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90 seconds at 9 am: Bernanke says recovery frustratingly slow and Fed ready to act, but no green light for QE III yet; NZ$ firms with Dow; Milk powder price down 0.9% in Fonterra auction

Posted in News
See video

Here's my summary of the key news overnight in 90 seconds at 9 am, including news US Federal Reserve Chairman Ben Bernanke told a senate committee hearing overnight that any reduction in unemployment was likely to be 'frustratingly slow' and that the central bank was ready to take further action to boost the economy.

However, Bernanke was also frustratingly non-specific about exactly what action the Fed might take or when it might happen. Markets were initially disappointed about the lack of a green light for a widely expected third round of a quantitative easing (QE III) or money printing to buy US government bonds.

But US stocks firmed in late trade after the intial disappointing when combing through the details they were able to find signs Bernanke is still in a mood to further stimulate the world's largest economy.

Bernanke said the Fed was looking at other tools for easing policy further, including buying assets such as mortgage bonds and government bonds, changing its communications about how long an 'extended period' it expected interest rates to stay 'exceptionally low' and possibly lowering the rate it pays on reserves deposited with the US Federal Reserve. See more here at Bloomberg.

The Dow eventually closed up 0.6% as confidence regained that an easing was possible as early as next month, boosting appetites for riskier assets such as the New Zealand dollar, which rebounded to around 79.8 USc from an overnight low of 79.3 USc.

The currency wasn't helped by results from Fonterra's fortnightly auction overnight of milk powder showing prices fell 0.9%, adding to the 5.9% fall at the previous auction. This was somewhat of a surprise after surges in other soft commodities such as wheat and corn because of a record-breaking drought in America. See the full auction results here.

Meanwhile, global banking group HSBC was severely criticised by a US senate committee, which charged it allowed terrorists, drug cartels and criminals access to the US financial system with lax controls on money laundering. The group's head of compliance told the committee overnight he was resigning. See more here at Bloomberg.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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56 Comments

It seems there is worldwide a

It seems there is worldwide a new habit developing: Major Court Cases. Even here in New Zealand. I’m wonder how much taxpayer contribution is involved - billions ??

  Words of

Good big picture read

Good big picture read A.J...........however the timing for Ahaventhadmedinnerdad will depend on how far along the enrichment programme is.....still more than enough for a dirty bomb eh..?....dirty bomb..? dear me show me a clean one.
Of the inerested parties ,you have to wonder though, who's playing both ends against the middle........the post soviet break up Russia, is, if nothing else pragmatic about retaining the empire they still have .........there were deals done I'm sure, there will be deals done again...I'm sure.

  Words of

Still no QE3.....eh..?

Still no QE3.....eh..? Bernake as I pointed out is adopting a new position of targeted injection rather than the flood and hope method........plus he is, I think, more than a little tired of being cannon fodder for 1st and second rate economists.
Fonterra drops again ..? well there's a shock.....crikey , two drops post the convenient spike just before the TAF vote, who woulda believed that....?
 The good thing about stupidity is.... there's always demand for it....with what appears to be an inexhaustible supply. 
 
sigh....: >(

Still no

Still no QE3.....eh
 
Probably not much need if this headline and the story attached can withstand scrutiny.

It's where I've gone on a

It's where I've gone on a number of the posts I put up on it Stephen H.....Number crunchers  spend too much time second guessing the interests of those in the drivers seat.
I’ll say she is: almost completely Americanised, Lagarde worked for over 30 years in the States as a heavy-hitting corporate lawyer, and never forgets for a second where her loyalties lie. 

Fonterra drops again ..? well

Fonterra drops again ..? well there's a shock.....
 
Agreed, no surprises there - Roger J Kerr recently told us that Fonterra was stockpiling WMP to hold prices up and that the strategy was clearly working.
 
So we knew from then that it was only a matter of time before WMP prices would fall significantly.

Interesting comment christov

Interesting comment christov - Fonterra drops again ..? well there's a shock .. crikey, two drops post the convenient spike just before the TAF vote, who woulda believed that ?
 
The Fonterra UP-SPIKE - didn't go un-noticed (spike and convenient are polite words) (blatant and obvious manipulation - where were the regulators?)
 
Reminds me of the anger arising from the New York "flash crash" of May 2010 .. Barak Obama on TV and in the syndicated news .. demanding answers .. he was going to find out what happened and what caused it .. he never did .. but immediately after there was the BP oil spill in the Gulf of Mexico .. and Obama was again here, there, and everywhere demanding answers and recompense .. and he went after BP like a rat up a drain pipe .. and got them for $50 billion in compensation .. but, there never was an answer to the "flash crash" and the $1000 billion that was wiped out .. no, the domestic brahmins are untouchable, but BP, hoo boy, they weren't un-touchable, just like the US people are now queueing up to go after Barclays and now HSBC. Anything but the US banks .. silence .. and back to Fonterra's "flash bash" .. silence .. no one in authority questioned it .. other than christov .. wonder why .. would it have been different if it had been a "smash crash" ?

