Time for some honest truths about where the GFC will end
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What is it about all these expert commentators who keep raving about opinion polls and political strategies as if Australia somehow won’t get sucked into the vortex of a global depression and massive sovereign debt defaults? This is Possum Comitatus in Crikey yesterday:
And this is what a puzzled Insiders host Barrie Cassidy asked Dennis Atkins on Sunday:
Hello! The Coalition was absolutely right to oppose the reckless debt binge which will only heighten the risk of an Australian sovereign default along with massive Kennett-style spending cuts and tax increases. We’re now facing a global economy that will contract by 10-20% given the leverage in the system. Total US liabilities are a frightening $US56 trillion with the government component only $US12 trillion. That can never be paid back and borrowing more just delays the solution and increases the size of the inevitable default. Every day we hear different stories about places being worst affected. The AFR editorialised about Japan today and Glenn Dyer yesterday pointed to the massive liabilities in Russia and Eastern Europe in Crikey. Try joining the dots. It’s clear that the vast majority of the global banking system will be nationalised. We’re part of this because Australian bank liabilities and deposits have been guaranteed. With the global banks having huge exposures to weaker countries with falling currencies and huge borrowing requirements, the equity in those countries will be wiped out in what is going to be one gigantic debt for equity swap. This will leave government backed banks in strong countries controlling vast swathes of assets in weak countries. The Australian banks, for instance, will have huge influence over New Zealand. As all this happens, the challenge will then be avoiding wars, riots and revolutions. For instance, the British Government already has enormous influence over many Australian companies with loans owing to the now nationalised HBOS and Royal Bank of Scotland. Look no further than the teetering Asciano, which controls vital Australian businesses such as Pacific National and Patrick Stevedores. Asciano is being advised by RBS’s ABN Amro division as the British taxpayer attempts to recover up to $500 million in loans. The Swiss government at UBS and the Germans at Deutsche Bank are doing the same globally, as are the Americans through the likes of JP Morgan, Citigroup and Bank of America Ultimately, the world’s leading powers will need to get together and collectively wipe out the excess credit in the system. And that also means US sovereign debt, which is being piled on at a ridiculous level. The trick here is to recognise the problem and move swiftly to complete this global debt for equity swap and then slowly sell all the government controlled assets back into the private market. Given that the process has and will continue to wipe out much of the world’s retirement savings, governments will need to step up with state pensions funded from the progressive sale of those nationalised assets over time. In the context of all this, why would you voluntarily surrender your balance sheet strength with $22 billion in reckless cash handouts over a four month period? It’s time the political pundits awoke to the disastrous tactics of the Rudd Government and their debt-addicted state government mates. |
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22 Comments
While your view of the bigger picture may be an apt description of what the world is facing, Stephen, the reality on the domestic front is that if the government does not step in to replace money private industry is pulling out, Australia will head into a disorderly collapse.
Dealing with that collapse will damage the government’s balance sheet faster and perhaps to a greater extent than the stalling measures they are undertaking now. My understanding is that they are hoping this will be a V shaped crisis, with the rest of the world recovering in time to rescue us.
We still have inertia on our side, and a stimulus to keep us sailing could prevent an avoidable depression.
Krugman is ignoring the US govts already parlous balance sheet. He is using Depression tactics yet forgetting that the 30s was a completely different time. The US as a whole was the world’s largest creditor. The situation is entirely in the reverse now, David.
There’s a lot of gotcha in many of these comments - Mayne has offered a weapon to those who were itching to beat up on the Rudd Government on any issue, I suspect. Mayne makes an interesting analysis of the deep future - not one I’ve seen in the popular media, nor Crikey even. So where are the supporting advocates - not even Taylor on Lateline earlier this week seemed to offer this doomsday analysis. And for those grieving neo-liberals, logic suggests that Mayne’s analysis puts the Turnbull (he is still there isn’t he?) Liberals in the same can - Turnbull would go the same track as Rudd (increase Federal debt) only in two slices, not one. And as for formulating an alternative position, the Liberals just sacked “wait and see” Bishop as shadow treasurer. So much for their enlightenment. Now if only they stopped playing political spoilers and took up the meaning and implications of Mayne’s analysis they might be taken seriously. But just what does Mayne offer as an immediate strategy? Wait and see? Bet he’s got some fat to live off - not like the bulk of wage and salary earners. They live in the here and now - so if you’ve got an answer Mr Mayne, cough it up. Of course, there may be some enigmatic figure thinking along similar lines to Mayne and waiting, all knowing, in the background for the financial equivalent of Marysville before arriving in his shiny fire truck. If only we’d thought to ask him earlier he could have put us all right.
