A grave situation

Supported by 100 economists Compass calls for the UK Cameron govt to bury their economic plan

What’s wrong with Plan A? 

Plan A is failing to provide economic growth or jobs and could in fact increase the deficit. The cuts are also having a devastating effect on the public services that most of us rely on. 

The impact of the government’s decision to reduce spending by £130 billion over 5 years is now beginning to tell, the cuts are reducing GDP by up to 2% per year.

Back to those forecasts

Just because Gina Reinhart is Australia's richest person does not necessarily follow that her opinion is better, or even close to being correct. Compare her forecast

the Gillard government's carbon and mining taxes will drive away investment 

with the facts

Today’s Deloitte Access Investment Monitor details a record 935 investment projects planned or underway, each worth $20 million or more. The total value exceeds $894 billion, an increase of 7.5 per cent in the past three months and 16 per cent over the past year.

Leading the way are what Access calls “an unprecedented number of mega projects” - 14 worth more than $10 billion and five of those worth more than $30 billion. 

It's all about jobs

Commenting on the creation of a pre commitment scheme for problem gamblers casino boss Jamie Packer exclaimed

it will hurt recreational players and that will cost jobs and investment across the industry and cost the state government tax revenue used for essential community services

Of course.

Crony capitalists.

When it comes to govt spending the conservatives speak with one voice

"a path to credible deficit reduction is a jobs program.”

When it comes to the military, and by extension war, they are seemingly just as determined

cutting our military—either by eliminating programs or laying off soldiers—brings grave economic costs,”

Do the math.

Don't blame the Greeks...

...for the gambling debts of the banks.

Dexia has suffered in several lines of business, including investments in sovereign debt from countries like Greece. But the biggest drain on its cash stemmed from a series of complex, wrong-way bets it made on interest rates related to its municipal lending business. A significant part of Dexia’s business is lending money to these localities at a fixed interest rate for relatively long periods, say 10 years. But, because the interest rate that the bank itself pays to finance its operations fluctuates, that exposes it to potential risk. If its cost of borrowing exceeds the interest it charges on loans outstanding, it loses money.

.......

“In the short run, it would help if the authorities would say they refuse to provide publicly funded money for the payoffs of derivatives,” he said. “This is like using public funds to support your local casino. It is difficult to see how this is good for society in the long run.”

Too much cake

As reported in the Oz

BILLIONAIRE mining magnate Gina Rinehart has predicted a massive labour shortage in Western Australia's Pilbara region within years and warned that the Gillard government's carbon and mining taxes will drive away investment.

Less investment means more jobs?

The death of Reaganomics.

The actor Ronald Reagan was also known for his promotion of supply side economics, a theory which argued that economic growth would be generated by lowering both taxes and regulations. One of the alleged benefits became known as trickle down economics where the reduction of taxation to the wealthy would further drive the economy as a whole thereby benefiting poorer members of society.

Recent analysis by the bipartisan CBO have shown the theory, along with all its manifestations, to be utterly false - the rich really did get richer and the poor really did get poorer.

Theres nothing the Internet can't fix, except the Internet.

As we are expecting a deluge of visitors it became my job to fix a few things up. OK, I actually volunteered but let me tell you, there are degrees of "voluntary". Anyway, we have been having a a bit of a situation with two of our toilet cisterns. Yeah I know, we have lots of 'em but let's not make an issue about it - after all, I have never boasted about our numerous facilities and never made others feel diminished about their corresponding lack of, have I?

Anyway, it's not such a big deal, you just take off the lid and fiddle with the float thing. I tightened the cap of the valve on one cistern and it seemed to be fixed so tried the other but no luck. So I pulled it apart and stared at it before reassembling only to find that my action had rendered it almost non functional. Perplexed by this I unscrewed the valve on the good cistern, furiously stared at it while making mental notes then returned to the second one. After more tooing and froing and fiddling about I now had two perfectly busted valves with water gushing over the walls and floor, everywhere but the cistern.

"I know what" I thought "let's google it" So I lept into the saddle and cranked up the big mac and hit the super highway. I dialled in "caroma" and "inlet valve" and "twin flush" and Bingo! a full house. There was a heap of diagrams, I didn't know that Caroma had so many cisterns and so many valves. And countries, Caroma is flushing the globe. Unfortunately my valve was not shown so I hit the forums.

