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The Forum > Article Comments > The final countdown? > Comments

The final countdown? : Comments

By James Cumes, published 6/12/2011

The only people prospering at the moment are speculators, but how long before they are swallowed too?

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The article is correct in that the present problems have been developing for 25 years or more but the author does not illuminate the real cause, the oil shock of the 70’s and the willingness of other nations to allow the USA to consume goods and resources by simply providing $USA bank balances for the suppliers of those goods and services.

The other nations went along for the ride happily.The practice allowed them to shift potential unemployment to the USA and the USA became the consumer of last resort. “Free Trade” has often been the rallying cry for those who wanted to avoid solving the real problem.

Australia lost many real assets such as Arnotts, Edgells, half of Qantas, and many other valuable assets, in exchange for some of those $USA bank balances. Money is really only a short term store of real wealth. Actual ownership of real resources is real wealth.

Those bank balances often remained in the USA banks and formed the foundation for the totally non productive financial gambling by hedge and other funds in derivatives which have no purpose other than to allow further gambling.

The solution is a return to trading in real goods and services between sovereign economies paid for using an international trading currency. That trading currency should comprise a weighted component of each sovereign currency of the individual trading nations with the weighting determined monthly based on immediate past trading history. My understanding is that that was basically JMK’s solution to the international trading problem at Bretton Woods.

The Basle Agreements have simply been efforts to push back the day of reckoning and all such efforts usually result in making the problem ultimately worse and the ultimate solution more difficult.

The USA dollar as the currency of international trade ceased to be a sensible solution once the USA’s domestic oil production peaked in the early 70’s (domestic production is now about 30% of that peak) and the USA commenced to become a debtor nation.
Posted by Foyle, Tuesday, 6 December 2011 8:11:08 AM
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The article is a very gloomy and badly flawed piece of analysis. Cumes is in the same category as the analysts who, during the cold war, insisted that nuclear war was inevitable. It wasn't. While the financial markets are down and likely to stay down for a time, and the Euro is now seen as a not-so-good idea, there is nothing to suggest a fundamental change in the international market. Just more of the same gloom for a while before a recovery.

What we all need is for the Americans to make real efforts to regulate Wall Street and their banking sector, otherwise it will happen again. That does not seem to be happening, so that's what we need to be concerned about.

The BASEL II reforms were welcome but probably not enough and does not really cover the wall street firms.
Posted by Curmudgeon, Tuesday, 6 December 2011 10:17:39 AM
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...James Cumes correlates current GFC with its problematic social extension. When political honesty is replaced with new-speak spin, and manipulation of statistical analysis assists the lies; all then equates into fearful communities lacking predictive direction.

...As division between the “abstract” Gillard Government and Australians widens, hope for the financial future of our communities, under the threat of another GFC, continues to cool.
Posted by diver dan, Tuesday, 6 December 2011 2:36:25 PM
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The first leg down (Oct07-Mar09) was just a foretaste of what credit crunch really means, and the long sucker rally of Mar09-May11 was enough to put people back to sleep again, secure in the mistaken belief that supposedly omnipotent central bankers could postpone any kind of reckoning indefinitely. Now in early Dec, we are seven months into the next phase of contraction, but most have yet to recognise that the trend has once again turned down.

The increasing focus on chasing speculative profits is parasitic to the real economy to a greater and greater extent over time. After all, why work in the real world, when profits on money chasing its own tail are much greater for so little effort?

Who even notices the hollowing out of the real economy, or the conversion of large amounts of capital into waste, or the often pointless depletion of non-renewable resources, or the growing structural dependency trap, when there is so much short term material prosperity to pursue?

Decades of inflation lie behind us. It is deflation - the contraction of the supply of money plus credit relative to available goods and services - that lies ahead. The threat we are facing is the rapid and chaotic extinguishing of the excess claims to underlying real wealth created during our thirty years of credit hyper-expansion.

When a credit expansion reaches the point where the debt created can no longer be serviced by a hollowed-out real economy, the marginal productivity of debt becomes negative, continued growth is no longer possible.

Over the next year and beyond, we will discover what credit crunch really means. It is an economic seizure, and its effect is devastating. Credit represents the vast majority of the money supply, and it is about to lose its money equivalency. This will leave only cash, and that cash will be extremely scarce.

We must prepare right now for the onset of a long period of deflation and depression. Many people are reluctant to make preparations until they see the roof on fire, but by then it will be too late to take action.
Posted by Geoff of Perth, Tuesday, 6 December 2011 5:03:19 PM
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Mr. James Cumes,

I am happy to read and, hopefully, get the gist of what is written especially when the writer has concerns common to all people, like you do.

But I am sad to note that the man that empties the bin of my refuse, the woman that attends to the cleanliness of my unit or the cook who procures and prepares what I eat are excluded from the discourse that interests them as well as us.

Perhaps these people, from the position they are in, could see solutions invisible to us.

Probably they could ask why we have so many banks when one and only one could do for the entire world.

And why we engage Politicians when Kings and Emperors have been dismissed?

And why we have schools when humanity’s greatest samples went to no schools?

And why we have basic wages and no top wages?

And why there are wills and testaments when no one can wake up after death and distribute his/her earthly possessions?

Sir, If we Humans do not part with our absurdities, we will not last as long as we could have had we been rational.

Now that each man on planet earth is not distant from another more than a fraction of a second we can no longer afford to be enemies in wars of any kind.
Posted by skeptic, Tuesday, 6 December 2011 5:42:52 PM
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Simple solution:
1) Sound money backed by Gold and Silver. Fractional Reserve banking enriches parasites.
2) Return to Progressive tax system for individuals and companies. Make top tax bracket 80% over, say $300K for individuals.
3) Unwind middle class and corporate welfare. Welfare is a safety net, not a launchpad.
4) Stop silly spending such as prohibition (80% of law and order and customs...a useless, expensive war achieving the opposite of the stated goals) Get serious about real crime: Corruption in business governance and politics.
5) Invest in wealth generation: Power, food, essential manufacturing. End the silly "privatisation" of natural monopolies and the vast investment in pure marketing companies.
6) More science and basic research...80% fails, but the 20% moves us forward.
7) Stop breeding like rabbits. Set a population limit and have refugee/immigrant policy work to that limit.

The faux boom years with credit fuelled "growth" and cheap labour from increased immigration has benefited the very vocal and manipulative few. Time to take the media and government agenda out of those manipulative hands.
Posted by Ozandy, Thursday, 8 December 2011 10:14:08 AM
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