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Weekend reflections

December 12th, 2008

It’s time once again 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. SJ
    December 12th, 2008 at 22:33 | #1

    NSW water minister Phil Costa put out a press release about a month ago that to my knowledge went completely unreported anywhere.

    According to Costa, Sydney has been getting 30% of its water supply from the Shoalhaven river for the last five and a half years. (I think this is wrong, five and a half years ago is when the transfers from the Shoalhaven started in earnest, and the current level is about 30%, but the levels in earlier years were lower).

    So he’s decided to suddenly cut off the 30% of Sydney’s water that currently comes from the Shoalhaven.

    The practical effect of this is that the levels of the dams supplying Sydney will run down quite rapidly over the next year or two, by which time the two billion dollar white elephant desalination plant will have been completed.

    The lower dam levels will enable the idiots running the NSW government to claim that their stupid decision to go ahead with the desalination plant really was justified afterall.

  2. MH
    December 13th, 2008 at 06:00 | #2

    Interesting trip through NSW this past week. Bulk haulage trucks carting grain everywhere you went. Meanwhile in the back blocks near Werris Creek a quite large number of wheat/grain carriages were being cut up for scrap, guess they are no good for coal and explain why Pacific National had no capacity to carry grain in NSW this year. Meanwhile the NSW Government ignores the pleas of farmers on the Liverpool plain who grow the best Durham wheat in the country and is the bread basket for NSW to not allow BHP-Billiton to dig down through the acquifer that makes the Liverpool plains such an extraordinarily productive area, so they can long wall mine coal. The NSW Government is not merely criminal it appears to be reading the Mugabe handbook on how to govern, insanity.

  3. TerjeP
    December 13th, 2008 at 06:02 | #3

    If you haven’t see Peter Schiff talking about the “impending” financial crisis in 2006-2007 footage then it is worth a watch. Especially for the stock tips offered by some of the comentators. In hindsite it is both very amusing and also somewhat tragic.

    You can find out more about the man at Wikipedia including who he backed for president. ;-)

  4. Hermit
    December 13th, 2008 at 07:35 | #4

    I note among the infrastructure projects is the Hunter Valley railway which should double NSW coal production. That’s another 400 million tonnes of CO2 per year. Even as world oil production declines 6% a year new highways will be built for all the extra trucks and cars. Each tonne of cement used will produce more than a tonne of CO2.

    What a disappointment Rudd has been on the climate front. As we twiddle our thumbs for the whole of 2009 waiting for big things in 2010 I think we should reflect that at least Howard was not a hypocrite.

  5. carbonsink
    December 13th, 2008 at 08:10 | #5

    TerjeP @ 3:

    Yes the Schiff video is a classic. Unfortunately most of the (hopelessly wrong) Fox News and Fox Business commentators still appear daily, and regularly predict an imminent bottom.

    Schiff OTOH is still largely ignored by the mainstream media, as is our own Peter Schiff, Steve Keen.

    Meanwhile Calculated Risk is reporting that ISI’s Ed Hyman is forecasting 2% growth for China in Q3 and negative 1% in Q4 2008. What was unthinkable just a month ago — a recession in China — has entered the realm of the possible.

  6. Salient Green
    December 13th, 2008 at 08:40 | #6

    SJ #1, just to add fuel to your fire, Sydney Water’s own estimate of a water recycing plant was half the cost of the desal plant and used one third of the energy.
    http://www.greenleft.org.au/2006/655/7472

    Recycling water, and storm water in particular can take up a fair bit of space which in the minds of our stupid, growth fetishist leaders should be filled with buildings and car parks.

  7. gerard
    December 13th, 2008 at 22:04 | #7
  8. TerjeP
    December 13th, 2008 at 23:45 | #8

    Carbonsink – Thanks for the tip. I took a look at Steve Keens blog and I thought it worth a bit of a plug so I integrated it into an article along with the footage of Peter Schiff.

    http://alsblog.wordpress.com/2008/12/13/who-saw-the-financial-meltdown-coming/

    Peter Schiff seems to be of the Austrian school. As I note in my article it would be interesting to see a discussion between Peter Schiff and Steve Keen. Would they agree on the technicalities?

  9. Socrates
    December 14th, 2008 at 08:42 | #9

    TerjeP

    Thanks for the link to the Schiff video; it was great. I thought it quite funny that the first person to argue with him was Arthur Laffer of Laffer Curve fame – why does anyone listen to him?

