Unemployment figures for many countries

[mantra.]

The coalition didn't manage our economy at all!

There is no world order!

The crunch had nothing to do with internet banking.

The coalition did manage our economy, not exactly the way many of us wanted it to be managed - but in comparison to most other countries it was considered good. I agreed with Lefty that we had an excellent export market and generally times were very good. Of course there were many negatives as well.

As far as there being no world order - was Rudd lying when he said that there would no longer be an old world order - but a new world order? Read up about the Trilateral Commission and it's 2 offshoots - the IMF and World Bank.

In regard to the article - I pointed out it was old - 13 years to be exact, but if you looked at the bigger picture and some specifics mentioned you will see that today's problems were obvious and predicted. It was the beginning of cyber banking (back then everything was called internet banking) and the writer envisaged the crises we could encounter in the future ie Internet banks could make unwise loans, resulting in a credit crunch that the authorities would only discover when it was too late, and perhaps even a systemic collapse.. How many shonky financial institutions rose up over the last decade or so & there is no reason to expect Internet banks to voluntarily set themselves the same prudential standards as conventional banks. The German Bundesbank is concerned they would not hold adequate reserves, for example, unlike the normal banks which are required to meet a minimum reserve ratio. We have seen no regulation and how many banks and lending authorities have we seen collapse leaving debts of billions of dollars?

[Jovial Monk]

Not quite right. There was regulation but the regulators were asleep at the wheel. The role of the ratings agencies needs investigation.

The regulation moves by Tip that the Fibs spoke of so proudly was just Tip putting all the regulators into APRA. Six major regulatory powers APRA have asked for over the years that Tip didn't act on will now be enacted by the Rudd govt. Tip was a lazy Treasurer!

[Leftofcentresalterego]

Hi Mantra.

“Banks create money they don’t have”

Banks don’t actually create money. They borrow it from the interbank market or occasionally from the reserve through a facility known as the discount window. They prefer not to use the latter because of the costs.

But you are correct in pointing out that they are not reserve constrained. Like a federal government, they do not need prior reserves to issue money although unlike the fed, they must get it from an existing global pool since they cannot actually create it as the fed can and does.

“We can’t keep borrowing more to pay off current debts”

I’m not sure what you are alluding to here. We must NOT equate federal government deficit spending with private debt. It does not need to borrow the money for the stimulus packages. There is no need whatsoever for any increased future tax and debt obligation simply because the fed is crediting bank accounts as well as spending in other ways. The last paragraph of your post on Wednesday, 5:54 pm quotes an article that states “create liquidity like a central bank”. That is a clear statement that the fed has no need to borrow in order to spend. The money being injected into people’s bank accounts at present is far more like a gift to the nation than a loan to the nation.

Remember that well-planned deficit spending by the fed is no bad thing! It is not realistically funded by taxation. If, (in the not so common event nowdays) someone actually pays their taxes directly to the fed in cash, the person gets a receipt saying that their taxes have been paid – and the money is then tipped into a shredder!! Previously, it was incinerated. Tax dollars cease to exist when they are taxed.

BTW, if you have any more info on this shadow electronic banking/counterfitting industry, it would be appreciated as it is something of a curiosity as to how such monies would actually enter the system.

Thanks whoever fixed this - I can't work out the merge feature - Hebe

[mantra.]

It does not need to borrow the money for the stimulus packages. There is no need whatsoever for any increased future tax and debt obligation simply because the fed is crediting bank accounts as well as spending in other ways. The last paragraph of your post on Wednesday, 5:54 pm quotes an article that states “create liquidity like a central bank”. That is a clear statement that the fed has no need to borrow in order to spend. The money being injected into people’s bank accounts at present is far more like a gift to the nation than a loan to the nation.

If they're not borrowing it - they have to be getting it from somewhere. Tell me this if this government has created liquidity - why are they selling bonds to the Chinese as well as borrowing approximately $500 million a week from them? Why is this necessary and is it these "bonds" the Chinese are buying that is creating the government's liquidity?

[Jovial Monk]

Why are you so obsessed by the Chinese, Mantra?

They are buying no more than 20% of the bonds being offered: plenty of investors willing to lend to AAA credit ratings.

[mantra.]

How do you know that they're only buying 20% of the bonds? And what are the bonds for - bits and pieces of Australia? Sorry - I've got nothing against the Chinese personally, but I don't fancy the thought of my progeny living under a communist regime which is what will happen when they own enough bits and pieces of this country.

[Jovial Monk]

The figures are available.

