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Weekend Reflections

October 24th, 2008

It’s time (on time for once) for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.

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  1. smiths
    October 24th, 2008 at 14:49 | #1

    recognising that the banksters are not the only enablers of the faux crisis,
    here is something about the big 4 accounting firms,
    all domiciled in tax havens, all complicit in the mega frauds that initiated this rolling debacle,

    Yesterday’s appointment of Big 4 accounting firms PricewaterhouseCoopers and Ernst & Young to oversee the $700 billion Wall Street bailout program is a slap in the face to the American taxpayer. PricewaterhouseCoopers has been appointed auditor for the bailout program under which Treasury will buy billions of dollars worth of preferred stock in a move to help recapitalize struggling banks. Ernst & Young will provide general accounting support.

    retheauditors.com/2008/10/treasury-appoints-pwc-and-ey-wolves-are.html

  2. smiths
    October 24th, 2008 at 14:54 | #2

    and on another tangent,
    for those that mocked the idea that some were doing well out of this situation …

    “There is still an exceptionally large speculative pressure on the forint. We will take every measure necessary,” he said. It is unclear whether the move will prove enough to prevent a forced devaluation.

    There is a risk is that hedge funds will pick off those East European states with big current account deficits that rely on foreign financing, smashing the pegs or ‘dirty-floats’ one by one.

    Veterans of the ERM crisis in 1992 say the process could spiral out of control quickly. If hedge funds taste blood knocking out the pegs in Eastern Europe, they may turn their attention to those eurozone states inside that have rely on foreign funding to plug their huge deficits – notably Spain, Portugal, and Greece.
    telegraph.co.uk/finance/financetopics/financialcrisis/3243058/Crisis-mounts-in-East-Europe-after-shock-3pc-rate-rise-by-Hungary..html

    who exactly are these ‘funds’ that are, amid the great crisis of 2008, attempting to bankrupt nations for profit?

  3. smiths
    October 24th, 2008 at 15:07 | #3

    sorry to bombard everyone like this but theres a lot to look at today

    thi is a video that syncs howard and harpers identical 2003 speeches on iraq

    i think the question, who wrote their speeches? is a legitimate one,
    or was it … a coincidence

    brasschecktv.com/page/439.html

  4. Damocles
    October 24th, 2008 at 15:57 | #4

    Project Better Place is coming to Australia.

    http://www.physorg.com/news143984062.html

    A US firm Thursday unveiled plans to build a massive one-billion-dollar (667 million US) charging network to power electric cars in Australia as it seeks cleaner and cheaper options to petrol.

    Better Place, which has built plug-in stations for electric vehicles in Israel and Denmark, has joined forces with Australian power company AGL and finance group Macquarie Capital to create an Australian network.

  5. Damocles
    October 24th, 2008 at 16:07 | #5

    Concerning the current run on cash management funds, I don’t think the funds should receive the same guarantee as savings banks but I do think the government could do more to assist the investors.

    The most obvious mechanism would seem to be for the Commonwealth to buy new commercial paper issued by the funds or to encourage the major banks to do so.

  6. Donald Oats
    October 24th, 2008 at 17:38 | #6

    The previous government’s officials supplied the Australian enemy with funds via AWB kickbacks. Surely someone somewhere knew what they were doing? Will the current government continue the investigation or let it slide away?

  7. Joseph Clark
    October 24th, 2008 at 17:39 | #7

    Damocles,
    If they do that I’m going to drop everything and start issuing enormous amounts of debt. If the government refuses to buy it I’m going to complain loudly about how the government only takes care of its corporate fat-cat mates.

  8. SJ
    October 24th, 2008 at 18:56 | #8

    How about we spend some money on infrastructure?

    NSW Premier Nathan Rees has asked the feds for $4bn to fund a CBD Metro Line from Central to Rozelle.

    Sounds like a good idea to me. Should pay for itself easily. Let’s do some back-of-the-envelopes.

    Taking a WACC of 8%, we’d need about $320m/year or about $1.2m/workday to cover out cost of capital.

    Let’s be generous, and say that we can make $5 profit out of each return trip (the equivalent bus fare is between $4.80 and $6). That means we only need to carry 240,000 return trip passengers each day.

    All we need to do is to get every single person who works in the CBD to move to Rozelle, or by some other means increase the population of Rozelle by a factor of about 35, and make them all work in the city.

    Oh, and get rid of the already existing Sydney Metro Light Rail, which runs between, you guessed it, Central and Rozelle.

    Nathan Rees – what a freakin’ genius!

  9. MontyA
    October 24th, 2008 at 20:16 | #9

    Smiths, consensus opinion I have read is that quite a few Hedge funds are finding themselves in deep doo-doo. As usual in this crisis nobody really knows how many and what the effect will be if and when distressed sales of their assets occurs.

