interest rates
8 Oct 2008
Next Stop Recession?
Interest rates aren't the only economic indicators that are falling. Try stock prices, housing value and consumer confidence, writes Ben Eltham
At the beginning of this week I rated the Reserve Bank of Australia, under its saturnine head Glenn Stevens, one of the best performing central banks in the world. Australia, it seemed, would be able to ride out the financial storm that was spreading from US sub-prime mortgages to London and all the way to Iceland, Russia and Belgium.So far, Australia has managed to avoid the worst recesses of the current crisis. No Australian bank has got serious trouble, and the Australian financial system is in surprisingly sound health. Australian growth is still robust. Although the shareholder wealth of a few highly leveraged firms like MFS, Centro, Allco, Babcock and Brown and ABC Learning has been demolished, this has looked like the normal creative destruction of a market correction, not the systemic risk witnessed on Wall Street and the European bourses.
Today, I'm not so sure about the Reserve Bank. The shock decision to lower rates by a full 1 per cent left nearly every analyst, trader and broker gobsmacked — at least until they started to cheer. This "bold" action of Glenn Stevens stemmed losses on the ASX for half a day — an aeon in the current environment — and even prompted advances in the price of some heavily discounted financial stocks.
In normal times, a move like this would signal a turning point and the market would roar back into bullish mode. But these are not normal times.
After the party, the hangover. Overnight, stocks on Wall Street fell another 5 per cent, adding up to cumulative losses on the Dow Index of 13 per cent over the last five days. US financial stocks are trading at 1997 levels — in other words, they have now lost a stunning 11 years of value. Meanwhile the UK Government has announced a ₤50 billion bailout of its own financial sector after the share prices of the biggest banks — like HBOS and the Royal Bank of Scotland — collapsed. Meanwhile, Iceland has shut its stock exchange and the entire banking system of Iceland looks to be insolvent.
Australian stocks opened lower and kept falling, wiping out all of yesterday's gains. The ASX is heading below 4400 and no-one knows where the bottom will be.
"People are just throwing up their arms in despair," Alex Moffatt, director at Joseph Palmer & Sons, told Fairfax. "We're seeing pretty close to capitulation selling."
In the current environment, there was always a chance that even a massive cut like this latest from the RBA would have only a minimal effect. The US Federal Reserve cut interest rates aggressively after the Bear Sterns collapse, but the effect was only transitory. With everything that is happening in Europe, it now seems unlikely that an interest rate cut of any magnitude will restore confidence in a banking sector haemorrhaging shareholder value, even one that is essentially sound and well capitalised like Australia's.
Even without dramatic collapses or bank runs, the credit crisis is remaking the Australian banking sector. Smaller Australian banks and mortgage lenders are now disappearing into the maw of their larger competitors at a rapid clip. Westpac gobbled up RAMS Home Loans last year after that company's funding sources completely dried up. It then moved first to takeover St George, for a price that now seems optimistic. Today, Commonwealth Bank of Australia announced it would buy BankWest from huge British bank HBOS, which is grave danger of going under after its shares were pummelled on the UK stock exchange earlier this week. Suncorp is in play with several banks sizing it up for a takeover.
The real concern about the 1 per cent cut is what it tells us about the RBA's thinking. Frankly, they must now be expecting a downturn. Remember that the RBA hiked up rates last year to contain inflation, which is in fact still running at 5 per cent. But now any thought of fighting inflation seems to have been abandoned: to quote the RBA's statement, "The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected. Should that occur, inflation would most likely fall faster than earlier forecast."
Translation: the RBA is now worried about the prospects of a global recession. Very worried. So should we all be. Today's release of consumer confidence figures shows how the global financial crisis, which has gripped the international business media with understandable fascination, is affecting domestic consumers. Unsurprisingly, consumers are putting their wallets back in their pockets. In the last few days I've had several friends ask me if their bank savings are safe.
And some of the biggest falls on the ASX lately have been among mining stocks. Why? Because commodity prices are tanking. Only a year ago, commentators and mining executives were talking about a 30 year "supercycle" for commodity prices which would buoy the earnings of mining companies almost indefinitely. That kind of euphoria now looks as outdated as the much-vaunted "Macquarie model." Macquarie's shares have been fallen through the week.
The elephant in the room is Australian housing prices. These are now grossly over-valued in comparison to markets like Ireland, the UK, and US, which have all experienced crushing asset price deflations as their house price bubbles have deflated. In western Sydney, many mortgagees are already "underwater" — in other words, the mortgage is worth more than the house. This is precisely the problem that is now ravaging US consumer spending. If Australian house prices fall at anything like the rate seen overseas, there will be widespread pain.
It's just as well Australia has high interest rates and a big surplus. We're soon going to need to spend money aggressively — and the Reserve Bank will need to cut rates again.
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Ok so if house prices fall does that mean that rates and land tax will fall also?
Forget it Banville - here is a little secret for you - they MANUFACTURE inflation. Inflation causes a NOMINAL rise in your house price (in economic terms it changes little). This illusion of wealth becomes their excuse to raise your taxes.
House prices have not really increased much, it is your INCOME, your wages, that is what currently buys a whole lot less, and that is the ugly detail which politicians and economists sidestep presently.
