The harder they fall. The British Government has nationalised a bank specialising in home loans. The United States Government has baulked at government ownership but provided the guarantees that allow the private sector to bail out an investment bank. Things are getting serious and it would be naïve to assume that Australia is somehow exempt from the excesses that resulted in the failure of Northern Rock and Bear Stearns. As the Financial Times is reporting, “in today’s febrile environment, once counterparties lose confidence in a bank, the rush to the exit can quickly become a self-fulfilling prophecy.” The Labor Government could do worse than listen to those Opposition members who are daring to suggest that fighting inflation through higher interest rates might not be the right policy to follow just at this moment. The premise behind the actions of Australia’s Reserve Bank is that our country will escape the damage being wrought elsewhere by unfettered financial engineering and that curbing inflation should remain the priority. Liberal Treasury spokesman Malcolm Turnbull in recent weeks has suggested otherwise and he was joined at the weekend by Joe Hockey. All it will take for this pair to be right is for ordinary Australians to start worrying about what is happening to their household wealth – which for most people means the value of their house – and we will be very much in the capitalist mainstream with banks under pressure. Individuals faced with losing their home will happily settle for a dash of cheerful inflation keeping values up.

If they were footballers! Prime Minister Kevin Rudd has been strangely silent on the below display of the use of alcohol. I wonder how it fits in with the nationally consistent code of conduct which the PM unveiled on the eve of the Grand Prix: “The major sporting bodies today agreed to work together to develop a nationally consistent code of conduct for the responsible use of alcohol … The Australian Government is committed to tackling binge drinking on a number of fronts.”

Our Chinese friends . The murder and mayhem in Tibet is a wonderful reminder of the dilemmas that come from having one of the world’s most authoritarian countries as your economic saviour. Australia, we keep being told, is avoiding the economic problems of the western world caused by a downturn in the United States economy because of our growing exports to China. A bit like pig iron Bob in the late 1930s really.

The Daily Reality Check

There is something a little surreal when world capitalism is going through a crisis to see that the good internet readers of Australia are concerned with the wreckage of HMAS Sydney being located. While in the United States the government is underwriting Morgan Stanley from any potential losses to salvage Bear Sterns in the hope that the financial system does not sink, our Prime Minister Kevin Rudd is hoping that the discovery of HMAS Sydney brings some closure to the families of the 645 Defence Force personnel who lost their lives bravely in this naval action in World War II! I suppose it just proves what an astute follower of public opinion our new leader is. Stand by this afternoon for a sermon on chef Ramsay saying f-ck 80 times in TV and the evils of binge drinking being illustrated by crowds wrecking a mansion after gate crashing a party. They figure just as prominently on the most read lists as the Sydney and the US following the British example of bailing out a bank does not rate at all.

The Pick of this Morning’s Political Coverage

There was one story this morning that Kevin’s working families will eventually show some interest in. The property writer for The Australian , John Stapleton, had a wrap up on auction clearance rates around the nation and reached the conclusion that Australia’s property market has taken a nosedive, with falling auction clearance rates in most capital cities at the weekend. To get an idea of what that might end up meaning for Australia head over to Martin Wolf’s recent column in the London Financial Times where he quotes Professor Nouriel Roubini of New York University’s Stern School of Business explaining what falling house prices are doing to the United States. “Suppose, then,” wrote Wolf, “that Prof Roubini were right. Losses of $2,000bn-$3,000bn would decapitalise the financial system. The government would have to mount a rescue. The most plausible means of doing so would be via nationalisation of all losses. While the US government could afford to raise its debt by up to 20 per cent of GDP, in order to do this, that decision would have huge ramifications. We would have more than the biggest US financial crisis since the 1930s. It would be an epochal political event.”

The Pick of the Weekend’s Political Coverage

Peter Fray

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