The Trade Off To Record

The Trade Off To Record Corporate Profits: Your Miserable Salary
 
Not much chance of recovery in the housing market or any other sector if this dynamic has engulfed NZ, as it seemingly has in other economies. Except, possiblty the stockmarket? But only if one trades dollars for shares in the diminishing pay packet.
 
I see Fran O'Sullivan - has waded into the intergenerational dispute by preferring,  like many others, to treat symptoms rather than causes.
 
Let's face it, the two graphs in the top highlighted link depicting the contrasting fortunes and current plight of labour's share of the capitalist pie is where our attention and subsequent corrective actions should be directed.
 

I suggest your top link

I suggest your top link should be Bernard's "must read" of the day.
 
But I suspect he prefers to remain in Fran O'Sullivan's MSM camp. As you infer, there appears to be better returns in stirring up intergenerational animosity than illuminating causes.

Boy ...Colin R you said a

Boy ...Colin R you said a mouthful there my man.......fact is though , Bernard took a pasting on his latest crack at it.....not one rebuttle....not one response from him on it.....and you could feel them willing it to just disappear......in theory Wolly should have been readers choice for days, he didn't make minutes......
 Thats the good thing about being in charge of the Microphone......you just cut em off when they score points....on sore points.
 The champions of free speech really are not as democratic as we'd like to believe.tsk tsk.

Christov, I think you are

Christov, I think you are stretching it in mentioning our profit motivated media and champions of free speech in the same sentence.
 
That concept perhaps a remaining vestige from years of exposure to perception management? 

Sorry Colin......just

Sorry Colin......just unjamming  the tongue from the Cheek ....all good now..!
So there really is no Underdog then.....?...No Don Quixote....?
I'm going back to Green Lantern he was more believable.

Busy today there Christov.

Busy today there Christov. And busy with the subtlety. Some people are good at connecting dots. Some aren't. Those that aren't can get confused by the subtlety.

It was probably your use of

It was probably your use of the word democratic that confused me. If you had instead suggested a lack of integrity we may have remained on the same wavelength.

PS: Liked your Conquistadors

PS: Liked your Conquistadors and Stallions the other day. VG. Took me a while to work it out. PDK was quick.

Yes, iconoclast, I too love

Yes, iconoclast, I too love the sentiment of that particular tune, I was going to correct PDK , but felt it might steal the subtlety of it at the time......in terms of encapsulating our gracious host, a most apt piece.
And So.
Conquistador your stallion stands 
I must pay my respects
And though I came to cheer at you
I leave now with regrets
 I see your amour plated breast has,
long since, lost it's sheen
 And in your shady rest  
there are no signs which can be seen.
You know I hope for something to find
I can see no ...place to unwind.
 To hell with subtley....................eh..?

To be fair to Bernard, he

To be fair to Bernard, he does face the same sort dilemma as he would if he converted to Islam.

Ha ....not bad at all

Ha ....not bad at all scarfie....ha ha!

what's that? a facebook type

what's that? a facebook type faceplant?

ya making me feel bad about

ya making me feel bad about it iconoclast........scarfo's ok ....

Well I could have made the

Well I could have made the comparison to like a Christian having a website satan.org, but I was trying to keep the subtle theme:-P
 
edit: wondering if Don Quixote in in "The Great Books" as I have them downstairs. Been meaning to have a crack at Karl Marx for a while.

"Thats the good thing about

"Thats the good thing about being in charge of the Microphone......you just cut em off when they score points....on sore points."
So good in so many ways:  Christov  =  Legend

Too kind on me there Vera

Too kind on me there Vera Fayed.... but,I'm still completely confused about how the whole readers choice thing works because an old comment is still holding the spot (worthy though it is) but by my reckoning ,if thats the criteria then Wolly  or at least iconoclast should be occupying that spot .......so I am implying there is discretion applied by the host as to what readers choice is or should be..
To be honest little double standards like that........... irritate me. 
 But they got the mike ......right...?

Personaly I think Bernard was

Personaly I think Bernard was proved right, he said baby boomers hold all the power and here we see them all come out of the woodwork to abuse him for suggesting their gains may be ill gotten.

Are you a baby boomer per chance...

Abuse....? is that what you

Abuse....? is that what you call it...abuse Julz...maybe you should go back and actually read the thread, although he's buried it as fast as he could...so you just might find that difficult.
Get the whole story before you shoot your foot off there...uh..?
abuse....? harden up for crisssake....duh.
And yes I am so what, it's bound to happen there are people older than yourself or are you an immaculate conception...? if not go give Mum n Dad a serve n do your homework while your at it.
Need the link to the thread ..? I'll put it up for you if not stay ignorant.