    This suggested debate between Keen and Schiff raises an interesting question about what the solution is. Do we stimulate spending or stimulate investment? In the short term I presume it has to be the former, but surely we must do the latter to really fix the mess?

  10. rabee
    December 14th, 2008 at 09:45 | #10

    I’m now wondering what the effects of the Bernard Madoff scandal are going to be. It is likely that this will spell the end of unregulated hedge funds and will accelerate the sell-offs of the assets of these funds.

    If the reports are accurate, then his scheme has lost $50bn dollars. In years gone by that would have registered as a massive loss.

    It is crucial that the financial side of the crisis be stabilized; if that happens, then the rest of the economy should sort itself out. These new revelations have taken us one step back in this regard.

  11. Joseph Clark
    December 14th, 2008 at 10:54 | #11

    rabee,
    Do you think it is desirable that hedge funds be more regulated? Hedge funds are good for liquidity (many securities simply would not trade without their participation), provide a cheap source of insurance (particularly price volatility and credit), and protect against mispricing. Increasing regulation on hedge funds would be a big step backwards away from a complete market.

  12. Socrates
    December 14th, 2008 at 11:50 | #12

    Joseph Clark

    But aren’t your arguments in favour of hedge funds highlighting some of their problems? Insurance shouldn’t be cheap, but realistically priced, or people will stop making realistic risk management decisions. Under-priced insurance is one of the causes of the current crisis – people thought they could too easily insure away risk, and so stopped managing it properly. Meanwhile those who had offered the under-priced insurance were incapable of delivering on their obligation, making the “coverage” worthless when a crisis happened. I don’t see how hedge funds can be said to protect against mis-pricing in this case. They seem to have contributed to the asset price bubble. Apology if I have misunderstood what you are suggesting.

  13. Michael of Summer Hill
    December 14th, 2008 at 15:18 | #13

    John, many would agree with Joseph E. Stiglitz’s claim that “We are all Keynesians now” except for those few die-hard neo-conservative illywackers who still cannot figure out went wrong on the 24 November 2007 and refuse to accept that the neo-conservatives have ‘no answer’ to the current global financial crisis.

  14. TerjeP (say tay-a)
    December 14th, 2008 at 15:29 | #14

    Michael – thats a rather binary outlook in terms of the worldviews that are on display in the world. I suppose some people prefer a simple black and white, good and evil, outlook such as yours. Personally I see a broad spectrum of positions and ideas on offer in the world.

  15. Michael of Summer Hill
    December 14th, 2008 at 15:36 | #15

    John,if I may reply to TerjeP by asking how would the free market fix itself?

  16. December 14th, 2008 at 16:26 | #16

    Testing, to see if this will go through without a link.

  17. carbonsink
    December 14th, 2008 at 16:56 | #17

    TerjeP and Socrates:

    As luck would have it, Schiff and Keen appeared together on SBS dateline a few months back.

    Both Schiff and Keen would agree that there’s very little the authorities can do avoid a serious recession/depression. Neither support a Keynesian fiscal stimulus. Keen sees the outcome as deflationary, Schiff as hyperinflation. Keen advocates debt moratoria. Schiff would let the market do what it needs to do.

  18. Socrates
    December 14th, 2008 at 21:14 | #18

    Carbonsink

    Thanks. Instead of a stimulus (to boost demand) what about investment to increase productive capacity? That would seem to fit both their views.

  19. carbonsink
    December 14th, 2008 at 22:25 | #19

    Socrates:

    You can read Peter Schiff’s thoughts here.
    You can read Steve Keen’s thoughts here.

    You decide :)

    I lean towards Steve Keen’s view of the world, because Schiff’s market fundamentalism turns me off.

  20. Jill Rush
    December 14th, 2008 at 22:48 | #20

    #4 Just because one politician turns out ot be hypocritical doesn’t mean that John Howard wasn’t. The sad thing was that on many fronts he spoke with a forked tongue. Rudd on the other hand speaks in riddles.

  21. TerjeP
    December 14th, 2008 at 23:40 | #21

    Carbonsink – thanks for the link. On the SBS program they did seem to have a lot of common ground but they also seem to be struggling somewhat with the others characterisation of the prime causes.

    Not surprisingly I lean towards Peter Schiffs view of things because I’m inclined towards market fundamentalism. However I’m not dismissing out of hand the idea that Keen has something to contribute.

