Stimulus package

[RussellEbertHandball]

Good article.

The yanks and a few of us in the anglo countries and a few others indeed have to reduce levels of indedtness across the board. Luckily for Australia the federal government of the last 12 years got their balance sheet to a zero net debt position and built a future fund. Ie actually saved money in the good times. The states have followed the feds but aren't in quiet a strong position. This gives the Australian government more flexibility than others.

However we still have a large annual current account debt, which means we have built up a huge net foreign debt and the level of personal indebtness is aproaching the US and UK's and some other nations ladder of high levels of personal indebtness.

There is no doubt that Keynes was right when he said in recession/depression times there is a Paradox of Thrift. Ie saving is a virtue and naturally occurs in tough times, but that means demand for goods and services is reduced. It doesn't mean that businesses will use those savings in full to invest if they don't believe people will buy their goods. Not sure if Niall Ferguson is ignoring the paradox of thrift or just reckons its a lower order priority. This is a good article by the BBC economics writer.

The Paradox of Thrift

Edit: my computer crashed and I lost the rest of my post will do it later.

 

[Crow-mo]

I don't think Nialls is ignoring anything,
I thin his point is this entire line of thinking is massively discredited and the details within that are irrelevant.

its worth remembering that the keynes style stimulus have mostly been impotent. Ferguson, as a man of infinite credential is ahead of the game not behind. imo

 

[Relativity]

A

Good article.

The yanks and a few of us in the anglo countries and a few others indeed have to reduce levels of indedtness across the board. Luckily for Australia the federal government of the last 12 years got their balance sheet to a zero net debt position and built a future fund. Ie actually saved money in the good times. The states have followed the feds but aren't in quiet a strong position. This gives the Australian government more flexibility than others.

However we still have a large annual current account debt, which means we have built up a huge net foreign debt and the level of personal indebtness is aproaching the US and UK's and some other nations ladder of high levels of personal indebtness.

There is no doubt that Keynes was right when he said in recession/depression times there is a Paradox of Thrift. Ie saving is a virtue and naturally occurs in tough times, but that means demand for goods and services is reduced. It doesn't mean that businesses will use those savings in full to invest if they don't believe people will buy their goods. Not sure if Niall Ferguson is ignoring the paradox of thrift or just reckons its a lower order priority. This is a good article by the BBC economics writer.

The Paradox of Thrift

Edit: my computer crashed and I lost the rest of my post will do it later.

Reading this "paradox of thrift" i'm not sure that this is going to be the problem. With the mass hysteria being displayed by the worlds major economies the biggest threat will be galloping inflation rather than deflation. We are witnessing the equivelent of the "Argentinian solution" by governments which equates to the printing of more money, as aluded to in Cro-mo's article.
The thing that bothers me with these plethora of stimuli packages is that we are doing the equivelent of bailing out a sinking ship before we have even plugged the leak. The leading economies should be getting their heads together to come up with a strategy to fix the cause of the problem. Without fixing the cause any other action is wasted. Their was way too much credit allowed in the market place and now we are witnessing a correction. This correction, as painful as it will be, should be allowed to happen without the "cushioning" tactics which will only prolong the pain.

 

[*PAF]

Good article.

The yanks and a few of us in the anglo countries and a few others indeed have to reduce levels of indedtness across the board. Luckily for Australia the federal government of the last 12 years got their balance sheet to a zero net debt position and built a future fund. Ie actually saved money in the good times. The states have followed the feds but aren't in quiet a strong position. This gives the Australian government more flexibility than others.

However we still have a large annual current account debt, which means we have built up a huge net foreign debt and the level of personal indebtness is aproaching the US and UK's and some other nations ladder of high levels of personal indebtness.

There is no doubt that Keynes was right when he said in recession/depression times there is a Paradox of Thrift. Ie saving is a virtue and naturally occurs in tough times, but that means demand for goods and services is reduced. It doesn't mean that businesses will use those savings in full to invest if they don't believe people will buy their goods. Not sure if Niall Ferguson is ignoring the paradox of thrift or just reckons its a lower order priority. This is a good article by the BBC economics writer.

The Paradox of Thrift

Edit: my computer crashed and I lost the rest of my post will do it later.

I don't have time to debate it at the moment, but I disagree that the previous 12 years have been years of good management by the federal government.
The previous government managed things from two perspectives, looking after their generation and doing whatever wins votes.

We have gone through times of plenty and like typical good ol baby boomers they enjoyed it at the expense of future generations.

The Government has swept the dirt under the carpet by reducing visible debt from a political point of view, preferred to give money back to high income earners and themselves rather than investing in any long term projects that would benefit future generations instead of their own. Ended up moving the debt from a politically visible "Government debt" to a politically invisible household debt.
Is Australia just "Government" or is it "all"?
Depending on the answer perhaps they managed the "Australian Government" well but stuffed up in managing Australia.

 

[Toots Hibbert]

Did anyone see Paul Keating on Lateline a week or so ago? He's a bit of a snake oil salesman when justifying his own policies but I was struck by his comments that it's the debtor countries that are running the key economic forums and there needs to be a reworking of these relationships to bring in China, India, Russia which are creditor nations. America is in no position to pull the world out of recession and he fears we're in for 6 or 7 years of downturn.

If anyone with economic nous saw it and would care to comment that would be interesting.

It seems to me quite likely that the next half century will see the US pushed from the top rung by China and that will have huge impacts on us including culturally. I hope that India can keep growing strong to provide a counter balance.

 

[RussellEbertHandball]

Did anyone see Paul Keating on Lateline a week or so ago? He's a bit of a snake oil salesman when justifying his own policies but I was struck by his comments that it's the debtor countries that are running the key economic forums and there needs to be a reworking of these relationships to bring in China, India, Russia which are creditor nations. America is in no position to pull the world out of recession and he fears we're in for 6 or 7 years of downturn.

If anyone with economic nous saw it and would care to comment that would be interesting.

It seems to me quite likely that the next half century will see the US pushed from the top rung by China and that will have huge impacts on us including culturally. I hope that India can keep growing strong to provide a counter balance.

Yeah I saw it and then Costello the next night Toots and made a comment about it earlier in this thread. Also I made some comments last night, but my computer crashed and I lost a longish post. You are right that he talks about the debtors nations needing to have more of a say.