    On the other hand, there are quite a few Hedge funds have made a killing and you can be sure some are lining up currencies to short.

    Countries with a currency that was propped up by high interest rates with high external debt and a long history of current account deficits such as in Iceland, Spain, Turkey etc. seem to me to be very vulnerable to heavy shorting of their currencies.

    Whoops, Australia had all those during the super cycle high demand and prices for minerals, which of course was enriching us all. Now we have collapsing demand and prices for minerals and a mother of all property bubbles about to go pop just for good measure.

    We have seen Iceland’s currency collapse to a point where the country is bankrupt. The question is will Australia follow?

  10. SJ
    October 24th, 2008 at 20:23 | #10

    But that’s not all. The CBD Metro Line is just stage 1 of the North West Metro project. That’ll make things even better.

    It’ll add an extra 14,000 round trip passengers per day (warning, big .PDF, see p.13), and only cost an extra $8bn.

    Let’s rerun some more realistic back-of-the-envelopes.

    Say that instead of 14,000 passengers per workday, we get wildly lucky and get 50,000/workday. Say that over and above the operating and maintenance costs, we can extract $10 per round trip that we can put towards capital costs. That gives us $0.5m/workday to defray capital costs of $3.6m/workday, which then requires an ongoing subsidy of only about $800m/year, or only $16,000 per passenger per year.

    Either that, or we could buy each of the 50,000 people a new car. Every year. Forever.

    Nathan Rees! Genius!

  11. pablo
    October 24th, 2008 at 20:57 | #11

    Nathan Rees, avid cyclist was reported earlier this week having a congestion tax under consideration for Sydney CBD. Let’s see now. Collection points on the the Harbour bridge, ANZAC bridge, Parramatta and Princes Hwys, Eastern Distributor, Gen. Holmes Drive, South Dowling St, all exits from Centennial Park.. 200 000 cars a day at $20…$4 million…$1.2 billion a year. CBD Metro, NorthWest Metro, 2018 World Cup skies the limit. To borrow from SJ.. Nathan Rees IS a genius. Full stop. We’re with you mate.

  12. SJ
    October 24th, 2008 at 21:16 | #12

    That probably is a good idea, though, pablo.

    The thing about the North West Metro is that it really isn’t a good idea.

    Charles River Associates estimate that the optimal subsidy for CityRail is about $1bn/year for the existing 900,000 passengers/day across the whole network, which is less than the existing subsidy of about $1.6bn/year. But let’s say that $1.6bn is the right number for 900,000 passengers/day.

    To add an extra (at least) $800m/year subsidy for an extra (realistically) 14,000 passengers/day is pretty, um, stupid, no?

  13. SJ
    October 24th, 2008 at 21:27 | #13

    There’s a mistake above. The 900,000 passengers/day should be halved to 450,000 round trips/day before comparing with the 14,000 passengers/day figure from the Transport Infrastructure Development Corp.

  14. October 25th, 2008 at 10:54 | #14

    Posted on a new blog: http://chriswhiteonline.org

    “The Depression: A Long-Term View” by Immanuel Wallerstein

    The depression has started. Journalists are still coyly enquiring of economists whether or not we may be entering a mere recession. Don’t believe it for a minute. We are already at the beginning of a full-blown worldwide depression with extensive unemployment almost everywhere. It may take the form of a classic nominal deflation, with all its negative consequences for ordinary people. Or it might take the form, a bit less likely, of a runaway inflation, which is simply another way in which values deflate, and which is even worse for ordinary people.

    Of course everyone is asking what has triggered this depression. Is it the derivatives, which Warren Buffett called “financial weapons of mass destruction”? Or is it the subprime mortgages? Or is it oil speculators? This is a blame game, and of no real importance. This is to concentrate on the dust, as Fernand Braudel called it, of short-term events. If we want to understand what is going on, we need to look at two other temporalities, which are far more revealing. One is that of medium-term cyclical swings. And one is that of the long-term structural trends.

    The capitalist world-economy has had, for several hundred years at least, two major forms of cyclical swings. One is the so-called Kondratieff cycles that historically were 50-60 years in length. And the other is the hegemonic cycles which are much longer.

    In terms of the hegemonic cycles, the United States was a rising contender for hegemony as of 1873, achieved full hegemonic dominance in 1945, and has been slowly declining since the 1970s. George W. Bush’s follies have transformed a slow decline into a precipitate one. And as of now, we are past any semblance of U.S. hegemony. We have entered, as normally happens, a multipolar world. The United States remains a strong power, perhaps still the strongest, but it will continue to decline relative to other powers in the decades to
    come. There is not much that anyone can do to change this.