This is why the average Australian can no longer afford to buy his own home. It is an absolute outrage that our economists should participate in this terrible scam orchestrated between Canberra and the RBA.
Not only that, they then claim that your property value appreciates due to a "robust economy" (which, of course is a lie, the currency merely devaluates while your house retains the same economic value). This they use to charge you "capital gains tax" - when, in reality, no additional capital accrued whatsoever.
Don’t you get it banville84? It is a state sponsored scam!
Ben - "Today, I’m not so sure about the Reserve Bank. The shock decision to lower rates by a full 1 per cent left nearly every analyst, trader and broker gobsmacked…"
errrm Ben, some traders have seen this coming since the Asian crisis and we are now perfectly placed to both protect client value and indeed even profit handsomely from these foolish follies.
Greed Ben, greed has turned the entire financial community into a gathering of tragic losers who have sadly relied on patently false economic indicators and an academy of morons from the various economic faculties at our Universities.
Theft greed and patently false economic indicators, theories and postulations are the cause of the financial misery which most Australians will face over the foreseeable future.
How can inflation be running at 5% if the M3 is running at double figures? How stupid do people think the Austrlaian public is? 5% ? Not one single Australian will agree that their wages buy only 5% less than this time last year Ben - when are economists going to come clean?
Resource and mining stocks have followed the remainder of the market Ben, don’t let the current prices fool you. Value investors know that mining stocks will be the safe haven during the coming catastrophe.
Although your assessment of the housing market may be accurate, you will find that your perception of the mining and resource sector is entirely off the mark.
The world’s largest producers still show rates of economic growth close to the 10% per annum.
I hope you are not one of the many who are fooled by all this talk of "demand destruction" - forget it Ben, think supply destruction, not demand destruction, particularly energy and precious metals.
This is a rushed rant and I hope it is not as nonsensical as it appears at first perusal - forgive me if it is - must get back to work.
Thanks Ben for another great piece!
Thanks for the rant Rockjaw, it does make sense to me, in fact it makes more sense by the day.
I wish somebody had told us much earlier. I am fully converted to gold now and the decline in AUD has already earned me more in one week than my flash investment broker managed in 10 years.
My ex broker is in serious trouble with some clients complaining of as much as 50% losses this year alone. Some people complain that their superannuation policies are worth less today than they were worth back in 2000!
I cannot tell you how relieved I am that I bailed when I did.
Thanks Rockjaw. Ian MacDonald and David Rutledge both said I should put more than half into silver because it will grow faster than gold and they advise that once silver is ahead again I can simply exchange for gold and so on. They said we can look forward to great gains using this simple method. What do you think?
Rockjaw: Are you sure you aren’t a stockbroker moonlighting as a left-wing scribe? I use the word moonlighting because I’ve always imagined the brokers of the bourse to be right-wing. Still, I could be wrong.
In a previous comment (Crash and Burn, Wall Street, Burn. 26th Sept 2008) you wrote, and I quote, "Anyway, I don’t need to show you my "share portfolio" because I have none. That’s right, I have no share portfolio at all-no shares-they are all a scam-a load of crap for bullshit artists who attempt reap (sic) where they have not sown. Work Venise, work, that is how you create wealth, any other way is theft". Please, Rockjaw, see my comment at the bottom of this column.
You went on to say you have, over the years, advised people to ditch paper and store their wealth into bullion. (Which is what, you say, you have done yourself). Very much at variance with your remarks today. You rant about greed and the ills of capitalism. But I suggest our problems are brought about Kevin Rudd’s idealist hogwash of Rouseauean thought about the magic of nation building by importing a million more migrants, over a period of three years. Into a country with the most delicate eco-system on earth. Even if our ecology could manage to sustain them. Migrants tend to take education v. seriously. (Far more so than native-born Australians of Anglo-Irish descent). Thus ensuring their children go on to become doctors, psychologists, accountants. Which is far more than our native born Oz’s, football lovers to a man, who, quite frankly are mentally challenged, can put their minds to. So, there they are, a huge population of people who can’t/wont work at manual labour to a sufficient degree to make technical schools/unis and so forth, a viable proposition.
Let’s take your ideal of the socialist state and see how to best take care of our footy lovers, who aren’t up to par with the working public. Perhaps they are mentally unable to cope with complexities. Whom am I to answer this sort of problem. There are too many of them to make mandatory enlistment into the fighting services an option. How did Stalin, hunkered down in his favourite dacha deal with the problem? In about 1932 he had an interesting conversation with Nikolai Ivanovich Yezhov, aka ‘the poison dwarf’ Also the guiding light of the newly reformed Czarist spy system, renamed as the NKVD. One of Yezhov’s more memorable comments was… "Every citizen of the USSR should be an NKVD agent". Which rather suggests Russia had as raw clay, a more intellectual bunch than the footballers of Oz.