These were his comments re the change in the Geo-politics of the world that are related to finance of the world. The transcript and broadcast can be found at

http://www.abc.net.au/lateline/content/2008/s2480345.htm

TONY JONES, PRESENTER: Now let's start with a very big picture, if we can, does this global financial crisis look to you like a two year crisis, a five year crisis, or something much worse, and much more prolonged?

PAUL KEATING, FORMER PRIME MINISTER: Well, it's a catastrophe, its way worse than it appears. We have had an expansion of credit running for 60 years from 1947 to 2007. This is the first time, 2008, and now 09, where we have had a contraction of credit.

The top 200 financial institutions in the world have suffered an average loss of value of 74 per cent. The top 200, average loss of 74 per cent. We have gone through a bull market which began in 1982, went for 25 years, a bull market in the stock market to 2007.

What we need is a completely new global political and economic settlement. We need to get rid of the old G7. We have to be rid of the old IMF (International Monetary Fund), we've got to bring the surplus countries into the, into the political framework.

You see, the G7 is made of debtor countries, countries like the United States, Britain, France, Italy, these are all borrowers, there's no surplus countries in that. And if you look at the structure of the IMF, the Chinese get 3.7 per cent of the vote, the Indians get 1.9, the Europeans and Americans get 51 per cent.

And there's just no way the Chinese Communist Party is going to hand over control of their currency and their political fortunes to a Washington based US Treasury run institution. So unless there's going to be a complete resettlement.

TONY JONES, PRESENTER: You talk about a new Bretton Woods agreement?

PAUL KEATING, FORMER PRIME MINISTER: A totally new Bretton Woods agreement. We're not going to get out of this. I mean this is the United States Budget cannot reflate the world.

We've always lived in a position where the United States Budget could reflate the world this is not going to happen now. The Budget this year was going to be $850-billion, now look President Obama is talking about another trillion, so $1.8-trillion, their GDP is 13-trillion, so they'll be running a Budget deficit this year of 15 per cent of GDP, they'll have to do this for three or four years.

Sixty per cent of American GDP, who is going to buy the bonds? Now every serious American policy maker knows that they are not going to be returning value, in the end they'll inflate their way out. So in other words, you'll buy American Treasury bond, but what you get back in return will be an inflated dollar, so you'll get back 50 per cent of real value, or something, in other words the debt will be so overwhelming that it cannot be repaid.

And you'll start to see in the price of gold, if this goes on for a couple more years, the real serious question of an American default, a default by the United States Treasury. So this is what we are dealing with now.

TONY JONES, PRESENTER: Just to add to that point, I mean already in Europe there's a serious fear of sovereign risk, that is-

PAUL KEATING, FORMER PRIME MINISTER: Sure.

TONY JONES, PRESENTER: That is the bank guarantees that some of those countries have made, may not be met.

PAUL KEATING, FORMER PRIME MINISTER: May not be met. Well that's right. Look at the G7 you've got Germany, France and Italy, all three countries belong to the same currency unit, the euro.

So why are the three of them there? Italy has got a national debt of the 110 per cent of GDP. They're not going to be any help to anybody. Yet I notice at Davos, Tim Geithner the new US Treasury Secretary hopped into the Chinese about the manipulation of their currency, and of course Wen Jiabao, the Chinese Premier batted that back, the Chinese are not about to deliver themselves into the hands of the IMF or Tim Geithner or any such American officer.

So, but they're expected to continue participating in the US Treasury bond tenders. Now, until we get a settlement, a true settlement where the great states like India and China and their big economies and the surplus countries like Russia, the oil states of the Middle East, get a greater say, in other words until we get to a representative world structure of power, that is global political power and global financial power, then that's the only way now I think confidence will really return to this. This can't be done by the Americans.

TONY JONES, PRESENTER: Do you think anyone, by the way, is the Australian Government in a position to push for something like that, and do you think anyone at senior levels in the Government is thinking like you are?

PAUL KEATING, FORMER PRIME MINISTER: Well yes, I think so. And Australia is in a position. I mean, we played a role, the Prime Minister played a role in getting together the G20. But you see the problem, see, the central question, I think, that President Obama faces is about China.

That is, is China a commercial competitor that has to be strategically watched or is it a new building block, a building block in a new multi polar world. I believe it's the latter.

The Americans believe it's the former.

I think this comment ties in with the Fergurson article re saving more not just spending more.

PAUL KEATING, FORMER PRIME MINISTER: Don't be too hard on me, Tony, what I was trying to say then was that the Prime Minister needed to get together an overarching story that people could relate to. And I think he's done much of that in the time since.

But he's correct though in focusing on the point that at the very core, at the very heart of the western financial system there was on the part of the American regulatory authorities, no attempt to pull this in.

Now, it won't, the fundamental problem is that we need people in the surplus countries to save less and spend more, so they don't accumulate these massive exportable financial surpluses, and we need people in the deficit countries, like the United States, Britain, Australia, Spain, to save more and spend less. That's the only way these imbalances.

TONY JONES, PRESENTER: Except we are about to become a serious deficit country, we are about to have a very large deficit. How big a deficit can a country like Australia sustain? I mean, you know.

PAUL KEATING, FORMER PRIME MINISTER: Our fiscal position is pretty good, because for a long, whole host of reasons, mainly the great growth through the 90s and the early period of the 2000s, just produced tonnes of revenue.

The underlying revenue of outlays were pulled back in the Labor years to under 25 per cent of GDP. If your outlays are at 25 per cent of GDP and revenues at 26 or 27 you're going to run a surplus of two per cent of GDP. So I don't think that that is the real issue.

TONY JONES, PRESENTER: It's a real political issue.

PAUL KEATING, FORMER PRIME MINISTER: But the Australian deficit Tony, will be a sideshow to the world scene, a sideshow.

TONY JONES, PRESENTER: And how necessary will it be to have that deficit go on and on and on until there is some glimmer of light? And you don't see any glimmer of light?

PAUL KEATING, FORMER PRIME MINISTER: Well, no, I see a glimmer of light, but it won't come with the Americans playing tricky poo at the expense of all the surplus countries any longer.

