I was really incensed that the government chose to raise unemployment benefits by such a measly amount (around $4.00 a week for a single), thereby ensuring that more and more people become reliant on Foodbanks and/or end up living on the streets.

Hardly a day goes by without a manufacturing plant or factory closing, thereby ensuring a continuing increase in the number of people dependent on welfare.

Dumping sole parents on the dole when his/her youngest child turns 8 is further evidence of this government's lack of interest in looking after the poor, and its minuscule level of concern for the country's most disadvantaged children.

At the same time as the government is supporting a National Disability Insurance Scheme, it is also continuing to cut off Disability Support Pensioners.

The government is offering $1000 to 50,000 employers to provide work for an older Australian for a period of 3 months. Surely Wayne Swan should be aware that businesses are not run on "chicken feed" donations.

While paying mainly lip service to job creation, this government seems more hell bent on bringing the nation, along with individuals and families, to its economic knees.

It is certainly a "smoke and mirrors" budget which is unlikely to deliver a budget surplus any time soon.

However we can be fairly confident it will deliver a huge surplus of homeless people trying to live on peasants' rations, mostly supplied by the rest of the community.

See, the problem is, if the poor Australians have no cash, well you know the Robin Hood theory, and all the sheriff's of nottinghams Treasury was robbed, when all of the Kings men forgot about that very important word from the history pages of life....now what was that word?

"I remember...disparity"

And Robin said" we take from the rich and give to the poor, and its that what the Labor/greens are doing?

Be very careful.

The people aren't that thick:)but they are getting hungry.

If the people have money, the crime rate goes down considerably.

Tony habbit...oh dear.

Maybe tony should invest in a better alarm system:)

cc

I have now given further thought to the handouts being made to parents for their children's education.

The idea that they are a lump sum sweetener to lessen the blow of a Carbon Tax seems to have value, but I also think it is a pre-election bribe.

With both Craig Thomson and Peter Slipper in serious trouble, it may be only weeks before a fresh election is called.

The best time to give parents a lump sum for their children's education might be at the beginning of November, when parents can generally pre-order books, stationery items, uniforms and schoolbags from their local schools.

This would also give schools some excellent early income to enable planning for better school programs in the following year.

I agree with this article.

The budget is a joke and a sad reflection of why federal Labor is not up to it.

They know the problems ahead, but what do the deliver, handouts to prop up their support.

It is obvious that Australia needs to reduce costs and this means that both sides of politics have to be smart about the refroms and adopt change in fair way that can apperal to voters.

For Labor, how about starting with a recognition of the truth, and not wishful thinking about a reliance on a mining boom forver.

All i hope for now is that the next Coaliton govt is better.

If I were a Labor voter I'd throw that insultingly measly support back at Gillard & Swan. Their recent pay rise including all the other Parties was in the hundreds of Dollars a week & these disgusting creeps want to big note themselves of giving families $4 bucks ? Disgusting is the only fitting description.
Get them out of office as soon as possible.

This Govt makes Gough Whitlam look good.Why does not the Queens Rep sack them? Ans; because Gough sought loans ;ie Kemlani of Arabic origin which defied the British Aristocracy monopoly on currency creation.In all reality the Arabic money has something of real wealth backing it;ie oil.

Labor are beyond being farcical.May they drown in the cesspool of their own making.

Answer: The ball doesn't pass from Left to Right (or vice versa) until the Global Umpire has blown the whistle.

The $4 a week increase to welfare receipients (less than 2%) will not cover the increased cost of living once the effects of the carbon tax are realised (companies/landlords will pass this on to consumers) along with this they will have decreased job opportunities as more these will go overseas they dont have the system.
Workers will be additionally slugged with increased fuel costs they cannot avoid. The wealthy (politicians) will live/invest overseas and avoid the tax.
Superannuation funds which are largely governed by the sharemarket will decrease forcing you to continue working.
We need a ONE TAX party, but you would be horrified to discover the average worker pays over 65% of their income in taxes when added cumulatively.

