chairman Ben Bernanke couldn't see the GFC coming. US Treasurer - and former Goldman Sachs banker - Hank Paulson couldn't understand what was unfolding and why. It gave rise to the massive effort known as Quantitative Easing to shore up asset prices, just to save the bacon of so many ordinary investors.
Worse still, in the wake of the GFC, none of the remedial actions had taken place and so it is clear we have set ourselves up for yet another GFC if only we could sell these subprime-pimped mortgage loans to a greater fool, for it is the greater fool who gives rise to the great power to corrupt so greatly.
As for the Vatican, things seem to have moved towards reforming their practices under Pope Francis; yet, if celibacy gives rise to 6% paedophile priests and only 50% who actually manage to practice the celibacy, then the biggest reform they could carry out might be to acknowledge celibacy is bullshit.
"There's an acknowledgment, even in the investor community, that monetary policy is kind of running out of ammo," said Thomas Costerg, economist at Standard Chartered Bank in New York. "The focus is now shifting to fiscal policy."
That's where it should have been all along, according to Modern Money Theory. The 20-something-year-old doctrine, on the fringes of economic thought, is getting a hearing with an unconventional take on government spending in nations with their own currency.
Such countries, the MMTers argue, face no risk of fiscal crisis. They may owe debts in, say, dollars or yen - but they're also the monopoly creators of dollars or yen, so can always meet their obligations. For the same reason, they don't need to finance spending by collecting taxes, or even selling bonds.
The long-run implication of that approach has many economists worried.
"I have no problem with deficit spending," said Aneta Markowska, chief US economist at Societe Generale in New York. "But this idea of the government printing money - unlimited amounts of money - and running unlimited, infinite deficits, that could become unhinged pretty quickly."
To which MMT replies: No one's saying there are no limits. Real resources can be a constraint - how much labor is available to build that road? Taxes are an essential tool, to ensure demand for the currency and cool the economy if it overheats. But the MMTers argue there's plenty of room to spend without triggering inflation.
The US did dramatically loosen the purse strings after the 2008 crisis, posting a deficit of more than 10 percent of gross domestic product the next year. That's since been trimmed to 2.6 per cent of GDP, or $US439 billion, last year.
The Congressional Budget Office expects the gap to widen in the coming decade, as retiring baby-boomers saddle the government with higher social security and health-care costs. That's the risk often cited by fiscal hawks.
Mainstream doves accept the long-term caveat. But they point to record-low bond yields and say investors aren't worried about deficits right now, so why not spend?
Pretty amazing how that is seen as 'radical' economics but that's the same argument Taro Aso was mounting. The Sydney Morning Herald is way behind the curve on this notion - heck they're even behind this blog.
The article also makes the point that conflating household debt and government debt leads to much confusion - like it did with Tony Abbott's garbled wagon government debt when the real debt problem in Australia lies with the private sector debt.
Global temperatures leapt in February, lifting warming from pre-industrial levels to beyond 1.5 degrees, and stoking concerns about a "climate emergency".
Unusual warmth in waters off northern Australia also prompted an alert by the Great Barrier Reef Marine Authority about the risk of widespread coral bleaching.
According to NASA analysis, average temperatures last month were 1.35 degrees above the norm for the 1951-1980 period.
They smashed the previous biggest departure from the average - set only in the previous month - by 0.21 degrees.
"This is really quite stunning ... it's completely unprecedented," said Stefan Rahmstorf, from Germany's Potsdam Institute of Climate Impact Research and a visiting professorial fellow at the University of NSW, noting the NASA data as reported by the Wunderground blog.
So it appears we've run out of headroom for the denial. The rest of the article doesn't offer much good news either.
Nobody's Talking About North Korea
Philip K. Dick said reality is that which won't go away when you close your eyes. When you think about that, most things reality that would qualify would be not-so-nice things. Like North Korea. The rogue nation has basically announced it can build nukes the size small enough to mount on a missile - and seeing that their Rodong missies can get out to the Pacific, it puts South Korea and Japan well within its range. This has resulted in Japan and South Korea calling in anti-missile armaments from the USA, but it has also ratcheted up the tension with North Korea.