There we have the amount of raw brawn, but limited mental power having kids, possibly of the same ilk. Not having Gulags-fortunately-we are unable to disperse them, two million at a time into concentration camps; we have to leave them be and import more and more immigrants. Only a capitalist economy can deal with these problems. Socialism and communism couldn’t. Stalin even had an answer to the rural problems. Another three million farmers, and small land-owners, were shipped off to gulags (on this issue Stalin may have had a point, at least they couldn’t always be whinging for more money to further destroy what little land they have. Or bleating about the irrigationists of the MDB, when it was the farmers who started it all.) Joseph Vissarionovich neé Djugashvili: take a bow.
As socialism/communism is unable to handle masses of workers at building sites, for example, who have a free-roster day every Monday. Where five men, plus two men making tea, are needed to give instructions to a lorry driver who is backing it up the rig to the work-site. Where the guy who really runs the show, is the ubiquitous man with a walking stick-had an accident a year ago and is recovering from the injury-(I happen to know him and he is very nice and v. easy to get along with) but one word from him and all the workers would walk off the job.His word carries far more clout than the man who is building the thing.
We must allow people humanity. Which, I pray Rockjaw, is your guiding light. If not, it would make your opinions worthless.Then we discover, like it or not, and I’m not wrapped in it; that we have to turn to the hideous greed of capitalism to make the whole thing work. Until we invent a better, workable system we have to co-exist with it. And you, of all people, know the truth of this. Otherwise you wouldn’t be advising people to do what is blatantly correct. ‘Forget the MacMansions and the media room and the concrete garden, and the five bedrooms. Live, instead. in a poky flat for a while.’ That’s what previous generations of Australians did. Meanwhile as per your advise, buy up resource stocks.
I may be the fool you appeared to be alluding to at the beginning of you initial rant to me. However, I have one reasonable thing going for me. I-touch wood-have a good memory.
Good night Rockjaw. Please don’t send me another rant for a couple of days, as I’m buggered after my little effort.
Thanks Venise, it would really please me to respond to your rant but I am thinking we should take our rants elsewhere because these nice civilised people on NM must be getting really annoyed with us by now!
Anyway, just a word to those who have responded to my rants, like Rogerio, a piece of news mate - look at the gold lease rates here :- http://www.kitco.com/lease.chart.html
Can you see it? Look at that nice erect little chart!! Physical demand for bullion is off the charts with shortages reported across the globe and the lease rates graph does that?
At the same time Libor rates have been rising, as credit default swap payments are set to rocket over the next few weeks.
It is a known fact, denied by economists of course, that OTC Derivatives Markets have played a key part in the manipulation of Gold as a barometer of inflation. Well, a surging lease rate may be an early sign that the derivatives market in Gold is about to go up in a puff of smoke!
In fact I am so sure of it I am going to go shopping for bullion while the rest of you debate what Lenin or Marx would do!
Boys and girls, that short squeeze I was telling you all about? Well I think it is about to happen soon, so avoid the Christmas rush, get your orders in now because our poor abused little dollar won’t buy us a crooked copper penny soon, let alone bullion, especially after this little baby explodes.
And yes Rogerio, I am going to borrow even more USD to buy bullion and I am also buying December contracts while the shelves still have stock, both XAU as well as XAG. December WTI contracts are positively too cheap to pass up either, so I am throwing a few of those into my little basket as well.
So to all of you who respond positiviely to my rants - go buy your bullion now! and to those who find my rants offensive - who the hell am I to tell you what to do? I hope you enjoy your liquidation hearings!
Interesting self-interest stuff about buying gold, borrowing USD and - egads! - "buy up resource stocks". Trouble is, the system’s tearing itself apart and the yawning chasm has only just started to appear. This plunge is going to continue.
Such self interest might be useful if the main party apparatchiks and other toadies get the bottle to just - follow - the - bouncing - ball:
- Bankruptcy proceedings
- Reorganization under sovereign government agreements a la Bretton Woods
- Set rates for standard borrowing & government works
- Bingo! Kiss Neoliberalism goodbye.
Ben if you are going to stick the smurf’s face up there you should clarify that Costello et al sat on their hands and let the housing market and consumer credit spiral to deathly heights because it seemed to get votes . To date Rudd just appears to be the man without the ability to act.
Let the financial markets burn , you reap what you sow , I am thoroughly enjoying the spectacle.
Softening the impact is what is needed exactly what Keating had to do , makes you a pariah but that is in the job description, just asked Garrett. Whom everyone would prefer to have ranting on the opposition benches rather than
diligently doing what he can.
Back to the point , keep up the examination we need people to understand
- that we can not keep earning $100 and spending $165.
- that it was a speculative housing bubble - a ponzi scheme - value and quantity has not been added to the national residential housing stock.
- property values can fall 40% , they have before
- Government must have the strategies to soften the impact
Rockjaw: Bloody typical. You were unable to answer my queries about your shifting statements. Then, shame, shame you threaten me with NM’s displeasure! Are you writing under a nome de plume perhaps? And are you actually one of NM’s Leader writers?
I don’t think so. Professional writers have to keep track of previous articles, in order to avoid confusing themselves, and their readers. Until such time as you get a good look at past statements and bring yourself ‘up to par’ on your own philosophy: for want of a better word, together with any sign that you have read what the Leader articles are actually saying, before launching into your own comments: I am unable to regard you as a serious writer. Ultimately, what will go against you is your lack of consistency. This will go against you because people will notice it and think, "Hang on. How valid are this man’s opinions, when he appears to be sitting on shifting sand.?"