Seems like Caroma have a lot of unhappy customers, there is no end of horror stories. The consensus was to entirely replace the internal workings with a high tech unit from Germany. You can even watch a video on Bunnings where a kindly handyman shows how to detach the cistern from the wall, disembowel the offending organ and replace it with a new Bunnings filler upper.

And there is more, Youtube is a DIY heaven with no end of instructional videos. One clip had my very own unit being attended to. This bloke must have had a hotel or motel as he replaced the lot, they were all playing up and he had calculated the loss of water in money terms. Must have been a retired banker as he was dressed too well.

So I thought about all this quality advice and wondered why a retired banker would buy a motel and then take a film of himself fixing a toilet cistern and post it onto the WWW. Obviously the answer was too simple. So I took out the rubber valve and went down the road to the plumbing supply outlet.

Yep, 2 x valve inserts @ $1.40 each incl tax and the problem was fixed. 

Shifting the goal posts

Before the Berkeley Earth Project key climate change/warming sceptics produced this paper

Instrumental temperature data for the pre-satellite era (1850-1980) have been so widely, systematically, and uni-directionally tampered with that it cannot be credibly asserted there has been any significant “global warming” in the 20th century.

After the Berkeley Earth Project the message became

The issue of “the world is warming” is not one that climate skeptics question, it is the magnitude and causes.

Before the Berkeley Earth Project the message was

I’m prepared to accept whatever result they produce, even if it proves my premise wrong. I’m taking this bold step because the method has promise.

After the Berkeley Earth Project the message became

I accept their papers, and many of their findings, but disagree with some methods and results as is my right.

And that appears to be the only argument of the sceptics, that it is my right.

Despite constant criticism the IPCC have maintained that

"Warming of the climate system is unequivocal."[9] 

"Most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations."[10]

Very likely and likely mean "the assessed likelihood, using expert judgment" are over 90% and over 66%, respectively.[11

What separates the IPCC from those that are sceptical of the IPCC is that the IPCC were able to support their assessment by citing over 6,000 peer-reviewed scientific studies. Sceptics have no evidence to support their claims and rely only on unsupported and untested hypotheses.

Pyramid power

Joseph Stiglitz looks at the recent toppling of various leaders and ponders..

Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret..

..The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.

Man bites dog.

In an effort to establish scientific credibility climate change sceptics funded a independent study into temperature records. Their central hypothesis, that data was insufficient, flawed or corrupted, was explored.

Our aim is to resolve current criticism of the former temperature analyses, and to prepare an open record that will allow rapid response to further criticism or suggestions.  

The group dismissed previous data

We are using over 39,000 unique stations, which is more than five times the 7,280 stations found in the Global Historical Climatology Network Monthly data set (GHCN-M) that has served as the focus of many climate studies.

The criticism of existing climate change science has attracted considerable attention

Funding came from a number of sources, including charitable foundations maintained by the Koch brothers, the billionaire US industrialists, who have also donated large sums to organisations lobbying against acceptance of man-made global warming.

"I was deeply concerned that the group [at UEA] had concealed discordant data," Prof Muller added.

"Science is best done when the problems with the analysis are candidly shared."

The team also examined concerns over the so-called urban heat island effect, which causes higher temperature readings near cities and has been used by sceptics as evidence of data being skewed.

The problem for the sceptics is that the study did not prove that their scepticism was reasonable

Our biggest surprise was that the new results agreed so closely with the warming values published previously”

They have the picture to prove it

As Warren Buffett once wryly observed

It's only when the tide goes out that you learn who's been swimming naked.

.

Tea time tanties

It's been said that the modern day Tea Party kicked off with the Rick Santelli rant against the Obama administration program to "subsidize the losers' mortgages". Kellen Giuda, who organised the NYC tea party protest, said

"Santelli hit a lot of things that I believe - that the government needs to stop getting involved in everything," Giuda said. "They're too much involved in my life, my money. Everybody's working hard - it's not up to the government to decide how our money should be allocated - it should be up to us."

Giuda and other Tea Party followers appear to share the same delusion, that they created and control money. They didnt and they dont, they may create value or wealth for themselves but only within a closed environment supported by a government. Without a government to establish the boundaries money is just a concept.