Yes, phooey, and both the USA and Australia are cited as being amongst the 6 lowest taxing nations on earth. One has to wonder if all of the indirect taxes, tolls, fees and charges are included here:

http://www.businesspundit.com/12-countries-with-the-highest-lowest-tax-rates/

In my view, compulsory superannuation has just been part of a ploy by greedy bankers to empower themselves financially and redistribute wealth according to their own dictates.

Yes, superannuation funds are used to prop up the sharemarket to be syphoned off by politicians and their mates (business high enders and those paying bribes) for insider knowledge of upcoming policies which will effect the share price (eg mining tax or handing down a ruling restricting growth)usually for the worst (easier to destroy rather than create). And now with the advent of short trading (selling shares before you acquire them hoping for a price drop) this has become a very powerful tool for them to make quick money while solving the ageing population problem (which for some reason they dont mention anymore - maybe because the problem is solved)in one fowl swoop by making people work longer and not be reliant on welfare.
You have to admit it is quite a clever system, but they're not fooling me & you at least.

That's right. I was instantaneously suspicious as soon as Paul Keating made superannuation compulsory for everyone some 20 years ago.
This made it very hard for small businesses to survive and empowered large corporations, most of which seem to be owned by greedy bankers.

Superannuation contributions started out at 3% and have gradually crept up to 12% over time, with employer groups now calling for the 12% to be deducted from workers' wages.

At the same time, many workers have either had:

1. their hours cut by 20%; or
2. a workload increase of 20% for the same money (productivity increase).

Injured workers are also being fired and/or landed with the responsibility of paying for their own medical treatment, placing increasing pressure on the public hospital system.

This morning I heard that Wayne Swan has agreed to give another $5 billion to the IMF to bail out Greece, on top of the $7 billion he gave only a few days ago.

At the same time, the UK gave $10 billion, which is certainly less on a per capita basis than the amount paid by Australia. Yesterday the UK was refusing to give any further bailout moneys to other nations and the economic status of several EEU countries has become even more compromised.

Observers are predicting the collapse of the Euro and the worst global economic crash the world has ever known.

The western nations seem to have a choice between shelling out enormous amounts of money in bailouts, or losing their economic base at both government and individual levels in other ways. I guess it is the equivalent of a Catch 22.

I just worked out (online calculator) if I started working today earning 50,000 and assuming 12.5% superannuation contributions invested at 5.5% (roughly todays rates) with inflation at 2.5%, after only 20 years the principal would then be worth $3,314,366.27.
Now this is only 20 years and I realise that money would not be worth as much as it sounds now but it just shows how much they plan to steal off you in the meantime.
Ps for 45 years (roughly a working lifetime) the amount is $21,420,734.78 (this is not a misprint).

Actually it was a misprint I calculated monthly contributions in yearly amount 20 years is $ 272,638.68, 45 years - 1,700,000.

I'm glad I made this mistake on a forum and not my tax return.

My point is I would make a much better return managing my own super, however the administration requirements which must be adhered to make it viable only to those whose funds exceed $250,000 (rich get richer I guess)

I'm with Graham on this. The Budget was, regrettably, exactly the kind of Budget you would expect from a government that has lost all credibility with the people, and has absolutely no clue what it stands for any longer.

It is not a Socialist Budget. It is not a Capitalist Budget. It is just a mish-mash of measures that create a few sound-bites, soon to be forgotten in the political dog-fight that will lead us to the next election.

But... oh, Arjay. What would we do without you!

>>Gough sought loans ;ie Kemlani of Arabic origin which defied the British Aristocracy monopoly on currency creation.In all reality the Arabic money has something of real wealth backing it;ie oil.<<

I suspect we may excuse you, on the basis that you weren't around at the time, but there are so many errors of fact in those two sentence-lets, that they are irresistible to a seeker-after-truth like myself.

For starters, Tirath Khemlani was Pakistani, and not of "Arabic origin".

There was no money, let alone "money backed by oil". Khemlani was a con-artist, not a businessman. He was only interested in his $100 million in fees. An early version of the classic Nigerian scam, most likely.