You're trying to convince me

You're trying to convince me you haven’t used abuse by abusing me...There's no need to take offence at me calling it abuse, strong opposition perhaps...

My point is you can't expect us non baby boomers to be overly impressed by you all jumping up and down saying Bernard is wrong about your unequal wealth distribution and how you attained it.

Especially when you are the same folk who are quick to accuse the uneven distribution of wealth amongst bankers and the top 1% of American's...

So now I'm abusing you

So now I'm abusing you Julz...?
" about your unequal wealth distribution and how you attained it. "
What exactly does that statement mean...?..we stole it...?
That would require conscious intent on the part of an entire generation.
That we were aware we would cause inequalities for future generations....?
That would require conscious intent.
As to the abuse .....I assume you meant the "stay ignorant" remark, ....you would need to define the meaning of ignorance by definition...as some is accidental and some is deliberate,
You have the option to report the comment as is your right.

I probably use the term abuse

I probably use the term abuse more loosely than you, I didn't take offence and certainly wont be reporting you.

It doesn't really matter how the wealth of your generation was amassed though, I personally think most of it came about from circumstances like interest rates trending lower which made your assets go up and your debts easier to pay and the critical mass your generation had at the voting booth. 
 
Unfortunately for your kids they now have to pay the higher asset prices and will not benefit from falling interest rates.  In addition there will be three of them supporting each retired person vs the five you had to support.  There are other differences Bernard mentioned that I don't need to repeat here.
 
What is wrong though with Bernard pointing out these differences and recommending some changes to make it easier for younger tax payers.  Property taxes and inheritance taxes are possible ways of addressing this, I was shocked at the level of resistance your generation was putting up against this debate.  It seemed every criticism against Bernard was met with about 10 other baby boomers "voting it up"... 
 
It was sickening to be honest, reminded me of fat cat bankers patting each other on the back.

There is absolutely nothing

There is absolutely nothing wrong...Julz...with Bernard debating the revision of superannuation entitlement by State Decree, nor with the other topics he approaches related to it.
But I've been here for almost all of those threads and the language he uses has been devisive, inflamatory, polarizing....at times a little irrational...( apparently not just in my view)
A number of points he addresses I agree with, you will find however many would not, but that is because pension or no I will probably survive and in fact would like to carry on working if I am able.......that in itself may disadvantage a younger person in need of occupying my space.
I would certainly like to have a reasoned discussion, minus the one brush tars all approach, including the subject of State Promissory in regard to pension availability for having paid taxes, and as to whether it is deemed by people(if revised) to be confiscation as opposed to withdrawal of an unsustainable offer.
You see Julz...we get that..! yes we know it's unsustainable going forward...and yes we want nothing more that housing affordability to be to the benifit young N.Z.....when I say we I mean those that subscribe to that notion.....E.G. would I undersell or gift away my house to my children.....you better believe I would, but I can't resolve all the problems and so we have to find common ground and work it out without prejudice and fear.
BTW....the thread got away to another subject matter altogether and that is why you will find so much response referring to" that thread ", which in itself was overshadowed by a certain shall we say ,discretionary act poorly thought out by "that threads" editor. 
Stay well............................ha..! another way not to become a burden
 

O.K. guys - please take a few

O.K. guys - please take a few deep breaths.
 
Way back in this thread I stated that there appears to be better returns in stirring up intergenerational animosity than illuminating causes. Julz and Christov have just illustrated that point.
 
If we step back a bit from the intergenerational animosity what do we find?
A shrinking middle class that is getting poorer, and power being concentrated into an increasingly wealthy elite. Worse, accounting fraud, corruption and incompetence has become endemic and is stuffng up effective allocation of resources. Worse still, populations are growing but resource based growth is nearly over.
 
So, will everything become O.K. if all the supposed 'wealth' of the baby boomers was redistributed to the next generation?
I don't think so:
 
First, the intergenerational issues are smaller and less important than the interclass ones - and an engineeered distraction from that.
 
Second, the only generations with real wealth or getting wealthier are the ones older than the baby boomers.
 
Third, above as worse, and worse still.

Geez wish I'd said that

Geez wish I'd said that Colin.........nice.

Thanks Colin, I agree with

Thanks Colin, I agree with everything except where you say redistributing wealth wont help. 
 
I can't tell you how many of my friends and their young families have had to leave because they have no hope of ever owning their own home much less saving for their retirement.  Nearly all have degrees and are the kind of people NZ should try to retain.  Any relief the baby boomer generation could provide them (and I include other asset rich folk) would certainly help and make it more likely these families stay in NZ.  A tax that brings down land values for example or a capital gains tax would help them twice, it would reduce their tax burden and it would make it affordable to buy a home.
 
