United States government averts shutdown

Faced with a huge 1.5 trillion dollar deficit  American politicians have been trying to come up with budget cuts  and  avert a government shut down. After much huffing and puffing they agreed to a $38 billion cut. Theres's much discussion in the blogosphere on the worth of these reductions.  In my view theres only one real important question to ask_ Will the cuts return the budget to surplus in a reasonable period, say five years? If the answer is no , then its a failure.  Certainly  Peter Schiff is not very happy. Might be a good time to buy precious metals.

The beginning of the second GFC?

The Irish government has collapsed due to the debt crisis.  Spain and Portugal also have severe debt problems, and of course there the big one, the USA.

The impending collapse of the Irish government after an expensive bailout seemed only to reconfirm fears that the financial crisis was far from contained.

Analysts warned that deeply indebted countries like Portugal and Spain that are pushing through unpopular budget cuts may soon face an uncomfortable choice: punishment by financial markets that will hammer any laxity in deficit-cutting with exorbitant interest rates, or by an angry electorate annoyed by prolonged economic hardship.

“It will be the same story with all these countries — Ireland is just ahead of the game,” said Desmond Lachman, a former policy executive from the International Monetary Fund who is now with the American Enterprise Institute in Washington. “They all have a fixed exchange rate and have to make these massive adjustments, so people are asking whether they are on the right path.”

Quantitative Easing Explained

Why the world's economy is facing collapse:

Overdose

This Swedish documentary goes for 45 minutes but is well worth watching. Think "stimulus packages " are a good thing? Think again.

Safer to lend to Buffett than Barack Obama

The United States, a nation already suffering from huge budgetary deficits has just passed a Health Care bill that will cost them billions. The result- Warren Buffett is a safer investment then Obama's government:

March 22 (Bloomberg) -- The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.
Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.

Global Financial Crisis? That was just the warm up act to the coming Global Financial Catastrophe. 

Also this has been around for some time but I only saw it today:

Bankers in secret Sydney meeting

Here's a follow up to the last post. The world's leading bankers are supposed to be in Sydney very concerned about the international economy:

THE world's top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.

Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.

Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.......

The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.

Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.

 People like Peter Schiff have been saying for a long time that the GFC was nowhere near over. Unfortunately

I'm becoming increasingly convinced he is right.

Elite depressed

I read the following article with some amusement. The people who brought us the GFC  and multimillion dollar national debts  are concerned because us dumb voters  don't like cap and trade:

THE ruins of global financial capitalism on display at the World Economic Forum included . . . the dashing of hopes for a deal to save the planet from global warming. Just as the world's top bankers will have to play by different rules after the crisis, global climate action requires a political rethink.

"The real difficulty is that for some reason, we have trouble grappling with what are really serious trade-offs to be made with economic impacts in the short term," Canadian Prime Minister Stephen Harper told the world's political, business and financial elite gathered at the Swiss alpine resort in Davos...

Of course bankers and the like love the idea:

Global banks, insurance companies, finance houses and management consultants led the business charge on combating climate change.

After all, they were clean carbon service providers themselves. And their service included a financial trading system which, for the appropriate fee, would provide the self-interested price incentives for technological entrepreneurs to take the carbon, and hence climate risk, out of global economic growth.

Why would the ordinary person, who has seen jobs destroyed, people thrown out of their homes have ant trust in these people?

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

Thanks to Alex Hawke MP for the tip:

Chinese liberal blasts Kevin Rudd

Chinia's Professor Xu Xaonian gets stuck into our Prime Minister Lu Kewin and his policies.

KEVIN Rudd has been accused by a leading Chinese economist of being "either short of economic knowledge or misleading his readers" in his famous essay attacking neoliberalism.

In a scathing assessment, Xu Xaonian, economics professor at China Europe International Business School in Shanghai, lambasts the essay, now translated and published in China, as "shallow and crude".

Dr Xu says "Lu Kewen" - Mr Rudd's Chinese name - made a "big, big mistake" in forming his "confident opinions" based on "the observation that the crisis came as a result of neoliberalism and the absence of supervision".