In short; how can you be any sort of commentator; let alone a writer, if you can’t be true to yourself? Shakespeare said it all. "To thine own self be true…. For it must follow as the night the day…Thou cannot then be false to any man."
Priceless!!
Rockjaw I am reminded of
A Fish Called Wanda—Don’t Call Me Stupid
http://www.youtube.com/watch?v=LKCZ8-ZAT88
Otto reminds me of V.
Venise - "Please don’t send me another rant for a couple of days, as I’m buggered after my little effort"
and - "Bloody typical. You were unable to answer my queries"
Venise, I am not certain what your queries were, but going through your posts it seems you believe, mistakenly, that I am a "stockbroker" and that you have become confused at my claims that I own no shares.
Take a second look through my posts and notice that I disagreed with Ben Elthem’s view that commodities will no longer rise in price/value as we enter this new paradigm shift in the world’s economy.
Eltham took the view that resource stocks will fail to perform. It was my contrary view that resource, mining, energy and technology stocks would remain good investments for those who WANT to invest in equities.
And no Venise, I threatened you with nothing, least of all "NM’s displeasure". In fact I would be surprised and disappointed if "NM" did not find your posts as entertaining as I do.
Hope that clears it all up for you Venise.
George Vickers <——————- "Name"
Rockjaw <—————————— "nome de plume?"
Rockjaw: As of the end of this comment, I shall not be reading your rants again. Once a person has shot themselves in the foot, I lose interest. I notice you even have your own little claque-Branville doing some dirty work for you!
I have read many things in my life. However, I think I can say you, and Andrew Bolt have the most dishonest writing I have ever come across.
PS: Looks as if Ben Eltham was smarter than you.
PPS: NM must be getting rather tired of us by now! Sounds like a threat to me.
PPS. I have a low tolerance for ego-centric fools. And call off your little acolyte; braindead.
Cheers,
(BTW) I have a low tolerance for ego-centric fools).
banville84 here is an interesting excercise for you re - house prices.
Go to this site :- http://www.24hgold.com/tools/gold_silver_currency_calculator.aspx
on that site work out the number of ounces of gold/silver it would have cost you for a house at the turn of the century, say January 2000.
Now see how many ounces the same property costs today.
See? House prices in many cases have even DECLINED in value!
Gold and silver are REAL money and they are REAL economic goods. Houses are REAL economic goods too. The price of houses expressed in terms of other REAL economic goods has not changed much, and have even depreciated in REAL value, but what has changed is the value of the PAPER we use to "buy" real economic goods.
Now look at your wages over the same period and see how much your labour is worth today - you are being paid much less for your labour than bankers and production houses are being paid for their products.
This excercise should show how the poor worker, the labourer, is the poor putz who is being screwed by the State and our Bankers. It is an appendage from our Feudal era, a barberous relic from times when Kings and Popes dictated our place in life. Ours is the same monetary system they used to keep the "great unwashed" slaving away for them.
Indeed, our "modern" banking system is what the French and American revolutions were all about.
Our "modern" Central Banking system remains nothing but a barberous relic from our Feudal era.
Now our workers are the only population group which ACTUALLY produce anything. The State certainly produces bugger all, they only consume and spend. Bankers merely monetise debt and charge interest, but these two groups manage, somehow, to be the only groups in our society which always has a buck or two to spend!
Why is that do you think? Who is pocketing the worker’s money?
The bankers are of course! And who is responsible for this? Wasteful and irresponsible government spending and their barbarous feudal monetary system is responsible.
We need to take back control and ownership of our money from these Central Bankers and give it back to the people and the taxpayers who actually produce the nation’s wealth and then we can use a REAL democratic system to decide how that wealth should be distributed without our money being debased and destroyed by greedy governments and their feudalist monetary overlords.
Venise, thank you.
It humbles me to know that people like you read my posts so attentively.
You have also very elegantly and eloquently demonstrated that despite everybody’s best efforts, "some people just don’t get it".
I see now that I was previously unable to convey that point effectively but you have done such a wonderful job of it for me that I simply must thank you Venise.
George Vickers
PS - he was smarter but the smart money is in the metals now
Nice site George
The house is worth 12% less today than January 2000 but that is not what irks me. My salary is DOWN by just over 5% and that is with a few salary raises, promotions and a longer work week.
So I work harder, longer, get taxed more and take less money back to a home which is worth less but which I will be charged a capital GAINS tax if I sell?
I don’t mind doing my bit to support social services, but something is seriously wrong with this equation.
Oh those heady days of January 2000!
Rockjaw, just trying to get my head around your first post. I had just never thought about things the way you have explained it and boy its disturbing how hidden pattern pops up, sort of looking at one of those magic eye pictures.
I could be wrong, but I thought the Australian gov. sold off loads of gold about 10 years or so ago. What was the logic of that?
Rockjaw , have you heard of an American called Utah Phillips ?
A pacifist songwriter , who collected the real history of America , the stories of the workers . He was able to clearly articulate the capitalist/worker divide .
banville84 - back when the world was sensible :) we had the gold standard , a country’s currency was backed by a certain amount of gold held in reserve. This is the reason for Rockjaw’s love of bullion , it is a venerable archetype of security.