Phill, the arrogant nonsense in your last sentence should not go unanswered because you are far from being the only person who is spreading this tabloid bullshit. The bonus will go mostly to ordinary working men and women around Australia. There is absolutely no reason to believe that they will spend it any differently to their ordinary income. Yes, some will spend it on electrical goods (which is apparently a social crime according to many patronising gits) and a very small percentage will be gambled or spent on drugs. Some of it may even be spent on Asti Spumante. But the great bulk will be spent on ordinary everyday goods and services and that will not be deserving of the stupid contempt of people such as yourself.
Very apt analysis of what is really happening out there! Thanks Stephen for writing what evry thinking person wants to say. That is - excluding all those who are watching their post boxes for the $900.
This so-called stimulus package might create another minor blip in retail spending, and it might keep a limited of number of “tradies” all of whom will always have a job anyway, in work. But at the end of it all, this package will scarcely generate one dollar of future income for the Australian nation, and it will take generations to pay it off.
More power to Harvey Norman and the casinos, to say nothing of State Govts raking in gambling taxes.
Spot on Stephen.
Rudd is running a purely ideological recovery - economic have nothing to do with it.
Watch in the next budget - increases of every conceivable Government welfare expenditure. Justification? We are stimulating the economy
The first step to fix the credit and financial crisis is to break the link between debt and money. This is simple to do. Stop banks lending money they do not have.
This raises the issue of how to create new money. Well we do that by issuing zero interest loans but require the money to be invested in productive assets before it can earn interest - like building renewable energy plants and insulating homes and putting solar hot water heaters on our roofs.
I’m sorry Mr Mayne I strongly disagree with your analysis of the situation. The amount of debt the federal government is going into is afforable. The Australian Government has one of the smallest debt to GDP ratio’s in the world, in fact it could almost be classified as being debt free. I know a tall order! However, why isn’t the liberals/nationals and others concerned about Australia’s private debt, which at the moment is a massive unsustainable $600 billion plus and is growing! This private debt skyrocketed under the watch of Costello, and yet nothing is said about it. So its ok for the nation to have private debt, but not public debt. So the $600 billion doesn’t really count! Yeah right, If only. So lets have some balance here, please.
Interesting to observe that some commentators confidently assert that $200 billion is ‘affordable debt’.
At what level does it become unmanageable?
And the other interesting thing to note is that the people that incur the debt are not the people who need to be able to “afford” the repayments.
$100 billion of debt following “the recession we had to have” took years to develop but a decade to repay.
Now $60 billion plus of spending every cent of which plus interest will have to be paid back, Rudd pisses away in 5 months.
But wait! We are not spiralling ever faster down the plug hole of debt. A leftist foreign economist, honoured by a leftist prize committee, based in a leftist but oil revenue rich nation and who writes for a technically insolvent and loony left and frankly partisan New York broadsheet says irrigating an oncoming tsunami not of Australia’s making with an expensive golden stream funded from borrowings overseas is a really a good idea!
Well, he doesn’t really. However, the looniest leftist of them all, David Sanderson repeatedly and patronisingly informs us that Krugman really means us.
And I too saw the Lateline interview of the sober academic economist Professor Taylor the other night. Unlike Paul Krugman who delights in instilling fear and painting a doomsday scenario in the event that his ‘brilliant strategies’ are not followed, Taylor was unpretentiously critical of the nature of the ‘stimulus package’ described for him by Tony Jones
“the challenge will then be avoiding wars, riots and revolutions”
It is good to know Stephen is not prone to panic. Would he like to nominate which of the countries named in this article is likely to be the first “war or revolution” cab off the rank? He wouldn’t? Yeah, I didn’t think so.
Paul Krugman, the Nobel Prize winning economists, argues that the US, and by extension Australia, is not reflating enough. Who is more credible - him or a one time junior Liberal staffer?
Well that’s a relief for Barrie Cassidy. Who were they going into bat for? Stephen Mayne, of course. They deserve each other.
Given that it is a debt crisis, it is a great opportunity to really look at the way we allow money to work. If the banking system is to be largely nationalised we should make it work for society (is citizen synonymous with shareholder now?). It is time banks were restrained in lending money beyond their assets. By lending money they do not have (having to retain just 10% of deposits) and creating a lending chain that puts 900% of the original deposit into the market, inflation is a foregone conclusion, and everyone putting money in ( that is, the fruits of their labour) has it automatically devalued. The problems with the monetary system run very deep, and throwing more money at it is the craziest thing i could possible imagine.
