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The Forum > Article Comments > Learning the lessons > Comments

Learning the lessons : Comments

By Alan Moran, published 2/12/2008

Easy and cheap money has caused the same asset price inflation as occurred during the Great Depression.

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Sadly, it's hard to disagree. While the Ruddster rants against extreme capitalism and high pay for business executives, the real source of our current problems - loss of control over the money supply leading to massive asset price inflation - is ignored. Australia and Australians need to reduce debt, increase savings and dramatically improve productivity. Doing these things will be painful in the short to medium term but will ultimately result in greater prosperity for a longer period.

Sadly, again, our government is leading us in exactly the wrong direction with IR legislation that will increase costs, reduce productivity and increase unemployment and an Emissions Trading Scheme that will have the same negative effects. It's a triumph of ideology which makes a mockery of the Ruddster's claim to 'evidence based policy'.
Posted by Senior Victorian, Tuesday, 2 December 2008 9:27:39 AM
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While I agree that the principal cause of the present dilemma is the inflation of asset prices due to low interest rates (during the regime of Howard and Costello), Moran seems to overlook the nature of the present problem. It's no point taking measures that will kill the patient before it is cured. Sure, we all need to learn a few lessons about the fundamentals of wealth creation,but we need to hold the economy together while we take our lumps. Immediate government direct cashflow injections (money to pensioners) finds its way to companies that make things and on through the economic multiplier to many others. Lowering interest rates indirectly puts money in many pockets to do the same thing. That tries to take care of the short term- and avoid panic!

In the mid-term, projects are required that add directly to productive capacity. I can't see why windfarms and desalination plants are considered to be bad investments. If they are, I would like Mt Moran to explain why, rather than making assertions without substantiation.

In the long-term, regulations need to be changed and a social order established that aims to avoid these socio-economic disruptions. It is likely that the old IR laws might have created a few more poorly paid jobs in the short term, but at the long term cost of greater social inequality.

Dealing with the economy is rather like dealing with a badly wounded soldier. There is no point giving lectures on battle strategies while he is bleeding to death.
Posted by Jedimaster, Tuesday, 2 December 2008 10:04:52 AM
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If we allow market forces to sort out our economy we will find that some companies are forced to sell assets at below their market value.
This Global Financial Crisis is destroying wealth and if the government does nothing then even more wealth will be destroyed and many more Australians will be left in dire poverty.
Thanks for the comparison of bailout money between ABC and Ford General Motors. Yes we need child care centres but will the car companies start producing cars we want to own and drive?
Alan Oster an economist with the NAB doesn't mind if the government spends $60 billion a year for the next 3 years propping up the economy, preferably building or renewing infrastructure.
If we learn the lessons of the 1929 and 1930 to 1932 Depression we will realise that deflation meant that for every $1000 invested in Jan 1930 was worth $100 at the end of 1932. So it is important that we have learnt the lessons of that depression.
Quoting the actions of the Polish Treasurer in 1992 should be with the knowledge of the constraints placed on her the IMF following Chicago School Economic principles resulted in 40% unemployment.
Posted by billie, Tuesday, 2 December 2008 10:26:52 AM
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Moran's critique over Reserve Bank Governor Stevens, Rudd, Swan and Tanner over the mismanagement of the Aust economy, is a timely reminder we have clueless Politicians sending us down the proverbial gurgler.

Here we have the greatest swindle this century,and all they can spruik about is Aust's come-uppertance and how well we are placed to ride out the Global recession ! Fact is, we are headed for a massive reality disconnect. A slide to economic mayhem. A Third World recession prone liability.

The Business and Financial media outlets haven't yet grasped the economic mantel - it's all gobblygook ?

The giant scam perpetuated by the Wealth Barons is a ' robin hood in reverse '.The rich-and-famous banking and financial tycoons conned itself into believing that it could turn putrescent garbage into gold. The appalling greed and hubris of the US stock exchange are realising the sub-prime bubble has burst, and the headless chickens are coming home to roost. Trouble is, they convinced US Congress to pass legislation enabling trillions of taxpayers funds be deposited into their Corporations and their mates, to redeem their colossal debt, and provide in numerous cases a " golden parchute " of either blatantly maintaining their savings, investments and bad debts,which will be honoured by the Feds, and their grandiose lifestyle left undiminished. All set to flourish. The arch villains are being rewarded from the public purse ! Not even Shakespeare could have thought of such a neat swindle ?

