ARCHIVES 1997-2007  --- ARCHIVES 2007 +

8th September. Union Boys & Politics.

Australians do not seem to like it when one party gets too many slots in the power structure.    My opinion, I think that Don Chipp had the goods.  We like to "keep the bastards honest".  And if it hadn't been for the great betrayal by Meg we would still have the Democrats in the Senate as a major political force.That is why Howard stayed in power so long.  Labour dominated State governments, so the Australian people gave the LCP the Federal slot.

I suspect that the union boys explanation for Rudd's win was that we (the ozzie people) didn't like the "work choices" legislation, or maybe we just thought Kevin was a nice bloke, or perhaps (because they did spend a LOT of money) we were persuaded by the advertising against "work choices".

Kevin is increasingly being seen as a political ninja.  He disciplined and focussed to kill John Howard (electorally).  John Howard is increasingly being seen after his political demise as one of the greatest Australian politicians (well except for maybe Ming) ever.  But when it comes to governing, Kevin lacks originality.  He seems to be a one shot wonder.  This is no doubt obvious to the front bench union boys.  Kevin is not a union boy, and I suspect that the knives are being sharpened.

On the Federal scene it is difficult to penetrate whether the Sussex street union boys still pull the strings.  Those past union bosses mostly are now sitting on the Federal front bench.  Their motives are changing from when their meal ticket came from union dues.  They are no doubt taking note of what is happening to the union boy (Labour) state governments in NSW and WA.

In WA the labour government opportunistically called a snap election to take advantage of a new Liberal leader who had thought it was a big joke to publicly sniff the chair where a hot female had been seated.  This crass behavior did not go well with the electorate.  However the Libs rapidly brought back a retiring leader with impeccable credentials, and now the Labour party have lost their majority.  Some say the loss was about Labour being too clever.  Others think it might be the Rudd effect.

In NSW the Labour premier (Ioemma) and his treasurer have resigned.  The NSW union boys (see Iguanagate post) are probably responsible.

This confluence of events and Kevin's waning popularity make me wonder just how long it will be before he is replaced, possibly by Simon, although there are a few other union boys front benchers who might fancy their chances.  (I think it is probably too soon, but Simon's star is waning with time.)  I think Kevin will last a bit longer.  The economy is degrading rapidly (partly due to the union boys' legislative initiatives).  Most "would be" leadership challengers would probably think it would be better to wait till that economic contraction has run it's course, then take over & take the credit as the economy stabilizes with higher unemployment (and a more highly unionised workforce).

15th September.  Prediction on Oil & Forex rates.

Back on 15th August I noted that the $AU and the price of oil had fallen drastically.  I reasoned that the fall was due to China's Olympic pollution cleanup effort.  Those Chinese pollution restrictions are due to be eased about now.

I am not too surprised that the world's financial journalists did not manifest a similar explanations for the rising $US and falling oil price.

If you think about it logically, those movements are exactly what would happen if the Chinese reduced their purchases of oil with their (export) income, and instead used the money to buy $US treasury notes.  That is because the oil market is quit inelastic, and small drops in consumption will produce large drops in price.  Also, as the oil price drops, there is a further positive feedback into the price of the $US.  This is because the US imports over 8 million b/d, so a $50 price drop means that the US saves over $400 million dollars of foreign exchange each day, which is a saving rate of about $150 billion pa, or about 1% of the US GDP.

So I predict that, as the Chinese ease the pollution restrictions on their economy, so the price of oil will rise from today's price of around $US100 bbl to around $US120 bbl by early October.  The hedges will have learned their lesson, and are unlikely to again bid the price up.  I also predict that the $US will fall so $AU1 buys around 90 cents US.

23rd September.  Financial Institutions.

In the past week
  1. As predicted on 15th September (above), the US dollar has started to fall (now around US85c for AU$1),and oil is on it's way up (it's around US$130 that $130 was a one hour spike, it has since dropped to $107).
  2. Merrill Lynch has been absorbed by BOA, Fannie & Freddie and American Insurance have been bought into by Uncle Sam.  US has agreed to buy the bad mortgages for an amount quoted as near to one trillion dollars. 
  3. Lehman has gone to Chapter 11.
  4. The stock market has gone into reverse.  (well duh, thats because everybody is moving their cash into those CDOs which are now, courtesy of treasury, about as safe as treasury notes.)
  5. Warren Buffet is reported as buying equities in a (so far 4%) falling equities market.  No wonder that guy is rich.  Let me pose the question: "when investors have bought those previously junk status CDOs until the yield is down around treasury bills, when commerce is, as a result of that boost to business confidence, booming, what target will the billionaire investment advisers at Merrill Lynch Pierce Fenner & Smith (and whoever else on Wall Street survived) suggest that they buy next?"
The problem with the world economy is the security of the M1 payment system.  Most business transactions are online.   The credit and payments system of commerce are at risk while banks and other privately owned financial systems manage everything past M0.  Microsoft could not perform a billion dollar takeover using physical cash.  The international US wheat market could not function on an M0 (cash) basis.  So government must not only manage M0 (physical cash) but also manage electronic M1 (on demand online electronic cash).  The necessary physical interface of online electronic accounts with people in the market place could be contracted out to the existing ATM network.  Transfers and storage of electronic credit information would be in federal government computers, and safe from any bank failure.

As it stands, the financial corporations have a monopoly on M1, and in practice that monopoly is guaranteed by the federal government as the issuer of M0.  The Federal Government should take over electronic cash M1, offer a free low basic interest rate account to every citizen, and then let all of the financial institutions (banking, insurance, etc) sink or swim in the sea of commerce.  They would have to offer a higher M1 and even higher M2 interest rates to beat the M1 system interest rate.

If the above were done, quite a few banks etc. would become insolvent.  My heart bleeds for them.  Quite a few (more than half) federal politicians have lots of money at stake.  So it won't happen.  Even though it should.

The long term solution for that, and other problems with the US federal system, is to introduce something like the "proposition" system that exists in California.

29th September MORALITY

Let me construct a moral question.  Picture two men traveling through a country where people were starving to death.  One man spies an attractive girl, and offers to take her with him and feed her if she will give him sex.  The other does not help anybody but goes back home and reports on the man who fed the girl for sex.  He makes a lot of money from the story, and gives a tithe to a charity that feeds a few of the people who haven't starved yet.

Who is morally more correct?  The man who took selfish advantage from another's misfortune, or the man who took advantage by reporting another's selfish trade?

Right now we have the US congress refusing to spend $700 billion (that is about Australia's GDP) on purchasing bad debt that the boys on Wall Street advised their customers to buy.  Seems like those Wall Street boys burnt their own fingers somewhere between buying mortgages and selling CDOs.  I suspect that a few of the richer legislators might lose their pants (or panties) if that $700 billion doesn't happen.  A lot of Republicans have mixed feelings about saving Wall Street.  They sense immorality, but do not know how to rescue the bank payments system otherwise.

Groucho Marx defined "mixed feelings" as "your mother in law driving your new car over a cliff".

I believe that the suggestion above (to paraphrase) "that the US government should offer an electronic alternative to 'on demand' cash (aka M1)" would stop a recurrence of this liquidity problem.  The FDIC is just too vulnerable as a fall guy.  As witness when Clinton demanded that Fannie May promote mortgage loans to disadvantaged ethnic groups.

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