[Leftofcentresalterego]

Hi Mantra.

I will look into it. But don't think for a minute that the sovereign Australian government needs to borrow money from anyone in order to fullfill it's own domestic spending committments. The prof did mention sometime ago that he feared that the government would continue it's predecessor's neo-liberal economic management style and feel compelled to deliver budgetry surpluses as quickly as possible. Because to do otherwise would be a huge political risk, seeing as everybody "knows" that governments must tax or borrow in order to spend.

If the world is broke, where are the vast sums for all the stimulus packages around the world appearing from? From national governments of course. If everyone needs to borrow form everyone else, how is this possible?

[mantra.]

But don't think for a minute that the sovereign Australian government needs to borrow money from anyone in order to fullfill it's own domestic spending committments.

I wouldn't be too confident about that statement Lefty. Remember for the next 50 years - most Chinese companies will be bringing in and using their own workers. Australia will become like a termite's nest as their needs are so much greater than ours. Forget Rudd's generosity of $900 to the people - most of us want Australia to stay in Australian hands and to be in tact for the next generation.

But according to today's Australian, the ACCC ruling was based on an assumption the commission made. That assumption is that the Chinese government is the ultimate bidder for Aussie assets and that Chinese companies are all subsidiaries of the government.

This leaves the door open for Kevin Rudd to make a deal with his friends in Beijing in the style of Thomas Jefferson's Louisiana Purchase. We'll get to that in a second. But before we do, can someone please explain Australia's policy with respect to investment from Chinese state owned enterprises? The clock is ticking...

The government seems happy to give money away to people who want to drink, buy TVs, and gamble. And it's happy to subsidise commercial property development (because falling property prices would be a national and electoral disaster). But it seems like it's doing everything it can to make life miserable for the miners who make up such a large part of the national economy.

But the Chinese are here to help. They have trillions of U.S. dollars. They would like to get rid of them. A trade of dollars for tangible assets is in order. So shouldn't a deal be made?

After all, let's be candid. Even though there is a lot of engineering and expertise required to be a world-class low-cost commodity producer or miner, extractive industries are low on the value-added chain in economic terms. The raw materials command a certain price. But the finished consumer and manufacturing goods they are turned into command a higher price with a larger profit margin for the manufacturer or the ultimate retailer.

If Australia is trying to figure out how to maximise the value of its natural resources, certain facts about the economy should be put on the table. It's a two tier economy. On one tier you have the banks and the finance sector. On the other you have the resource industry.

We all know it's a bear market in credit. The Aussie banks may or may not suffer more losses on their loan books. But the era of finance as a generator of outsize profits for shareholders is probably well and truly over for awhile. You can't build a national economy on banking (unless you're Switzerland, which cops it for being a tax haven).

That leaves the Aussie economy with resources. It has a willing long-term partner in China. And there's no doubt China will be Australia's principal resource customer for decades to come.

The Parliament, then, has to make a deal or craft a policy that maximise the value Australia gets for its resources. And it has to do so acknowledging that Chinese capital is critical to the development and expansion of the industry as a whole.

So here is our plan: sell China a 50-year lease to Australian resource projects. Demand an annual royalty or excise tax. Distribute the profits from the lease sale to regular Aussies. Presto!

No more need for government borrowing. Nor more stimulus plans. No more hand wringing. Just make a deal with your inevitable partner and guarantee the national cash flow for years. You can even call WA "New South Shanghai."

http://www.dailyreckoning.com.au/austra ... 009/03/26/

[Hebe]

by Leftofcentresalterego on Sun Apr 19, 2009 9:57 pm
I’m completely confident Mantra.

The process I have described is the way it works. The government may be borrowing by issuing bonds but it has absolutely no need to do this in order to spend money.

Any such constraints are voluntary. Remember that after 30 odd years, the hierarchy of the public service and the accepted economic orthodoxy are neo-liberal to the core. The government is receiving all of it’s financial advice from the dominant club who insist that deficit spending must be avoided at all costs lest inflation run away (a rather spurious claim).

If you think that bond issuance is necessary to finance this deficit, you will find it interesting to note that the government is usually issuing bonds regardless and in 2002/2003, the previous regime issued billions in bonds while at the same time running a $7.5 billion surplus. Why did they need to borrow when they clearly had so much “money in the bank” (an inaccurate notion but anyway)? They didn’t – bond issuance and deficit spending have no necessary link.

I am not arguing about China’s intentions – you may well have a point. But I am pointing out that the fed is not reserve constrained and does not need to borrow or tax in order to spend.