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Wednesday's Top 10 with NZ Mint: Aussie banks blamed for consumer slump; Krugman vs Rogoff; An historic grand bargain unravels; The 'Cross of Gold' speech; Dilbert

Wednesday's Top 10 with NZ Mint: Aussie banks blamed for consumer slump; Krugman vs Rogoff; An historic grand bargain unravels; The 'Cross of Gold' speech; Dilbert

Here's my Top 10 links from around the Internet at 11.30 am in association with NZ Mint.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

I'll pop the extras into the comment stream. See all previous Top 10s here.

A good crop of cartoons today.

1. It was the banks wot did it - The Australian reports The Reserve Bank of Australia's Deputy Governor Ric Battellino has singled out the Australian banks as the culprits for damaging consumer confidence last year when they increased their floating mortgage rates by more than the RBA's increase in the Cash Rate.

Our banks should take note.

If they do the same to boost margins when the RBNZ lifts rate as expected in December then you'd hope our Reserve Bank would be just as grumpy.

There are initial signs of grumpiness emerging.

That's largely because of these RBNZ statistics showing a significant tick up in net interest margins in the last year.

Here's the Australian:

"Banks responded to the November increase in the cash rate with substantially larger increases -- around 40 basis points -- in interest rates on housing loans," he said.

"The size of the increase and the controversy it created seemed to have a noticeable impact on household behaviour.

"Consumer confidence fell -- though to levels that were still above average."

2. Switzerland's disaster zone - Helen Pidd writes at the Guardian about the disaster unfolding in Switzerland because of the franc's surge vs the Euro. She goes to the Swiss-German border town of Kreuzlingen where shoppers are regularly nipping across the border to Konstanz in Germany for a few bargains.

Last Saturday, the tiny road border crossing between Konstanz and Kreuzlingen had a record day. "We were stamping 380 an hour at one point," said Robert Helfrith, a customs spokesman. "Last year we stamped 5m forms; in the first six months of this year we had already stamped 3m, so we're looking at a 20% increase in Swiss shopping trips in Konstanz year-on-year."

The Swiss National Bank (SNB) has warned that what the billionaire entrepreneur Christoph Blocher this week described as the "catastrophic" overvaluation of the franc could tip the country into recession and deflation. It is also causing losses for millions of east European homeowners with mortgages in francs, as well as for European banks holding franc-linked derivatives contracts.

3. The rich hit back - Warren Buffett's call last week for the hyper-rich to pay more tax struck a nerve.

Here's former American Express CEO Harvey Golub writing at the WSJ about how wrong Buffett is (HT Troy via email):

Over the years, I have paid a significant portion of my income to the various federal, state and local jurisdictions in which I have lived, and I deeply resent that President Obama has decided that I don't need all the money I've not paid in taxes over the years, or that I should leave less for my children and grandchildren and give more to him to spend as he thinks fit.

I also resent that Warren Buffett and others who have created massive wealth for themselves think I'm "coddled" because they believe they should pay more in taxes. I certainly don't feel "coddled" because these various governments have not imposed a higher income tax. After all, I did earn it.

4. The undoing of a grand bargain -  Harvard history professor Alexander Keyssar writes at the Washington Post about how free marketeers unravelled a grand bargain that had taken decades to build. That bargain was that government took enough of the hard edges off capitalism to stop the poor from rioting.

The free marketeers have progressively put those hard edges back on since the mid 1980s. And now the 'bargain' constructed painstakingly between the 1890s and the 1930s is being undone. Ready for the fallout?

This is today's must-read. HT Rob via email.

A century ago many, if not most, Americans were convinced that capitalism had to be replaced with some form of “cooperative commonwealth” — or that large corporate enterprises should be broken up or strictly regulated to ensure competition, limit the concentration of power and prevent private interests from overwhelming the public good. In the presidential election of 1912, 75 percent of the vote went to candidates who called themselves “progressive” or “socialist.”

Such views, of course, were vehemently, sometimes violently, opposed by more conservative political forces. But the political pressure from anti-capitalists, anti-monopolists, populists, progressives, working-class activists and socialists led, over time, to a truly grand bargain.