Macro for the modern man.

Harvard International interviewed our very own Bill Mitchell, from Newcastle Uni.

Debt, Deficits, and Modern Monetary Theory

An Interview with Bill Mitchell

October 16, 2011 by Winston Gee

Bill Mitchell is the Research Professor in Economics and the Director of the Centre of Full Employment and Equity at the University of Newcastle, Australia. The following is an edited transcript of the interview, conducted August 15, 2011.

Thanks for joining us, Professor Mitchell. I wanted to talk with you today about Modern Monetary Theory (MMT)—the theoretical approach you’ve been integral in developing—and its relevance to current debates over public finances. I know you’ve been quite scathing of mainstream economic discourse. For example, you wrote in your blog recently that “the economics media is dominated with financial issues – too much public debt; debt ceilings; fiscal sustainability; sovereign risk; and all the rest of the non-issues that have taken center-stage.” Could you take a moment to explain why MMT renders these things non-issues?

The most important misperception is that MMT is in some way outlining an ideal or a new regime that could be introduced. The reality is that MMT just describes the system that most countries in the world live under and have lived under since 1971, when the US president at the time, Richard Nixon, suspended the convertibility of the US dollar into gold. At that point, the system of fixed exchange rates—in which all countries agreed to fix their currencies against the US dollar, which was in turn benchmarked in price against gold—was abandoned. So since that day, most of us have been living in what we call a fiat currency system.

In a fiat currency system, the currency has legitimacy because of legislative fiat: the government tells us that’s the currency and then legislates it as such. The currency has no intrinsic value. What gives it value, what motivates us to use the currency that the government suggests, is the fact that all tax obligations are denominated in and have to be extinguished with that currency. We have no choice. If you live in America, for example, you have to pay American taxes to the IRS with American dollars. So demand for the currency, otherwise worthless bits of paper, is driven by the fact that all tax obligations have to be extinguished with that currency. Once you consider that, then you immediately realize that the national government is the monopoly issuer of that currency. That means that the national government in such a system can never be short of that currency; it can never run out of money. It doesn’t need you or I to lend it money or you and I to pay taxes to get more money. It can never run out of money. That’s the first basic insight of MMT: governments are not constrained in their spending by a need to raise revenue.

If you extend that logic a little further, you might ask, “Well, don’t we pay taxes and buy bonds so that the government can spend?” Well, you first have to ask yourself the question, “Where do you get the money to pay taxes and buy bonds?” And the answer is that we can’t get our hands on the currency until the national government spends it. Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts. In effect, the government is only taxing what it has already spent, and it’s only borrowing back money that it has already spent. Once you start pursuing this logic, you realize that most of the propositions that are occupying the current debate around the world are based upon false premises.

Another basic premise of MMT is that we now live in a world of floating exchange rates, so all of the imbalances in the foreign exchange market are resolved by the price of the currency fluctuating. What that means is that domestic policy instruments—the central bank and fiscal policy—are free to target domestic policy goals knowing that the exchange rate will resolve the currency imbalances arising from trade deficits, trade surpluses, et cetera.



I want to touch on a few things there. The first is MMT’s basic insight that governments don’t have to tax or borrow in advance of spending. Given the recent furor over credit rating downgrades, one might wonder: if that's true, why do governments continue to issue debt and bother themselves with the discipline of the bond markets and the credit rating agencies?

Yes, it’s an interesting question, and it’s one of the things that really trips people up in trying to understand MMT. Under the so-called Bretton Woods system—the fixed-exchange rate system that prevailed in the post-WWII period until 1971—governments were revenue-constrained because the central bank could only allow so much money in the economy according to its holdings of gold and the currency value. So if the government wanted to spend more, it had to make sure that it took money from someone else in the economy so that the overall money supply would be constant. In that sort of monetary system, the government had to tax or borrow to spend. This sort of reasoning has crept into the modern monetary system, where it no longer holds because we use fiat currencies instead of convertible currencies.

But there’s probably more to it than that. One set of explanations is that the profession hasn’t worked out the implications of a fiat monetary system. I don’t subscribe to that because people aren’t that silly. So I think you’ve got to dig deeper as to why we’re holding onto gold standard–type behaviour in a system where we don’t need that sort of behavior.