Here's a piece to refresh your memory. Or in your case Arjay, create one.

http://www.theage.com.au/news/National/How-the-loans-scandal-became-an-affair-to-remember/2004/12/31/1104344982914.html

Incidentally, knowing how you are a stickler for "real money", as opposed to debt, how do you feel about the fact that the loan - if it had ever eventuated - would have quadrupled Australia's overseas borrowings, overnight? And how do you feel about the twenty-year repayment schedule, that would have cost Australia $18 billion to repay a $4 billion loan?

Arjay, sometimes you are just priceless, and today is one of those days.

Phooey, I think it is extremely important to be cautious of any schemes or companies involved with the following name identifiers:

i, me, my, mi, you, your.

All of them involve "user payers" systems, higher costs combined with a diminution of services, and a global wealth distribution mechanism.

Pericles,you again miss the point.It matters not how incompetent Gough and his Govt was or the innocent shadiness of his loans.Why was Gough sacked by the GG then and this Govt that is far more corrupt/dishonest and inept,not sacked by our present GG?

I would not believe much of the Corporate media printed then as today.The fact is that Gough had secured loans at a lower rate of interest that the Central banks of Europe and Britian did not approve.Do you not realise that these banks have major holdings in all the oil companies,minerals,arms,pharma and Media in the West? They own and control us and you pretend to be free.

Take a look at this:

http://endoftheamericandream.com/archives/why-does-the-department-of-homeland-security-need-450-million-hollow-point-bullets

Not at all, Arjay.

>>Pericles,you again miss the point.<<

The only point I was making is that you don't actually put any thought into what you write, and consequently end up writing a load of rubbish. The day you get at least some of your facts straight is the day when you might - just possibly - find someone to take you seriously.

But I suspect that day may be a long time a-coming.

I note that you ignored the actual questions...

>>...how do you feel about the fact that the loan - if it had ever eventuated - would have quadrupled Australia's overseas borrowings, overnight? And how do you feel about the twenty-year repayment schedule, that would have cost Australia $18 billion to repay a $4 billion loan?<<

Any thoughts?

Please don't abuse Arjay. The general thrust of his comments are okay. Anyone can make a mistake.

I thought the Governor General should have sacked the Gillard government as soon as it reneged on its promise that there would be no Carbon Tax.

I thought the same regarding the Governor of Queensland, when the Bligh government broke its promise not to sell our state's assets.

Any government which reneges on promises which can have an enormous financial impact on the community should be sacked forthwith and a fresh election called. That way the electorate would also avoid a situation involving a landslide victory at the following election, leaving almost no one in opposition.

If a Prime Minister or Premier engages in televised bribery e.g. of the 3 federal Independents, I think he/she should be charged with a criminal offence.

What this country sorely needs is a a Pro-Australian government, something that has been sadly lacking ever since Gough Whitlam signed the Lima Declaration in 1975.

Nothing that happens in the political arena would surprise me any more.

I have never thought of Gough Whitlam as "innocent" in relation to anything. I thought he was the most arrogant man to ever walk the planet, and his main strength lay in gambling away the nation's assets.

When he was sacked by the GG, no doubt the Global Umpire decided it was time to blow the whistle for the ball to be passed from Left to Right again. The reasoning behind this is unclear.

Decades ago, the Democratic Labor Party were right in their assessment that the ALP were communists (and still are). I'm sure they plan to pass power to the Greens, who currently seem to be fooling the people of South Australia into believing they are pro-Australian farmers. When I last looked, they were gaining 80% acceptance in the poll at this link:

http://sj.farmonline.com.au/news/state/agribusiness-and-general/political/we-have-common-ground-greens-tell-sa-farmers/2550531.aspx

Every day they are stealing even more of the Pro-Australian parties' policies (DLP and Katter's Australian Party), in the hope of pipping them at the post.

"Anyone can make a mistake." That is, of course true, Lorikeet… But not everyone is capable of turning such 'making' into a modern art form.

'Modern art' in the sense that you have to keep looking at it – stunned that it is meant to be taken seriously.

Of course any disdain would be ameliorated by any one of three things:

Firstly, limiting the error to a single mistake; secondly, being prudent and detailed in your fact checking in future, which includes getting some 'facts' in the first place; and thirdly, recognising, acknowledging and apologising for your mistakes when they are brought to your attention before incorporating the corrections into a more enlightened point of view.

