19 November 2007


The problems of the world economy are largely masked in Australia by the looming federal election. Mostly unreported here, sub prime mortgages continue to erode the balance sheets of the major US banks and hence contribute to the instability of the world financial system. The distortion of the system is obvious in the news that although the US$ cost of oil is nearing $100 bbl, the actual cost per barrel in Euros is dropping.

The proximate cause of this distortion is the support given to the $US by purchase at a fixed rate of the greenback by the Chinese and the Saudis. Economically this has the effect of joining the three countries together as a single economic entity.

My own guess is that the Chinese have tied to the $US because it has enabled them to export goods at competitive prices. The Saudi are probably tied to the $US because of a bitter historical lesson. Before the oil shocks of the 70s the Saudi were purchasing gold with their oil profits. During the oil price bubble the price of gold reached very high values. However when the oil bubble burst, and the Saudis sold gold because they needed money, the price of gold collapsed.

A short lesson from history. Before WWI the UK pound was the main reserve currency of the world. After WWII the pound depreciated because of a deterioration in the UK terms of trade, and lost that favored status. During the ministry of Margaret Thatcher and perhaps related to the mining of North Sea oil, the UK terms of trade improved and the pound recovered some respectability as a reserve currency.

The terms of trade of the USA are at the moment artificially inflated by the buying of $US by China and the Saudis. Unlike the UK example, the underlying economic strength and flexibility of the USA economy remains strong. Recent greenhouse legislation combined with poor worldwide grain harvests has caused an increase in the value of grain, an improvement in the economics of grain farming, and inflation in the price of food.

The result of all the above will probably be a deepening recession in the USA, resulting in diminished Chinese exports to the world, which will in turn result in a lower worldwide demand for minerals.

So Australians can expect a rude awakening when the election is over, and our journalists get back to reporting on the real world. Expect the minerals boom to collapse. That will stress out the employment market, and Australia will have it's own sub-prime crisis as real estate values diminish.

18 November 2007



When John Howard privatized Telstra, he expressed a vague notion that there should be competition in provision of telecommunication services. Greed got the better part. He neither spelled out in detail exactly how this should be achieved, nor did he (even more obviously) split Telstra into two companies, one for ownership of the copper, one for everything else.

This ambiguity has come back to bite him. Quite rightly, CEO Sol Trujillo wishes to ascertain (in the High Court) exactly what are the groundrules. A compliant Ziggy (the previous, Howard appointed CEO) leaned over backwards and did what the government suggested.  Ziggy has gone to other things, which I suspect will not last very much longer that the Howard Government.

The High court is considering the issues and is expected to reach a conclusion within six months. Are they going to rob the investors, who paid a price for the shares based on a hazy apprehension of ownership of the monopoly local loop, or are they planning to allow free reign to monopoly power?

King Solomon in his famous judgment suggested cutting the baby in halves. Might I suggest the same option to our High Court Judges?

Telstra should be made to sell off the local loop, a bit like the Baby bells got spun off in the USA. State or preferably local government should fund the purchase by issuing bonds. That way all the telcos (Optus, Telstra Vodaphone etc) would pay the same rate for line rental, and the wholesale price of installation and rental of the local loop would be set by local government.

It would be interesting to see what response the hint that such a judgment might be made would elicit.


According to the opinion polls, Kevin Rudd has captured and holds the imagination of the Australian people. After nearly a year, the Labour party is consistently polling victory.

I do not think that another Tampa will jump out of the hat.

John Howard, you have one cast of the die left. How can you bias them? Whatever plan you adopt:

1) It must be simple, so that voters instantly appreciate what is being offered.

2) It must be unstealable by KR.

OK. Here is a plan.

I suggest that you propose a referendum on direct democracy. The packaging is important. Call it a referendum on "CIR" (Citizen Initiated Referendum, a la Pauline) or Citizen Initiated Legislation, or "Proposition" after the Californian model. Add in a Schwartzenegger amendment, so that the people can prorogue parliament if they get sufficiently annoyed by something the government does.

Such an initiative meets both requirements. It is simple, and Rudd is unlikely to copy it because it would result in a Pyrrhic victory, at a time when he is tasting a slaughter.

It's just a thought.

But sell it hard, and make it watertight the first time. If it is ambiguous then Kevin will say "me too". It has to be unambiguously poisoned right from the start.

And think of the legacy for democracy that you would leave.

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