If you look back through history and examine discussions in various government documents, what you pick up is a solid indication that governments have combined institutional arrangements such as issuing debt with certain accounting practices to make it look as though the debts were actually funding government spending. These institutional arrangements were strengthened in the late 1970s and the 1980s because the mainstream economics profession knew that those arrangements would place constraints on the freedom of governments to spend. The mainstream believes that taxation distorts individual incentives, that government borrowing pushes interest rates up and thereby undermines private sector investment, and that ultimately the danger of government spending is hyperinflation.



So is it all ideology, or is it also a lack of understanding about how the modern monetary system actually operates?

Well, there is certainly a mischaracterization among mainstream economists about how the modern monetary system operates. In mainstream textbooks you’ll find a chapter about the role of the central bank, and that chapter will describe how the central bank’s main function is to control the supply of money through open market operations—that is, buying and selling government bonds to regulate the demand of money relative to the supply. Through this process, the story goes, the central bank is able to target interest rates.

That textbook explanation is quite wrong. Central banks cannot control the money supply. And not many central banks past the mid-1980s gave any credibility to monetary targeting. They realized that central banks can control only interest rates, not the money supply. After this realization, monetary policy became expressed through setting a short-term interest rate by managing the liquidity in the overnight cash markets.

Each of the commercial banks have an account with the central bank—a reserve account—and those reserves accounts are used on a daily basis to make sure that the cheques we all sign clear each day. Typically reserves don’t earn any interest from the central bank, so if the volume of reserves exceeds what each bank thinks is required on a daily basis, the bank is stuck with dead money. Now in some countries that’s not true, but even in countries such as Australia where the central bank has always paid a return on overnight reserves, the return is less than the lending rate.

In the US and Japan, for example, there has historically been zero return on those reserves. So banks will try to lend out excess reserves to other banks that may be deficient in reserves. The competition in this market, called the interbank market, starts to drive interest rates down, because the banks will take any return instead of zero. If the central bank allows that process to continue, it loses control of monetary policy.

The way the central bank can maintain control of its target interest rate is to manage that liquidity that’s embodied in these reserves. So if the central bank perceives that the banks consider their reserves to be excessive on any particular day, it drains those reserves out of the system by offering an interest-bearing asset in the form of a government bond. The role of government bonds, then, is to provide the central bank with the capacity to ensure that there is no competitive pressure on the target interest rate. So you can see that the function of government bonds is something quite other than to lend the government money.



You'll hear many politicians speak of “paying down the national debt.” What do you make of this refrain?

The historical reality is that national governments very rarely run down their overall stock of debt. A debt instrument is a commitment by the national government to pay a certain principal at a specified time, and in the meantime pay some yield or interest on that debt. So governments pay back debt in that individualized context, but overall, in a macroeconomic sense, governments generally don’t run down their overall stock of debt.

There are some rare instances where governments have run down their overall stock of debt, like in Australia between 1996 and 2007. The conservative government of the period was enamored of this neoliberal idea that it would get rid of all its holdings of outstanding debt, and so it started running very large surpluses and paying back its debt. After about five years, the public bond markets became so thin—that is, there was such a small amount of debt left in the system—that the big investment banks started to protest, since they relied on government debt as a risk-free asset upon which to benchmark all other risk. Curiously, the Austrialian federal government agreed that even though it would continue to run budget surpluses, it would also continue to issue debt at a certain amount to ensure that the corporate sector would have its risk-free asset. So while the Wall Street Journal runs op-eds condemning the evils of debt, the reality is that the financial sector can’t get enough of it. This is a very beautiful example of the function of debt in modern times.

In MMT, we see public debt as private wealth and the interest payments as private income. The outstanding public debt is really just an expression of the accumulated budget deficits that have been run in the past. These budget deficits have added financial assets to the private sector, providing the demand for goods and services that have allowed us to maintain income growth. And that income growth has allowed us to save and accumulate financial assets at a far greater rate than we would have been able to without the deficits.