Such a mistake could be excused in total if all three were applied.

Perversely, the previous paragraphs apply not just to Arjay, but to the themes of GrahamY's article, and probably to every government that has ever existed since the dawn of civilisation.

At times, all you can do is remind yourself that "Répéter Fantastique Imaginé un Danger"…

This article is a load of voodoo.
the "gauging" from the wealthy sector is gauging indeed; a very poor show that would be closed down if it was a mine.
"Rather than a solid exercise in economic management..."
As if economic management was anything more than spin! Economic management amounts to not spewing your guts up on a nauseating ride.
I love this though:
"there should be a substantial surplus at this stage of the cycle".
What cycle? And why should there be?
And what does this mean:
"[debt] is used judiciously to smooth the business cycle".
pseudo-scientific crap. If it's all just clockwork, as economists (and their hangers on) pretend why should we "be piling up plunder in case it is needed for later"? Don't they know?
Surely good management answers any contingency?
"the situation where expenditure exceeds the ability of taxpayers to pay for it".
Euphemistic crap; raise taxes--better still, make the wealthy pay judicious taxes!
"good at promise, but lousy at delivery".
This is the game all governments are obliged to play in an unsustainable system; the promise and the delivery are incommensurable. The easy option for both sides is privatisation.
In any case, since we know the author is completely one-sided, we can hardly read the article as an objective critique.

Both sides of the parliament have to duck and weave all over the place, in failed attempts to disguise the fact that all of the western nations have embarked on a race to the bottom - a decision that was made at the end of World War II, to keep us safe from the teeming billions.

I'm not a Liberal supporter, but I think Graham's article presented a fair description of the status quo.

pericles yopu need to resaerch better than just reading the newspaper articles. http://www.naa.gov.au/collection/fact-sheets/fs239.aspx
The agreement that Jim Cairns and Rex Connor had with Kemlani was 2.5% commission on $2 billion.Kemlani was unable to secure the loans.I see no evidence of the $4 billion costing $18 billion unless they had no intention of paying any interest.So it is pure conjecture on the media's behalf and yours to say you knew all the details since the loans never even got to the negotiation stage let alone being secured by Kemlani.

Their real crime was going outside conventional sources of loans that excluded Western Bankers.They were amateurs true but they defied the establishment which most of our pollies today shamelessly grovel to.

Well intended fools but today we have destructive Labor morons who are hell bent on enslaving us with a CO2 tax which will do nothing for the environment and destroy our economy.

Elementary mathematics, Arjay. It's called compound interest.

>>I see no evidence of the $4 billion costing $18 billion unless they had no intention of paying any interest<<

There was no interim payment schedule, just the lump sum at the end of the term of the loan. The interest rate was proposed to be 7.92%. Open up a spreadsheet, plug in the numbers and you'll find your evidence.

The originally proposed sum was $4 billion, at 2.5% the commission on that would have been $100 million.

The second attempt was for $2 billion, after the first deal collapsed.

>>So it is pure conjecture on the media's behalf and yours to say you knew all the details since the loans never even got to the negotiation stage let alone being secured by Kemlani<<

Der.

Nobody knew "all the details", Arjay.

That was the point. If it had been straightforward and above board, there would have been more informed discussion at the time, and more questioning that would have exposed the scam earlier. As it was, some gullible saps were sucked in for a while, and looked very foolish when it hit the fan.

>>Their real crime was going outside conventional sources of loans that excluded Western Bankers<<

Replace "real crime" with "naive stupidity", and you have it just about right.

I think we can trust in the fact that "naive stupidity" never comes into a political decision, although it serves our politicians' purposes to make it appear as if it does.

Instead there are various circuitous manipulative manoeuvrings at work, in order to fool the people into believing that Labor, Liberals and Greens are not all working towards the establishment of a Green global communist government. Hence the Tax on Air, which will never be repealed by any of them.

In the case of Paul Keating making superannuation compulsory for everyone, this might have been okay if it had been set up to look after every Australian equally, and if bank robbers had not been left in charge of the kitty.