The terms were straightforward if not systematically articulated. Capitalism would endure, as would almost all large corporations. Huge railroads, banks and other enterprises — with a few exceptions — would cease to be threatened with nationalization or breakup. Moreover, the state would service and promote private business.

In exchange, the federal government adopted a series of far-reaching reforms to shield and empower citizens, safeguarding society’s democratic character. First came the regulation of business and banking to protect consumers, limit the power of individual corporations and prevent anti-competitive practices. The principle underlying measures such as the Sherman Antitrust Act (1890), the Pure Food and Drug Act (1906) and the Glass-Steagall Act (1933) — which insured bank deposits and separated investment from commercial banking — was that government was responsible for protecting society against the shortcomings of a market economy.

In a democracy, of course, the ultimate check on such campaigns is the electoral system. Titans of industry may wield far more power in the economic arena than average citizens, but if all votes count equally, the citizenry can protect its core interests — and policies — through the political arena. This makes all the more worrisome recent conservative efforts to alter electoral practices and institutions. Republicans across the nation have sponsored ID requirements for voting that are far more likely to disenfranchise legitimate (and relatively unprivileged) voters than they are to prevent fraud. Last year, the Supreme Court, reversing a century of precedent, ruled that corporate funds can be used in support of political campaigns. Some Tea Partyers even want to do away with the direct election of senators, adopted in 1913. These proposals, too, seem to have roots in the Gilded Age — a period when many of the nation’s more prosperous citizens publicly proclaimed their loss of faith in universal suffrage and democracy.

5. A voice from history - Here's Williams Jennings Bryan's Cross of Gold speech referred to above by Keyssar. In it, Bryan talked about the need to end the gold standard. It's great to listen to. We forget this debate about income equality and the shortcomings of pure capitalism has been had before...

6. Krugman vs Rogoff - Paul Krugman and Kenneth Rogoff talk on CNN with Fareed Zakaria about the problem facing the global economy right now.

Krugman wants more government stimulus.

Rogoff is worried about too much borrowing.

It's a nice summary of the clash of thinking.

Krugman worries about the need for massive stimulus: "Hopefully we don't need a World War to get there."

7. Saving Capitalism from itself - Simon Caulkin writes at ManagementToday.co.uk about how capitalism shot itself in the foot, for not much gain for shareholders

How did we get into this mess? Ironically, as often in business, the roots of failure lie in success. 'When communism fell, we thought it was capitalism that triumphed,' muses Mintzberg. 'It wasn't, it was balance'. The west, he says, had a much better balance of the public, private and social sectors that make up a resilient economy. Communist societies were completely unbalanced towards the public sector, 'just as we're now completely unbalanced towards the private'. The problem isn't capitalism as such, he argues: 'It's the assumption that capitalism is the be-all and end-all of human existence, rather than a means to create and fund enterprise.'

The embodiment of this world view is the uncompromising shareholder-first doctrine that has ruled English-speaking business since the 1980s. The effects, charges Martin, have been the exact opposite of those intended. Together, stock-based compensation and shareholder-value maximisation have destroyed value and aligned executives not with shareholders but with their own wallets. The theories have driven damaging short-termism, fostered amoral and immoral executive behaviour, and favoured the mushrooming growth of parasitic players in the expectations market to whose tune real-market actors are increasingly made to jump. The most egregious are the hedge funds, pure value extractors which have been legitimised to 'make ginormously supernormal returns by wrecking the system on which they depend to make money', he fulminates.

It's not even as if shareholders have done better under their privileged regime. Martin calculates that shareholder returns have actually been lower in the era of shareholder capitalism than in the post-war decades when managers were supposedly feathering their own nests.

8. The intellectual collapse of the left and right - New America Foundation policy director Michael Lind writes at the FT.com about the collapse of the ideas of both and the left and the right.

He doesn't appear to have a solution, but it captures the mood nicely.

The two most plausible visions developed by the US centre-left and centre-right – the “knowledge economy” and the “ownership society” – lie in tatters, leaving a void in America’s discussion of its economic future.