  22. Joseph Clark
    December 15th, 2008 at 10:01 | #22

    Socrates@12,
    I’m very happy if a bunch of hedge funds want to provide cheap insurance to the rest of us. My insurance can never be too cheap. If you are worried about counterparty risk you just need to ensure the trades are margined better. Making credit derivaties exchange traded would be helpful in this respect. Banning people from trading credit risk would not be helpful.

  23. carbonsink
    December 15th, 2008 at 10:18 | #23

    Keen believes that capitalist economy is inherently unstable, and will swing between euphoric and depressed states. During relatively stable periods (say the mid 90s) investors and bankers are encouraged to take on more and more risk and debt (because returns have been so reliable and stable) which will move the economy into a euphoric period (e.g. dot com bubble) when normal standards of risk management and gearing levels go out the window. Inevitably there is crash and investors and bankers become very risk averse, bankers are extremely cautious about lending and investors, businesses and consumers direct much of their income to saving and paying down debt.

    Sound familiar?

    Schiff believes the usual market fundamentalist nonsense that all distortions in the economy are due to government interference, the market is perfection itself, and will naturally sort out everything if you just leave it alone.

  24. smiths
    December 15th, 2008 at 11:29 | #24

    at the moment the conversation is about the problems with dr jekyll, when are we going to do something about mr hyde

    The role and importance of illicit financial flows are poorly defined and not well understood.

    http://www.gfip.org/storage/gfip/rwb ej winter 228 commentaire piece.pdf

  25. Jim Birch
    December 15th, 2008 at 11:56 | #25

    There’s an interesting example of the irrationality of markets in the Coding Horror blog.

    Either that, or it’s just plain a scam. Libertarians might see things differently.

  26. O6
    December 15th, 2008 at 12:33 | #26

    Talking of scams…
    Now that the Federal Gov’t has dropped Telstra from the broadband tender, can all you economists tell me whether I’m right to feel pleased?

  27. TerjeP (say tay-a)
    December 15th, 2008 at 12:58 | #27

    Jim,

    I believe the example you cite involves people being irrational not markets. And we don’t need such obscure examples to know that people are frequently irrational. All we need to do is take a look at who they elect. Democracy and markets both enable stupidty, however that doesn’t mean that democracy and markets are a bad idea.

  28. Jim Birch
    December 15th, 2008 at 13:56 | #28

    TergeP

    I don’t think that when people say markets are irrational they mean the abstract entity is irrational in personal sense either. Aren’t they saying that people are being irrational (en masse)?

    The example quoted is a market of sorts but designed to enhance, or at least mask, the irrational response of the punters. However, the rules are plain. It’s an interesting design; simple but too difficult for a lot of people.

    As for markets and democracy, I agree it doesn’t necessarily make them a bad idea, or a good one either, the evidence is mixed. And our response can be mixed too – I think were more-or-less capable of that. The libertarian comment was meant to indicate that some people would find it ok a priori.

  29. Michael of Summer Hill
    December 15th, 2008 at 14:17 | #29

    John, today Rudd outlined the long awaited White Paper on how the government will tackle climate change and reduce emissions. For those who had high expectations of the Rudd government doing the wright thing must now feel bitterly disappointed. And pissing on the Greens did not help and nor is not smart politics. However, I must say it is a start in the wright direction even though I disagree with rewarding bad behaviour and handing out free permits to the worst polluters in this country when there are better ways of doing business.

  30. Alanna
    December 16th, 2008 at 19:54 | #31

    O6

    re Telstra being dropped from the tender – confess to being secrtely pleased myself. Have only been on the phone for HOURS AND HOURS AND HOURS – sent sideways, disconnected, queues, sub intellectual voice answeringb systems (got that decoded – you have to say operator 3 times) recently when I moved just to disconnect and it didnt happen when it was supposed to happen, and it didnt happen at the price it was supposed to happen, and people came for the wrong line on the wrong day when they werent supposed to come. I have a conspiracy theory that Telstra doesnt care about me or my time and Sol Trujillo acts like one of those Mad Mexicans from the movie ” the good, the bad and the ugly.” Remember the three way shoot out – well Sols got his guns pointed in two directions; the government and the consumers.

    Yep – secretly super happy. Id be happier if they turfed them out and bought it back though. A bit like State Rail – I note “functions are being brought back in house” following scathing report on corruption in todays SMH. So the Private tender process for track and train maintenance went askew? Maybe we can buy back communications too and should. Enough of the Telstra shenaningans. They are lucky to be earning their overpriced remuneration packages for pathetic service as is.

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