An association with the United Nations might also have been okay, if we had not let them overrule our decisions on tariffs and trade, along with numerous other infringements upon our national sovereignty.

Now we no longer seem to be able to get their greedy mitts out of our kitty. Only days before Wayne Swan gave $7 billion to the IMF, I saw its leader on ABC24 asking for more and saying it would not be going to Greece. Now I am told that Wayne Swan has pledged an extra $5 billion.

Our leaders are like magicians, making you watch one hand so you don't notice what other is doing, which is really the one you should be watching.

When there are no problems, they create some lest you see what they are really up to.

Yes, very wise words from you, Phooey.

I think most people would be aware that the Greens have been driving both of the major parties since the inception of Greedpeace (not a typo) around 1970, bolstering the communist global financial agenda which has been in place since the end of World War II.

I'm sure Julia Gillard never planned on sending asylum seekers to Malaysia. While all of the sham arguing and fighting was going on, the government was setting up a plan to roll out a red carpet wide enough for a herd of elephants to stampede across, and putting in place a Community Hospitality Scheme at taxpayers' expense.

Meanwhile an increasing number of jobless, homeless and starving Australians are taking to the streets, with a measly $4.00 increase in Newstart Allowance.

Please give generously to The Salvation Army which is conducting its annual appeal this week. Your country men and women are relying on you for their survival.

People who break political promises should never ever be re-elected! Or engage in endless non core pre-election promises, that are promptly dumped, within days of the election result.
The conformation bias seems alive and well in almost every post; and the assertive article?
That said, Labour could have done better. The school building funds would have been far better spent in infrastructure spending. The best infrastructure would have been income earning very rapid rail links. Other than that, some low cost public housing that still produced rental returns that grew with the CPI, would have insured that somebody other than the taxpayer paid the bill.
Significant low cost housing would have kept the tradies busy enough; albeit, forced to become just a little more competitive; and, would have been a good economy growing/saving outcome. Moreover, $2,000.00 a week rents, would likely be impossible, if the building program focused first on areas of unsustainable high rents or serious housing shortages?
I don't see Labour winning the next election, and given the ever worsening state of the global economy, why would they wouldn't want to?
Those that want a returned coalition? Be careful what you wish for, given, you probably will have cause to seriously regret that outcome; given the world is still trying to absorb 64 trillion dollars worth of worthless derivatives; and, the Howard Govt created a structural deficit of around thirty billion, through unaffordable tax breaks for the better off! Tax breaks, which can only ever be controlled by greatly reduced welfare; albeit, welfare for the rich is likely to actually grow, given that seems to be the coalition forte or way? Rhrosty.

This govt is not clever enough; given a clever govt, would have completely reformed the dog's breakfast our tax system has become, in favour of a single stand alone expenditure tax. As a single tax and the only tax taken, the first result would have been the end of compliance and reconciliation; and any and all associated costs, which currently rip around 7% from the bottom line.
Set at just 4.8%, a simple single stand alone, unavoidable expenditure tax, would increase real revenue by around 25%. This would mean that the govt would no longer be compelled to borrow up to 100 million a day to remain operational; given the tax receipts would become immediately available, rather than locked away for up to 12 months, due to reconciliation imperatives.
The repeal of all the other govt imposts, would add around 30% to the averaged bottom line for all Australian based enterprise and as much as 25% to most households. [And, basically paid for by previous avoidance and or, avoiders.]
The subsequent increase in household disposables, would allow the immediate imposition of a non contributory 15% compulsory super, leaving 10% as increased discretionary spending/saving.
Furthermore, tiny adjustments of the tax scale, region by region, would alone control both inflation and or stagnation; meaning, interest rates could be progressively lowered until they literally turbocharged the economy! Rhrosty.

Intriguing little throwaway line there, Rhosty.

>>...given the world is still trying to absorb 64 trillion dollars worth of worthless derivatives<<

I'm willing to bet that you haven't the faintest clue what that means.

In fact, I sincerely doubt that you know a) what a derivative is, b) where the "64 trillion dollars" figure comes from or how it was calculated, nor c) how these instruments will be "absorbed".

In fact, if they are worthless, as you assert, how will they actually affect the global economy at all?

