Posted by: graemebird | October 13, 2008

Kevin Rudd And Wayne Swan Swallow Paulson Poison.

The three year guarantee on deposits would be alright if it were part of a serious deleveraging and debt-paying frenzy. Since what has really being guaranteed is bank ponzi-money, if the three year guarantee came with such a fever to engineer a serious cash-building deflation, than that would be about as good, fine, and sensible as you could get. I could not object with the guarantee of pre-existing ponzi-loans if the frenzy was on to replace the ponzi-money with cash, to lock in the reserve-asset ratio, and to rally every council, state, individual business, bank and individual, to cut their borrowing, save more, build their cash balances and learn to live within their means so that they voluntarily restrict borrowing to almost only wealth-creating activities.

But Kevin Rudd, milky-bar-kid of Keynes that he is, isn’t going in for that.

What isolates us from foreign bank entanglements is the ability to pay our own way and live without borrowing. Its not that borrowing is always bad. Its just that you are vulnerable when you HAVE to be borrowing, rather than you are CHOOSING to be borrowing for a worthy cause. Then when you choose to borrow it will be for the now cheap dream house so that you and your lady can have the good years in while the kids are still young and fractional reserve team b hasn’t got their first and cranked the price up.

But in most cases borrowing will be to increase cash flow and that implies wealth creation.

Now banks borrow and lend for a living. Thats their business. Living within their means in their case means lending longer than they borrow, not having to borrow off other banks or the government, only lending what they have on term deposits, and learning to live within their spread and not off new money creation.

As a country learning to live within ones means…….. as a country this means running surpluses all the time, lowering total debt levels, going through a long period of slow money growth where you try and keep the value of your dollar down and not up………. so that the world short-sellers and market manipulators are too frightened to dump your currency………. And ultimately having a lot of reserves of commodities imbedded in your peoples private currencies, and in your governments stash, so that we could potentially take on crony-town international and still bankrupt their ass even while under military attack. That may seem implausible but more about that in future threads.

Living within your means for a company means 50% or better equity, not having to borrow if you don’t want to, which means high cash balances. And being in a country that tends to store a lot of producer goods rather than rely on the sugar-water and daydreams of derivatives.

Near the end of a traditional ponzi-gold boom everyone had low cash balances,  high debts, low-savings rates, a national trade deficit, positive consumer price inflation, an overblown investment-asset price and many producer-goods prices, in relation to consumer goods, a high ratio of ponzi-money to cash money……….

…. But at the recovery you had high cash balances, falling consumer prices, the investment asset and producer goods prices to be traditionally low in terms of consumer prices, a trade surplus, bugger all ponzi-money, and a lot of cash…..

Where are we now? and where do we need to get too? for the sort of growth that makes us independent and sovereign and without nasty warlike measures like trade barriers?

 

Well we are at the first list, and we need to get to the second list.

So obviously the answer is financial triage coupled with a slowly growing reserve asset ratio, and monetization but monetization in such a way as to keep investment asset prices falling and to eventually lead to consumer prices falling as well……. all in the context of glacially growing total spending. Total spending that stays stagnant or grows very slowly. But total spending that does not fall.

Tough gig. Fucking tough gig. And perhaps if you are trying to pull it all off with great fervour and sincerity than indeed perhaps a three year guarantee on deposits will allow you to really nail all of these requirements without unpleasant surprises. Because after all if you make the banks live within their spread most of them will fail. They will go bankrupt in any case and thats a whole lot of national debt written off.

Remember that reducing debt levels is one of the goals to be reached to end the bad times. And there is no way to do it better than bankrupting the banks.

Now has little Kevvie got this sort of stuff in mind? Is he into financial triage? Does he want to reduce national, governmental and personal debt. As well as bring down and eliminate bank ponzi-money?