Everbody seems to be having a jolly time playing the man rather than the ball , emulating your politician heroes perhaps ?
P.S The current situation is good , I derive great satisfaction stating ‘let the markets burn !’.
P.S.S Yes it is a nom de plum , I am not that trusting !
Yes, Jonah - but why did they do it then? What was the prevailing thought that gold was no good - or whatever the rationale was at the time that preceeded the selling off?
As you can see I am struggling to understand all this.
banville84
Probably more a shift in geopolitics , exchange rates where based on convertabilty to gold , up to the establishment of the BrettonWoods agreement in the mid 40’s , which tied most currencies to the US dollar , a stabilizing move after wars and depressions and at the time the US was pre eminent in world trade. By the early seventies the US had completely removed any convertability to gold . Which ushered in the era of floating exchange rates , the value of a currency set by demand and supply.
So the world turns , increasing international trade made it impractical to transact in gold bullion , one currency had to be chosen as a standard and the US where the biggest trading nation at the time, it became unnecessary for governments to hold bullion.
This system would appear to have now ended.
The really difficult explanation is the $55 trillion dollars in debt banks owe each tied up in various financial instruments .
These instruments have no reality attached to them whatsoever and where just traded around the place to raise funds , problem being the banks have lost confidence in each other and don’t want to play anymore !
The upshot is there isn’t enough gold in the world to cover people’s weekly wages and while shiny and pretty when polished it is tedious to buy fish and chips with , all that haggling over purity and whose scales are more accurate.
Non-corporeal forms of currency are here to stay , so how do we build a new international monetary system with better checks and balances ?
banville84 and Jonah
"Gold in the hands of the public is an enemy of the state." … Adolf Hitler
Check this site out again:- http://www.24hgold.com/tools/gold_silver_currency_calculator.aspx
If you do the comparative study of the value (expressed in gold/silver) of your house and your wages compared with the same values today you will quickly learn why modern governments find Hitler’s "wisdom" a lot less distasteful than they did back in 1939!
They are all becoming Nazis these days
Our governments agree with Hitler more and more these days. We have abandoned asset backed currencies, Australia’s federal government is slowly making it difficult to impossible for Australians to protect themselves by owning gold (ask Rogerio), we reject the Geneva convention, we accept torture, pre-emptive war, curtailment of personal freedom, detention without trial, the presumption of guilt and the list goes on.
A gold backed currency tends to reverse these developments because it removes the ability of Corporations and the State to monopolise the wealth produced by the rest of us, the ones who do the actual work!
In stark contrast to Hitler is your Utah Philips Jonah - a REAL American!
You are wrong you know Jonah, an asset backed currency does not require the asset itself to be present at the point of exchange in the fish and chip shop, the asset merely backs the currency. A gold backed currency can look identical to the debt based one we have today except that it will buy a whole lot more and will not lose it’s purchasing power so our pensions and supers will never erode the way they do now.
The present system which is based on debt brought into existence by the Central Banks without limitation has led to each and every major depression/recession since 1694.
Read Sir Isaac Newton’s logic which he used to place England on the gold standard while he occupied the office of "Master of the Mint"
With an asset backed currency it is impossible to exceed an economically sustainable level of credit. Everyone agrees that it is in fact massive debt which has led to the current global excesses and the current global crisis and which would have been impossible with an asset backed currency.
Debt based currencies have caused excessive use of carbon based energy, oil has been sold for far less than it’s true economic value causing all sorts of distortions. These price distortions are killing the planet.
Banville, the reason the Americans are so "rich" is because the whole world uses the paper which they print so they are doing to the entire planet what Canberra and the RBA have been doing to working Australians all these years.
Fiat currencies have NEVER survived, and this international economic crisis is the reason they cannot survive. This crisis is going to end with a revolutionary change to the way we regard money itself, either that or we will postpone the disaster to a future date where the disaster will be even more catastrophic.
Regards
George
banville, I know how you feel, I am still getting over the culture shock myself.
Learning about the gold standard has been quite easily the most life changing experience I have had in a long time.
Jonah, a gold backed (or asset backed) currency looks identical to the paper one we currently use to buy our fish and chips, the main difference being that the paper would be backed by an asset like gold.
We are on the current debt based system since 1971 because Nixon’s government was bankrupt and could not meet France’s demand for payment of debts in gold. That is why the world floated international currencies in the system we have today.
banville, do the excercise and learn about it, it will be the most interesting and enfuriating thing you have learnt in years, I promise you.
I managed to get what little I own into gold just in time and I will never fall for the fiat money scam again, you can rest assured of that.
Check out this website:- http://www.lemetropolecafe.com
Rogerio
thank you both Rogerio and Jonah for helping me out with your helpful explanations. I will check out the website Regerio.
"Non-corporeal forms of currency are here to stay , so how do we build a new international monetary system with better checks and balances ?" -
Jonah, perhaps they might start by introducing a global currency or something…….who knows.
banville, they sold their gold, as did the central banks of England, Portugal, Spain, etc etc because the gold price is a barometer of inflation.