The only issues a progressive person might have with public debt would be the equity considerations of who owns the debt and whether there an equitable provision of private wealth coming from the deficits. There is a debate to be had about that, but there is no reason to obsess over the level of outstanding public debt. The government can always honor its debt; it can never go bankrupt. There’s no question that the debt obligations will be met. There’s no risk. What’s more, this debt provides firms, households, and others in the private sector a vehicle to park their saved wealth in a risk-free form.



Put simply, when should governments begin to run budget surpluses?

Particular budget outcomes should never be a policy target. What the government should be targeting is real goals, by which I mean a sustainable growth rate buoyed by full employment.

Why do we want governments? We want them because they can do things that improve our welfare that we can’t do individually. In that context, it becomes clear that public policy should be devoted wholly to making sure that there are enough jobs, that poverty is eliminated, that the public health and public education systems are first class, that people who are less well off are able to become better off, etc.

From a macroeconomic point of view, the spending and tax decisions of government should be such that total spending in the economy is sufficient to produce the level of real output at which firms will employ the available labor force. This is the goal, and the particular budget outcomes must serve this goal.

None of this is to say that budget deficits don’t matter at all. The fundamental point that the original developers of MMT would make—myself or Randall Wray or Warren Mosler— is that the risk of budget deficits is not insolvency but inflation. In saying that, however, we would also stress that inflation is the risk of any kind of overspending, whether investment, consumption, export, or government spending. Any component of aggregate demand could push the economy to that point where we get inflation. Excessive government spending is not always to blame.

In sum, we’re quite categorical that we believe that budget deficits can be excessive and can be deficient as well. Deficits can be too large, just as they can be too small, and the aim of government is to make sure that they’re just right to employ all available productive capacity.



How does this differ from the dominant New Keynesian paradigm?

Well, the New Keynesian paradigm is built upon a series of false premises that affect policy prescriptions.
False premise number 1: government has to borrow to fund spending.
False premise number 2: there’s a fixed supply of savings available at any point in time.
False premise number 3: the government, by borrowing from that fixed supply of savings, denies private sector borrowers those funds, and competition for those funds drives up interest rates.

MMT says the following:

There is no finite pool of savings in the economy. Savings is a function of national income. When you have rising national income, you have rising savings. So if government spending stimulates economic activity, and thereby GDP and national income, savings will rise simultaneously. That’s the first part of the story.

The second part of the story is that private sector borrowing is not dependent upon a fixed supply of savings. The concept of a bank in the New Keynesian model is that the bank sits there waiting for depositors to come with their savings, and only once the bank attracts those deposits is it in a position to lend. In other words, the New Keynesian conception is that banks are constrained by their existing reserves. In reality, however, banks always have the capacity to create loans for credit-worthy borrowers because they can always get more reserves. Banks can get reserves from a number of sources, but at the end of the evening the banks know they can cover their reserves by borrowing from the central bank. So the conception of banking in MMT is much different from the stylized treatment in New Keynesian economics.

The third story is what happens when the government runs a budget deficit. What happens in the money market is as follows: the US government buys something from the private sector. They pay the manufacturer, who then pays the workers. A whole range of transactions follows from that initial government purchase. All of those transactions work their way through the system and find their way to the reserves of the banks each day. Typically—though not at the present because we are in an extraordinary situation where the central bank is paying interest on reserves—those reserves would just sit there and earn zero interest for the banks. And so typically, as I’ve explained before, banks try to get rid of those reserves, driving down the interest rate in the interbank market in the process. What you can understand from that is that budget deficits, independent of any monetary operations, drive interest rates down, not up. This is the complete opposite of what orthodox economists claim is the case, and it’s confirmed by the present combination of record low interest rates and very large budget defecits.

As good as his word.

Tony Abbott had this to say on the dreaded Carbon Tax

I am giving you the most definite commitment any politician can give that this tax will go.

This is a pledge in blood: this tax will go. We can get rid of it, we will get rid of it, we must get rid of it. 

In a previous life as Health Minister he also said this to say regarding the Medicare safety net

"That is an absolutely rock-solid, iron-clad commitment."

His excuse for breaking that absolutely rock-solid, iron-clad commitment?

when I made that statement, in the election campaign, I had not the slightest inkling that there would ever be any intention to change this. But obviously when circumstances change, governments do change their opinions, and that is actually the responsible course of action.

Fair enough.

Cooking the books.