They're all going to have to fess up, you know, they made a welter out of it. They were happy for these countries to pump the United States full of dollars, but it's blown up.

This has happened every time we've seen countries subject to a supply of long term funding and investment, when we saw the petro dollars of the 70s recycled into Mexico and Brazil, those countries blew up.

This time we've seen the Chinese, the Russians, the Middle East, the Japanese and the Germans recycle a tonne of money into America and it's blown up

Chinese consumers save about 44% of their income. Japanese save over 15%. If it wasn't for compulsory super we would have a negative savings ratio. The USA had a 12% savings ratio in 1980 but has been negative for several years until this recession hit them late last year and the last quarter it was about 2%. I agree with Keating that the surplus nations are the ones that have to spend more, but its their consumers more so than their governments, but in the debtor nations both consumers and governments have to spend less and save more to help redress the balance.

You can see that from a series of economic stats.
http://world.bymap.org/PublicDebts.html

Current Account Balance of the World

Rank_ Country Current Account Balance_ per Capita_ Date
(total) (million US-$)_______________ (US-$)

1 China 360,700.0 273 2007 est.
2 Japan 212,800.0 1,670 2007 est.
3 Germany 185,000.0 2,245 2007 est.
4 Saudi Arabia 100,800.0 3,652 2007 est.
5 Russia 76,600.0 542 2007 est.
6 Switzerland 72,840.0 9,642 2007 est.
7 Norway 63,660.0 13,756 2007 est.
8 Kuwait 52,730.0 21,045 2007 est.
9 Netherlands 50,930.0 3,074 2007 est.
10 United Arab Emirates 41,670.0 9,377 2007 est.
..........
181 France -33,390.0 -543 2007 est.
182 Turkey -38,030.0 -534 2007 est.
183 Greece -43,700.0 -4,082 2007 est.
184 Italy -47,250.0 -813 2007 est.
185 Australia -56,200.0 -2,750 2007 est.
186 Great Britain & Northern Ireland -136,200.0 -2,241 2007 est.
187 Spain -145,600.0 -3,600 2007 est.
188 United States of America -738,600.0 -2,453 2007 est.

External Debts of the World

Rank__ Country External Debts_ per Capita_ Date
(total) (million US-$)___________ (US-$)

1 United States of America 12,250,000.0 40,679 June 2007
2 Great Britain & Northern Ireland 10,450,000.0 171,942 June 2007
3 Germany 4,489,000.0 54,477 June 2007
4 France 4,396,000.0 71,480 June 2007
5 Italy 2,345,000.0 40,328 June 2007
6 Netherlands 2,277,000.0 137,412 June 2007
7 Spain 2,047,000.0 50,608 June 2007 est.
8 Ireland 1,841,000.0 448,032 June 2007
9 Japan 1,492,000.0 11,708 June 2007
10 Switzerland 1,340,000.0 177,374 June 2007
11 Belgium 1,313,000.0 126,344 June 2007
12 Australia 824,900.0 40,369 June 2007
13 Canada 758,600.0 22,719 June 2007
14 Austria 752,500.0 91,771 June 2007
15 Sweden 598,200.0 66,344 June 2006
16 Hong Kong 588,000.0 84,236 2007 est.
17 Denmark 492,600.0 90,086 June 2007
18 Norway 469,100.0 101,363 June 2007
19 Portugal 389,500.0 36,597 December 2007
20 China 363,000.0 275 December 2007 est.
21 Russia 343,100.0 2,427 December 2007
22 Finland 271,200.0 51,771 June 2007
23 Turkey 247,200.0 3,474 December 2007
24 Brazil 223,900.0 1,178 December 2007
25 Korea (South) 220,100.0 4,488 December 2007
26 Mexico 179,700.0 1,653 December 2007
27 Poland 169,500.0 4,401 December 2007
28 India 148,100.0 131 December 2007
29 Indonesia 140,700.0 600 December 2007
30 Argentina 135,400.0 3,360 December 2007

Public Debts of the World

Rank__Country Public Debts Date
(total) (percent of GDP)
1 Zimbabwe 211.9 2007 est.
2 Japan 195.5 2007 est.
3 Lebanon 186.6 2007 est.
4 Seychelles 144.3 2007 est.
5 Jamaica 127.2 2007 est.
6 Egypt 105.8 2007 est.
7 Italy 104.0 2007 est.
8 Singapore 101.2 2007 est.
9 Sudan 98.9 2007 est.
10 Greece 89.7 2007 est.
11 Belgium 84.9 2007 est.
12 Sri Lanka 83.9 2007 est.
13 Bhutan 81.4 2004
14 Cote d'Ivoire 81.1 2007 est.
15 Israel 80.6 2007 est.
16 Norway 75.1 2007 est.
17 Jordan 72.7 2007 est.
18 Morocco 72.4 2007 est.
19 Canada 68.5 2007 est.
20 Hungary 67.0 2007 est.
20 Uruguay 67.0 2007
22 France 64.0 2007 est.
23 Portugal 63.6 2007 est.
24 Germany 63.2 2007 est.
25 Nicaragua 63.0 2007 est.
26 United States of America 60.8 2007 est.
27 Cyprus 59.6 2007 est.
28 Austria 59.3 2007 est.
29 Argentina 59.0 June 2007 est.
30 Mauritius 58.8 2007 est.
31 India 58.0 2007 est.

45 Netherlands 46.2 2007 est.

47 Switzerland 45.3 2007 est.
48 Brazil 45.1 2007 est.
50 Great Britain & Northern Ireland 43.0 2007 est.
54 Sweden 41.2 2007 est.
66 Spain 35.2 2007 est.
67 Indonesia 34.1 2007 est.
71 Korea (South) 33.4 2007 est.
78 Taiwan (Rep. of China) 27.9 2007 est.
84 Iran 25.2 2007 est.
88 Saudi Arabia 23.3 2007 est.
90 United Arab Emirates 22.9 2007 est.
96 New Zealand 20.7 2007 est.
102 China 18.4 2007 est.
105 Australia 15.4 2007 est.
111 Qatar 11.7 2007 est.
111 Ukraine 11.7 2007 est.
113 Kuwait 7.8 2007 est.
116 Hong Kong 7.1 2007 est.
118 Russia 5.9 2007 est.
122 Libya 4.7 2007 est.
123 Chile 4.1 2007 est.
124 Oman 3.8 2007 est.
125 Equatorial Guinea 3.7 2007 est.
126 Estonia 3.4 2007 est.