If you are going to scam people out of their wages by debasing their currency the method we use is to inflate the currency.
The gold price warns people of rising inflation, and so, governments and Central Bankers kill the messenger by flooding the market with gold to suppress the price and to keep the unsuspecting plebs and workers blissfully unaware of the fact that their wages are being plundered.
Soon people can no longer afford to live off their wages and are forced into debt in order to survive.
The next thing that happens, of course, is a credit driven catastrophe and then they lose control of the price of gold which then becomes impossible to buy because nobody will sell and, in the final phase, the gold price rockets off the charts and the whole insiduous process starts all over again..
Those who surrender their cash and exchange it for bullion survive the depression years which follow - but those who don’t, well, they should continue their irrational faith and trust in those thieves in Canberra and the RBA who have been running this scam for years already.
GV
Rockjaw - never leave the ANZ in particular out of that list of thieves.
It was an expensive lesson dealing with them over the last few years and frustrating to hear of another record profit just after your merchant fees go up yet again. Grrrrrrrrr
Always liked the idea of bullion , now all I need is some cash to buy some !
Life is just like connecting the dots sometimes , get the right dots connected and disparate bits of knowledge fall into focus my thanks.
My pleasure!
I hope you are at least a very big liability in their ledger!
re:the Venise Altergren/Rockjaw spat above
I read New Matilda fairly frequently and often find the commentary as informative as the articles themselves. However, I do notice the same old names again and again, going over the same ground and getting unnecessarily personal at times. To be frank I find it quite off-putting, and it’s one of the reasons I link here less often than I otherwise might.
Venise and Rockjaw [above] are a classic example; in this instance my sympathies are more with Rockjaw, whose posts managed to stay calm and logical. Venise, yours degenerated into a tirade that was hard to follow and I feel the personal insults were not appropriate for a forum like this. Rockjaw’s comment "I am thinking we should take our rants elsewhere because these nice civilised people on NM must be getting really annoyed with us by now!" is spot-on; we are! Guys, please find a different forum if you want to have a little fight.
Meanwhile, let’s stay on topic here. I want to learn more about the economic crisis and have been interested to learn about the gold standard & so on. Anyone have clear memories of earlier financial crises? The parallels may be informative
Cheers, Isobel from a little town up north.
Isobel, I am embarrassed about it all myself.
You may want to read Ellen Brown’s "Web of Debt" and "Gold Wars" by Dr Ferdinand Lips for an easy to understand view of gold and the system of honest money.
Isobel, I have read about a dozen books on the subject over the last few days now, and I am still cramming more reading in as we speak. I know it will soon bore me, but presently it is just fascinating.
Canadian economist and Nobel Laureate Reuven Brenner is somebody I have just discovered and he writes an interesting piece about the "inevitable return to the gold standard" over here:- http://www.canada.com/story.html?id=851901&p=3
Perhaps Rockjaw could recommend more reading material on the subject because the books he has recommended are not available at our local library and by the time I buy them from Amazon I might already have lost interest!
Ellen Brown is pretty mainstream and easy to obtain but "Gold Wars" is politically sensitive and I can well imagine why it is banned from your library.
Ferdinand Lips was, after all, one of the hated bankers!
Never fear Rogerio and Isobel, here is an electronic copy and it is a good read:-
http://www.fame.org/PDF/Gold%20Wars%200-9710380-0-7%20%20-%2001.21.02.pd…
enjoy
Rockjaw, thanks for the link I look forward to curling up and reading this - thanks also for all your insights.
A right-wing Austrian re-interpretation of history - if I ever saw one.
There is a whole lot more to the history behind the Bretton Woods agreement. The basic idea was to remove monetary policy as an instrument of governments. The ultimate goal (as suggested by Keynes) was to eventually transition to an international monetary fund management of exchange rates. The idea being that there is one central bank - with the sole goal of keeping global exchange rates stable. With exchange rates stabilized the fiscal policy of individual governments does not become the object of speculation. Thus excessive fear and "irrational" herd mentality does not drain countries of investment capital in a matter of days. Basically foreign investment is no longer able to retain the ‘Indian giving’ nature it now possesses. (i.e. investment cannot be risk free)
‘Gold Wars’ - of course - says nothing about this. Rather the author seems to insinuate that the Bretton Woods Agreement was a conspiracy in order to restrict the use of global monetary policy to the US. Even if this was the case, I don’t see how such an argument supports a case for the gold standard.
What actually happened at Bretton Woods was the overt (as opposed to covert) adoption of the White plan. Ironically, the signatories gave in to the ‘gold bug’ mentality of ‘preserving established value no matter what.’ The White plan suggested that the aim of global monetary policy coordination should be to suppress inflation rather than ensure a level playing field for all world governments and therefore promoting development.
I’m not surprised that this book is deemed ‘politically’ sensitive. It is a poorly researched hack job, whose sole premise seems to be that the gold standard (presumably itself reliant on government policy) is good because it keeps governments honest. Kind of like the self monitoring system we have had in the global derivatives market: circular reasoning at its very finest.