So... there's that reality that gets under-reported here in Australia. In that light, here's a bit of interesting analysis here.
Now, after repeated and renewed provocations by the North, the gig is up for Abe and his two-track approach with the North. Last month, Japan imposed retaliatory sanctions on the North following its missile test - staged as "satellite launch".
Pyongyang responded by terminating the inquiry on the abductions, effectively cutting the lifeline Abe had worked so hard to establish. The hostility between the two sides has increased even more after the subsequent imposition of new UNSC sanctions and the attention-seeking news release by the North highlighting their advances on miniaturisation.
In retrospect, it was not too hard to see this end - as both tracks of Japan's policy on North Korea consistently overlapped despite Tokyo's attempts to decouple them. In fact, Tokyo previously pushed for this intersection as evidenced by the inclusion of abduction discussions on the sidelines of the now moribund Six Party Talks.
With denuclearisation talks effectively dead, the Abe government gambled with a more risky two-track approach to North Korea, by hedging between a hawkish line on Pyongyang's missile and weapons of mass destruction programmes and a more dove-ish approach on the abductions.
This gamble has failed. As tensions continue to increase on the Korean peninsula, it is time now for Abe to cut his losses - at least for the time being - and maintain a united front alongside the US and South Korea in deterring the Kim Jong-un regime.
It looks like it was a complete and utter waste of time talking to North Korea about anything. The Six Party talks through the 2000s and now the independent lines of diplomacy out of Tokyo and Seoul has ended up with the worst case scenario. The North Koreans have got the nukes they can put on missiles, and neither Japan nor South Korea got their kidnapped people back. The UN Security Council is pushing for harder sanctions, but of course China won't be completely cornering North Korea.
Oh and meanwhile some idiot has gone and blown up the toilets at there Yasukuni Shrine. The man wanted for the bombing is a South Korean national. That's going to be another bone of contention between Tokyo and Seoul, making it harder to coordinate policy against North Korea. It's a mess. It's a worse mess than the usual mess too.
Jonathan Tepper, a UK based economist and founder of research house Variant Perception, is convinced Australia is in the midst of "one of the biggest housing bubbles in history".
In a subsequent report to clients, obtained by Fairfax Media, Tepper uses the following charts to support his thesis.
"The Australian housing bubble could not have become as ridiculous as it is without the help of easy financing," he writes.
"Over the past few years, over 40 per cent of all new mortgages originated have been interest-only mortgages.
"This is truly Ponzi financing, where home buyers only make money if their houses keep rising in value," he writes, later describing interest only loans as a "disaster waiting to happen."
There it is, the Ponzi word. If you go to the article linked at the top, you'll see some interesting charts that tell us just how much risk people have taken on to secure their homes. The funny thing is that it's only foreign analysts who voice these kinds of concerns and somehow commentators in Australia downplay these voices claiming that somehow the Australian experience is going to be different to all the other times a Bubble popped. The RBA occasionally mentions they're concerned about the residential market heating up, but they have interest rates at record low rates. The bias is still towards easing and probably right down to zero interest rate policy in the not too distant future.
It's a far cry from the times I remember where Reserve Banks would jack interest rates up to get on top of inflation. Now the RBA is dead scared of a drop in asset prices, whether they be shares, property or bonds. That has led to the easy money in the wake of the GFC, and in a roundabout way, the extended run of the property bubble that was already running up a head of steam, right up to the GFC. Even Kevin Rudd giving out money at the height of the GFC amounted to shoring up confidence and at the core of that decision is the desire to preserve asset prices, even if they are inflated. We basically had the luxury of not having our property bubble blow up during the GFC.
For a while during the heat of the GFC we heard the phrase 'moral hazard', but we're only beginning to see the ramifications of the policies that bailed out banks and by extension people who were speculating heavily in the property market. All the low interest easy money went straight back into re-inflating the prices and prices simply went up, forming its own positive feedback loop to assist with the Ponzi scheme nature of our property market.
Of course none of this is stuff you haven't read before. We just don't know what the shock factor is going to be to pop the bubble. Until then those who deny its existence will continue to deny its existence and rationalise the prices we see.