I suspect that you just did a cut'n'paste from somewhere, on the basis that it sounds impressive.

Am I right?

Graham, empirical (as opposed to theoretical/neo-classical) economics teaches us that saved money often does not get directed towards productive investment but is often diverted toward speculative investment. During times of growing income/wealth disparity, excess savings cause asset price bubbles, because there are no productive investments able to achieve sufficient return. During times of decreasing income/wealth disparity (e.g. US/Aus 50s/60s) there are increasing numbers of consumers with sufficient purchasing power to purchase discretionary items. Hence growth and good capital returns on productive investment. During times of increasing disparity (EU/US 1920s and now) however, there are decreasing numbers of consumers with surplus discretionary purchasing power, hence lower commercial opportunities. Therefore capital will then seek returns through speculation. The only way out of this speculative spiral is to redistribute the speculative capital back into productive investment, by increasing taxation and reinvesting either through more government services or direct wealth redistribution until business sees a better return on productive investment and undertakes the investment itself. The sheer quantity of empirical evidence supporting the above explanation (see krugman, Stiglitz etc) as compared to the thoroughly debunked neo-classical theory, should have you rethinking the 2012 Labor budget as insufficiently redistributive. Unless you think economies are for maximising profits (ala Friedman) instead of overall wealth.

Pericles: I do know what a derivative is. It's money plucked from the ether by rat cunning people unable or unwilling to engage in productive effort or enterprise, in order to earn their own money. It's a modern day form of the Emperor's new clothes.
It is a form of parasitical speculation, which assumes sustained or growing asset/commodity values; and, is invariably funded with other people's money. I prefer negotiable bearer bonds, backed by actual tangible assets rather than a conga line of paper instruments, each issue reliant on the previous paper issue for its so-called value, which for mine, is only outhouse specific duties!
As for cut and paste?
Please don't apply your own flawed standards to me? I was just a bitty wee bit of a Bairn, when I last cut and pasted anything.
64 trillion in worthless derivatives, is information gleaned by actually listening to very erudite ultra ethical financial reporters like Brook and Shields, who regularly report on the American economy via SBS' afternoon news hour.
You should try Listening to the erudite and informed.
I suspect it might even be an interesting new and a novel experience?
I suspect you might actually know that reporters are obliged by legally imposed standards, to actually validate their information before going to air or print.
I also suspect, after reading many your invariability dismissive or derisory posts, that there probably isn't enough room in your house/home, for both your and your exponentially expanding ego. Am I right? You have a nice day now, y'hear. Rhrosty.

All around the world, people who plainly didn't understand that derivatives which relied on derivatives, which in turn relied on derivatives for their so called value; parted with real money for what has patently turned out to be largely worthless paper.
Millions of municipalities around the world saw larger returns beckoning; and transferred their often modest surpluses, away from traditional govt guaranteed bonds and into derivatives.
Even hard-nosed bankers/fund managers, were taken in by safe as houses mortgage securities, only to find their so-called value made literally worthless, by a bursting housing market bubble/low doc mortgages.
They patently ignored their own maxim, which goes, if you don't understand it don't invest in it; and so, around 64 trillions worth of largely worthless derivatives were bought in exchange for real money or real assets.
And that is why we now have literally millions of former self-funded retirees around the world, now eking out their retirement as govt supported pensioners. The not clever enough ultra privileged can scoff, as they are wont to; but, the uptake or sale of around 64 trillion dollars worth of largely worthless derivatives; arguably created the current financial crisis all around the world, with real money and liquidity drying up, and banks no longer able to trust each other, or remain solvent.
The speculators found that their real estate values no longer supported their speculation or housing market enterprise.
This is why a now debt riddling Europe faces the very real prospect of another Great Depression, a prospect only ever exacerbated by the conservative preferred ideology of austerity, which can only ever result in further economy damaging contraction?
Contraction which impacts most harshly on those who had nothing to do with the crisis or its creation. The most vulnerable poor or least privileged! Rhrosty

Just as I thought, Rhosty.

>>I do know what a derivative is... It is a form of parasitical speculation, which assumes sustained or growing asset/commodity values<<

You didn't even bother to look it up, did you?