The downside to babyboomers is that their assets fall slightly in value, the upside for their children is vast in comparison, they can now afford a home and stay in the country they love...

That is good.   I didn't

That is good.
 
I didn't intend to convey the impression that redistributing wealth isn't going to be helpful/necessary - but just that it has to be as part of a much bigger resolution.
 
Personally, I would do away with income taxes altogether and instead tax a) consumption and b) all assets. There would be no need for capital gains taxes as significant gains would be unlikely.

Prolly a little hard on Colin

Prolly a little hard on Colin R there mist42nz as I didn't think it was that hostile, ...I've been a bit worse about it today, but maybe that's why you chose to post a reply here.....point taken and given to you I might add......I'll need to think on it some.....but nobody's got a gun to my head right.......cheers.

Christov, remember this

Christov, remember this morning's globalDairyTrade auction didn't provide dairy farming businesses with a good start to the day. 

True, but there are some

True, but there are some obstacles to getting past being a small business (> 500 employees):
 
http://www.oftwominds.com/blogjuly12/why-cant-hire7-12.html

The point I took from the

The point I took from the "must read" was that the rules on who gets what share of resources appear to have changed markedly from those operating in previous business cycles:
http://www.zerohedge.com/news/trade-record-corporate-profits-your-misera...
 

The Christchurch non recovery

The Christchurch non recovery – Gerry Brownlee’s massive failure....

 
The dimwit builders have a long wait ahead of them....

 
Builders Waiting For Boom | Stuff.co.nz

 
Hugh Pavletich comment - http://www.facebook.com/CantabriansUnite

 
Hugh Pavletich
Coordinator – Cantabrians Unite
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org

Give Gerry a chance there

Give Gerry a chance there Hugh.....he's still working off the last coupla pies while in the man cave building the scale model of the........
Gerry Brownlie Recovery Award for Attendance and Lip Service 

Christov - ha ha.......its

Christov - ha ha.......its tough to survive in Christchurch when they have stopped building houses and you have got to compete with Gerry and his well nourished side kick Nick Bryant (who was a pure NBR journalist before being polluted with politics) for food as well........
 
To think we were all such “comrades together” as Compassionate Conservatives following the 208 election, when as Press Secretary to Phil Heatley at the time, Nick Bryant had a hand in –

 
beehive.govt.nz - Bringing better balance to the housing market
 
......and in how the National Party abandoned us all, in reverting back to Crony Capitalism is very sad indeed.....
 
 

This is long and I cannot

This is long and I cannot find a link, Im pasting it here as this thread is quite about now
 
 

 
 
 
 
 
BASTIAT FORUM
Wednesday 6 June, 2012
 
 
 
 
 
 
THE DIMMING OF DEMOCRACY
 
 
 
 
 
 
 
 
Speech given by
Maurice L Newman AC
 Chairman of Australian Broadcasting Corporation, 2007-2011

 
I'm delighted to be invited to speak to you tonight at this Bastiat Dinner.  Of course, if Frederic Bastiat was alive today and if enough good people followed his enlightened
teachings, there would be no need to talk about the dimming of democracy we see around us. 
 
Sadly this is not the case and for that reason we owe Peter Brun a deep debt of gratitude for continuing to promote Bastiat's philosophy.
 
In today's post modernism world, Peter and people like him are doing work of incalculable value.  If it wasn't for them, Bastiat, Smith, Hayek, von Mises, and other champions of liberty would simply become footnotes to economic texts.  Their wisdom and insights would probably be lost.  Post modernism economics has little time for free markets and property rights.  It is about government intervention and today's academics have forged close relationships with governments, who in turn fund them.  This cosy oligopoly is mutually reinforcing.  To them, free market economics has become little more than a curiosity.
 
Post modernism economics has roots in Marx and is concerned with nebulous concepts
like quality of life and standards of living.  It leans towards the collective rather than
individual initiative and competition.
 
All this explains why Keynes is the favoured son of economists these days.  He plays to
today's political narrative of redistribution and government intervention which allows the
political class to claim credit for saving us from a fate worse than death.  The counter
factual is always difficult to mount because it is open to the charge of post facto
rationalisation.  However, we now have enough evidence coming from Britain, Europe and the United States, to demonstrate the consequences of sustained, undisciplined, procyclical government spending, combined with income redistribution and the imposition of rigidities in labour markets and trade.
 
Now that nations are suffering the unintended consequences, we are told that the solution
to too much debt is to borrow more.  The answer to ever growing deficits is to spend more.
While private investors are prepared to fund this recklessness, the damage is hidden from
view.  However, in the end, as Margaret Thatcher famously observed, you run out of other
people's money.  This is when the markets exact a huge price, a price which invariably
was not reflected in risk premiums.  This inevitably leads to the cost of adjustment
exceeding expectations both financially and socially.  We are at that place now. 