No Substantial Tax Reform
All these governments we've had this decade have come to power, announced tax reform packages, cherry-pickedwhatthey wanted and run into flack. As such it surprises me none that Malcolm Turnbull is backing right away from tax reform. Too many vested interests are clamouring away wanting to protect their little bit of interest. They tried a discussion on raising the GST only to find it wouldn't do nearly enough unless they properly widened the base, and then they refused to do that because it would mean taxing education and thus expensive private schools getting even more expensive, so they wanted to raise it by 50% instead, but realised there was no way of compensating the low income households so that went by the wayside.
The minimalist reform approach would raise sufficient funds to offer marginal tax relief to middle-income earners while also freeing the government to prosecute a massive scare campaign against Labor, claiming its negative gearing policies would smash the economy, wiping $278 billion off the national balance sheet through a 5 per cent plunge in housing values.
The government's final package, due to be presented within weeks, will not restrict negative gearing to new houses, as Labor has proposed, but merely impose caps on the dollar amount of losses claimable, while also reducing the amount able to be directed into superannuation contributions.
The proceeds, perhaps just a few billion per year, will be available to fund an upward adjustment of the $80,000 tax threshold, providing relief to only the top 25 per cent of earners.
And even that might be a bit too courageous for Sir Humphry.
If the Coalition thought bringing in Malcolm Turnbull as Prime Minister was going to fix things, they certainly haven't allowed him to fix things. There seems to be a significant gap in the understanding of the Coalition party room whereby they fail to grasp that the reason Turnbull is personally popular with the electorate is because the electorate believe in the personally held politics of Malcolm Turnbull. The fact that they constrain him from enacting and exercising those personally held politics locks the Coalition out of what people want them to do. It's not brain surgery; it's just having to grow up and understand the hardline right discourse is never going to win the middle, even if you send out the most popular man on your side to front for it.
Be that as it may, the degree to which tax reform is necessary is most likely proportional to how much you believe there are problems stemming from the current tax system. If one does not think there is a property bubble caused by negative gearing, then one probably sees no urgency in fixing things. This is in line with the Coalition thinking on Climate Change where, again, the less they believe in the science, the less they think they have to do. Conservatism as highly touted by these munchkins simply seems to mean do-nothing-and-she'll-be-right-mate.
Never more has Australian politics resembled a line of ostriches, all with their heads in the sand.
The thrice-married real estate mogul won among Republican Evangelicals. Having vowed to round up and deport 11 million mainly Hispanic undocumented immigrants, he won among Republican Hispanics.
Famous for lambasting perceived female critics as being fat, or ugly, or menstruating, he won among Republican women.
He smashed Marco Rubio, the man the party hopes might rally enough support to defeat him, and Ted Cruz, who still appears to be determined to take down Mr Rubio before tackling Mr Trump.
Mr Trump's hostile takeover of the Republican Party now seems to be almost unstoppable.
In the words of a Fox News political editor, "bladder-voiding panic has come to official Washington".
The Republican establishment loathes Mr Trump not only because so many see him as unfit for office, and not just because they don't believe he could win a presidential election, but because they do not consider him to be a true conservative, let alone a true Republican.
Everybody in the establishment would be alarmed at this development while ignoring its causes. It's quite funny if it weren't so troubling, but for years the US Republican party has been taking on a harder edge beyond simply being crypto-fascists. Now that they have a full-blown fascist demagogue running roughshod over their own candidates, they can't put a handle on him. Their dalliance with fascism has turned to burn their house down. Donald Trump and his supporters are the Frankenstein monster created by the Republican Party. If nothing else, it is terrifying.
If it turns out that Trump gets the nomination and faces off against Bernie Sanders, it would be a historic defeat for the Washington establishment. Trump versus Sanders would actually be a deep echo of the 1968 elections when Robert F. Kennedy was gunned down, and Nixon took in the racist white vote into the Republican Party. It would be the showdown that the political establishment has been avoiding for 48years.
Hard Landing In China - "We Crash, You Die!"
Pleiades sent me an article in the AFR today outlining the retreat of bank shares this year. it's not exactly joyous reading. Pleiades thinks this is the shit hitting the fan. He is probably right.