Only in America ? Guess again, it's right here on our doorstep.

Globe trotting, navel-gazer Rudd's $ 10.3 B Christmas bonus to battling families, $ 2 B to bailout the shonky car dealers industry. $35 B to Ford and GMH ( incidentally, they keep their Corporate executive Jet ) $ 22 M, to redeem ABC Child care's belly-up, with more to follow, while the cancer spreads. Billions to the six States and territories to compensate for the loss of GST earnings and to keep them solvent, whilst they battle with disfranchised constituents unhappy after decades of infrastructure promises that never materialised.

To top it all, we
Posted by jacinta, Saturday, 6 December 2008 12:10:08 PM
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we have governor Steven's sprouting on, it's perfectly acceptable to spend money we haven't got, put youself into hock, owe thousands on your ' plastic-fantastic ', and shop-till-you-drop.As the Govt's chief economic advisor, he urges spending JWH's $ 20 B war chest surplus; print more worthless aussie dollars, send the Nation into deficit, and bugger your children's inheritance.

Stiff cheddar !

The hallmarks of sound Govt ? If you think Whitlam and Keating were the epitome of rational economic management, with inflation at 12-17 %, and your savings and super eroded to paper-scrap, well you are past redemption. BTW, the Oz dollar is only worth 67.2 cents today.

There are NO comparisons between the 30's Depression and the sub-prime debacle. Mythical fiction not sustainable fact. It's a skewed thinking that loses sight of the main game. Well before July, the US Housing sector was bought on the cheap without collateral, on long term mortgages, and no hope of ever repaying the loan. These were bundled into packages by brokers, insurance companies, shysters and sold on the hedging/ short selling markets which earned the instigators a tidy sum. It began to unravel, when owners reneged / defaulted,and the market plummeted. The spiral went into overdrive.Like dominos, the chips affected Banks, the biggest and the best.

The architects of the Sub-prime destruction :

. Mad scientist/ economic rationalist / whiz-kids
. Mortgage companies / brokers
. Politicians and sleepy Law-makers
. Banks / insurance houses / loan sharks
. Hedging/derivatives/leverage markets
. SEC ( securities exchange commission ) NYSE, ASX etc

The creators of America's Hall of Shame. A Nation consumed with unbridled greed that has met ist's Armageddon.

It's going to come as a rude shock when the cheque bounces, your credit freezes, and the bouncer is at the door collecting ??
Posted by jacinta, Saturday, 6 December 2008 12:37:25 PM
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Jedimaster, you correctly acknowledge that governmentís manipulation of the money supply has caused the consequential economic problems.

But then your underlying picture of the economy is that itís a difficult, recalcitrant patient that needs to be Ďcuredí by the wise physician of government. According to this view, people are hopelessly irrational, while all economic competence comes from government. Government is an eternal and superhuman institution beyond the reach of earthly frailties. The market keeps on stuffing up, but luckily we have government to come and fix it up.

But we know this is not true for several reasons. Firstly, government expands the money supply to increase its own spending or to lower the rate of interest (in order to appear as the creator of economic benefits, such as cheaper housing, that actually come from everyone else who uses money Ė a fraudulent deception on the part of government.)

It is this expansion of the money supply that causes the inflation, and the inflation causes the system-wide malinvestments and the boom bust cycle. Therefore it is government that is causing these socio-economic disruptions which they are then
a) blaming on everyone else, and
b) trying to cure with more of the poison that caused the problem in the first place.

Secondly, the original problem is the derangement of economic calculation caused by inflation of the money supply. But if it were really true that governments could calculate the more economical way of doing things better than a free people, there would be no need for private property, or for human freedom: we could just vest all power in governments, sit back, and hey presto: the best possible allocation of resources.

If it were true for a part, it should be true for the whole. But it isnít for either.

Governmental interventions only make worse the problems caused by their earlier failed interventions. It is these governmental interventions that are the main cause of poverty and economic instability. They are based on ideas that are demonstrably wrong in theory, that donít work in practice, and should be abolished
Posted by Diocletian, Saturday, 6 December 2008 8:20:20 PM
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