    The Kondratieff cycles have a different timing. The world came out of the last Kondratieff B-phase in 1945, and then had the strongest A-phase upturn in the history of the modern world-system. It reached its height circa 1967-73, and started on its downturn. This B-phase has gone on much longer than previous B-phases and we are still in it.

    The characteristics of a Kondratieff B-phase are well-known and match what the world-economy has been experiencing since the 1970s. Profit rates from productive activities go down, especially in those types of production that have been most profitable. Consequently, capitalists who wish to make really high levels of profit turn to the financial arena, engaging in what is basically speculation. Productive activities, in order not to become too unprofitable, tend to move from core zones to other parts of the world-system, trading
    lower transactions costs for lower personnel costs. This is why jobs have been disappearing from Detroit, Essen, and Nagoya and factories have been expanding in China, India, and Brazil.

    As for the speculative bubbles, some people always make a lot of money in them. But speculative bubbles always burst, sooner or later. If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be – the U.S. Treasury and Federal Reserve Bank, the International Monetary Fund, and their collaborators in western Europe and Japan – have intervened in the market regularly and importantly – 1987 (stock market plunge), 1989 (savings-and-loan collapse), 1997 (East Asian financial fall), 1998 (Long Term Capital
    Management mismanagement), 2001-2002 (Enron) – to shore up the world-economy. They learned the lessons of previous Kondratieff B-phases, and the powers that be thought they could beat the system. But there are intrinsic limits to doing this. And we have now reached them, as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.

    In the past, once a depression wreaked its havoc, the world-economy picked up again, on the basis of innovations that could be quasi-monopolized for a while. So, when people say that the stock market will rise again, this is what they are thinking will happen, this time as in the past, after all the damage has been done to the world’s populations. And maybe it will, in a few years or so.

    There is however something new that may interfere with this nice cyclical pattern that has sustained the capitalist system for some 500 years. The structural trends may interfere with the cyclical patterns. The basic structural features of capitalism as a world-system operate by certain rules that can be drawn on a chart as a moving upward equilibrium. The problem, as with all structural equilibria of all systems, is that over time the curves tend to move far from equilibrium and it becomes impossible to bring them back to equilibrium.

    What has made the system move so far from equilibrium? In very brief, it is because over 500 years the three basic costs of capitalist production – personnel, inputs, and taxation – have steadily risen as a percentage of possible sales price, such that today they make it impossible to obtain the large profits from quasi-monopolized production that have always been the basis of significant capital accumulation. It is not because capitalism is failing at what it does best. It is precisely because it has been doing it so well that it has finally undermined the basis of future accumulation.

    What happens when we reach such a point is that the system bifurcates (in the language of complexity studies). The immediate consequence is high chaotic turbulence, which our world-system is experiencing at the moment and will continue to experience for perhaps another 20-50 years. As everyone pushes in whatever direction they think immediately best for each of them, a new order will emerge out of the chaos along one of two alternate and very different paths.

    We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times.

    As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms. And we are moving into acute social conflict within states, as everyone competes over the smaller pie. In the short-run, it is not, by and large, a pretty picture.

  15. October 25th, 2008 at 12:47 | #15

    “In terms of the hegemonic cycles, the United States was a rising contender for hegemony as of 1873…”

    Not that early, maybe by the 1890s. It actually passed Britain alone in GDP around 1890 (I don’t have the data to hand), but each of Germany and the whole British Empire somewhere just after 1900. All you could pick in 1873 was the trend, with no certainty or even reasonable belief (then) that something else wouldn’t come up. The picture is further muddied by how much European investment actually went into the USA and would have remained European assets if not for the sovereign risk that took it away.

  16. October 25th, 2008 at 13:33 | #16

    I hope this is OK John, but some of the blogocrats from Tim Dunlop’s blogocracy have assembled over at blogocrats.wordpress.com to keep the community going.

    Reb and myself are trying to capture the flavour of the blog that Tim ran so well, so if anyone want to come and play, we’d make you more than welcome.

    joni

  17. Michael of Summer Hill
    October 25th, 2008 at 14:41 | #17

    John, it seems like Obama will be having his hands full when he takes over the reins as President, for talk of a deep recession on top of the other domestic problems may well see the US unemployment rate rise to 10% or more and is not a good sign of future things to come.

  18. Jill Rush
    October 25th, 2008 at 22:26 | #18

    Alan Wood in wrote “From Hayek to Rudd” for the Australian on the 24 October.

    He says,

    ” If the Rudd Government does decide to charge a fee on large deposits, it would be wise to allow investors to exercise choice about whether they want a guarantee. To do otherwise would be to penalise investment decisions made before any decision to offer a guarantee on deposits was made, and also investors who switched money into bank deposits from other investment vehicles since the announcement.”