At the same time, worries about tighter financial conditions weighed on US bank stocks, with Morgan Stanley dropping 6.4 per cent, while Goldman Sachs falling 4.8 per cent.
At the weekend, China said its foreign exchange reserves dropped nearly $US$100 billion ($141 billion) last month to the lowest level in more than three years as Beijing further sells dollars to prop up the yuan.
China's foreign exchange reserves now stand at $US3.23 trillion, about 20 per cent below the peak of nearly $US4 trillion reached in mid-2014.
Capital flight out of China is accelerating not slowing down. There's really no sugarcoating the fact that China is slowing down towards a hard landing. Nobody really manages 'soft landings' but on the scale of measuring just how hard a landing this is going to be, it looks like it's gong to be solidly hard.
The
market's reaction is getting duller day by day. The negative interest
rates boosted the market only for two days," said Norihiro Fujito,
senior investment analyst at Mitsubishi UFJ Morgan Stanley Securities,
and trading data shows even that was down to short-term "gamblers", he
added.
A
week later, even those gains are gone, as foreign investors withdrew a
net 207 billion yen from the market, taking their total for 2016 to more
than 1 trillion yen. U.S.-based Japanese stock funds also saw an
outflow in the week ended Feb 3.
Curiously, the Yen rose against the US dollar, even as foreign investors pulled out of Japanese markets.
So, even if the US is doing much better now, with interest rates going up, two out of three of Australia's trading partners are going through what can only really be described as bad times.
Deutsche Bank is now issuing statements defending its liquidity, which is like a throwback right to the GFC. At this point the scuttlebutt is that DB might be the new Lehmann. This is not surprising because Deutsche Bank is neck deep in derivatives that have gone sour, and for a long time it was speculated that any movement of US interest rates would blow up positions taken by those derivatives and adversely affect Deutsche Bank.
Judging from the headlines, it's clear we've entered a new phase in the repercussions from the GFC. It may just be the point at which all the Quantitative Easing and money printing is now coming back with consequences to roost. The Central Banks can't very well spend even more in an attempt to spend their way out of the woods.
Dick Smith is a character. He's saying he'll run against Bronwyn Bishop if the Liberals preselect her again for the seat of Mackellar. If the Libs pick somebody younger and more open-minded to issues to do with economic growth and controlling population growth.
Mr Smith, who was on a yacht in Bass Strait on Thursday, said there had been a huge response to the news he might run in Mackellar.
He estimated eight out of 10 people in the northern beaches electorate - where he has lived for decades - are concerned by the prospect of Australia's population rising to 100 million and beyond in coming decades.
"I live in Terrey Hills and it can take an hour-and-a-half to drive into the city now. People will have to give up driving but there is no plan for a rail line [to the northern beaches]," he said.
"People want to have backyards and maintain their way of life."
So Dick Smith is -interestingly enough - a conservative who wants a rail service up to the Northern Beaches. The mind kind of boggles at the thought, not because it's impossible but because he's talking about the neck of the woods that would hate having a rail line running through it, even if it were convenient. It's a completely different part of Sydney out there. Even with my North Shore roots I find cultural attitudes up in the Northern Beaches quite strange. It's certainly not helped by the fact that they've kept voting in Bronwyn Bishop to represent them. If there is over 70% electoral support for Bronwyn Bishop in Mackellar as it is, it gives you a picture of just how ideologically whacko they are up there.
Even if hypothetically Dick Smith runs and beats Bronwyn and goes to Canberra, running a train line out to the Northern Beaches is a state issue. He's going to the wrong place for that particular issue. Certainly if Dick Smith wants rail lines into his neck of the woods (presumably because rail services are convenient and good things), then he should be a lot more vocal and active in supporting rail lines in general, right across Sydney NSW and heck, Australia in general. There are people doing that, working very hard to get things like the Light Rail extension up and running. You don't hear Dick Smith supporting that issue all.
Dick Smith usually puts his money where his mouth is, as he's done with his line of foods supporting Australian manufacturing, so it's not hard to imagine him actively supporting a good idea. It's just really strange to see him threatening to stand with one of his issues is wanting a rail line. In Mackellar of all places.