Dr Xu, one of China's leading liberal economists, has savaged the Rudd essay in the weekly Chinese newspaper The Economic Observer after the Prime Minister's work was translated and reprinted in China's leading business magazine, Caijing.

Dr Xu, who has a doctorate from the University of California and was formerly managing director of the country's biggest investment bank, says it is not time to resurrect Keynesianism, as Mr Rudd proposes.

"Instead, it's time to announce Keynesianism's failure, time to announce the emperor Lord Keynes has no clothes."

He says the Prime Minister "has used electioneering-style tactics to brand neoliberalism as dogmatic, to paint a clownish portrait of it, seeking to pioneer popular antipathy to this artificial enemy, casting a moral verdict without seeming to care about truth or logic".

It would be interesting to know what the professor thinks of President Obama policies.

Drop Dead California

Thats what Peter Schiff thinks Obama should tell California:

During the height of New York City’s financial crisis in the 1970’s, President Gerald Ford had the good sense to turn down Mayor Abe Beame’s request for a federal bailout. The refusal prompted the famous New York Post headline, “Ford to City: Drop Dead.” More than 30 years later, as California Governor Arnold Schwarzenegger makes a similar plea to Washington, I hope President Obama will show similar restraint. Unfortunately, given Obama’s recent string of unwise economic decisions, it’s hard to imagine that his judgment will suddenly improve.

A federal bailout would spare California from having to make spending cuts needed to bring its budget into balance. The matter has become urgent since California voters rejected several tax-hiking ballot initiatives. Rather than taking the vote as a signal to dramatically curtail spending, the state turned to the feds. If they get a free pass, the politicians can avoid fixing any of their past mistakes or preparing California for the future...

Its worth reading in full, if for nothing else an excellent example of clear economic writing. Its relevant to Australia too. The government gave the banks a 100% government guarantee on their deposits so State governments are finding it harder to raise capital , forcing them to either raise interest rates on their bonds or ask the Feds for a bigger handout.

The USA really is in decline

At least parts of it are. They are thinking of bulldozing entire city districts. :

Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.

The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.

Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.

The radical experiment is the brainchild of Dan Kildee, treasurer of Genesee County, which includes Flint.

Having outlined his strategy to Barack Obama during the election campaign, Mr Kildee has now been approached by the US government and a group of charities who want him to apply what he has learnt to the rest of the country.

"Shrink to Survive". Hmmmm... Perhaps California could try that.

The beginning of a social disaster

Lured by home grants and low interest rates young families have been getting into homes they wouldn't other wise afford. When interest go up or the recession really hits we can expect this to get a lot worse:

THEY'RE the nouveau poor - thousands of ordinary families who have lost their jobs and their homes as the recession begins to bite. Just a year ago they were living middle class lives with good jobs and in comfortable neighbourhoods.

Now, thousands of families in Sydney are jobless and have nowhere to go - and charities say thousands more are just "two pay cheques" away from a similar fate.

St Vincent de Paul has recorded a six-fold increase in homeless families looking for help, the biggest increase in 120 years....

Good sense from John Howard

John Howard gave an interview last night and as was spot on:

Asked what he would have done to combat the global economic crisis, Mr Howard immediately pointed to the abolition of Work Choices, saying that by overturning the controversial industrial legislation the Rudd Government had added to unemployment.

"Work Choices helped give us the lowest unemployment rate in 33 years," Mr Howard said.

"The biggest challenge that the Government now faces is stopping unemployment going too high and they are now, by dismantling our industrial relations reforms, they are adding to unemployment.

"If the name of the game is to protect jobs, why do you follow policies that destroy jobs?"

And as to what he would do to get us out of the recession:

The former PM, who lost the top job in 2007 to Kevin Rudd, said the Rudd Government's multi-billion-dollar stimulus packages had worsened the economic situation in Australia by increasing debt.

Instead, they should have followed policies such as a "payroll holiday", which would have encouraged business to retain jobs, Mr Howard said.

"I wouldn't have thrown money around and given cheques to people," he said.

"I would have actually said to the states, 'We'll give you, I think it is $16 billion collected throughout Australia for payroll tax', give them payroll tax relief for a year in order to lift the burden of payroll tax, and that would have helped firms to keep staff.