I don’t thinkso. And others might be willing to back me up in my suspisions. I got the financial review on the way home and there is talk of him increasing welfare payments MORE GOVERNMENT DEBT……… Now if we were talking about aged pensioners and carers well we want to do that anyway for reasons of decency and justice. But Kevvie probably hasn’t been for these things since he stopped wearing in his cowboy hat and cap gun. And we do not do these things in the perverse hope that they will bring on nationally a business recovery.

There is no point in increasing welfare to everyone else. Because one of the things we would need to do if we were serious would be to get every bugger working. Working so that they too can live within their means.

Yesterday I saw a clip of Kevvie talking about big public works projects. Who does he think he is? Il Duce? Yes we need good infrastructure. But not for the sakes of getting back to sound financial health in a crisis.

Then he says that he needed to guarantee banks ponzi-money (he said he was guaranteeing our deposits. But thats not his act) so that banks could borrow from other banks overseas or something similiar. Where is it that you think our trade deficits come from? For the most part our trade deficits come precisely from our banks borrowing from overseas. What happens if they don’t borrow overseas? Our dollar goes down, our exporters are advantaged, which is very much a part of us all living within our means.

Now I’m not dissing these Nambour children too much for getting it all wrong. I lived in Nambour for a short while, its a beautiful town, I once went for a council job there where my plan was to turn it into the business startup gateway to the Sunshine Coast. The people there were kinda neat. Somewhat quaint in some ways but thats good. And they had a great swimming team there. A terrific coach who had swum against people I knew. And a magnificent swimming pool.

So I’m blaming their Keynesian advisers.  Was it YOU Gruen? Was it YOU Andrew Leigh?

Just resign fellas. And put these Nambour lads in touch with people who can do the job.

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Responses

  1. Hey man I linked to your Krugman piece why’d you go and make it private? just delete the comments you don’t want and make it public again.

  2. I’ll think about it tommorrow. See what I want to leave out or put in.

    Look the Americans are really doomed you know. Did you know that? Its like the Japanese crisis but worse. The land prices didn’t go up quite as high as in the Japanese version of this crisis. Since the spending was on all sorts of derivatives and financial products. But there general debt positions and spending committments are much worse.

    Its no good helping the banks. Its main street that is broke which is why the fallout is with the banks first since they are the creditors. They cannot avoid a good deal of inflation. But if they had gotten out of a mountainload of debt by montezing/raising the reserve asset ratio, and just letting all these guys go under, then that is an enourmous amomt of debts that could have been liquidated that way. So it would have been a very good start.

    If countries like us and them know whats good for us we’ll combine minimal monetary growth with high cash levels and try and get our dollar down as low as possible. The Americans are far more in trouble than us. But we are in quite a bit of trouble as well.

  3. what do you think of Mankiw’s proposal?

    http://gregmankiw.blogspot.com/2008/10/how-to-recapitalize-financial-system.html

  4. graeme my comment got swallowed because i put in a link

    look up mankiw’s site. what do you think of his recapitalisation proposal?

  5. Look its just disastrous. Why would we want to do that? Dollar for dollar subsidy for supporting borrowing? What for?

    We needed to build real things but instead we borrowed money overseas to bid the price of our houses up.

    We needed to build nuclear reactors, oil liquification plants. The Americans needed to invest in new rigs and deep sea oil drilling.

    Peak oil hasn’t gone away just because wall street bankers are a bunch of crooked moronic welfare queens.

    Look this is a real thing thats going on. You throw 850 billion at a bunch of welfare queens you cannot build nuclear reactors or expand small exporting companies doing it.

    This is the worst financial sector we’ve ever had. The most stupid. The most divorced from reality. And the most crooked. And the beauty is that if they all go down the tubes thats less debts the country has to pay.

    These guys have gotten so bad that they are actually destroying our pricing system with their dodgy schemes.

    So no. Mankiw scheme is idiotic.

    You’ve got to disaggregate two things. Banking insolvency, and banking profitability. We can make banks solvent and still let them go down the tubes through heavy losses if they cannot live within their margins. They ought to be able to fucking live within their margins. Why continue with these people buggering everything up, debauching the investment of our incredibly scarce capital… because these clowns want to do dodgy things and not live within their margins?