On the right, the ownership society has been disowned. The idea began with Chicago School libertarian economists who in the 1960s and ‘70s devised elaborate private alternatives to the social insurance programme created by Franklin Roosevelt’s New Deal.

The collapse of this conservative vision should give the Democrats little comfort, however. Their idea of the knowledge economy is no more credible. According to 1990s “third way” progressives on both sides of the Atlantic, success in winner-take-all global markets would depend on human capital. Education was now to be what financial and real estate assets were to the ownership society.

Yet the story that President Bill Clinton and British prime minister Tony Blair told of college-educated individuals thriving in global labour markets was wrong. To begin with, America’s professionals owe their relative affluence largely to their protection from offshoring or competition with immigrants.

Licensing laws limit entry to the guilds of lawyers, doctors and professors. These remain old-fashioned crafts, largely untouched by productivity-enhancing technology. Meanwhile, in the financial sector, bonuses have gone to old-fashioned speculators who bet with leveraged money, knowing the state will socialise their losses.

9. Are we really turning Japanese?- FTAlphaville details a couple of arguments for why the developed world doesn't face a Japanese style slide into decades of recession and deflation.

They say property prices haven't fallen as far in Europe and the United States as they did in Japan. Also deflation isn't anywhere near setting in outside of Japan.

Here's FTAlphaville citing Nomura's Paul Sheard:

In Japan, asset price deflation and overall price deflation, a very malign combination, have gone hand in hand. Remarkably, on this measure of prices, Japan has been in deflation for 17 years. Since home prices in the US peaked in April 2006 and then started falling, the US has not fallen into deflation. The GDP deflator, after weakening from Q4 2008, has picked up again. It is highly unlikely that the US will experience the kind of decade-straddling deflation that Japan has.

10. Totally the toughest job in North Korea - Although I have my doubts given the actors seem rather portly to be North Koreans...HT AnaSamways via twitter

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41 Comments

 "Last week Finland negotiated a bilateral deal with Greece; soon Austria, the Netherlands and Slovakia demanded similar guarantees. Greek Finance Minister Evangelos Venizelos asked the European Commission, the ECB and the IMF for help with solving possible further disputes with countries demanding collateral agreements"

 http://globaleconomicanalysis.blogspot.com/

Who said you could catch a Fin with his pants down!

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@#3

It’s easy to justify the status quo when it’s YOUR status quo and you have all the money to determine what that status quo should be.

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Agree, all I hear in that bile is venal self serving whining, Since when did anyone 'earn' millions of dollars?, you can acquire millions you can't earn them, because to do so you would have to value your labour orders of magnatude above the average

Neven

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Also the usual failure to link paying tax to educated people, law 'n' order, roads, etc etc.  Really just a another wealthy bludger.

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Japan's credit rating has been downgraded by Moody's...yet the Japanese 10 year government bond yield is 1.04%....

http://www.bloomberg.com/news/2011-08-23/moody-s-lowers-japan-s-governm…

Japan’s sovereign-credit rating was lowered by Moody’s Investors Service, which cited “weak” prospects for economic growth that will make it difficult for the government to rein in the world’s largest public debt burden.

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Welcome to the new Paradigm. So as long as you have enough currency in the market that has the capacity to allow people to store wealth you’re not going to be effected by ratings anymore. The US is headed down the road too which is why its befuddling me that anyone even cares about what S&P has to think anymore.

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Bloomberg's William Pesek doesn't mind if America turns Japanese, although he doubts Americans would cope with it as well as the Japanese have

http://www.bloomberg.com/news/2011-08-23/-japanization-isn-t-always-as-…

The thing about Japan's funk is its genteel quality. Asset prices plunged, recession became the norm, companies morphed into zombies, banks went insolvent -- and yet Japan never unraveled.

Crime never surged, homelessness didn't explode, London-like protests never materialized. Households merely adjusted and lived off their savings. Japan muddled along, even after the March 11 earthquake.

Could the U.S. pull off such a feat? No economic growth for 20 years without mass social instability? I doubt it.

