ARCHIVES 1997-2007  --- ARCHIVES 2007 +

3rd October 2008. Economy Metaphor.

  US legislators are deciding whether to pump more credit into the US banking system.   The  House said no, the Senate said yes, now the house must vote again.

When my old car started using fuel too quickly, well I knew it was getting old, and possibly the engine was inefficient.  But when the fuel consumption doubled then trebled, I knew I had a problem.  I first of all looked for a fuel leak.  (btw, I found one.  An earlier repair had involved substituting a piece of rubber hose for a copper line.  In the heat of the desert, the rubber hose had split.)

I found the leak, drove to the next service station and repaired the leak before I refilled the tank.

OK, maybe if there hadn't been the parts I needed at the first filling station, I would have filled the tank so that I did not risk having to be towed to the next mechanic (another 100 miles).  However I did not continue after refilling without acting to effect repairs.

The US economy is in dire straits.  The economy seems great.  But the banking system and Wall Street are leaking like a sieve.  They provide the payments system that allows trade to continue.  The monetary system, (like the political system, like the petrol line in my car) is in urgent need of repairs & upgrade.  More urgently than credit, commerce needs a secure electronic payments system.  Imagine needing to carry a bag of cash to buy your new car or refrigerator?

Perhaps that is why the market fell when the senate enacted the bailout, but rose when the house failed to enact the $700 billion.    Perhaps the market is trying to tell us that the bank bailout without repairs is actually bad for the economy?  You should fix the leak before filling the tank.

Maybe those Republican reps have got it right?  Maybe all those liberal journalists have got it wrong?


Bit of trivia.  The term "depression" was coined by an American president, (I think Roosevelt), in an attempt to mitigate with words the horror of the recession that started in 1929.

Back about forty years I knew a chartist called Gary who was a gold bug.  Gary talked about the "Kondratev long wave theory" of economic activity.  As he explained it these cycles were 40 years long, although the US civil war interrupted the historical cycle.  As he explained it, occasionally, the recession would not happen as predicted, however the following perigee would be much more severe.    Back then, (1969) we were not in the middle of a major recession, although that was about 40 years after the 1929 depression.  So counting from 1929, there would have been a possibility in 1969, and failing that, an even more substantial correction around 2009.  et voila!

Kevin has taken Malcolm's advice, and agreed to lift the value of deposits in banks etc that the government will guarantee.  Trouble is, he has gone the whole hog, and allowed unlimited cover.  All very nice.  Now the very wealthy (like Kevin's wife or Malcolm) could liquidate their equities positions, and have a safe haven for that cash.

I foresee that this move will cause further instability for just that reason.  First thing, I expect the all ords to fall as some wealthy individuals liquidate.  Then after a few meetings, bank management will decide that, (in this new risk free environment) it is to the benefit of their shareholders that they resume making ninja loans.  So all those who sold (and a few friends) will start buying again.  After a while, some of them will realize that the economy is totally f****d anyhow, so those equities are unlikely to pay even for their low interest ninja loans, so the market will fall again....(and we have a positive feedback loop of headless chooks).

It remains to be seen whether those geniuses in government will see the obvious solution (which I proposed last January, see "The Crash" near the bottom of the page) which is for the government to issue each citizen/taxpayer with an online M1 account (or online M0 account, the nomenclature will depend on whether the account pays interest) which could be created based on (say) tax file numbers.  People could then transfer money into those accounts (which I would suggest should pay a  nominal interest, say the CPI or else around 4% pa).  The government could then loan that money straight back to the originating bank (at 100 basic points higher than the interest paid to the account holder),

And if the banks go bust, well tough luck.  But I don't see why bank shareholders should have a free ride at our expense.

21st October Turnbull.  The GG.

It is hard to fault somebody who seems always to come to the same conclusions as oneself, and (quite coincidentally, I am sure) also always be right.  Yet that is what Malcolm Turnbull seems to consistently do.  He is so good in his assessments that the members on the government benches are reduced to criticizing him for his "Ego" or looking for leaks in the public service.  That's not Malcolm's ego, that is just Malcolm's inability to comprehend that economic facts are not as clear to others  as they are clear to himself.  Malcolm has impressive credentials, ex-journalist, ex-barrister, ex-banker.  And apparently a success in each of those professions.  He could anticipate what treasury would advise.
  1. Turnbull suggested at least five billion dollars as a boost to the economy, and $30 pw to age pensioners.  Rudd doubled that to $10 billion, and gave pensioners $1400 for the six months until the next budget (=$56 pw).
  2. Turnbull suggested a guarantee of $100,000 for accounts under the control of the prudential authority (ARPA).  Rudd gave an unlimited guarantee (see 12th October).  Foreign banks (supported by treasury) are bitterly complaining that local banks are attracting all the liquidity, and that they will shortly become insolvent.
Rudd has appointed Quentin Bryce (a woman) to the position of GG.

I deduce that Rudd wants to get rid of the position of GG.  He is rather clever in going about this.  He has appointed a publicity seeking ningnong to the position.  Confronted with the possibility of ending that embarrassing stream, I would predict that many dyed-in-the-wool anti-republicans would vote to end the position.

The problem, as ever, is what would replace the GG in our constitution?  The political machine does not reveal this fact, but the GG has enormous constitutional powers.  The GG has the constitutional power to dismiss the Federal government and rule by decree.  The army has sworn to obey the GG, as have the police.  There are two limitations on that power.  (1)  The Queen of Australia could in turn dismiss the GG.  (2) In a parliamentary democracy, since the days of King John and Magna Carta, only the HOR (Representatives) can initiate a taxation bill.

Nothing else protects the people of Australia from a potential tyrant.

31st October 2008  Bali 3, Marcus Einfeld.

Let us consider the three Indonesian Muslims who are to be executed for the Bali incident.  I am very much against any execution, although I can sympathize with the desire for vengeance by those who have lost loved ones.  Far better to have those three rot their life away in solitary, and have mullahs advise them daily that Allah does not condone the murder of guests (in their country), and that for that reason they are probably damned for eternity in the Moslem equivalent of hell.

Execution will turn them in to martyrs.  Not only that, it would complete the cycle.  As martyrs, they get their 81 virgins, plus the automatic entry into paradise by family members (I suppose only those nice family members that the martyrs advise God are worthy of entry). On the other hand, seeing those idiots persons ranting on TV every couple of years would illustrate to us  (and would-be terrorists) just what sort of person engages in such activity.

As a general rule, those who strive visibility to the public eye (e.g. MEAA & Politicians) generally (not always) fall into the group of people who have cluster B personality disorders as described by the American Psychiatric Association.  A cynical assessment of Cluster B people is that they were probably bottle fed babies.  Throughout life cluster B people seek the attention that they were denied in childhood, or seek absolute control of their environment.

Marcus Einfeld was a Judge, had been grantedf the Order of Australia and been voted a national living treasure.  He was a liberal of renown, having served UNICEF, as Chair of Paralympic foundation and as ambassador for refugees.  He has pleaded guilty to perjury (lying under oath) about being the driver of a car that was photographed speeding.  He faces a sentence that could be decades long.  On the evidence, he is a textbook case of a Cluster B personality disorder.

One of the unfortunate aspects of democracies is that they attract "cluster B personality disorder" people to the high government positions available.   It is further proof of the existence of the disorder that most of those people who (through their wealth or possessions) could easily obtain high public visibility do not bother to do so.  (James Packer, the Murdochs - except maybe Sarah, spring to mind).  I speculate that those people, as children, had a normal quota of parental love.  Consequently they have no imperative (as compared to cluster B people) to visibility on the world stage.

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