Japan's property and financial bubble burst at the end of 1989. The Nikkei hit its peak on 29 December 1989 at 38,957. It hit about 14,500 in late 1994, when the Yen crashed, it got back up to the 22,500 in mid 1996 but finished the decade at around 18,500. Yesterday it closed just under 7,800.

The Japanese government had 8 or 9 large stimulus packages between 1990 and 2003 and their percentage of debt to GDP has risen from less than 50% to over 150% of GDP and produced very little. The rest is municipal government debt. Why did it fail? Because a lot of the stimulus was wasteful building infrastructure that wasn't needed, companies especially export earners, who employed people and made them company men for life, wouldn't sack people, there was a crisis of confidence, people would save but they wouldn't invest in Japanese assets they were prepared to buy US treasury paper as it paid a higher interest. Japan didn't fall in a hole between 1990 and 2003/4 but it just stagnated along. They still bought plenty of Australian exports because 125mil+ people still have to eat, go to work, use energy, buy the essentials of life, have some fun but they weren't prepared to be extravagant.

That's why I reckon Keating is about right when he said the west will take about half as long as Japan did to recover from its bubble.

TONY JONES, PRESENTER: What do you think about the concept of the building a bad debt bank, take all the bad debts, put them in one place, manage them.

PAUL KEATING, FORMER PRIME MINISTER: That's happened around the world on a number of occasions, that may happen in the United States. But the United States is also going to go through a very long and deep recession and a massive period of adjustment. And I'll be very surprised if this is any less than six or seven years.

TONY JONES, PRESENTER: Six or seven years at this level?

PAUL KEATING, FORMER PRIME MINISTER: Well look at the Japanese, it took them from 1989 to 2003 to bring down their bubble. I mean, what is a bubble. It's worth analysing what is a bubble.

When there's so much cheap credit around, and it was the cheapest of credit, the cheapest of capital that produced this problem, then people watch their home values rise because the next house in the street went for a new record price, financed again by the cheap credit.

So they think, "My wealth has gone up", their wealth really hasn't changed but their relative wealth has risen. Then they see it happen more and more, and it happens over a number of years.

Then they say, "This is better than savings", so they stop saving and start borrowing, and as they borrow the debt gets more available and even cheaper. So they borrow more. So what you end up with is a bubble. You end up a true bubble with no substance.

One last set of stats.

Financial Reserves of the World

Rank_ Country Financial Reserves_ per Capita Date
(total)_ (million US-$)___________ (US-$)

1 China 1,073,000.0 817 2006 est.
2 Japan 881,000.0 6,912 2006 est.
3 Russia 303,700.0 2,125 2006 est.
4 Taiwan (Rep. of China) 270,800.0 11,755 2006 est.
5 Korea (South) 239,000.0 4,893 2006 est.
6 India 176,100.0 161 2006 est.
7 Singapore 136,300.0 30,342 2006 est.
8 Hong Kong 133,200.0 19,192 2006 est.
9 Germany 111,600.0 1,354 2006 est.
10 France 98,240.0 1,614 2006 est.
11 Brazil 87,270.0 459 January 2007 est.
12 Malaysia 82,200.0 3,371 2006 est.
13 Algeria 78,210.0 2,375 2006 est.
14 Mexico 76,330.0 710 2006 est.
15 Italy 75,770.0 1,303 2006 est.
16 Thailand 66,980.0 1,036 2006 est.
17 United States of America 65,890.0 221 2006 est.
18 Switzerland 64,500.0 8,573 2006 est.
19 Turkey 63,420.0 901 2006 est.
20 Libya 59,480.0 10,080 2006 est.
21 Iran 58,460.0 851 2006 est.
22 Norway 56,840.0 12,328 2006 est.
23 Australia 55,080.0 2,718 2006 est.
24 Poland 48,480.0 1,258 2006 est.
25 Great Britain & Northern Ireland 47,040.0 776 2006 est.
26 Indonesia 42,420.0 173 2006 est.
27 Nigeria 42,300.0 321 2006 est.
28 Venezuela 36,670.0 1,425 2006 est.
29 Canada 35,060.0 1,059 2006 est.
30 Argentina 32,030.0 802 2006 est.
31 Czech Republic 31,220.0 3,050 2006 est.
32 Denmark 31,080.0 5,702 2006 est.
33 Romania 30,210.0 1,354 2006 est.
34 Israel 29,150.0 4,589 2006 est.
35 Sweden 28,020.0 3,108 2006 est.
36 Saudi Arabia 27,770.0 1,028 2006 est.
37 United Arab Emirates 27,620.0 10,612 2006 est.
38 South Africa 25,590.0 579 2006 est.
39 Egypt 25,580.0 324 2006 est.
40 Netherlands 23,900.0 1,449 2006 est.

To paraphrase an old AFL advertising campaign. China,the Oil states and Russia save the world from a deep recession or depression, "I'm not sure if I'd like to see that."

 

[Steve Dore]

Yeah I saw it and then Costello the next night Toots and made a comment about it earlier in this thread.

...... The transcript and broadcast can be found at

http://www.abc.net.au/lateline/content/2008/s2480345.htm

Thanks REH. When I referred to Keating's interview earlier in this thread the transcript wasn't online yet.

 

[RussellEbertHandball]

Re: A

Reading this "paradox of thrift" i'm not sure that this is going to be the problem. With the mass hysteria being displayed by the worlds major economies the biggest threat will be galloping inflation rather than deflation. We are witnessing the equivelent of the "Argentinian solution" by governments which equates to the printing of more money, as aluded to in Cro-mo's article.
The thing that bothers me with these plethora of stimuli packages is that we are doing the equivelent of bailing out a sinking ship before we have even plugged the leak. The leading economies should be getting their heads together to come up with a strategy to fix the cause of the problem. Without fixing the cause any other action is wasted. Their was way too much credit allowed in the market place and now we are witnessing a correction. This correction, as painful as it will be, should be allowed to happen without the "cushioning" tactics which will only prolong the pain.