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The Japanese population is almost entirely homogenous.

In contrast when heterogenous populations are placed under pressure (through economic dislocation, resource depletion etc) they tend to fracture along racial, religous, ethnic lines etc. Scapegoating is typical and extremist politicians seek to highlight divisions.

The US, and many European nations, either are or have become increasingly heterogenous (multicultural) in the past 30 years.

We are about to see how the model of Western heterogenous multiculturalism survives the collision with economic dislocation/resource depletion.

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andyh - Good point.  Is the UK now showing us the way in this regards?

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Bernard I think historically you will find that having experienced the naked reality of anihlation was tantamount to the change in the Japanese psyche.....while humility was an important part of the culture pre WW2 ...it became the outward face of Japan post WW2.

In all they have faced since this period ...there are still enough reminders to never wish such a fate on any future generation.

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#7. " How did we get into this mess? Ironically, as often in business, the roots of failure lie in success. 'When communism fell, we thought it was capitalism that triumphed,' muses Mintzberg. 'It wasn't, it was balance'. The west, he says, had a much better balance of the public, private and social sectors that make up a resilient economy. Communist societies were completely unbalanced towards the public sector, 'just as we're now completely unbalanced towards the private'. The problem isn't capitalism as such, he argues: 'It's the assumption that capitalism is the be-all and end-all of human existence, rather than a means to create and fund enterprise."

Anyone who was sentient during and after the collapse of the Soviet Union should agree  with this asessment. 

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The root of all sucess is failure or luck.

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FYI the US stock market is quite worried about Bank of America. More worried than they were at the peak of the Lehman crisis.

http://ftalphaville.ft.com/blog/2011/08/23/660626/jpmorgan-says-bofa-may-need-a-capital-raise/

We originally downgraded BAC to Underweight on April 18 for three reasons. These were ongoing mortgage-related expenses, capital levels that are weak relative to peers, and valuations. At that time, 5-year CDS was trading at 137bp and was 10bp behind Citigroup. It is now at 445bp, which is wider than the peak of the financial crisis, which was 433bp on March 30, 2009. The difference with Citigroup is now 170bp. We also note the significant inversion of the CDS curve, with 1-year CDS trading around 550bp.

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Yet more detail is emerging from Bloomberg about how the Aristocrats of Wall St were bailed out by the Fed.


http://www.bloomberg.com/news/2011-08-23/fed-made-state-street-profitable-as-money-fund-middleman-in-08.html

State Street Corp. (STT) and JPMorgan Chase & Co. (JPM) profited during the financial crisis by borrowing $200 billion almost risk-free from the Federal Reserve under a program intended to rescue money-market mutual funds.

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#6 Krugman vs Rogoff would make a good rap on http://www.econstories.tv

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Beware, King John's men are on the trail: http://www.stuff.co.nz/the-press/news/5499128/Surgeons-lose-in-Supreme-Court "The Supreme Court has found two Christchurch surgeons used family trusts to pay themselves "artificially low salaries" and deliberately avoid tax.

The landmark decision from the highest court in the land has widespread implications for the many small businesses similarly using trust structures."

and, worth a read too: 

Damien Grant: Trusts industry a costly sham

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10724095 Damien Grant: King Henry didn't trust wily landowners http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10741905 
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Les I'm not entirely convinced that Good King John will be altogether happy with the diligence and application to task his new manservant is exhibiting.....and may in due course feel a need to rein in  the exuberant Tax collector.....right after Prince Billy has a word in his Royal shell.

It is then you may hear the King utter the time honored phrase

...Will no one rid me of this turbulent Priest..!

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Careful what your'e saying there Count, you'd not need to give much encouragement to many on this blog .... and I don't think a non-Cantabrian heritage would matter either. So careful with the incitement, sire. 

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European banks have now laid off 67,000 staff so far this year - http://www.businessday.com.au/business/world-business/european-bank-job…

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And...UK headhunters report that laid-off bankers are finding it tough to get another job. Not only in their shrinking industry, but.... ANYWHERE ! as employers are increasingly blaming bankers for getting them into the mess they are in, and refusing to bail-a-banker-out by employing them in any position.