Nano Nano

The Indian super cheap car is about to hit the market:

INDIA'S Tata Motors is ready to launch the world's cheapest car amid predictions the vehicle could transform how millions travel and fears it would bring more traffic jams on Indian roads.

Tycoon Ratan Tata was due to unveil the four-door jellybean-shaped car with tear-drop lights at a "revolutionary high-tech'' audio-visual show in India's financial hub Mumbai.

The car is slated to cost just 100,000 rupees ($A2850) for the no-frills version that has a two-cylinder 623cc, rear-mounted engine with a top speed of 105km/h.

And they are looking at the export market:

The European version of its ultra-cheap Nano will be unveiled at the Geneva Motor Show this week. The eventual retail price is rumoured to be around €5000 ($9872).

Tata has promised to sell the car for 100,000 rupees ($3050) in India. Launched last year, it was heralded as a marvel of super-thrifty engineering that would redefine the auto industry. Tata executives have since suggested that the rear-engine, four-door runabout, designed to tempt India's middle classes away from their motorbikes and scooters, is now ideally suited to cash-strapped Western consumers.

"Cash-strapped Western consumers," Thats going to be us soon. So put Away your dreams of owning a Ferrari , the little nano is all you are going to get.

Our very own sub prime crisis

We will be paying for Kevin Rudd's stimulus in the most horrible way:

Meanwhile, the first-home buyer end of the market has been booming.

But economists fear this flurry of activity at the lower end has inflated prices to unsustainable levels.

In Sydney, the average property already costs nine times the average household income, while the UK and US reached a peak of only seven times average income before their markets crashed.

According to Professor Keen, the First Home Owner Grant has cost the government about $200million, but has inflated property prices by close to $3billion.

"This is all illusionary wealth that could disappear very quickly," he said.

"The additional $2.8billion or so has come from increased mortgage debt taken on by those most vulnerable to a serious economic downturn at a time when we can see very clearly that the global recession is coming our way."

The Government may well extend the first-homebuyer grant beyond its planned end-date of June 30, which Professor Keen says will end up pumping the market to even higher levels.

The University of Western Sydney professor said he had sold his Sydney house because he feared a property crash, but his gloomy view on the market has been backed by other experts.

Gerard Minack, chief economist at Morgan Stanley, said property prices were likely to fall by 20 per cent in some cities, while the value of houses on coastal strips such as the NSW mid-north coast and the Gold Coast could halve.....

"Traditionally what has hurt people has not been rising interest rates but rising unemployment. I don't care what rate you're paying, if you have a mortgage five times your income and you lose your job, you're toast."

In the 1990's I worked for Centrelink and remember how high interest rates destroyed families. Looks like we could be seeing a repeat. I'm going to use any stimulus handout to reduce my mortgage and hope I can hang on to my job for the next few years. On the brightside there should be some nice affordable Queensland properties coming on the market .

Why the meltdown happened

I have just spent an hour and a quarter watching the video below. Every single second was worth it. Peter Schiff, the man who predicted the current economic crisis explains how it happened and were it will likely lead with a clarity that no politician would dare use. A must see video:

Bailouts and Bull

John Stossel tries to apply some sense to the economic bailouts:



Thanks to Alex Hawke for the tip.

Bonded to reality

Right, this is really useful, Mr Rudd wants Pacific Brands to pay back money the government gave them:

THE Federal Government will try to retrieve taxpayers' money given to Pacific Brands in view of the company's decision to slash 1850 jobs, Prime Minister Kevin Rudd said on Friday.

Public outrage over the sackings, to be carried out over the next 18 months, is increasing as Pacific Brands prepares to send its manufacturing operations out of Australia.

Also we have the traditional union response to job lose, boycotts and industrial action.

CFMEU national secretary John Sutton plans to propose a boycott of King Gee, Hard Yakka and Can't Tear 'Em brands when the union's national executive meets next week.

Sorry but I don't think its going to help. This is the reality:

The company is heavily into doubt and has to restructure to survive. The alternative is bankruptcy. However I do have one question ; why were they given the money in the first place?