Contrary to conventional wisdom, Keynes may not be the solution, but the problem.

The immediate reaction of the political classes to the recent crises is to defend themselves and their policies.  In a demonstration of hubris that authority can overcome markets, debts and deficits continue to grow and central bank balance sheets have exploded. 
We have had QE1 and QE2.  We've had Operation Twist and the LTRO in Europe. 
We have seen the Bank of Japan and the People's Bank of China inject massive stimulus into their economies.  Much of it was globally co-ordinated.  These responses, to extrapolate from a piece by Ron Paul in a recent FT article, suggest that the current crisis is a problem of liquidity.  In fact, it is a problem of poorly allocated investment caused by improper pricing of money and credit, pricing which is distorted by the inflationary actions of central banks.  Indeed, he says, "Control of the world's economy has been placed in the hands of a banking cartel, which holds great danger for all of us".
 
So, after all this intervention, what has been achieved?
 
The official line is that the world escaped a 1930's type depression.  But has it and, if so, at
what cost?
 
The fact is, and despite all that has been thrown at it, this has been the weakest recovery
ever.  Dave Rosenberg, one of America's top economists, asks the obvious question about
the US economy.  "After almost four years of $1 trillion-plus fiscal deficits, near 0% policy
rates, and a Fed balance sheet that is pregnant with triplets (QE3), how can we not have
some growth, any growth? If 1-2% is all we get in the year which is generally the best in
terms of growth for the cycle, then that is a very sad commentary indeed."
 
The same, of course, can be said for Britain and Europe.  They are in recession. 
The €1 trillion LTRO liquidity boost has disappeared without trace.
 
Ordinary people around the world are becoming increasingly suspicious of politicians and
central bankers whose primary objective is to kick that proverbial can further down the
road.  They sense that at best their policies are based on nothing more than the 'Micawber'
principle, that eventually, something will turn up.
 
In Europe, to enable the political classes to save face and investors to save money,  
even prime ministers and governments have been changed without a popular mandate. 
This action has been justified on the grounds of holding the Eurozone together. 
Yet, despite how the bailouts have been dressed up, who are the real beneficiaries?
 
For Germany, being able to trade at an exchange rate which is more attractive to its
export oriented economy than reverting to the Deutschmark, brings significant benefits. 

 
So valuable are they that German taxpayers have contributed hundreds of billions of Euros to keep the peripheral economies inside the EMU.  But while it may suit Germany and some of its northern neighbours, does anyone really believe that the interests of Greeks, Portuguese, Spanish, Irish and Italians now living in misery because of austerity measures imposed as a condition of bail-out funds, are best served by having an overvalued exchange rate? Austerity can't reduce Greek wage rates to below those prevailing in Germany without a further disastrous rise in unemployment, or, reduce Spanish property prices to market clearing levels without inflicting catastrophic defaults.
 
Fiscal consolidation is now being explored as the alternative to an exit by the peripherals.
This is a tall order.  This is not six sovereign states, ruled by a single monarch, bound by
a common language and culture and of the same heritage, federating as Australia did in
1901.  The Eurozone consists of seventeen member countries.  There is no common
heritage or language.  Economic arrangements and cultures vary greatly and in some
cases old enmities and rivalries remain.  To cede economic sovereignty and democratic
process to Brussels is a tall order no matter how good the argument for sound German
style fiscal and monetary management.
 
The Greeks have had a taste of this.  Mr and Mrs Economou, having had democracy
snatched from them by creditors who installed George Papademos, a non-politician
technocrat, as prime minister, (How easy was that?) are still waiting for a PM who they
elect themselves.  The former prime minister, George Papandreou, was dumped for
announcing he would ask the Greek people to vote on whether Greece should accept a
new austerity deal.  Letting the people decide was considered too risky by the Eurocrats,
so Papandreou was replaced before the people could exercise their democratic right.

 
When the Economous' time came on 6 May to cast their vote, the low turnout reflected
disenchantment with the major parties which allowed a good showing by the minority
extremes.  The support for the minorities was a rejection of the austerity measures with
which the unelected Prime Minister has saddled them.  Whether succession from the Euro
will follow remains to be seen on June 17, when voters may finally deliver their verdict. 
In the meantime, an interim government of technocrats has been appointed.
 
Greece has a history of wanting its cake and eating it too and that tradition continues
especially for as long as a low cost Schwartzwalder Kirschtort is on offer.  But the
Bundestag may now demand too a high price for new cakes.  If so, then default would be
quite consistent with the Greek behaviour of 150 of the past 200 years.  But in the
meantime, large helpings of German cake are being smuggled out of Greece, back into
Germany.  Despite measures to stop this cash outflow, this fear of the future, based on the
past, is putting serious liquidity pressure on Greek banks.
 