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Nicholas A ....I've got a job for as many as you can find out of work and needy.

I need staff to hold the targets down at my new manual firing range.....I've been experiencing OSH related problems with the out of work Taxi drivers/ meter readers.....! These Banker types sound just the ticket....not gonna go running off to complain every time there's a little blood on the floor.

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Actually I cant understand why a few havnt been shot yet......though hanging is probably more satisfying....

regards

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Well they can sell their asses on street corners instead of plush business suites....the money wont be quite as good, but they shouldnt have any moral issues from the change in "work".

regards

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why what's the going rate Steven....?

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I have no idea, not my scene...

regards

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aw come on now matey.....I'm sure youv'e Googled it at least for the economics of it.

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Why did they buy asses in the first place? Odd.

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To ride to Bethlehem on K W John....! Three Wise Men and a Banker....Geeesus!

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Phew,  for a moment I thought of something more rrrrounded.

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that said...KWJ..you don't wanna get an ugly donkey.....it's a long ride n their not big on small-talk.

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'When communism fell, we thought it was capitalism that triumphed.'

Osama Bin Laden thought that they had triumphed. From his point of view they had bled the Soviets for years in Afghanistan (with US and Saudi money) until the Empire collapsed in on itself.

Hence the strategy to bleed the US Empire dry for years until it collapsed, at which point the peoples of Islam would rise up against their corrupt rulers and establish Islamic states across the Middle East. Bush certainly fell for the bait and the US is paying for it to this day.

The mititary addiction of the US has proved to be a near fatal weakness, the Chinese have exploited it most skilfully. The yanks still can't quite figure out what hit them.

Osama may go down in history as one of the greatest strategists of all time. A bit like Pearl Harbour, brilliant but flawed.

 

 

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damn you Roger ........! that was the most successfully depressing shortest story I've read in years. ...............................ouch! 

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Courtesy mainly from Stratfor, not my own work I'm afraid.

I do love good strategy.

Remember Osama's family would have seen the successful destruction of the British Empire by the US too. In fact they probably had a hand in it via the transfer of Saudi Arabia from the British sphere of influence to the US sphere with the legitimisation of the House of Saud by the yanks following WW1. Destruction of 3 Superpowers by the Saudis in the space of 100 years. Message - don't mess about the House of Saud.

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FYI Japan launches US$100 bln effort to drag the yen lower vs the US dollar

http://www.bloomberg.com/news/2011-08-24/japan-s-government-unveils-100-billion-effort-to-cope-with-yen-s-strength.html

cheers

Bernard

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Quite a useful piece of info ....Ta much.

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This is worth reading:

 

"I’d like to remind the Harvard educated Keynesian economists that Federal government spending is currently chiming in at $3.8 trillion per year. Federal spending was $2.7 trillion in 2007 and $3.0 trillion in 2008. Keynesians believe government spending fills the gap when private companies are contracting. Obama has taken Keynesianism to a new level. Federal spending will total $10.8 trillion in Obama’s 1st three years, versus $8.4 trillion in the previous three years. Even a Harvard economist can figure out this is a 29% increase in Federal spending. What has it accomplished? We are back in recession, unemployment is rising, forty six million Americans are on food stamps, food and energy prices are soaring, and the middle class is being annihilated. The standard Keynesian response is we would have lost 3 million more jobs, we were saved from a 2nd Great Depression and the stimulus was too little. It would have worked if it had just been twice as large.

The 2nd Great Depression was not avoided, it was delayed. Our two decade long delusional credit boom could have been voluntarily abandoned in 2008. The banks at fault could have been liquidated in an orderly bankruptcy with stockholders and bondholders accepting the consequences of their foolishness. Unemployment would have soared to 12%, GDP would have collapsed, and the stock market would have fallen to 5,000. The bad debt would have been flushed from the system. Instead our Wall Street beholden leaders chose to save their banker friends, cover-up the bad debt, shift private debt to taxpayer debt, print trillions of new dollars in an effort to inflate away the debt, and implemented every wacky Keynesian stimulus idea Larry Summers could dream up.  These strokes of genius have failed miserably. Bernanke, Paulson, Geithner and Obama have set in motion a series of events that will ultimately lead to a catastrophic currency collapse. We have entered the 2nd phase of the Greater Depression and there are no monetary or fiscal bullets left in the gun. Further expansion of debt will lead to a hyperinflationary collapse as the remaining confidence in the U.S. dollar is exhausted. We are one failed Treasury auction away from a currency crisis".http://www.marketoracle.co.uk/UserInfo-James_Quinn.html