    Think of the waste of all this socialist money. All that waste of running trade deficits because our banks borrowed from foreign banks for liquidity…. and on the other end of the transaction simply lent to us so we could have the priviledge of the land underneath our feet being more expensive.

    This is what you have when you have socialist money. Its crazy.

  6. Peak oil – oil has dropped so far, surely oil supply and demand are still highly inelastic, surely the elasticities wouldn’t melow out so quickly when the Governments are pump priming once again?

    I think it is fairly strong evidence that peak oil isn’t here (yet).

  7. What it shows is that Mankiw is, like most economists, completely divorced from the reality of the situation.

    You see we ought not have this fantasy happy-talk that we can run trade deficits and have this service economy where we all cut eachothers hair. Think of the people who are running surpluses now. The Dutch, the Chinese, the Japanese. Look they don’t want to get their harcuts from us. They don’t want to get our interior decorators. This talk was always nonsense.

    Its no use claiming that overseas investors wouldn’t lend to us if they didn’t have confidence in us. Thats irrelevant. Bankers are priviledged welfare recipients overseas too. And quite happy to lend people money for their credit card.

    Its a straight logical mistake to say that it must be OK because it would be OK in a free market, when its not a free market.

    You have to just click that this is unreason. A clear technical logical mistake that you never ought have fallen for.

    Then the next thing is to imagine that if someone makes 50 million in a year he knows what he is doing. Thats rubbish too. Not only is Paulson an idiot, running one step ahead of a series of scams. He’s a welfare queen. If the Paulsons of this world were even half smart he would have been financing small business export expansion, nuclear power stations and this sort of thing. What was he doing. Running short-selling scams that wrecked the capital markets of the Americans. Things have deteriorated so quickly. And yet you still seem to think this crook isn’t a prize dummy. He’s an idiot. He’s doing everything wrong.

  8. Peak oil is here in traditional land and shallow sea oil wells. So we have to keep going with that and get the deep sea stuff and the synthetics. But do you think those guys on wall street have been taking care of that? No they are useless. They are a confederacy of idiots. They are morons. They are just making money on esoteric ponzi-schemes.

    People forget or never understood what a financial systen was supposed to do. So we ought to be very clear what it is they are supposed to do.

    If there is no banking, no financial sector and only commodity money then what will happen is business will expand by reinvesting their earnings. This is good resource allocation since its rewarding success. In this situation people cannot save. They can only hoard. Thats OK because hoarding leads to more money-creation which is to say more stored commodities.

    So already we see thats pretty good resource allocation. You don’t want a financial sector that does anything to fuck this up. A financial sector of ponzi-schemers and wall-street welfare queens is much worse than no financial sector at all.

    So what can they do thats positive? They have to find smaller businesses that can and should expand much faster than they would be able to simply by reinvesting their revenues…. And then they can take peoples savings, use that for the purpose of expanding these smaller businesses. And thats a net gain. Most other things that they do are destroying capital allocation. Messing things up. We want a financial sector to help and at least not to mess things up.

    Now you have these ponzi-share schemes which water down small company stock and actively prevent them from expanding. If they are going to do iditioic things like that then we ought to let them all go broke. So Paulsons causing irreperable damage here. He’s increasing debt rather than reducing debt for the purpose of getting the banks to further increase debt. This is just crazy behaviour.

  9. Cuz

    that hippy scotsman Adrien’s come good

    http://catallaxyfiles.com/?p=3747&cp=1#comment-108481

  10. Yeah he has. But look at Mark Hill. Just when a conversation gets going he comes in and starts telling lies, talking rubbish and making things up until people are confused:

    “Mark Hill Says:
    October 15th, 2008 at 3:21 pm
    That doesn’t prove anything.