If you had done so, you would have been able to deduce that it is just as likely that a derivative will be created that assumes precisely the opposite - that an asset or commodity will decline in value.

Its called "hedging". Many derivatives are created to guard against the market moving against your position - hedging your bets, in fact.

Which is of course the secret about those trillions of dollars that your reporters rabbit on about. Adding up all the face values does not equal the actual market exposure, as many of them will effectively cancel each other out, leaving only a margin that someone will gain, and someone else will lose.

Something else you didn't check:

>>I prefer negotiable bearer bonds, backed by actual tangible assets<<

http://www.investopedia.com/articles/bonds/08/bearer-bond.asp#axzz1vYmuytIu

You've been watching "Die Hard", haven't you.

Issuing bearer bonds has been illegal in the US since 1982. Finding one anywhere that is backed by "actual tangible assets" won't happen.

>>...there probably isn't enough room in your house/home, for both your and your exponentially expanding ego. Am I right?<<

I've only ever been concerned about insults directed at me by people who know what they are talking about. And quite often, not even then.

I think Rhosty is describing quite well the collapse that has occurred in the USA, and people being robbed of their financial assets here in Australia as well. His/her comments on austerity measures also make logical sense.

How about maintaining some manners on the blog, guys?

If Pericles was actually right, and derivites were just a completely benign financial instrument, that simply allowed people to hedge their bets against a market downturn, then the housing market bubble burst ought to have rescued the US economy, instead of plunging it to the edge of a financial abyss, that could be another double decade long Great Depression.
[Incidentally, the top US tax rate, just post the Great Depression, was 91 cents in the dollar? Perhaps we'll need it again, if only to ensure, those who gained the most from the patent fraud that was derivatives, will be the ones paying the piper, rather than the defrauded masses?]
The proof of the pudding is in the eating. And totally opaque derivatives, backed by more derivatives, backed by other derivatives, were really financial magic pudding?
And as the financially astute will bear witness, there is no such thing as a fair dinkum financial pudding!
But there are Ponzi schemes, fraud and confidence tricksters that will blind one with figures and almost incomprehensible science to "prove" otherwise?
I really don't give a rats that negotiable bearer bonds, backed by real honest to God assets, have been outlawed since whenever?
[Why and if true? Probably too easy to forge?]
I simply prefer them to totally opaque derivatives, is all I'm saying.
I didn't see die hard, which I'm informed had some bearer bonds inexplicably entwined into the plot?
But if they were as Pericles infers; then that could imply, those still in existence, and the genuine article, might still be honoured at face, or inflation adjusted value, by the US treasury or issuing authority?
And if true, then I would just as soon have a billion dollars worth of negotiable bearer bonds, as opposed to a trillion dollars worth, [an oxymoron if there ever was one,] of thrice removed completely opaque derivatives, backed by other derivatives, backed by mortgage security derivatives! Allegedly?
A very wise US Republican senator, when holding a guest spot on Q+A, some years ago, commented, that you always reach a point where complexity becomes fraud! Quote unquote. Rhrosty.

Ok, let's stop bickering and just concentrate on shedding some light on all of this.

Let's start with the big numbers.

According to the last Bank of International Settlements report I could find, at the end of December 2011 the face value amount outstanding on Over the Counter (OTC) Derivatives was US647.8 trillion

http://www.bis.org/statistics/otcder/dt1920a.pdf

That should be a big enough number to keep us all interested., yes?

Meanwhile, with that out of the way, the International Swaps and Derivatives Association (ISDA) keeps an eye on things through regular surveys.

http://www.isda.org/statistics/recent.html#2010mid

There's no need to wade through all the numbers - unless, of course, you want to - but there is one sentence that I would like to draw your attention to.

"As in past surveys, the $26.3 trillion notional amount [of CDSs] was approximately evenly divided between bought and sold protection: bought protection notional amount was approximately $13.3 trillion and sold protection was about $13.0 trillion"

The point is a simple one, but worth restating.

