Bruce Haigh, "This depression is a direct result of GLOBALISATION [emphasis added]. Australia should seek future protection from the buffeting of overseas financial institutions by exercising more control, discipline, stimulus and protection of its own economy."

Very true indeed.

In China the people who were responsible for the adding melamine to milk were prosecuted and some were executed. The same should apply for the US bankers.

Protectionism and sensible trading policies is the way to go. Now is the right time to nationalise ALL the banks.

Bruce, I wonder if you have considered that with oil depletion the
global economy is going to end anyway.

There is no point in trying to save globalisation.
All industry will be local as the cost of freight will be just too expensive.

It probably won't just drop dead overnight (there are those that say it will)
but there will be a gradual tightening of freight costs.
Australia may well be in a worse situation than many countries as our
oil companies are foreign owned and they will fill their requirements first.
We produce about 45% of our own crude, depleting at about 4% a year.

Localisation will be the next trade buzz word.

"To help pull Australia out of this depression Mr Rudd will need to take some drastic and decisive action, taking into account the lessons learnt from the last Great Depression. He will need to cancel some overseas defence orders and rethink defence requirements and strategies, utilising local capacity, particularly in ship building. He will need to take over the local car manufacturing industry, which can also be used for defence production. These decisions will protect and provide new jobs as well as build a local defence production capacity in what will be uncertain times."

The author is clearly quite unaware of the lessons of the Great Depression. The erection of high tariff walls killed international trade and made the Depression a lot more severe than it otherwise would have been.

Obviously the GFC has affected Australia because we now live in a globalised world. But the benefits of trade have been so considerable in terms of raising GDP levels that we are far better off as a result of globalisation. We would be a lot poorer now if trade liberalisation had not occurred over the last 30 years.

This is just more of the Keynesian quackery that caused the whole problem in the first place.

There are two main problems:
1. Government monetary policy causes the recession. Government has a direct conflict of interest with the rest of the population over the control of the money supply; and
2. Even if government didn’t cause the problem, which it did, it is incapable of fixing it up. All the measures you mentioned can only make the problem worse not better.

What causes recessions is government manipulation of the money supply.

In a nutshell, absent the lower interest rates, the price of money signals to the entrepreneur that he has enough capital to a) replace wear and tear, and b) produce the total amount of goods which that capital could make available for consumption without prejudicing further production.

But with the inflation, the price of money signals to the entrepreneur that he has enough capital for a) and b) above, *as well as* for producing d) additional goods of the same kind as, and e) additional goods of a different kind than produced before.

Lowering interest rates makes the costs of the affected investments seem lower than they really are, and makes capital look more abundant than it really is. So entrepreneurs invest in the sectors where the new money enters the economy (eg housing). Capital and labour flow into the bubble. The inflation spreads a general expectation that prices will continue to rise. People spend more, both on capital and consumption, than they otherwise would. The price of both capital goods and labour rises.

It is important to understand that there is no possible manipulation of the banks, or of money, or of credit, or of wages, or of the economy in general that can maintain the artificial boom set off by government’s lowering of interest rates, any more than we can repeal the law of gravity by throwing stuff up in the air. The boom must collapse sooner or later.

All government policies pretending otherwise are fraud, including all those suggested by the author.

Something must give.

(cont.)

The reason is because the diversion of capital into unproductive lines that cannot be completed causes the massive destruction of capital. The supply of capital – real capital like machine tools, ovens, etc. - is not enough for all the projects in demand in reality, as well as in the fake demand caused by government’s cute trick.

The government has only two choices: either stop interfering, and let society liquidate the malinvestments now through supply and demand. Or keep inflating the currency and trying to ‘stimulate’ the economy – to keep prices and wages at the levels they were in the bubble. This ignorant madness is what Obama and Rudd are both trying to do. It will only deepen and prolong the recession because that’s all it *can* do.

2.
The stupidity of Keynesian beliefs is obvious even to a sixth-grader. We as a society can’t get richer by burning our houses down. We can’t get richer by taking money from productive people and paying it to people to dig holes and fill them in again.

The bad economist looks only at what is seen, or the short-run effects, or the benefits to one section of society. The good economist looks also at what is not seen, and the long-run effects, and the benefits to all of society.

When government decides to build a road to provide ‘jobs’, it doesn’t get the money from a moonbeam. It takes it from someone else. Even if all it did was take with one hand, and give with another, we would be no better off. Taking from the productive so as to fund unproductive activity is what caused the problem in the first place: and the Keynesians cure is more of the same, while blaming ‘unregulated’ capitalism.

All the measures suggested by the author actively promote unemployment and poverty, which is why the Great Depression lasted as long as it did.

By contrast, the long-forgotten recession of 1921, when government didn’t intervene to try to fix it, lasted one year.

Government control of the money supply should be abolished

It is not that long ago that Paul Keating gave us the “recession we had to have”. Interest rates were at 17%, Federal Government debt at $92Bn, and unemployment at 10.7%.

2nd quarter figures for current year are 1% growth, not yet even a recession in Australia, certainly not good and certainly could be worse. Remember, as at 2007, no $92Bn national debt, interest rates, even after several hikes, at less than 7%, record low unemployment at less than 4%.

The next generation of Australians will have to again pay off the debts. May I remind you that you will not only have to pay, through your taxes, the $42Bn that has been spent, but the Queensland Labor Government has racked up a staggering $74Bn on its own, goodness know what the other Labor Governments have put on our credit card.