The WSJ is running this piece

In 2004, along with Jonathan and Peter Orszag, Professor Stiglitz wrote a paper for Fannie Mae in which he "estimated" that the "risk to the government from a potential default on GSE debt is effectively zero." The paper goes on to argue "that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million." Now I understand his Nobel is in economics, not math, but $2 million sounds nowhere near the actual cost so far of $160 billion...

Anybody reading that would be justified in feeling somewhat misled and in being a little angry. However, it is the WSJ that is misleading - the paper was published in 2002 and includes various caveats such as

on the basis of historical experience, the risk to the government from a potential default on GSE debt is effectively zero

and

Fannie Mae and Freddie Mac would likely require government assistance only in a severe housing market downturn. Such a severe housing downturn would, in turn, likely occur only in the presence of a substantial economic shock. Regardless of the structure of the mortgage market, the government would almost surely be forced to intervene in a variety of markets — including the mortgage market — in such a scenario. Fundamentally, given the public’s aspirations to homeownership and the myriad ways in which government subsidies are channeled to homeownership, the government is indirectly exposed to risks from the mortgage market regardless of the existence of the GSEs

It should be remembered that Stiglitz was talking about the order book prior to 2002.

Speaking of fiddling with the record - the owners of the WSJ have been caught out again

News Corporation’s European publishing head, Andrew Langhoff, has been forced to resign following allegations of circulation fraud carried out at the Wall Street Journal.

It seems that fraud, deception and illegal activities are all part of the business model of the Murdoch press.

Uncertainty as a business

Lawrence Mishel looks at the relationship of "uncertainty" with policy and government.

He continues;

in my view and I think in most objective observers’ views, the debt ceiling fiasco was a crisis totally manufactured by Republican politicians. So, if uncertainty hurt job growth, then one should point at those responsible for the financial crisis and the debt ceiling debacle. Crook has clarified one thing for me. Anyone claiming uncertainty is holding back the economy needs to identify the particular types of uncertainty and who’s responsible for those uncertainties—Obama, Republican policymakers, both or neither. The case that Obama’s policies are generating job-killing uncertainty has not been substantiated and the intense emphasis by conservative/Republican/ business association leaders on tax and regulatory uncertainty is a counterproductive distraction from advancing the demand-side policy changes necessary to move the economy forward.

You can bet on it.

Upset at the Occupy Wall St movement Hank Paulson released this statement

The top 1% of New Yorkers pay over 40% of all income taxes, providing huge benefits to everyone in our city and state.  Paulson & Co. and its employees have paid hundreds of millions of dollars in New York City and New York State taxes in recent years and have created over 100 high paying jobs in New York City since its formation.

New York currently has the highest income taxes of any state in the country and thousands of businesses have fled New York to states with no income taxes such as Florida, Texas and Nevada, or moved offshore.

Instead of vilifying our most successful businesses, we should be supporting them and encouraging them to remain in New York City and continue to grow.”

It depends on how you define "success"

A September selloff in gold has turned a bad year for billionaire investor John Paulson into an even worse one.

For much of 2011, Mr. Paulson's largest hedge funds suffered, but his other funds didn't do as badly, thanks to bets on gold and other investments. That changed last month, when the value of almost every fund operated by Paulson & Co. fell sharply.

The declines come at a delicate time for Mr. Paulson, who gained prominence by cashing in on a bet against the U.S. housing market and has a net worth recently estimated at $15.5 billion by Forbes ...

Protesters visiting Hank Paulson demonstrated their generosity with a tax refund cheque for $5 billion, a result of tax cuts to the wealthy.

The bitter austerity pill.

According to financial heavyweights Boone and Johnson

Europe’s periphery also needs to recognize that it signed up to a currency union, and that requires a new approach to adjustment. Instead of having huge devaluations like those suffered in Mexico under Mr. Zedillo, in Indonesia under Mr. Suharto or in Poland under Mr. Walesa, Europe’s troubled nations need to raise competitiveness by reducing local costs.

That must primarily come through wage reductions and more competitive tax systems.

This is sounding more like mandatory chemotherapy for the citizen and less like reform of the financial system. They continue

Putting in place a huge financial package is not enough. Policies have to adjust across the troubled euro-zone countries so that nations stop accumulating debt, and the periphery moves rapidly from being among the least competitive nations in the euro area to the most competitive — and this includes lower real wages, even if debts are restructured appropriately.