Metaphorical Gun To The Head
The Liberal Party must hate this one. It might even be undemocratic on some level. The Liberal Party putting up Bronwyn Bishop as a candidate for Mackellar again is barely democratic. We all hate her; we think she's a rorter; she's insensitive to the wider electorates' discomfort with her continuing; but she has this crazy support in Mackellar. We don't know if this is because those people would vote for a wooden dummy if it were the Liberal Candidate for Mackellar, or it actually is her singular appeal, even in a blue ribbon seat (I doubt it, but it's possible).
Nonetheless, the process by which Bronwyn Bishop is retained and preselected as the Liberal Candidate for Mackellar is not any more undemocratic (or, any less democratic in the conventional sense) than most other seats represented by the two major parties. However if Dick Smith's threat derails Bishop's preselection, then Dick Smith has effectively exercised much great control over the electoral process than any mere single citizen can do. He's basically doing this on the back his wealth and fame, and to that point, he's not that different from Clive Palmer. The Liberal Party has got to hate that.
Let's say for the moment the Liberal Party backs down and then Dick Smith backs down. That would be a good outcome, but it leaves major question marks about the decision itself being undemocratic. If the Liberal Party pushes ahead with Bronwyn Bishop, and forces Dick Smith to run, it might turn into a proper open race, thus depriving the Coalition of a safe seat. At least that would be more democratic in the proper sense, but the Liberal Party would hate that too.
The Right Is Wedded To Bad Ideas
The one big thing to come out of the collapse of the Soviet Union was that the Left could no longer be wedded to Marxist economics. That was *it*. 1989 marked the year that the project of 1848 finally came to an end. After that point, you couldn't be a communist because you really only had China and Cuba to offer you intellectual proof of concept, and China was frantically opening itself up for the world to make money.
One would kind of surmise that the GFC would have done something similar to the Right and disabused them of completely unregulated money markets. Judging from the articles over at Zero Hedge, it seems highly unlikely. That mob is still railing against the command and control model they perceive in the US Fed setting interest rates and carrying out QE exercises to get through the post-GFC era.
It's this denial that there's a real world problem in not reassessing the framework that characterised Tony Abbott's opposition as well as government. That is to say, the GFC was probably the one time the government had to go in to debt to bail out banks and people's savings, and asset prices. That was the right call to make, if they didn't want the whole economy to spiral into a sequence of margin calls and debts being called in at once and massive liquidation of positions. So with that in some corner of the mind, the Coalition set about complaining about the government debt that essentially bailed them out personally as well as the entire asset-owning class of people in this country.
With somebody like Bronwyn Bishop, you wonder if she actually understood the problem at all as it unfolded during te GFC, or if she was simply filling out more expense forms for more helicopter joyrides; but that is by the by. Amazingly, there are many people in the electorate who think the complaining-about-the-government-debt was somehow a legitimate intellectual position to hold, and voted for these knuckleheads.
It is then perhaps a great irony to see China - yes, that still ostensibly communist nation - hit a big road bump in its economic development, and for Australian export revenues to collapse, leaving this Coalition government with ever-diminishing revenue. Even at this juncture, the treasurer Scott Morrison is insisting there won't be a hike on taxes, just more cuts. This low taxation mantra too is looking like one of those bad ideas. Misreading the world going towards renewable energies and insisting on making coal the future of Australia is another one. The climate change denial to stick to that already bad idea of selling coal, is another one of those bad ideas. Other nations have committed to reducing carbon emissions by creating market mechanisms for it. Our nation has decided to go with "direct action" while w try and sell as much coal; 'Direct Action' is costly, inefficient and quite probably ineffective and it's another bad idea they're wedded to, because they argued so vehemently against the market mechanism - the ETS - which of course was a mechanism they themselves proposed when they were in with the Howard Government, so they couldn't back away from it once they had to have some kind of policy.
These interlocking set of bad ideas the Right is wedded to, can only be described as a Clusterfuck. Yes, we're living in a nation of one big Clusterfuck.
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.