    Why didn’t property values increase threefold when the reserve ratio for our banks was dropped from 25% to 8%?”

    He doesn’t have a fucking clue what he’s talking about. He just starts asking these dumb questions that really aren’t questions at all but imbedded lies.

    I mean what time and place did reserves drop two thirds and the housing price change by……… how much? He won’t say. He’s just a fuckwit. A know-nothing. Which is no problem until you forget that you know nothing.

    Is he talking about under the gold standard? What years? Why wouldn’t gold outflows lead to a reduction in the monetary base? He’s such an idiot. Because every time they talk about it house-nigger-soon and house-nigger Mark Hill just show up and start making stuff up that they know absolutely nothing about.

    So here’s house-nigger Soon ridiculing people by saying Ho ho. You think you know more than the Reserve Bank. And here’s Mark with his utter bullshit. Why would a drop in the reserve asset ratio necessarily lead to specifically a higher house price? Does Mark know for sure that it didn’t? He won’t stick around for an answer but you should go over there and shake him down for the specifics just to show everyone how full of shit he is.

  11. The situation is pretty hopeless isn’t it. A couple of these guys just start getting a glimmering about what is causing our problems and these house-niggers show up and confuse things and this welfare-queen JC starts lying flat out.

    JC is claiming outright now that I’m in favour of purposely imploding the money supply. He’s a fucking idiot. He ought to be horsewhipped in the streets for such an outrageous lie.

    He’s worse than Bahnisch and those guys because he’s pretending to be in favour of free enterprise.

  12. Lets answer Adriens questions:

    Adrienswords Says:
    October 15th, 2008 at 2:21 pm
    Two questions occur to me.
    .
    The first is that if fractional reserve didn’t exist the Rudd govt wouldn’t need to underwrite our bank holdings – yes/no?

    NO OF COURSE NOT. NO RUN ON THE BANKS COULD OCCUR. EVERYONE WOULD GET THEIR CASH. HOWEVER IF THE BANKS COULDN’T LIVE WITHIN THEIR SPREAD THEY WOULD HAVE TO CLOSE UP OR START SELLING OFF BRANCHES. THIS WOULDN’T AFFECT AGGREGATE DEMAND AT ALL UNDER 100% BACKING. BUYING THEIR BRANCHES WOULD BE A GOOD WAY FOR COMPETITORS TO ENTER THE FIELD SINCE THERE WOULD BE NO REGULATION STOPPING THEM.
    .
    The second is that, despite being told so often that national debt doesn’t matter or some such, we wouldn’t have a problem in this country if it wasn’t for the Current Account Deficit – yes/no?
    .
    NATIONAL DEBT MATTERS A GREAT DEAL. UNDER OUR SOCIALIST BANKING SYSTEM THE BANKS DON’T LEND TO CREATE WEALTH. AND THEY BORROW FOR INSURANCE AGAINST A BANK RUN ONLY. HENCE THEY ONLY TEND TO BORROW FOR LIQUIDITY PURPOSES AND THEY LEND ON THE BASIS OF ASSET APPRECIATION FOR THE MOST PART.

    SO HAVING A NATIONAL DEBT IS IRRATIONAL. SINCE THE DEBT, FOR THE MOST PART, ISN’T WEALTH CREATING DEBT. MORE LIKE BIDDING UP LAND PRICES DEBT. A CRYING SHAME AND A NATIONAL DISGRAGE..

    8
    Jason Soon Says:
    October 15th, 2008 at 2:30 pm
    Adrien

    Australia is fine. This mess happened in the US not here. The RBA has been saying way back that our situation isn’t comparable at all. Mel apparently knows more than the RBA. The only reason this guarantee is happening is because of reactive politics.

    Peter – you can’t be serious. what else was different when govt owned Qantas, Telstra and the Cth? You don’t think their keeping other businesses out had anything to do with it?

    YOU DIDN’T ANSWER THE FUCKING QUESTIONS ADRIEN ASKED YOU MORON.