Again these heavyweights argue that nations are responsible for the success of financial institutions. Professor Bill Mitchell thinks otherwise

The Boone and Johnson approach – which involves scorching the domestic economy by undermining pension entitlements and the wages and conditions of the workers and entrenching unemployment and business failure while hoping for an external boost will never work in the current situation.

One country might get away with it but not all countries. The only reliable way to avoid a fallacy of composition like this is to maintain adequate fiscal support from spending while the private sector reduces its excessive debt levels via saving. That strategy is also likely to be the best one for stimulating exports because world income growth will be stronger and imports are a function of GDP growth.

The austerity lobby are not only undermining the rights and welfare of the citizens but are also undermining the source of the export revenue – domestic aggregate demand.

After the recent collapse of the financial bubble any advice from a fund managers has to be approached with caution. Economist Kash Mansori tries to set the picture straight, by arguing that the problems of the EU were created by financial managers of the EU;

One of the principal goals of Europe’s common currency has always been to promote greater financial market integration between member countries... the adoption of the euro as a common currency was designed to cause large capital flows from the eurozone core to the periphery—and it is those very capital flows that set the stage for the crisis...Investors in the core were happy about the relatively high returns they were getting in the periphery, the periphery countries enjoyed an economic boom financed in part by this easier access to the abundant capital of the core, and exports from the core to the periphery surged...

..So what triggered the sudden stop, if it wasn’t irresponsible behavior by the periphery countries? The financial turmoil of 2008 and ensuing deep recession in 2009 are probably sufficient explanation. ..we know that one of the main features of the worldwide financial crisis that struck in 2008 was that investors suddenly had no interest in any but the very safest assets. So when it came to investments in the eurozone’s periphery, they decided it was time to cash in their chips. Add to that the ensuing recession, which caused budget deficits to explode in the periphery—along with everywhere else—and those countries probably didn’t stand a chance, no matter how responsibly they had managed their finances. 

So there we have it, countries being run as hedge funds by financial managers with expensive tastes.

How to inspire 101

Our elected leader of the opposition Tony Abbott was quick to run down the odds of success

"Confidence in our own country is at rock bottom record lows.

"Unemployment is edging up. The euro is under great pressure and countries in Europe face the risk of sovereign debt default.

"There is the threat of a world-wide recession."

Is there any truth to this compulsive fear mongering? It would seem not

Mr Abbott revealed that "in the heat of discussion" he sometimes went further with a promise than he should.

Quizzed about his broken promise not to increase taxes, Mr Abbott said sometimes "absolute weight" could be placed on what is said and other times it was just the "give and take of standard conversation".

Yeah but...

Consistently inconsistent

The Gillard Govt's response to those refugees seeking asylum is to lock them up (mandatory detention) and export them to Malaysia. The Abbott led opposition has a similar policy except that they prefer to send them to Nauru. The High Court has ruled that these actions are invalid as they are a breach of Australia's obligations under the 1951 Refugee Convention, to which it is a signatory.

The Gillard Govt has been scathing of the High Court saying that the judge was inconsistent.

"The current Chief Justice of the High Court, his Honour Mr Justice French, considered comparable legal questions when he was a judge of the Federal Court and made different decisions to the one the High Court made yesterday.”

In this respect both the Govt and the Opposition are united, the High Court has ruled that their policies on refugee detention are unlawful.

In an odd twist both Gillard and Abbott have again become united on the issue of mandatory detention in foreign lands, this time regarding the arrest of an Australian teenager in Bali. It was reported that Prime Minister Gillard spoke with the boy by phone assuring him that the Australian government was doing everything we could to help him whilst opposition leader Tony Abbott said that in this instance the govt's actions were right and proper.

There is absolutely nothing right and proper about indefinite detention and deportation for those lawfully seeking asylum.

Apparently 90% ...

..of the world's clairvoyants are advising the OECD, or so it would seem. In answer to the question  

Is the worst of the global economic crisis behind us? 

apparently 10% responded "dont know". Obviously the other 90% do know, or feel that they have sufficient paranormal or psychic abilities to know what remains unknown to others less gifted.