But it is the bigoted undertones - a characteristic of all final solution type approaches to monetary policy and value - that are probably responsible for the book being ignored by educated folk (people without a vested interest in the current price of gold like the cheerleaders from the mining lobby that endorse the book in its opening pages).
Shall I close with taste of the "truth" according to ‘Gold Wars’? Why not…
"Without the mishandling of gold there would have been no Hitler." So the Jews bought it on themselves did they?
Well, Rabbi Israel Kirzner and Economics Nobel Laureate Reuben Brenner (who is also a decorated Israeli veteran of the yom kippur war) could hardly be considered "pro holocaust" now could they Bob?
And yet both are Jewish, both are Israeli and both are respected modern economists who fully support the views of Ferdinand Lips.
You know Bob, to bait an argument with implied anti-Semitism and weak associations with the holocaust is pretty low, even for you Bob, but Hitler said something else too you know, he said "Gold in the hands of the people is an enemy of the state".
Since you are in the mood for such patently weak associative views that is one which also sounds like "you are either a supporter of Hitler or you are a supporter of the gold standard".
The argument simply does not work Bob.
But you have been talking about borrowing from the future. Well, the world has been doing that since the "Baby Boomer" generation spent every last cent which preceding generations of Australians did it rough to save, and then, dissatisfied with the binge, they proceeded to spend everything which their children and our children have yet to earn, which is what has brought us to the current global debt crisis.
This has come about because of exactly the sort of positively stupid ideas which were hatched by that fool Keynes and which the modern developing world has done well to avoid.
But you would not understand would you Bob? It is called "saving" and "savings" is what most modern developing nations which have avoided our "global credit crisis" still use to fund their Capital and expenditure accounts.
Bob, there is only one way in which wealth can be generated, and that is through production of surplus, not through the production of deficits - economics 101 - until you begin to apply anything from Keynes who invented the belief that money grows on trees.
The 21st century will be well rid of this spendthrift “baby boomer” generation but it seems we have to first wait until they have finished trying to spend our great grandchildren’s earnings as well won’t we Bob?
When were you born Bob?
Got gold?
GV
You just lost your bottle old boy! "Got gold Bob…? When were you born Bob?". You want to check his pass, or frisk and strip-search him at the checkpoint too?
There’s a soundbite simplicity in many of rock’s baits: inter-generational resentment against a stereotype of "baby boomer" selfishness and decadence is just another such distraction-by-cliche. But the gold-standard mysticism of Newtonian alchemy is the predominant foil here, used obsessively to swamp all other discussion on these NM threads, and despite the actual topic.
It’s there that a bystanding reader should suspect rockjaw of sponsoring the sort of imperialist primitivism and other nastiness which the Crown has applied ruthlessly and bloodily, along with its gold standard, for centuries. They started using petrodollars as a de facto replacement, especially since the early 1970s. Their latest tactic - apparently on Sir Greenspan’s advice in his employ to Gordon Brown - was to offer to underwrite or guarantee British banks, thereby compelling other nations to follow suit unless they wanted to become Zimbabwes and see all their banks’ leftovers flee to London!
Back to topic: "recession" - probably a euphemism really. Consider the following extract from Obama’s sugar daddy, George Soros, in Soros’ 1987 book ‘The Alchemy of Finance’ (printed in Friday’s AFR)…
"Eventually, the US government will have to use taxpayers’ money to arrest the decline in house prices. Until it does, the decline will be self-reinforcing, with people walking away from homes in which they have negative equity and more and more financial institutions becoming insolvent, thus reinforcing both the recession and the flight from the dollar."
And this:
"So what does the end of an era really mean? I contend that it means the end of a long period of relative stability based on the United States as the dominant power and the dollar as the main international reserve currency. I foresee a period of political and financial instability, hopefully to be followed by the emergence of a new world order."
Of course, Soros’ own conduct represents precisely the sort of major destabilization that has trashed currencies before, so his "prediction" is a bogus or self-fulfilling one, properly earning him the title "false prophet".
But the most instructive aspect about Soros is his incontestable evidence of a very early-developed psychopathic personality. He is on record as expressing no regrets at all for having worked as a teenager for the SS of Eichmann’s transports to Poland. For that same organization he then shifted into work more suited to the specialization of his infamy as an adult i.e., confiscating assets of the transported. If a jew has no problem doing that to other jews, he could hardly care less about what he had in store for the Indonesians post-97!
Therefore, Soros is one player who has all but ordered the bail outs explicitly, well in advance. Notice how he does not countenance any overriding state supremacy or sovereignty, responsibility for a nation’s populace, or acknowledgment of the monetarist system’s bankruptcy; that would all but finish him and his mates, after all.
So what kind of "new world order" does he prescribe except fascism? The same ideology, sentiment, and moral and spiritual vacuum to which he adjusted himself early, comfortably and successfully.
Thank you mil-observer, you raise some wonderful points, I think.
See Bob? Another pugalista who makes as much sense of Keynes as you do.
Soros, psychopathic SS officers, Nazis, Eichmann.
You may want to explain it all to me because it honestly is way over my head.
GV
I must apologise about the last sentence of my previous post.
It detracts from the point that I actually wanted to make. If its any conciliation it doesn’t sit well with me and I wish I could remove it. I guess I wanted two juxtapose two ‘one-dimensional’ interpretations for "effect" and ended up sounding inconsiderate at best.