    Does this qualify as special pleading? The article itself argues that risk taking behaviour has caused the current situation. There must be a lot of dangers in adopting the proposed approach. In what way would it be a wise move?

    Why is equity suddenly such an important principle when this is not the basis of free trade, which Wood suggests isn’t to blame? Does Alan Wood make sense on any level? Surely, the concept of a capitalist economy is that there are winners and losers and that there is no equity, only profit and loss.

  19. observa
    October 26th, 2008 at 00:10 | #19

    Well Jill, the concept of a capitalist economy is that owners of equity(capital) are the best judges of the uses to which it is put i.e. returns that are win/win for all. That is predicated on real values in exchange and real returns, that are not continually clouded by unreal nominal values, patronage and rent-seeking as a result. Then Govt and central bankers step in.

    As for “Does this qualify as special pleading?”
    No, it qualifies as minimising the fallout from distorting govt patronage, that was cooked up hastily to try and redress the folly of central bankers in the first place. Naturally the world of finance stops while the govt works out the finer details of who to anoint as winners and losers.

  20. Damocles
    October 26th, 2008 at 08:38 | #20

    The US housing market, which was one of the proximate causes of this whole mess, looks like it may be picking up.

    “The good news is that the National Association of Realtors said sales of existing-home sales–including single-family, townhomes, condominiums and co-ops–for September jumped 5.5 percent higher over the previous month. They are1.4 percent higher than September 2007. That’s the first time that sales have risen compared to a year earlier since November 2005.”

    “Let’s look at another NAR measure: its “pending sales of existing homes” index most forward-looking barometer of residential sales because it records a sale when a contract is signed, rather than at closing, which can be months later. In August, the latest month available, it rose 7.4 percent over July. More significantly, that’s 8.8 percent higher over August 2007.”

    http://www.realclearpolitics.com/articles/2008/10/a_turn_in_the_housing_market.html

  21. smiths
    October 26th, 2008 at 11:51 | #21

    “I check RealClearPolitics every day. It is the best collection of political commentary on the web.” – Brit Hume, FOX News

    it used to be a picture, but often now, a link is worth a thousand words

    the US housing market is not picking up damocles,

    no links offered, none needed

  22. Damocles
    October 26th, 2008 at 14:59 | #22

    Link to the National Association of Realtors:

    http://www.realtor.org/research/research/ehsdata

    But I’m sure their part of the conspiracy too.

  23. smiths
    October 26th, 2008 at 15:20 | #23

    its not a conspiracy damocles,

    every respectable measure in the US shows increasing levels of defaults, banks arent loaning money and people are losing their jobs at an increasing pace

    its simply ridiculous at this point to say, as that right-wing shitpipe does, that the market may be picking up

    and the surge is working, and the fundamental are sound …

  24. Damocles
    October 26th, 2008 at 20:38 | #24

    The US median house price is doen roughly 8% over the past year.

    Sales volume is up.

    Those are facts.

    Your opinions are not.

    Feel free to provide facts to support those opinions.

  25. Damocles
    October 26th, 2008 at 21:31 | #25

    Fro the past several years, I’ve been predicting the US was heading for a recession. for me trouble I was abused as a communist, a Stalinist, a shill for the Democratic Party; anti-American etc, ad nauseum by rightwingers.

    Now, when I suggest that we won’t actually be eating each other by this time next year, I’m subject to similar attacks from the left (and from rightwingers who’ve reinvented themselves overnight as “Austrians” ).

    What is common to both circumstances is that I dare to dispute the ideological prejudices of the respondents.

    As to the assertion that “banks aren’t lending money”.

    http://www.economist.com/finance/displaystory.cfm?story_id=12480863

    “One indicator of its health is the price that banks say they expect to pay to borrow money for three months, which is usually expressed as the London Interbank Offered Rate (LIBOR). These have been ticking down slowly, often by only fractions of a percentage point a day. Yet on October 21st the rate for borrowing euros passed an important milestone, falling to 4.96%, a level last seen before Lehman Brothers collapsed in mid-September. The LIBOR spread over three-month American Treasury bills has also narrowed sharply (see chart). This week’s improvements were partly stirred by the latest lavish intervention from the Federal Reserve. It made available $540 billion to buy assets from money-market funds, to encourage them to start buying commercial paper issued by banks and companies again.”

    “More importantly, money is once again starting to flow through the system. “Compared with three weeks ago borrowing volumes are up by as much as ten times,â€? says Tim Bond of Barclays Capital.”

  26. Jill Rush
    October 27th, 2008 at 07:05 | #26

    Thanks Observa, In the context of the article the equity argued for was a kind of equality with others rather than financial equity.

    I am still not convinced that the winners and losers model is not in direct conflict with an equal outcome model.

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