While Cumes points out certain historical financial facts and incidents his perspective of the cause and effect is somewhat off the mark. Businesses do not go out of business because of some Wall St. High flyers new financial derivative products. Businesses go out of business because of bad business management usually a result of products missing the market, financially over extending, fraud, ineptness, etc.
Businesses also go out of business due to the process of Creative Destruction as defined by Alan Greenspan in his recent book "The Age of Turbulence." The the Creative side of the process is when a company invents and delivers a new product that is accepted by the market. The Destructive side is what happens to the existing product (and associated business and employees)being replaced. The result is companies that can move with their markets will be constantly improving/evolving their products with the Constructive/Destructive process going on in-house while the companies that lose sight of their market will close.

Cumes seems to want to take an economic view that only pertains to Australia while Australia is an international economic player. When Destructive process happens in Australia the Creative process may be happening in another country. Maybe the Creative process can't happen here because there is no speculative funding available from Australian sources to finance the new product hence either funding comes from overseas or the Creative process moves overseas.

It is not a Ponzi scheme. International finance is a very complex area understood by few (including Cumes). Consequently there are many people that lose lots of money playing in this arena while not understanding the thousands of data points to be considered continually. People that do understand can make lots of money through judicious investments.

"In this financial crisis, Australia is no more than a subordinate, neo-colonial, financial and economic dependency dancing to the tune of Wall Street."

Gee, who knew.

Great stuff---unfortunately.
Very sobering compared to Russell Trood's niave optimism re the emerging "order".

Geoff Davies gives a brilliant analysis of the origins, delusions, and inevitable consequences of our current PONZI based economic system.

1. http://www.geoffdavies.com/Economia.html

So there are options available other than taking China down with the rest of the world ... well, down with the wealthy parts of the West. I completely understand!

I read somewhere once that all the money spent on war in recent times could end world poverty 100 times over.

All this doom and gloom.Another depression,followed by WW3? Next they'll be telling us that Global warming is bleaching the venetians.

So long as the banks keep the money flowing,there is no need for total economic collapse.Money has no inherent value so if one financial institution fails,just write them off and begin a new more responsible one.

It is only the self importance of these non productive institutions that hold us captive.Money is only the oil that keeps the economic engine producing;since when has the oil become more important than the motor?

James

Your comment that: “Australia took to “free” markets, “free” trade, free-floating currencies, deregulation, privatisation, globalisation, derivatives, hedge funds, private equity, wildcat mortgages and leverage-without-limit as a duck to water. Consumerism raged. Industry was gutted. Debts ballooned” pretty well sums up the genesis of the current situation.

There are a lot of things in your article that I never thought about or even heard of before. I thought I would read it as there was the phrase “free markets” and “free ride” in the title.

I wonder, with $50B in tax breaks and concessions (SMH 26Jan2008) given back last financial year, is Australian economy really an example of a ‘free market’?

‘Free ride’ – yes, at least for a portion of the population – in particular, the tax-breaks-r-us brigade of debt lemmings.

But for how much longer will the ride be given free?

I also like your statement: ”Rational economics based on real investment, productivity and production died in favour of speculative and often Ponzi pretensions.”

For some reason, I am now thinking of somehow getting the Liberal and Labor party faithful together to create a new party – the Ponzi Party. What do you think?

"Since when has the oil become more important than the motor?"

It hasn't. But in recent times, money has been pretty much treated as a real trade good rather than simply as the oil that renders the running of the wheels more smooth.

Describing money as a lubricant in an engine is only half a story and flawed. You can't make money without spending money. There is an input and an output! There are the employees and the employers. The poor and the rich! The better the economy the richer the rich (nobody else benefits). And the rich in China are the government, extremely centralised, not privatisation!

The trouble with the current U.S. Reserve Bank’s solution to just about everything, socialise the losses, is that the people who created those losses remain in their jobs. The focus has been on the obscene payouts to CEO’s who decimate the value of a company and get a golden handshake. However the real focus should be on the whole senior management structure, indeed the whole company.

If a small business gets its business model wrong, it goes broke and diss-appears. If a large business goes broke the Reserve Bank bails it out and the business continues to pollute the system. The same people who created the flawed business model, and ran it, remain. They have not been taught any salutary lessons.

The financial system has to be cleaned out. Capitalism has a method for doing that: going broke, liquidation, bankruptcy. It not only helps to remove excess liquidity from the system, it removes an excess of incompetent mangers. Not any more, now the ‘mates’ on Wall St., get the sucker public to pay for their mistakes.

I read the ponderous ponderings of the economic elite and wonder how such idiot savants could get such a large seat at the table.

“She’ll be right mate, pour another bucket of (free/underpriced) money on it!”

“Where do you get it?”

“Hello (Mr Bush) Mr Rudd/Swan, have we got a deal for youuuuu!”