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Wolly, this is bull frankly....mostly anyway.....The stimulus such as it was was at most 1/2 too small if you want to use Keynesian formulae to calculate its size. 

Beyond that we have not had 30 years of keynesian economics, we have had friedman/greenspan/reagan voodoo economics.....it has put the US in particualr and the world at large in such a mess that there is nothing to get it out....

So lets not blame Keynesian economics for not getting us out of a mess it didnt get us into.

Second, what this guy misses is we cant allow banks to fail because the entire financial credit system is locked together, if one part freezes/fails it ALL does and that includes NZ. When that happens ppl wont be able to get any money, that will turn to anarchy very quickly....

Unemployment to 12%, he has to be kidding, double that easily....and a 20 year Depression was certain...I see he misses Greenspan, Reagan and Bush in his blame game, these are the ones who caused this mess that the named above have to try and clean up...

Hyper-infaltion, no deflation...there is no sign f even susteained inflation let alone hyper-inflation...its this sort of screwed non-keynesian/minsky thinking that got us in this mess.

Now I agree we couldnt and cant avoid this, mainly because we can no longer grow due to lack of cheap and plentiful energy....so here comes the Depression you always dreamed about.....enjoy it.....

regards

 

 

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Stop fooling yourself steven...the article sums up the failure of Keynesian policies of the Obama admin....failure...end of story

It clearly and accurately rubbishes the claims made by Keynesians like Krugman.

It makes very clear the option open was to let the losses fall where they would fall and clean out the rorts and scum from the system..yes unemployment would have been massive...bank failures and insurance companies and hedge funds and govts and the goldmans and any others who were on the credit bandwagon.

You don't put right this filthy farce by pretending greater debt will solve the problems of too much debt...why is that concept so hard to understand?

Even if the Keynesian madness holds at arms length a full blown depression event, it still leaves future generations holding on to massive debts....meaning they will always be paying for the gutless greed of govts and bankers and moneymen, buggering with the market at this time in history.

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New Zealand's delusional credit boom was in fact a bubble and the economy already in decline early in 07. Four years have passed under the bridge and we remain locked into the delusion that doing a little fiddling while borrowing billions will lead to growth, 170ooo new jobs and wealth. Utter bollocks.

The size and splurging mentality of the state MUST be slashed first to the bone and yet more after that. Taxpayers MUST see a future where they retain a larger and LARGER portion of their income. That will not happen when half million dollar handout benefit salaries are dished out to the Sir Humphrey brigade...and useless departments of pen pushers shift paper from one desk to another. The bloody waste has to stop.

The other MUST stop factor....the govt decreed debasement of the currency that robs savers to bailout the fools who gambled in the bubble...and that includes the bloody banks. Bollard has been given the all clear to allow inflation of 3 to 6%. You are being screwed. The gamblers are being saved.

Finally but by no means a minor requirement. The power of the banks to create credit to juice up the market and fake an image of growth...this has to come under some real restrictions that go to the 'profits at any cost' policies of the banks. They must be controlled. That is not happening today. At present we have a gutless govt and useless RBNZ. Neither is prepared to even mention ending the rort going on. All is tinkering and BS spin.

A better future will only come from growing the saving habit while burning the credit buying habit. This urge to borrow is the New Zealand disease.

 

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 An interesting view about financial markets: Charles Moore sharply criticized the banks for keeping profits while passing on losses to taxpayers. "The banks only 'come home' when they have run out of our money," he wrote. "Then our governments give them more."

http://www.spiegel.de/international/business/0,1518,781590,00.html

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