Although swapping euros for drachmas is legally complicated by the fact that there is no
mechanism for an exit, the Eurozone is a political experiment and a political solution for
an orderly departure will be found.  The FT reported recently that a British firm was printing drachma notes presumably to keep Greek options open.
 
Greece is not alone in experiencing a suspension of the democratic process.  In Italy,
Mario Monti was appointed prime minister from outside of the parliament.  He formed
a government without a single politician.  His administration is made up of bankers, lawyers and academics and is introducing a series of austerity measures designed to win back market confidence.  In the meantime, democracy is suspended until 2013 at which point Italian citizens will get their chance to vote on these initiatives.
 
Time will tell, but while Germany and France have been paying the piper and calling the
tune, since the French elections, Berlin has lost its neighbour's support.  M. Hollande is
opposed to many of the austerity measures introduced by Nicolas Sarkozy and is
advocating the reversal of some of them.
 
Even at home, Chancellor Merkel is feeling the pressure.  She has recently suffered a
crushing election defeat in North Rhineland Westphalia, Germany's most populous state.
Her CDU recorded its worst result since the war.  It is believed opposition to the austerity
measures imposed on Greece, Spain and Portugal is a factor in the poor showing.  German taxpayers must also be feeling bail-out fatigue.
 
Across Europe the anti-austerity paranoia is gaining momentum as voters increasingly
exact their revenge on the technocrats.  Already France, Ireland, Spain, Portugal and the
Netherlands have voted for relief, while Finland and Austria are among a diminishing
number still supporting Angela Merkel.  The movement for secession from the monetary
union may pick up as the recession bites deeper and as unemployment, particularly youth
unemployment, grows.
 
The increased uncertainty sparks renewed volatility in the markets, heightened by
awareness of the accumulated baggage of failed fiscal and monetary policies and the
diminishing policy options that are available.  And, on cue, as economic activity recedes,
and social unrest escalates, the political class and the intelligentsia will wring their hands
and ask, "Who knew?", just like they did in 2009.
 
This is the climate which leads to vague party platforms and tentative leadership. 
It is toxic for mainstream parties and ideal for extremists.  Within the constraints of tight budgets the political process falls prey to vocal well organised lobby groups and minorities.  Populist policies which favour redistribution and green outcomes are given priority over those which encourage entrepreneurship and productivity.  Incentive structures are turned upside down and entrepreneurship is squashed.  The cost of doing business continues to escalate as laws and their introducing bills become more complex and lengthy.  Many members of parliament don't even read them, let alone understand them.  Ministers must increasingly rely on their public servants to help ensure they do not stray too far from the narrative.  Sir Humphrey is in his element in this situation and in the end it is unclear who makes the bullets and who fires them.
 
In a world where government's heavy hand, not the market, inexorably determines
resource allocation and, where regulation controls every activity, the consequence is a
decline in the number of businesses and the concentration of economic power into fewer
but larger groups followed by an unhealthy collusion between big government, big
business and big labour.  This is the fertile soil into which too big to fail is planted.
 
The widening gap between the people and those who govern them, is posing a threat to
democracy itself.  As the resilience and productivity of the market economy flags under the weight of government and as populations age, more voters, when making choices between their jobs and their personal freedom, are forced to become dependents of the state in order to survive.  Learned helplessness is rewarded.  Like a drug, once hooked on welfare, the recipients crave more and resist attempts to withdraw it.
 
For the autocrats, decades of centralising power has made governing easier and
opposition harder.  As government power concentrates, so does individual freedom erode.
 
This then, is the sad state of Western democracies in 2012 with Europe in the vanguard.
 
After decades of pro-cyclical Keynesian policies the end game is now in sight.  Some
countries have clearly reached a tipping point.  For example, Spain has an unemployment
rate of 24%.  Greece 22%.  Their youth unemployment rate is near 50%.  Their banking
system is insolvent and their treasuries are bare.  The New York Times carried an article
recently, As Athens Woes Grow, Neo-Nazis Gain Clout.  Every day there is a demonstration in Spain.  Some commentators are saying France is now where Spain was eighteen months ago.  The stakes for us all are significant and the possibilities concerning.
 
And, in case you think it is only European countries which are faced with serious economic and social issues, one has to look no further than the United States.  According to Rosenberg, the labour force participation rate in the US has plunged to a 30 year low.
 
New York Magazine claims only 55.3% of Americans aged 16 to 29 are employed,
the lowest percentage since the Second World War.  It says one in five young adults live below the poverty line. 
 
The number of people on food stamps, disability benefits and the number that have withdrawn completely from the labour force has never been as high as it is today. 
A recent census confirms nearly half of the people in the US live in households that receive at least one government benefit.  And the share of households with no savings at all has risen to 23.4% from 18.5% in 2009 when the recession was coming to an end.
 
