It’s time (a bit late 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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John Quiggin 
It’s like the coyote and the sheepdog toons- Mornin Ralph! Mornin Ralph!….Gnite Ralph! Gnite Ralph!…
“THE Federal Government is prepared to be on the nose with voters for not ordering banks to pass on an interest rate cut in full.
Deputy Prime Minister Julia Gillard said today the Government would continue to tell the truth on rates, even if it resulted in unpopularity.
“We’re prepared to take a poll hit to do the right thing,” Ms Gillard told the Nine Network.
The Reserve Bank of Australia will meet this week to decide on official interest rates.
Ms Gillard said the Government wanted to see Australians benefit from an official interest rate cut, but she stopped short of saying the banks should pass on any cut in full.
“We also know these are difficult times around the world, we want to make sure that our banking sector stays strong,” she said.
“A lot has changed in global credit markets in the last few weeks.”
The Opposition says the banks are profitable and can afford to pass on any rate cut in full.
Ms Gillard attacked this stance.
“We’re going to act in the national interest, no cheap politics for us, we’ll leave that to Malcolm Turnbull,” she said.”
And we’re all the poor hapless coyotes.
Anyone notice how they swap policies now depending on whether they are in govt or oppn.? It means we always get the same failed “economic rationalist” policies. OH well, I wonder if the coming economic depression, energy crisis, climate crisis, extinction crisis etc. will bring about more enlightened policies? I doubt it.
A $50 per tonne export levy on coal ticks all the right boxes. It is roughly consistent with the CO2 price of $20 flagged by Garnaut as a possible domestic ETS starting price. If tonnages were unaffected it would raise about $12.5 billion to finance Australia’s green shift. It tells Kyoto recalcitrant nations that carbon will have an extra price component. There is no mechanism for export customers to be excused on the grounds of offsets. It could reduce the need for more infrastructure such as rail and coal loaders. It takes Australia’s efforts at carbon reductions to the international stage instead of empty rhetoric.
I understand that current Japanese long term contract prices for thermal coal are around $70 per tonne so this is a 70% increase. Demand may however be inelastic as big coal importers have few options but to source from Australia for the next few years. Therefore I would like Mr Rudd to explain why we don’t export tax coal consistent with his avowed aims of global carbon reduction.
jquiggin on 23 September:
“On any reasonable interpretation of the terms, the US follows neoliberal policies while most EU countries are predominantly social democratic. In this sense, recent events represent a failure of neoliberalism.”
In view of the recent failure of financial institutions in EU social democratic strongholds like Germany and Benelux, etc. will the failure of social democracy in Europe now be heralded? I suspect not. I’m thinking it will be spun as something like the failure of the ‘EU model, C21’, which in reality is not ‘pure’ social democracy but one sullied in some way by neoliberal thinking.
BBB
I note Steve Keen is using the “D” word.
Quote.
ELEANOR HALL: How bad will it get?
STEVE KEEN: I did not want to call a depression until such time as enough people in the public were saying so, and when Bernanke and so were talking about that scale then I can say that’s what I’ve been expecting all along.
Unqoute.
Mrs Ikonoclast said the other night whilst watching the news, “All this talk about the market needing confidence is nonsense. Either the economy is sound or it isn’t.”
She’s right of course. Once people start bleating about the crucial importance of “confidence” you can be sure the fundamentals are shot to hell.
I agree with Keen’s view – a depression is an unfortunately good bet – where he has highlighted the unrelenting growth of unbalanced debt in Australia.
In Australia household debt (including mortgage etc) is the category killer…when I was working out near Epping in Sydney around 2004/2005 the local branch was offering 105% home loans. Imagine the damage inflicted if a household member becomes a downsizee.
As I’ve said previously, I don’t know why the previous government threw first homeowner grants of $14k at people during the housing boom. It probably didn’t do much to calm the manic mood in the housing market.
speaking as somebody without rich, multiple property owning parents, I sincerely hope that there is an almighty crash in the housing prices. maybe if the market totally collapses I might have a chance, one day, of home ownership.
I’m completely agree Gerard.
It took me and my wife (who are actually fairly well paid) six months to find a suitable rental when we last moved. Luckily, we had a caravan to stay in during that period.
I’ve lived in Europe and the US, and have never experienced anything as disparaging as trying to find affordable housing in Australia.
We have given up on owning our own place now, and are pretty much resigned to renting for the rest of our lives. The amount of debt we would have to take on, and the levels of interest we’d have to pay just don’t make any sense. I honestly don’t know how those without rich parents survive.
As twisted as it sounds, a depression would be good news for us in that respect, providing we were able to keep our jobs.
BBB
The European outlook is very bad indeed, in fact it could be much worse than the US.
http://www.moneyweek.com/news-and-charts/economics/why-europe-could-be-the-credit-crunchs-next-victim-13758.aspx
Half with you, gerard and scott. Except what we need isn’t a depression, but a civilised approach to tenancy. The more people can’t own, the more likely we’re going to build up some pressure for that to happen.
Australia changed over the last ten years. My in-laws worked in blue collar jobs and could afford a house with a backyard which they now own.
The other day I was speaking to a well paid Information Technology professional who is migrating from the US to Sydney. It did not even occur to him to buy a house.
I know some young people just coming out of school or in their early 20’s. They work in what are basically blue collar jobs. Unless something changes they will probably never own a house. The best they can hope for is to own or perhaps just rent some of the new second rate flats being built out in Western Sydney. Their kids will not have backyards and quiet streets but instead fire stairs and crowded, hot and noisy rooms.
Interesting stuff, sean. It would seem that the credibility of social democratic financial regulation is taking quite the beating. One wonders how social democracy will survive in its present form, at least in Europe. Oh wait, that’s right: if you nationalise things in a social democracy you can just pretend it’s all part of the plan…
BBB
Do you know not one of the enlightened social democratic models in EUrope have or never had anything like Fannie and Freddie, be it in their present or past states.
You would have thought the left would be really a keen supporter of such interventionist structures…oh wait a minute, they are.
http://www.spectator.co.uk/the-magazine/features/2189196/clinton-democrats-are-to-blame-for-the-credit-crunch.thtml
#12 Certainly, the contradiction is far from obvious, BBB.
Someone sent me images of the aftermath of cyclone Ike, and while viewing them the thought occurred to me: did cyclone Katrina have the effect of tipping the balance on mortgage defaults triggering the current US mortgage mess?
Re #13: It is sometimes helpful, I believe, to set political advocacy or rivalry aside and look for details. There is no better time to do this then times of ‘hype’, ‘fear’, ‘confidence’ or ‘lack of confidence’ and other alleged psychological states, ie. times like now.
According to the Sueddeutsche Zeitung, a reputable German newspaper, the Hypo-Real Estate bank problem is a liquidity problem. That is, Hypo and its Irish subsidiary Depfa lend long term and borrow short term. The short term credit markets are ‘dry’.
Source: http://www.sueddeutsche.de/finanzen/882/312793/text/
By contrast, the US Fannie May and Freddie Mac problem is (was) an insolvency problem due to bad debt (mortgage defaults).
The distinction between a liquidity and an insolvency problem is important.
However, the German bank KfW got into trouble because of its dealings with Lehman B. Allegedly, the management of KfW was asleep in some sense when it sent a payment transfer of about Euro300million to Lehman just before Lehman declared insolvency.
Source:http://www.sueddeutsche.de/finanzen/808/312721/text/
After reading this thread, I shudder to think at the size of economic and job losses that will be required before some economists admit that an unregulated finance market is a failed idea.