First at least have a real education in economics
Then you’re right
the us debt should worry everyone and unless you understand those numbers all the theoretical this and that will be irrelevant.
Firstly, Republican presidents serially compete with each other as to who can do that stunt bigger than all before him and little joke Georgie has beaten them all. That means he’s not stupid (like Costello for example). He was operating on a family plan that everyone missed.
That strange collective called the Presidential Wing of the Bush Family Dynasty including a son (George), Uncle Chaney, family best friend’s son (Bin Laden) and a bunch of psychologically seriously very interesting old farts that had been hiding in the basement of the pentagon and not seen daylight for 30 years came out blinking claiming their Zionist right to rule, spend and influence (but not with any expected bias of course) means until an analysist/adviser can work out how much of that US Debt found its way to the ‘dynasty’ coffers’ their opinion and advise is puerile or just highly irrelevant.
Too much debt brought us here. Rudd is topping up the debt to even higher levels than we need. It made me wonder whether my concerns were wrong. Mr Mayne is perfectly correct. I hope other media channels start picking up articles like this.
Sure, and while we’re at it, let’s everybody completely elide the distinction between private and government debt. Why not.
FINALLY someone is raising this issue. We have California, America’s largest state and 7th largest economy in the world, about to go bankrupt. Yet our government is blowing billions on frippery!
We are witnessing poll driven insanity.
Stephen,
Whether you think the Coalition was right or not has little bearing on the what the public actually believed, and even less bearing on what I think of the economics of the stimulus package personally.
If you want to increase the awareness of the public to our “heightened risk of an Australian sovereign default” then more power to you - grab a sandwich board and head to the nearest street corner.
I’ll look forward to seeing it’s impact come out in future polling. Until then, I’ll just deal with the survey data as it really is thanks, rather than what you seemingly wish it should say instead.
At last, a no nonsense analysis of this populist, piss our savings against the wall, policy!
News of my demise are been greatly exaggerated
Stephen’s comments are indeed right on the ball. In the meantime, my sister (who lives in Los Angeles), sent me the following e-mail which is apparently doing the rounds in USA: crass though it might be, it does cut through the economic mumbo jumbo in its own way!
Sometime this year, taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:
Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.
Q. Where will the government get this money?
A. From taxpayers.
Q. So the government is giving me back my own money?
A. No, they are borrowing it from China. Your children are expected to repay the Chinese.
Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.
Q. But isn’t that stimulating the economy of China ?
A. Shut up.
Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:
If you spend that money at Wal-Mart, all the money will go to China.
If you spend it on gasoline it will go to Hugo Chavez, the Arabs and Al Queda
If you purchase a computer it will go to Taiwan.
If you purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala (unless you buy organic).
If you buy a car it will go to Japan and Korea.
If you purchase prescription drugs it will go to India
If you purchase heroin it will go to the Taliban in Afghanistan
If you give it to a charitable cause, it will go to Nigeria.
And none of it will help the American economy. We need to keep that money here in America. You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on prostitutes, beer (domestic only), or tattoos, since those are the only businesses still in the US.
Well said Steven. Turnbull & Co were right to oppose the package in the form that it was. If the opposition were given the opportunity to be involved in bipartisan consultation from the beginning it may have been different and more constructive package for Australia.
Fine to splurge on schools but education and health are bottomless pits. In talking to a school principal several days ago I was told that their school stood to gain up to $2.0m with the stimulus. But he said that in all honesty, although they would spend it quickly and they would be mad to refuse it, his school was presently well placed and could do without it for quite a number of years.
Meanwhile there is no imaginative spending, thinking or planning on new infrastructure projects that may well have far more reaching effects on the economy into the future.
Steven Mayne’s article thankfully provides balance to Bendan Keane’s viewpoint..
Stephen,
Friedman styled capitalism just imploded. It is unfortunate that the man did not live long enough to see the full impact of his legacy. The social policy that accompanied his economic policy was truly staggering, and I hope this will soon be buried aside Friedman.
The Big Deal, or arguably injecting massive public funds into the arms industry in the first few years of WW2 lead to the US. pulling itself out of the ‘29 recession. One fundamental reason for the slow recovery on a global level was US protectionism. The US economy is being underwritten by the Chinese, so? The US has undertaken not to move to protectionism, for now at least.
Think Keynes, Stephen….Keynes…not only a good economist but also a Queen, and that sits nicely with me.
At a global level things are not going to be pretty, just view the US car industry and English banking system.
We are however probably agreed upon handouts (bribes) at the individual level, with bonus’ for kiddies. Harvey Norman, casinos and drug dealers will be happy.