It really depends on who does what, the level of confidence and the level of fear. Japanese consumers saved plenty during the 1990 to 2003 period. But that large pool of savings wasn't used to invest by businesses in Japan. The lack of confidence meant the money was basically sent overseas to buy foreign assets and the slack was taken up by the Japanese government's thru their 8 or 9 stimulus packages. But they didn't work because the stimulus packages were poorly targeted and it did very little to change the level of confidence in the economy.

There is nothing wrong with trying to cushion the slow down. The problem lies with denial of how things happened and how the best way to fix things up are and playing political favourites. Politicians are voted in to do things not stand around and let things just happen. That's why the will intervene. To think otherwise is just nice theory, rather than practical reality.

Look at the Detroit auto-manufacturers. There is no way that any government is going to let 3million people become unemployed overnight. A deal was always going to be struck. The question is how good a deal was it and if the government were going to take over a fair bit of control from the management executives who made bad decisions and got the companies involved into these poor positions.

 

[RussellEbertHandball]

Thanks REH. When I referred to Keating's interview earlier in this thread the transcript wasn't online yet.

The Costello one the next night can be found at

http://www.abc.net.au/lateline/content/2008/s2481545.htm

That was also entertaining and informative to watch. It was more about the domestic situation therefore more about the politics of the Australian economy/budget stimulus. But I strongly agree with Costello on this comment;

TONY JONES: OK. We can see the ideological ground that's now appearing. Of course, on the other side of the ideological equation you've got this monthly essay by Kevin Rudd on the global financial crisis. Mr Turnbull's calling this essay "Orwellian". Mr Rudd blames the crisis on extreme capitalism, what he calls the economic fundamentalism of neoliberalism. The thrust of this ideological argument is to put the Liberal Party firmly in the camp of the economic extremists. So, let's start with that. Do you accept any of the blame - philosophical blame for the financial crisis?

PETER COSTELLO: Well, let's ask what has happened in Australia? Has there been a bank collapse? Let's ask: has there been a run on a bank in Australia? Tony, you know the funny think about Kevin Rudd is he's out writing this speech about how it's all the fault of - he puts the word "neo" in, but he really wants to emphasise that word "liberal"; it's all the fault of liberals. We had Julia Gillard off at Davos giving a speech simultaneously. Here's what she said: "Australia has a Triple A foreign currency rating." By the way, it didn't have a Triple A foreign currency rating before I became Treasurer. It had been downgraded twice. We got it regraded up twice. She then goes on to say, "We've opened competitive markets backed up by a world class financial prudential regulatory system. Given the flaws exposed by the global financial crisis, I would say our system is even better than world class." On the weekend, Julia Gillard is off in Davos saying, "Our system's the best in the world. Our banks are among the 11 highest credit rated banks in the world. Our Government has a Triple A credit rating." Right? Now, this is the regulatory system which I put in place, APRA, that regulatory system. Julia Gillard is extolling it to the world as the best in the world. And back here in Australia you have this miserable little essay from Kevin Rudd saying, "The whole global financial crisis is somehow the fault of the Liberal Party." I gotta say to ya: every now and then someone makes a claim in politics that takes your breath away. And boy, this was one of them.

He also made two other good points.

TONY JONES: OK, but would you have spent money, would you have gone deliberately into deficit to try and buy the Government out of a recession, or buy the country out of a recession?

PETER COSTELLO: No, I would not go deliberately into deficit. In fact, even Kevin Rudd says he didn't go deliberately into deficit. As I just pointed out to you, it's his policy decisions that did it. He's claiming that he was forced into it because revenues dropped. It's false. It wasn't the revenues, it was the policy decision. Now I make this point: in this year, 2008/'09, we'll be back in the business of borrowing. The Government is now saying that our debt to GDP'll be about five per cent, I think, 2010 - probably about $60 billion worth of debt. Let me tell ya, Tony, I mean, Keating was talking about temporary deficits in '91/'92. They lasted through '02-'03, '03'-'04, '04-'05, '05-'06 and it was only when we were elected as the Coalition that we got out of a deficit. Now, let me tell ya, deficits are very easy to get into. You can call them temporary, if you like, but it takes a lot of action to get out of it. And I'll be very, very interested to see whether this Government ever delivers, ever delivers on the promise now, which is easy to make, that one day we'll get out of it. Bear in mind it was making promises that we would never go into it. I'll be very interested to see whether they deliver on that policy.

When Costello said '02-'03, '03'-'04, '04-'05, '05-'06 he meant 92-93, 93-94, 94-95, 95-96.

And

PETER COSTELLO: Well this is poor quality spend. We had a $10 billion spend before Christmas, you'll recall. That was poor quality. I'm not saying that pensioners and families didn't recognise it and weren't glad to have it. But it was poor quality; it's been and gone. And, essentially, what the Government is trying to do is it's trying to massage the figures quarter by quarter. So it tried to massage the December retail figures with $10 billion. It's now trying to massage the March quarter figures. It's poor quality spend. A lot of this will just come and go; the $10 billion come and gone. Did you notice a shift in the economy? No, of course not.

I'm not sure how poor a quality spend it is compared to what Costello would have done, as he doesn't really give his alternative, but their is no doubt there is an attempt to manage the quarter by quarter growth figures by the way the government has spent it's money in the 2 stimulus packages.

 

[Relativity]

'D

It really depends on who does what, the level of confidence and the level of fear. Japanese consumers saved plenty during the 1990 to 2003 period. But that large pool of savings wasn't used to invest by businesses in Japan. The lack of confidence meant the money was basically sent overseas to buy foreign assets and the slack was taken up by the Japanese government's thru their 8 or 9 stimulus packages. But they didn't work because the stimulus packages were poorly targeted and it did very little to change the level of confidence in the economy.

There is nothing wrong with trying to cushion the slow down. The problem lies with denial of how things happened and how the best way to fix things up are and playing political favourites. Politicians are voted in to do things not stand around and let things just happen. That's why the will intervene. To think otherwise is just nice theory, rather than practical reality.

Look at the Detroit auto-manufacturers. There is no way that any government is going to let 3million people become unemployed overnight. A deal was always going to be struck. The question is how good a deal was it and if the government were going to take over a fair bit of control from the management executives who made bad decisions and got the companies involved into these poor positions.