Clairvoyancy has become a popular pastime, or so it would seem. Once frowned on as a black art punishable by death, or a fate worse than, it has now become a mainstream belief. Judging by the proliferation of poker machines, racetracks, casinos and hedge funds catering to clairvoyants it would appear that whilst clairvoyancy enjoys popularity it has not provided a successful business model. This then begs the next question, if clairvoyancy is so consistently unprofitable why does is it remain so popular?

Psychologist Susan Blackmore has a theory

A few years ago I read an article in the British Psychological Society Bulletin about the "Royal Nonesuch of Parapsychology." The author, H. B. Gibson (1979), described Mark Twain’s wonderful story of cognitive dissonance, about the show that never was. Many people were lured into paying 50 cents to see a nonexistent show, but instead of decrying the fraud they went out and persuaded others to see it and pay their 50 cents too. Gibson was reminded of this tale, he said, by a conference paper given by a woman who had spent two years in fruitless research on parapsychology. He suggested that parapsychology is only kept going by the "very human tendency to try to get one’s 50-cents worth after one has been misled . . . by an unkind fate which has led one into an immense expense of effort in a blind alley."

A Job for life.

Steve Jobs

..When I was 17, I read a quote that went something like: "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "No" for too many days in a row, I know I need to change something.

Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn't even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor's code for prepare to die. It means to try to tell your kids everything you thought you'd have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I'm fine now.

This was the closest I've been to facing death, and I hope it's the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:

No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

Mostly wrong, most of the time.

According to the Murdoch rag the economy is going down, bigtime

HARVEY Norman chief Gerry Harvey has warned that retailers face a "shocker of a Christmas" as unemployment creeps up and consumer confidence sags in weak domestic conditions.

"Retailers will have the hardest Christmas in their lives," said the boss of the country's biggest electrical and furniture chain .

"I see unemployment going up, small businesses going under, manufacturing under huge duress and tourism hit very badly. I don't think the outlook will improve."

Recent data on retail spending would challenge populist forecasts of grim times ahead; from Citi and Chris Joye

The retail sales data shows that household consumption to date in Q3 was not as adversely affected by events of the past few months as some of the leading indicators suggested. For the RBA, this means that the CPI and labour force data may have to exhibit a clearer pattern of softening outside of any global deterioration to deliver a November interest rate cut or that any imminent rate cut could be by 25 bps rather than 50 bps.

Retail sales data surprises on the upside for the second consecutive month. Retail sales increased by 0.6% in August, well ahead of the consensus estimate of 0.2%. In addition, the July 0.5% increase was revised up to 0.6%. These changes pushed the yearly growth rate to 2.1% from a revised 1.5% in July and stabilised the trend growth rate from falling further (Figure 2). The better than expected results show that Australian consumers do not share the pessimism of consumers in some other nations."

What is becoming more clear is that the only business that is "a shocker" is the news business - particularly that of the Murdoch empire;

The trend was once my friend.

Prof Harry Clark points to relatively good news from the US, but is anybody listening?

MANUFACTURING AT A GLANCE SEPTEMBER 2011
Index	Series Index Sep	Series Index Aug	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI	51.6	50.6	+1.0	Growing	Faster	26
New Orders	49.6	49.6	0.0	Contracting	Same	3
Production	51.2	48.6	+2.6	Growing	From Contacting	1
Employment	53.8	51.8	+2.0	Growing	Faster	24
Supplier Deliveries	51.4	50.6	+0.8	Slowing	Faster	28
Inventories	52.0	52.3	-0.3	Growing	Slower	2
Customers' Inventories	49.0	46.5	+2.5	Too Low	Slower	30
Prices	56.0	55.5	+0.5	Increasing	Faster	27
Backlog of Orders	41.5	46.0	-4.5	Contracting	Faster	4
Exports	53.5	50.5	+3.0	Growing	Faster	27
Imports	54.5	55.5	-1.0	Growing	Slower	25
OVERALL ECONOMY				Growing	Faster	28
Manufacturing Sector				Growing	Faster	26

*Number of months moving in current direction.

Are you in or out..

... said the actress to the bishop, apparently.

More on the psychological terror that is gripping global markets, by Robert Shiller