I am the first to admit that there is more than one "Keynes." After all as his thought developed his prescriptions changed. But I do acknowledge one enduring theme in his work: Keynes despised the liquidity of money. He hated the fact that money was a store of value (of "savings" if you will). It is the ability of investors in a modern economy (that is, lenders) to limit their risk by having recourse to instantaneous liquidity that undermines equality (in risk) between lender and borrower.
What Keynes attempted to do at Bretton Woods in 1944 and what was adopted were two very different things. This is a well documented fact. The ideas of Keynes himself and the so-called Keynesian Synthesis that was to be his legacy also had very little in common. I order to grasp this second fact, one must be familiar with the work in question.
Bob, please do not apologise, you are far more mild mannered than I, and by a factor of plenty.
My experience with Keynes was many wasted years of confusion on campus followed by many more frustrating years coming to realise that economic reality is not one of the derivatives of Keynes.
I do not dispute the man’s brilliance, but the very corrupt nature of mankind and his greed for either money or political power is simply not included in any econometric model, be it Marx, Keynes, Samuelson or whomever.
I have become allergic to the Bretton Woods idea a long time ago already, and I feel I can breath a lot better since giving it up.
The whole idea of floating a nation’s exchange rates (which I realise is not part of the original idea behind BWI) is unstable by default (as the world will undoubtedly come to realise as it detoxifies itself from the USDollar in the coming months/years).
GV
Engels did the same thing the to work of Marx, as Samuelson would do to the work of Keynes. Nothing wrecks a song like a bad cover version. (Plato anyone?)
Ditto on the creepy Holocaust distraction, and for the other of my pet bug bears - Engels.
The corruption of the political process in the US is especially obvious with the lame candidates going through the motions now.
But rock now seems to have ventured into some tabloid moralism himself with "the very corrupt nature of mankind and his greed for either money or political power…".
That is the kind of misanthropic quackery bound to set us up for this looming period of hyperinflation and fascism. If we hold back from scrutinizing the oligarchy’s mentality and actions, we will only make it easier for the political leaders to effect such ultimate corruption of our society.
Bob, I am not certain what your interest is in the Bretton Woods accord, but I would encourage you to look up "Bretton Woods II" for an interesting take on the next chapter of that huge mistake.
Then consult your copy of Marx "Capital" volume 1, Chapter
31 and find:
"With the national debt arose an international credit system, which
often conceals one of the sources of primitive accumulation in this or
that people. Thus the villanies of the Venetian thieving system formed
one of the secret bases of the capital-wealth of Holland to whom
Venice in her decadence lend large sums of money. So also was it with
Holland and England. By the beginning of the 18th century the Dutch
manufacturers were far outstripped. Holland had ceased to be the
nation preponderant in commerce and industry. One of its main lines of
business, therefore, from 1701-1776, is the lending out of enormous
amounts of capital, especially to its great rival England. The same
thing is going on today[1850s -edit.] between England and the United
States. A great deal of capital, which appears to-day in the United
States without any certificate of birth, was yesterday, in England,
the capitalised blood of children.’
In other words it was the financier who knew no country, not the
proletarian. Marx is describing a transnational elite. Marx also
confirms the Venetian and Dutch origins of London’s wealth. Holland,
of course, ceased to be preponderant because of the transfer of it’s
wealth to London.
Precisely the same is in the process of happenning right now between the USA and Europe and right before our very eyes. This appears to be the reason for the increasing tension with Russia and it helps to explain Putin’s "no unitary world for Russia" speech back in 2007.
Marx may have had more vision than most would admit and, as the Chinese would say " things are never as they would seem"
Glassjaw, whose payroll are you actually on? Now it’s Marx making a broad, unsubstantiated poke at the US just around the time that Britain’s and Holland’s free-traders had been controlling the largest imperialist network, including the slave trade to the US’ south, along with the blatant sponsorship of the Confederacy!
It is by definition absurd to associate any notion of state sovereignty with the imperialist scheme we know as "globalization"; rockjaw suggests as much when stating that the financier knows no country. But that wording is potentially misleading too: the financier of such imperialist design indeed "knows countries", but only as targets for infiltration, dismemberment, neutralization and subordination to an empire.
The largely western imperialist oligarchy’s targeting of China and Russia proves their worry that those two major powers can and wish to renegotiate an effective Bretton Woods - not the fake substitute being mouthed by imperialist flunkies between Maastricht and Washington DC.
The terrorist destabilization scheme’s modus operandi is no mystery and, apart from some outrageous misrepresentation by simpleton caricatures in corrupt media sources, is quite blatantly obvious. "The increasing tension with Russia" was very similar to that pre-Olympic mischief in Tibet. The only real difference was that the neolib-indoctrinated Georgian psychos ran their campaign via state military means; the Tibetan operation was more akin to traditionally understood terrorism. In each case the bodycount from systematic, premeditated murder ran to around 100 - nearly all civilians, and all derived from a targeting of certain ethnicities.
No first prizes for guessing which financier "philanthropist" is on record as the most prominent and lavish sponsor of networks leading those nasty ventures.