Forgive my crossed posting reply but I'm pissed and lazy at the moment so wish to reply to a couple of things brought up in your last 2 postings in this thread REH.
Firstly the Keaing interview;

" Now, until we get a settlement, a true settlement where the great states like India and China and their big economies and the surplus countries like Russia, the oil states of the Middle East, get a greater say, in other words until we get to a representative world structure of power, that isglobal political power and global financial power, then that's the only way now I think confidence will really return to this. This can't be done by the Americans."

It scares me to think that a person of PK's status would think that giving more economic and political power to "the oil states of the Middle East" and mafia run Russia would achieve anything but anarchy to the world economy. I'm sure that even the "power brokers" of these two regions would sh*t themselves at such an eventuation.

"There is nothing wrong with trying to cushion the slow down. The problem lies with denial of how things happened and how the best way to fix things up are and playing political favourites. Politicians are voted in to do things not stand around and let things just happen. That's why the will intervene. To think otherwise is just nice theory, rather than practical reality.

Realistically of course you are right. I'm a theoretical romantisist that hopes one day we earn a system of government that is slightly more altruistic than reacting for the appearance of reacting.

"Look at the Detroit auto-manufacturers. There is no way that any government is going to let 3million people become unemployed overnight. A deal was always going to be struck. The question is how good a deal was it and if the government were going to take over a fair bit of control from the management executives who made bad decisions and got the companies involved into these poor positions."

Once again you are realistically right. Philosophically though I would make the point that propping up an inefficient company denies an opportunity for a more efficient company to fill the void.

 

[Northalives]

Hey Relativity ; the only way to fix the problem is to cut capitalism's balls off !
The hysteria is well founded when one considers that growth "has fallen off a cliff" to quote one American banking "guru".
This is the greatest crisis to have ever hit capitalism and the only thing government can do in this country, is to not let happen the absolute misery and tragedy that was all encompassing during the late 1920's - early 1930's to be foisted upon the Australian population once again.
We are talking about human beings, not some expendable pieces of shi t : regardless of the way we are viewed by the Thatcherites.
Australians vowed that they would never again have visited upon them the catastrophic effects of the Great Depression yet the same lackeys of the international bank/finance fraternity, wish to impose the same immoral and corrupt "remedy" as that inflicted upon us during the Great Depression. The reason for this is simple, that is, if human beings are subjected to such extreme privation for extended periods of time then when, "the market has corrected itself" ( code for having confiscated every last bit of wealth and dignity these moronic plebs have ), then once again it will be onwards and upwards and the desperate plebs will do anything for practically nothing because "in order for such a financial crisis to not happen again", the labour "market" will be totally deregulated and off we go again : same pigs controlling our lives, cosmetic changes to international banking/finance, same rape of the planet, same profit driven corruption, same immoral masters telling us that it's all our fault and then, BANG, another "market correction" and once again, the duped workers amongst us will support the Downers' and the Turbulls' once more as if these disgusting throwbacks to era of slavery, to the "nothing gets in the way of making a buck" mentality that has taken us to the edge of extinction; are our best mates !

 

[Crow-mo]

Hey Relativity ; the only way to fix the problem is to cut capitalism's balls off !
The hysteria is well founded when one considers that growth "has fallen off a cliff" to quote one American banking "guru".
This is the greatest crisis to have ever hit capitalism and the only thing government can do in this country, is to not let happen the absolute misery and tragedy that was all encompassing during the late 1920's - early 1930's to be foisted upon the Australian population once again.
We are talking about human beings, not some expendable pieces of shi t : regardless of the way we are viewed by the Thatcherites.
Australians vowed that they would never again have visited upon them the catastrophic effects of the Great Depression yet the same lackeys of the international bank/finance fraternity, wish to impose the same immoral and corrupt "remedy" as that inflicted upon us during the Great Depression. The reason for this is simple, that is, if human beings are subjected to such extreme privation for extended periods of time then when, "the market has corrected itself" ( code for having confiscated every last bit of wealth and dignity these moronic plebs have ), then once again it will be onwards and upwards and the desperate plebs will do anything for practically nothing because "in order for such a financial crisis to not happen again", the labour "market" will be totally deregulated and off we go again : same pigs controlling our lives, cosmetic changes to international banking/finance, same rape of the planet, same profit driven corruption, same immoral masters telling us that it's all our fault and then, BANG, another "market correction" and once again, the duped workers amongst us will support the Downers' and the Turbulls' once more as if these disgusting throwbacks to era of slavery, to the "nothing gets in the way of making a buck" mentality that has taken us to the edge of extinction; are our best mates !

what?

can you slow down, leave aside the tub thumping hyperbole and summarise what your point is?

 

[Crow-mo]

Re: A

Look at the Detroit auto-manufacturers. There is no way that any government is going to let 3million people become unemployed overnight. A deal was always going to be struck.

i'm not sure that is really true. I was working over there at the time, and it seemed a very real possibility that they were going to let them go down.

the argument centres around whether american auto manufacturing has a future at all.

 

[Northalives]

what?

can you slow down, leave aside the tub thumping hyperbole and summarise what your point is?

So you think that I am exaggerating when I say that the present capitalist system is bankrupt or that the ones that are going to pay for its collapse are the normal folk ?
The reality is that the planet and its inhabitants can't take much more of the "profit at all costs" manifesto as espoused by Alexander Downer, Malcolm Turbull and all the other immoral plutocrats.
When capitalism's overindulgence causes it to become constipated, the laxative it uses are the ground up bodies and hopes of normal, everyday humans beings.
Australians said that enough was enough after the Great Depression and the current situation that we find ourselves in is not going to have the same tragic outcomes as those shameful times in our histories past.
The stimulus package is NOT to ease the pain for the stockbrokers, speculators, bankers etc. etc ; it is to help the everyday person and their families to retain a decent and dignified existence - it is not about fixing the curse of capitalism. That is another subject altogether.
One of the really sad aspects of this shocking situation is that some everyday people still believe that Downer and his cohorts are interested in their welfare.
Downer and his hoofed mammalian mates don't give a damn about the rest of us; their only job in life is to preserve their privileged position and recruit lackeys to defend their use of lies and corruption to accumulate power, prestige and wealth.