Even though the headline numbers look terrifyingly large, they largely balance each other out. In the above example, companies bought $13.3 trillion in insurance against the underlying value of the asset declining, while other companies bought $13.0 trillion in insurance against the value increasing. Net "exposure": $359.0 billion.

I know you might find this hard to believe, but the entire business of financial engineering at this level is absolutely fascinating. It involves masses of computer power, targetting tiny differentials in interest rates, currency rates, commodity prices and so on that need to be addressed in order to keep the wheels of finance turning. If they didn't, mines would not be dug, farms would not be growing stuff and so on. It is the lubricant of the system, without which the cogs would grind to a halt.

Blaming derivatives for the GFC is like blaming the football when you miss a kick at goal, or blaming the traffic lights when you drive through them and crash, or blaming the gun when you shoot yourself in the foot...

Pericles: Yes and there's another problem, Share trading by computer generated programs, that completely distort the market by massive movements, for just a tiny percent increase or decrease. Now that is something we could agree on, should be outlawed.
Are you sure the number quoted was 647.8 trillion rather than 64.78 trillion? Just imagine the compounding interest on 647.8 trillion; and or, who would pay it! I know, socialise the debt and privatise the profits! Cheers, Rhrosty.

We can all easily see the football, the traffic lights and the gun. A comparison with the complex financial machinations of skulduggerous global entities just doesn't cut it at all.

When a Great Financial Crime (GFC) has been perpetrated on the masses right across the globe, with the monetary system again teetering in the balance, the last thing we need is someone trying to pretend that everything that goes on is above board.

Try selling that to a whole nation of Australians who have had the kitty depleted (or completely emptied) and see how far it gets you.

There are so many ways of measuring money and, as with distances in astronomy, the numbers can be understood whilst simultaneously being beyond real comprehension – though the volumes can speak volumes…

For instance, Michael Spencer the group CEO of ICAP plc, based in London, which is the largest financial transactions services broker in the world (but not the only such broker) said on BBC Radio 2's Bottom Line program in February this year he found it incredible to think that they transact about £1 trillion per day.

Are they making money hand over fist? They can afford to charge a commission of about one pound for every £1 million transferred!

This single firm's revenue was in the region of £1,700 million last year.

I'm not jealous, but I wish my Visacard cost me 1/10,000th of one percent. And mine's a debit card!

It's called "economy of scale" (big companies can afford to their own staff rather than contractor, can afford to keep legal staff on payroll instead of outsourcing etc). This is the death of small business and one day the hamburger outlet or soft drink producers will own everything under this type of system. Too scarey for many people to (want to) comprehend.

This is what happens when you let business control government policies.

It all depends on how you look at it, Rhosty.

>>Share trading by computer generated programs, that completely distort the market by massive movements, for just a tiny percent increase or decrease<<

The real issue is that of the self-fulfilling prophecy.

Let's say that there is a rumour in the "physical" market that the Facebook's prospectus contained some dodgy numbers. A few pension funds get nervous, and sell their holdings into the market. This movement is picked up by a hedge-fund's computer, that initiates some put options to sell the stock short, which are picked up by another institution's computer that sells their holdings... and so on. Because Facebook is big enough to influence the Index as a whole, before you know it, a whole bunch of institutions start betting the index will fall... which it duly does, and everyone starts to panic.

The next day, the rumours turn out to be false, and everything goes back to normal. The shares are bought back, the put options expire, the index recovers...

Each individual transaction was designed to protect someone's interests. The pension fund didn't want a fall of Facebook shares to affect its client's retirement lifestyle. The hedge funds were looking to make some money for its own investors, and the "betting" on the movements of the Index as a whole was also an insurance policy, adopted by the pension funds again, as a perfectly legitimate risk-minimization strategy.

Hedging is an activity that you would insist that your own pension fund uses, in order to protect your pension. Without it, you are merely gambling.

>>Are you sure the number quoted was 647.8 trillion rather than 64.78 trillion? Just imagine the compounding interest on 647.8 trillion; and or, who would pay it!<<

Yep. $647.8 trillion.

But since it is only a notional number, and the money doesn't exist in anyone's bank account - or even the sum total of everyone's bank accounts - you won't be able to get any interest on it I'm afraid.