What is more, America's per capita government debt at US$44,216 is worse than Spain,
Portugal, France, Greece, Italy and Ireland.  By comparison, Greece is a paltry US$ 38,937
per head.  According to the Senate Republican Budget Committee, under President
Obama's plans, this number will grow to US$75,000 by 2022.
 
So why should the markets take such a hard line against Greece and the other European
peripherals?  Some will tell you it is because the US has never defaulted.  This is untrue.
The US defaulted on its debt obligations in 1790 and 1933.  In 1790 redemptions were deferred for ten years, while in 1933 a pledge which allowed investors to redeem their
bonds in gold was dishonoured.
 
That said, American banks have been recapitalized, the US dollar is still, for the time
being at least, the world's only reserve currency and, despite all, investors still maintain confidence in the United States economy.  But trust in America's currency and its
economy is not ordained and with each passing day that the debt and deficits grow,
so ordinary Americans forfeit some part of their right to determine their destiny. 
No matter who you are, at some point when you borrow too much, lenders take control.  As of May 2012, approximately 50% of the debt held by the public was owned by foreign investors.  Just over 50% of that debt is held by China.
 
Now the horse has bolted, rather than acknowledging the reality of how the world arrived at this position, lawmakers and bureaucrats across the world are seeking to rewrite history.  The global financial crisis, we are told, was due to greedy bankers,
not reckless politicians and central bankers.  Yet, without the pro-cyclical debt and deficits, government policies which turned lending practices on their head, (the US and Spanish governments both outlawed applying established lending criteria to minorities) and the irresponsible monetary policies pursued by central bankers, the world would not be contemplating an economic collapse.  After all, who encouraged the carry trade where speculators could arbitrage interest differentials across borders without fear the money supply would be cut?  Who underwrote the dot com bubble?  Who validated the moral hazard implicit in the Greenspan and Bernanke puts?  Who encouraged households to forget their day jobs and leverage their home equity?  From where did the the liquidity come which allowed this?  How was it possible for Spain to overbuild 800,000 holiday homes, or, Ireland to construct 300,000 dwellings, equivalent to 15 million homes in
the US?  How could the sub-prime mortgage market have exploded as it did?  
Who introduced subsidised green policies which massively increased Spain's costs, reduced competitiveness and destroyed job opportunities?  Who was supervising these excesses?  And, who today still uses QE and other monetary measures to give comfort that government will save you from yourself?
 
These questions are rarely asked, let alone answered.  But when the blame game is exposed for what it is, when all the excuses and distractions are cast aside, there is only one possible answer:  GOVERNMENTS and their CENTRAL BANKS.  They, and they alone, committed the original sin which created the conditions that allowed the private sector to behave like unsupervised children.  None of this excuses the criminal practices of bankers, the obscene compensation arrangements that rewarded bad behaviour, nor the reckless leveraging of balance sheets or the imaginative products which were essentially valueless on creation and which remained that way.  But without the original sin, none of it, none of it, would have been possible on a scale which posed, systemic risk.
 
Rather than learning from their mistakes, governments and central banks compound them
by continuing to rack up huge deficits and flooding the world economies with liquidity,
thereby underwriting speculative trades and perpetuating moral hazards as they go.
Instead of letting banks go under, they are endlessly bailed out or nationalised.  Investors
receive mixed signals on pricing for risk.  Rather than lose their money, the losses are often
socialised.  Anything that will avoid pain today is done to maintain office.  But by building on the excesses of the past, to postpone the evil day, means the market's ultimate adjustment is likely to be even more painful when the day comes.
 
Of course, regulations and regulators have been strengthened, rules around bank compensation have been tightened, and a Tobin tax on bank transactions has been proposed.  These are government's answers to prevent a recurrence of the GFC. 
Just how effective are these moves likely to be?  Well, already in this brave new world,
JP Morgan has blown $2.0 billion in six weeks without really trying.  The roots of the loss lie in credit default swaps, but this time, not involving mortgages.  But again, the monetary macro of plentiful credit unadjusted for risk, provided the where with all. 
Even the new focus on bank compensation failed to change behaviour.  The desk manager walked away with $32 million.  A good return for him, but a pity about the shareholders.
 
The lesson from this episode is the futility of micro regulating.  Markets should be allowed
to operate in a macro environment which is responsibly managed.  Micro policy settings
should concentrate on ensuring financial institutions are adequately funded and supervised, keeping prescription to a minimum and efficiency to a maximum.  Investors should be reminded that risk and failure are part of the system.  Returns should be risk adjusted, not by the government, but by the market.  The days of capitalising profits and socialising losses should end.
 
But base political motives will ensure that capitalism rather than sustained policy failure is
seen as the cause of the GFC and the crisis in Europe. 
 