 

[RussellEbertHandball]

Re: A

i'm not sure that is really true. I was working over there at the time, and it seemed a very real possibility that they were going to let them go down.

the argument centres around whether american auto manufacturing has a future at all.

The politicians were always going to do something to save jobs and in particular manufacturing jobs.

The real problem was that when the CEO's first went to Washington asking for money, especially GM and Chrysler, they went and asked for $25bil with no strings attached. They had no real idea if it was enough, exactly what they were going to do with it, whether it was a grant or a loan, and if a loan when they were going to pay it back. There also was all the hoo haa about them using private jets. Congress was never going to hand over $25bil+ with so little detail and accountability especially after the TARP monies had been handed out.

When they came back they actually had plans, detailed reasons and a schedule of payments and repayments and measurable targets. So congress buckled.

USA auto manufacturing has a future, just look at Toyota and Honda plants around the US. It's whether the Detroit plants and the conditions its unions won for its workers and the poor management practices of the big 3 of the last decade are sustainable. They all make money outside the USA so they must be doing something right in those markets.

This is an interesting article by a technology writer I have been reading for over a decade. Rober X. Cringley reckons Steve Jobs should have been appointed to run one of the big 3. That was before his health issues were made public in January. From December 7th.

Insanely Great: What if Steve Jobs ran one of the Big Three auto companies?

The previous week he wrote an interesting article on the general problems with the US auto manufacturers and compared it to a few other industries.

Saving Detroit: It's the Cars, Stupid

 

[Crow-mo]

Re: A

1. it wasn't that they didn't expect any strings or know if it was enough, they didn't even know what they were going to do with it, or propose any ways that they were going to do things differently
2. the second lot of plans weren't much better, and still were woefully absent of any details of consequence.
3. the question over their future is very far from settled, and the same question remains.

 

[Crow-mo]

So you think that I am exaggerating when I say that the present capitalist system is bankrupt or that the ones that are going to pay for its collapse are the normal folk ?
The reality is that the planet and its inhabitants can't take much more of the "profit at all costs" manifesto as espoused by Alexander Downer, Malcolm Turbull and all the other immoral plutocrats.
When capitalism's overindulgence causes it to become constipated, the laxative it uses are the ground up bodies and hopes of normal, everyday humans beings.
Australians said that enough was enough after the Great Depression and the current situation that we find ourselves in is not going to have the same tragic outcomes as those shameful times in our histories past.
The stimulus package is NOT to ease the pain for the stockbrokers, speculators, bankers etc. etc ; it is to help the everyday person and their families to retain a decent and dignified existence - it is not about fixing the curse of capitalism. That is another subject altogether.
One of the really sad aspects of this shocking situation is that some everyday people still believe that Downer and his cohorts are interested in their welfare.
Downer and his hoofed mammalian mates don't give a damn about the rest of us; their only job in life is to preserve their privileged position and recruit lackeys to defend their use of lies and corruption to accumulate power, prestige and wealth.

ok, ok. 2 bites of the cherry is enough.

i'm sure there must be a place you can discuss your orwellian paranoia. but your ranting doesn't make a lot of sense in its current form.

 

[RussellEbertHandball]

Re: A

2. the second lot of plans weren't much better, and still were woefully absent of any details of consequence.

I agree with that.

But to get some help from congress they had to make it look like they had gone away and prepared better plans. By coming back and asking for less money and spreading it out until 28 February or 31 March, rather than all by 31 December, meant that they were going to get some assistance. Well the House of Reps voted for assistance, but the Senate rejected it and then Bush had to pass an executive order saying that the money from TARP would go to them via their financing operations. Yet there European operations made money in 2007 and were making money in 2008.

You gotta wonder if that late in his presidency, Bush really cared of the long term financial consequences as opposed to being seen as the president who let Detroit lose up to 3 million jobs.

 

[Crow-mo]

Re: A

You gotta wonder if that late in his presidency, Bush really cared of the long term financial consequences as opposed to being seen as the president who let Detroit lose up to 3 million jobs.

by this stage Bush had no say whatsoever.

it was the coming election, and that influenced almost all of the decisions coming up. though that said, there was a lot of support for pulling the pin. the public backlash to detroits first push, where they all flew down in private jets and just expected a blank cheque, really sent the feathers flying. and then there was the backlash about union control in detroit contributing to the predicament, in effect the employees and their unsustainable union driven conditions were unsustainable, inefficient and were appropriating value from the company, and now in turn the government via bailout.

worth remembering, that Obama only took any significant election progress after the crisis fully heated up, and the republican hierarchy was still thinking of winning. and to be fair, Obama did not win with a particularly convincing majority, despite what the international press would have you beleive. it was circa 3% when on a 2 party preferred basis, the democrats had a 15 - 20% margin throughout much of the campaign.

there was all to play for in the political war rooms, and people were just as upset that detroit had gotten themselves in this position - not to mention the ongoing structural issue of american manufacturing, and the need to resolve the labour issues.

its easy to look at the jobs, but equally that is the same argument made for the small fortune the SA government pumped into mitsubishi tonsley. where in effect, the employees become almost civil servants.

this one is far from done. and of course, the US car industry has a bigger problem than perceptions of largesse and inefficiency - their image is of manufacturing inferior vehicles at higher prices; and this is the domestic imagery.

towards the end of 2008, you could not move for a bill board or radio ad offering customers better pricing than employee staff discount plans. essentially giving them away just above cost, and still there wasn't that much interest in them.

and then of course, there were the GM radio ads, that announced anyone who bought a car from (insert pansy voice) "nippon is soft, they are weak" and yes those exact words were used. you were a **** if you didn't buy a manly american car or SUV. which was desperate in the extreme, and more than a little embarassing.

they got plenty of problems still.

 

[RussellEbertHandball]

Re: A

by this stage Bush had no say whatsoever.

The CEO's flew to Washington in mid November, after the election and that's when the plane controversy happened. When they came back in December, the Senate rejected the rescue package 52-35 on December 11. Remember the Republican senators who lost their seats in the election were still serving their terms until January 5th or 6th and a number of Democrats voted against it because it was a Bush initiative. Then Bush intervened.