It's been this growing disquiet all year around China. The cracks were showing but maybe the market was in denial. Or maybe they convinced themselves all was well in the face of the share market rises in Shanghai. After all, if the shares are rocketing up, something must be going right in the market, people figured. But slowly we kept hearing things that belied that simple understanding. We heard that the growth figures were not something measured, but more like aspirational targets expressed by the Communist central government, which would prompt everybody to chip in and hit the target. We had read reports of ghost cities built on borrowed money with price tags too high; and then of course there was this notion that China would simply move to a consumer-consumption driven economy.
This must be the month where it all went out the window because fear has gripped international markets and everybody'sselling out their positions. They're not even going to wait for October, they're going, getting right out. And so we're seeing the entire worlds' markets all retreating at once, one retreat feeding on to the next in the timezone domino of market collapses. It hasn't been quite like this since 2012, and quite honestly, it's sharing hallmarks of the 2007 collapse. It's all very ugly because the problems of 2007 haven't been solved enough to make us weather these moments better than 2007. And of course 2007 turned to the bailouts of 2008 and the rest fit has been about kicking cans down the road, which of course includes the Greek situation which is tethered to the rest of the PIIGS.
In short, we're on a clock of about 12 to 14 months before the Lehman Moment gets a sequel and people will scramble for bail outs - on the eve of a Presidential election. All the same, the most important notion is that this time, there's nowhere to go. They can't go below ZIRP to stimulate more credit growth; they can't cut taxes even more to stimulate consumption - that trick's already hit its limit; and none of the creditors can afford to let the debts go bad because it would blow up their own position - which last time prompted Quantitative Easing so people could get over the hump. "Moral Hazards" - and I say that with irony because you know it turned out that it was more important to save everybody's bacon than encouraging "Moral Hazards".
So depending on how badly this drop affects Australia and its consumer sentiment, you can count on the RBA to go to ZIRP, just to support asset prices. There's not much more they could do as the perfect storm hits for the second time in a decade.
Ouch. A few weeks ago, the ASX was hovering closer to 6000 than 5500. There was talk of a secular Bull Market forming, even though the earnings were not exactly like for what people had hoped. The splatting sounds you're hearing are leveraged investors leaping off the ledge. At least, it used to be in the 1929 crash. It's early days yet as investors will go on a big purge of companies carrying too much debt. The four major banks have beaten a retreat of 20% off their highs this year, just in this month, so this could transmogrify into something a bit scarier quickly. If you cast your mind back to 2008, when global credit totally seized up, there was talk that banks would fail and there would be a big run on banks. At the time Kevin Rudd stepped in by guaranteeing deposits and backing the banks to the hilt. He took lightning fast action to stave off the GFC induced collapse of banks.
This time, we're stuck with captain Snaily Failure in the Lodge, so we may not get a Decisive bit of action out of this idiot government until it's too late and even then it will likely be too little. Some ideologue - I'd guess Cory Bernardi or Eric Abetz - will bang on about moral hazard as Sydney and Melbourne property markets descend into carnage. Remember, we've got record private sector debt. A lot of positions are ready to burst if the margin calls are made. Hold on to your hats!
You Know What's Weird? Gold
Gold is a commodity as well as the metal by which currency used to be measured. Of course, none of the major currencies have the God Standard going, and it's been this way since Richard Nixon shocked the world and took the US Dollar of the gold standard. You'd think with this crisis brewing for the last few weeks that Gold would go up as people lost faith in equities and bonds and fiat currency notes. But no - it's been going down.
...which is weird.
So, in 2008, they start QE and you can understand the impulse to buy gold because, hey, they're "printing money". We would expect to see the sort of inflation that broke out in Germany between the war as it printed money to pay off the reparations for World War I. Now, inflation an the measurement thereof is a separate bugbear, but there simply hasn't been that kind of inflation going on. Instead the Central Banks have worried about deflationary pressures and so interest rates have plummeted to zero or near-zero in many advanced economies. Gold peaked at 2011, but has been sliding ever since - which I suppose suggests the inflation expectation is less than zero, and has been for a long time.
When you include the fact that gold actually has commercial uses beyond just being precious, then it makes sense that the Commodities collapse as well as the ongoing deflationary pressures has pushed gold down to this level we see today. What's weird is that if fear was really running around the globe, you would expect that gold price to jump.