This anti-capitalistic push is gaining ground with the support of biased journalists and
a sympathetic academy and judiciary.  While conceding that capitalism can deliver material wellbeing, the argument runs that only government, through redistribution of incomes and endowment of the arts and education, can bring security and lasting happiness to ordinary people.  This is one of the justifications for the expansion of government and government programmes.  It matters not that the decades long pursuit of socialist policies has left the western world on the brink of financial bankruptcy.
 
In 2000, David Henderson, who was formerly head of the Economics and Statistics
Department of the OECD, co-authored a pamphlet for the Institute of Economic Affairs which holds true a decade on.  He argued that anti-liberal forces, new and old, are at work
"which make disinterested people receptive to interventionism".  He identifies new elements as anti-market NGO's, a wider circle of perceived 'victims of injustice',
the spread of labour market regulation and, an 'alarmist consensus' about globalisation and environmental degradation.  The combination of old and new ideas results in 'new millennium collectivism' which provides the main impetus behind the anti-liberalism of today.
 
Henderson could also have emphasised the role of our teaching institutions whose mission seems to be to indoctrinate students with the romance and moral righteousness of socialism, while devaluing the equity and wealth creation of free markets, private property rights and, individual action.
 
Is it any wonder that journalists, judges, church leaders and others in our nation, having been immersed in an anti-capitalistic environment during their most impressionable years, so readily embrace the omnipotence of the state, this despite the ever increasing contrary evidence which surrounds them?
 
How astonished Frederic Bastiat would be if he was alive to see how deeply entrenched
anti-liberalism is today.  To quote von Mises when observing Bastiat's day, "The ideal of liberty seemed so firmly rooted that everyone thought that no reactionary movement could ever succeed in eradicating it.  It is true, it would have been a hopeless venture to attack freedom openly and to advocate unfeignedly a return to subjection and bondage", he said.  "But anti-liberalism got hold of peoples' minds camouflaged as super liberalism, as the fulfilment and consummation of the very ideas of freedom and liberty."
 
It seems to me we have come full circle since the time Adam Smith wrote The Wealth of Nations.  To quote James Buchanan in his 1990 Bonython Lecture, "With no overriding
principle that dictates how an economy is to be organised, the political structure is open to
maximal exploitation by the pressure of well-organised interests which seek to exploit the
powers of the state to secure differential profits.  The special interest rent seeking, churning state, finds fertile ground for growth in this environment.  And we observe quite arbitrary politicised interferences with markets, with the pattern of intervention being dependent strictly on the relative strength of organised interests".
 
That is the world we now inhabit.  Political and economic freedoms are declining as organised interests increasingly have their way with law makers leaving the rest of us ever
more marginalised.
 
The final word should go to von Mises.
 
"Socialism is unrealisable as an economic system because a socialist society would not
have any possibility of resorting to economic calculation.  This is why it cannot be
considered as a system of society's economic organisation.  It is a means to disintegrate
social co-operation and to bring about poverty and chaos."
 
You'd have to agree.  So far, so good.
 
Thank you.

Oh dear .. the person you are

Oh dear .. the person you are quoting .. Maurice L Newman was Chairman of the Australian Stock Exchange who resigned in 2008 .. after his son was tied up in some shennanigans to do with a couple of doubtful listing of companies connected with Opes Prime a major fraud, (the perpetrators now in jail), connected with Tricom Financial and it goes on .. how he became chairman of the ABC and got honoured with an AC defies explanation .. but one shouldn't tar the father with the sins of the son

Cheers A.J. I enjoyed

Cheers A.J. I enjoyed it.....willl read it again......thanks for putting it up.
Iconoclast sins of the son ...give creedence to the phrase ...I am not the reflection of my Father.....swings both ways.

aah piety .. There's more to

aah piety .. There's more to it than that .. Wheels within wheels .. David Gonski who was on the ASX board and succeeded Newman as chairman, and still is to this day .. is a lawyer and was the architect of setting up some obscure trust in germany that was used by the Lowy family of Westfield Properties fame to funnel (read launder and avoid tax) from the US and AU via germany into Israel. The IRS and the US authorities are currently going after the Lowy family. Gonski gets a free pass.  Newman. Gonski. Brotherhood.

Now I will read it

Now I will read it again...with that ,and what I can find in mind......TA.

that should read. Newman.

that should read. Newman. Gonski. Lowy. Brotherhood
Note to editor. All that is on the record and in the public domain .. so not defamatory

It might have a more

It might have a more plausible speech if he actually understood the difference between what Keynes said and what the neoclassical economists (which I think he calls post-moderm economists) misprepresent Keynes as.

Here's a  wee story on China

Here's a  wee story on China Natural Gas while I'm still looking for info on the brotherhood...
http://www.sec.gov/litigation/complaints/2012/comp-pr2012-92.pdf