Executive Branch approves bailout
On December 19, George W. Bush announced that he had approved the bailout plan, which would give loans of $17.4 billion to U.S. automakers GM and Chrysler, stating that under present economic conditions, "allowing the U.S. auto industry to collapse is not a responsible course of action."[95] Bush provided $13.4 billion now, with another $4 billion available in February 2009. Funds would be made available from the Emergency Economic Stabilization Act of 2008.[96] General Motors will get $9.4 billion and Chrysler $4 billion.[97]

However, the Treasury currently lacks the statutory authority to direct TARP funds to the automakers under the statute passed by Congress. TARP is clearly limited to “financial institutions" under Section 102 of the TARP. Suggestions for providing TARP funds to automaker's financing operations, such as GMAC, runs counter to the intent of Congress for limiting TARP funds to true "financial institutions" in the first place.[98] On December 19, 2008, President Bush used his executive authority to declare that TARP funds may be spent on any program he personally deems necessary to avert the financial crisis, and declared Section 102 to be nonbinding, essentially utilizing the line-item veto which was declared unconstitutional by the Supreme Court in Clinton v. City of New York.

it was the coming election, and that influenced almost all of the decisions coming up. though that said, there was a lot of support for pulling the pin. the public backlash to detroits first push, where they all flew down in private jets and just expected a blank cheque, really sent the feathers flying. and then there was the backlash about union control in detroit contributing to the predicament, in effect the employees and their unsustainable union driven conditions were unsustainable, inefficient and were appropriating value from the company, and now in turn the government via bailout.

Yeah I saw plenty of reports on US, cable news and network news shows about the out rage from the public.

worth remembering, that Obama only took any significant election progress after the crisis fully heated up, and the republican hierarchy was still thinking of winning. and to be fair, Obama did not win with a particularly convincing majority, despite what the international press would have you beleive. it was circa 3% when on a 2 party preferred basis, the democrats had a 15 - 20% margin throughout much of the campaign.

I basically said the same thing in the US election thread we had on this board.If about 2% of the people who rocked up to vote, (in the right states) had voted for McCain, Obama would have lost. It was surprising that McCain was in front in the polls on September 15 given all the bad economic news, unpopular war etc. But once Lehman Brothers crashed, the stock market crashed and the financial bailout occured, it was goodnight John. But I agree the media has exaggerated the margin of Obama's victory.

there was all to play for in the political war rooms, and people were just as upset that detroit had gotten themselves in this position - not to mention the ongoing structural issue of american manufacturing, and the need to resolve the labour issues.

its easy to look at the jobs, but equally that is the same argument made for the small fortune the SA government pumped into mitsubishi tonsley. where in effect, the employees become almost civil servants.

Of course we know how much political muscle the auto makers have in SA and Victoria, then its easy to imagine Detroit would have many times more. Yeah when state and federal government concessions effectively pay for half the wages of employees you have to wonder is it worth it. I guess Detroit has never received the same sort of federal government subsidy our manufacturers have. But they would have screwed the local and Michigan governments.

this one is far from done. and of course, the US car industry has a bigger problem than perceptions of largesse and inefficiency - their image is of manufacturing inferior vehicles at higher prices; and this is the domestic imagery.

towards the end of 2008, you could not move for a bill board or radio ad offering customers better pricing than employee staff discount plans. essentially giving them away just above cost, and still there wasn't that much interest in them.

and then of course, there were the GM radio ads, that announced anyone who bought a car from (insert pansy voice) "nippon is soft, they are weak" and yes those exact words were used. you were a **** if you didn't buy a manly american car or SUV. which was desperate in the extreme, and more than a little embarassing.

That's unbelievable. But it just reinforces the problems they have.

they got plenty of problems still.

I agree with you 100% on that. That's why the Cringley article suggesting Steve Jobs take over one of the Big 3 and his other article, was interesting to read and ponder. The big 3 are still stuck in the two types of auto executives world -the financial types versus the car guys when they need something in between. And the big 3 still make too many models but they don't have to. As he said;

Their main delusion is the myth of the complete car line. Apple in 1997 had a tremendous advantage in being clearly a minority player. There was no hope that the Mac OS would topple Windows, but that made chipping away at Windows a tactical effort where significant advances could be made by Apple just concentrating on niche markets.The U.S. automobile makers can't (or won't) do that because again they think they have to make every type of car for every type of buyer. Yet each company IS a minority player; they just pretend that this condition is temporary, but it isn't.

The Australian auto manufacturers are a long way off being super efficient. But the Button Car Plan of reducing manufacturers, reducing the number of models manufactured, have the manufacturers co badge or re badge another manufactures car and a staged reduction in tariffs helped make the industry more efficient and prolonged the life of the Aussie big 3 at least. Detroit will have to go thru a similar restructuring, either government driven or by bankruptcy administration. It's a matter of whether each individual manufacturer can survive the process.

 

[Crow-mo]

Re: A

Bush has a say by means of process, not substance.

the party heads had taken control by then.

 

[RussellEbertHandball]

Re: A

Bush has a say by means of process, not substance.

the party heads had taken control by then.

Ok so in the end the bailout package was basically the one drafted by the House Financial Services Committee headed up by Barney Frank and dominated by the Democrats, tinkered with by Nancy Peolosi, Bush and probably Hank Paulson, they got it to pass the House, then it was rejected by the Senate, but then it was tinkered with again by Bush, Paulson and others, and driven thru by Bush using his Executive powers. So everyone, nearly everyone, is to blame.

 

[Crow-mo]

Re: A

So everyone, nearly everyone, is to blame.

yup

 

[Northalives]

ok, ok. 2 bites of the cherry is enough.

i'm sure there must be a place you can discuss your orwellian paranoia. but your ranting doesn't make a lot of sense in its current form.

Orwellian paranoia ? **** off ! You are just an apologist for the "market forces" extremists.
Are you a product of the School Of The Americas ? You certainly are defending the Empire with all your vigour.

 

[Crow-mo]

Orwellian paranoia ? **** off ! You are just an apologist for the "market forces" extremists.
Are you a product of the School Of The Americas ? You certainly are defending the Empire with all your vigour.

good luck with that revolution thing comrade.

shouldn't be long now, reckon you've got it all worked out