    9
    Adrienswords Says:
    October 15th, 2008 at 2:41 pm
    Jason #8 – I’ve heard that. I’ve read it. I read it (again) this morning. But doesn’t the fact that we buy more stuff from O/S than we sell mean that we’re vulnerable to what goes one there than we otherwise would be? Isn’t our Achilles Heel that our banks have to borrow large amounts of foreign currency to foot the bill for this?

    YES PRECISELY RIGHT. IF WE ARE AT 100% BACKING WITH SLOW MONETARY GROWTH OUR BANKS WILL NOT BORROW OFF OVERSEAS BANKS FOR LIQUIDITY. BECAUSE THEY WILL HAVE FAR MORE LIQUIDITY THAN EVER BEFORE. PRESUMABLY, UNDER THAT SCENARIO, THEY WILL ONLY BORROW FOR WEALTH-CREATION. BUT IN ALL LIKELIHOOD WE WILL WIND UP WITH SURPLUSES. AND SO WE WON’T BE VULNERABLE TO THESE GUYS. AND IF WE GET RID OF SOCIALIST BANKING THEN WE WON’T BE GETTING INTO DEBT JUST TO BAIL OUR BANKS OUT OR INFLATE OUR OWN ASSET PRICES.
    .
    And, and I don’t have any real understanding of, let alone an opinion on, the fractional reserve question. But if it didn’t exist then there would be no ‘run-on-the-bank’ scenarios to worry about. Right?

    NO AND OBVIOUSLY NOT. HAVE SOME CONFIDENCE IN YOUR THINKING IF YOU ARE THINKING ABOUT THINGS STRAIGHT AND NOT BEING A SMUG LEFTIST.
    .

  13. Notice that Jason Soon point blank refused to answer Adriens questions.

    What are you frightened of Soon?

  14. “The Cth bank as I understand it was gradually privatised between 1991 and 1996. Financial deregulation was around the same time, 1993 onwards. Are you telling me financial deregulation had no impact whatsoever on the profits of Cth bank? ”

    Soon. How about not using misleading terminology. There was never any financial deregulation. If so why are there still so many regulations. So there wasn’t financial deregulation.

    Say what you mean. You mean they got rid of the reserve asset ratio and floated the dollar.

    We’ve had trade deficits ever since. It was an anti-free enterprise step in that under free enterprise the banks would have to have 100% backing and would be unable to create ponzi-money. This is not free enterprise. Nor is it deregulation. Its the strengthening of bank priviledge.

    Just calling something free enterprise does not make it so.

    Is allowing a group of crony gold-sellers the right to sell ponzi-Gold deregulation?

    Is letting a few favoured silver sellers the ability to sell phantom silver deregulation?

    How about the ability to counterfeit shares?

    Is allowing some selected group of brokers and Hedge Funds the right to water stock with ponzi-shares…… that deregulation?

    Can you just stop being a fucking idiot mate.

    Our trade surpluses will be there until they force these charlatans to carry a reserve asset ratio. And it ought to be 100%. We don’t want this coterie to be able to water our cash with ponzi-money.

  15. Why would you have imagined in a blue fit Jason that Mankiw’s scheme was OK?

    This is incredibly annoying that you and others are refusing to actually comprehend this matter and yet are still willing to join the debate in favour of those conditions that lead to this disaster.

    Why not just fucking learn whats going on?

    What is the rationale behind Mankiw’s suggestion? Its moronic.

    Meanwhile the commodity and energy shortages loom. And rather than recapitalize them and recapitalize small business and small business exporters particularly Mankiw wants some sort of dollar for dollar subsidy scheme to put money into banks.

    What could this acheive? This is all crazytalk.

    Any money we give to the banks is just going into a giant wormhole. Its the ultimate money pit. Think of all the derivatives these clowns have. No amount of money can bail them out. Only inflation can and we don’t want them bailed out. We want them to put their overalls on and make an honest living getting their hands dirty.


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