You might want to stop having a nice cozy intellectual debate on “micro economics” and get out on the streets and shout, as loud as you can, STOP SPENDING MY FUTURE.

Philip Tang:

http://mises.org/story/3355

Philip,
Very interesting link on your msg.
I won't pretend that I fully understood it all.

My understanding is that interest and growth are directly related.
ie you cannot have one without the other.

If because of energy limitations growth is impossible then it follows
if there is no growth there is no source of money to pay interest.
This being so because all the income from the investment just repays
the investment.

It does all sound like smake and mirrors.

<This is just more of the Keynesian quackery that caused the whole problem in the first place.>

I seemed to have missed something in this debate. I thought we arrived at this financial debacle because the world ignored Keynes. If the world had followed Keynes we would not have the aberration of the IMF, World Bank or WYO. We would not have been in the position where American greed could totally stuff up the world.

If we had followed Keynes we would have a world currency for international trade whilst retaining our own internal economy. This round of American greed would have been an inconvenience but not the disaster we now face.

We need to start planning an economy for the future that gives us control of our own destiny. This might mean a slightly lower standard of living if measured solely as GNP but how much is stability and being able plan with a degree of certainty.

We seem to have forgotten that the financial sector is only there to lubricate the real economy. The real economy in Australia belongs to Australians. It is our infrastructure and manufacturing not the Americans. It is time we started looking after what is ours.

The WTO is presently pleading with the world not to employ protectionism. No wonder. If countries started looking after themselves the Americans instrumentalities like the IMF would no longer be able to rape the poor to feed American greed.

As the Global crunch morphs, it becomes increasing obvious the Leaders of G20 are in disarray and found wanting. Obamanomics in it's current form is spreading the wrong signals. Until the US, 44th President rids himself of his defacto minders Bernarke, Paulson and Tim Geither, his toxic asset stimulus package, TARP,FSP's will falter, and Congress will have to raise the ante to satiate unquenchable appetites. Wall street overlaps the White House. Business as usual.

GM/Chrysler wheedled $ 30.9 B out of the Administration. They are demanding $ 116 B even though they have shown NIL profits since 2004. $ 354 B was pumped into 28 Banks. $2 B went on bonuses/perks/ long lunches. Fannie Mae, and Freddy Mac - mortgage defaulters, have their claws out for more, even though their ponzi scam: NINJA mortgages - no income, no assets, weak credit rating contributed largely to the sub-prime debacle.

Obama is saddled with a $ 1.75 T deficit. All told US has the highest debt encumberance in History. $ 53 Trillion. $ 175,154 for every man, woman and child. Mostly incurred by Feds, State, Foreign, and consumer debt. In 1957, for every greenback $ 1.86 was debt. 2007 $1:4.20 debt. USA is a debtor/ importer Nation. 70 % of Oil is imported.Materials, energy, consumer products etc.

Hilary Clinton's inaugural visit to China urged increased buying of Treasury Bonds, script,cash. China owns a staggering $ 696 B of US Bonds etc. There's a limit to how much printed money is actually worth. Since 1970 shedding of the Gold standard, the value of the greenback has plummeted. Hyper inflation has eroded it's diminishing value against other currencies.

But for China, and the United Arab Republics (OPEC), the US would be in deep excreta.

With 7.6 % unemployment and rising. Obama's myopic vision splendid is dimming.15 million illegal's are on welfare. 31.1 million receive food stamps. 5.1 million are unemployed.

Meanwhile in Denysville, we are in hot pursuit of the American Dream. Business Analysist keep repeating the Rudd mantra. Talk up the economy, stupid ! Why do they keep quoting Rudd's $ 42 B

handout, when it's common knowledge, to win Senate approval, $ 1 B went to Senator Xenephon in bribes, $ 500m for Fielding, $ 800 M for the Greenies. An extra $ 2.3 impost for every aussie bleeder in perpetualty.

Like the US, we are a borrower / debtor / importer Nation. Were it not for our ore, mineral deposits which Donal Horne refers as the Lucky Country, we would be sharing the insufferable pain of the Brit's and Third World. Diminishing Commodity exports to China, Japan, S Korea etc is not going to save the economy. Half of our GDP in 2005/9 was borrowed money. Household consumption exceeds income. Negative savings since 2002/3. By 2004/5 we owed $ 3.8 B. The ABS keep changing the modus operandi to reflect it's Political affiliations, like the RBA. Trade. Over a 50 year span, only thrice did exports exceed imports. Imports have always exceeded exports by margins of 1.5 to 3 %.

RBA now concedes Aust is in official recession - 19 years since Keating's recession we had to have. Profits 5.4 % down. Sales 17 % down at $ 162 B. By 2010 we will see 60 % ( Melb Institute ) drop. Economy has contracted, after 8 years of negligible growth. The mining sector suffered most. The boom never matured. Our trading partners went into remission. Our manufacturing Industry ceased to exist. Firms are relocating overseas to escape the Union's increased popularity following Gillard's draconian work place relations gambit.Employers are running scared.

Paradoxically, despite the Wizard of Oz, Kevingate indemnifying the 4 Pillar Banks with RBA's fiscal backing. Moody's, S & P down graded the fab-four to Aa1-( negative ) in terms of Financial strength, long term deposits, and debt rating. The impact ? It now cost more to borrow from banks - if at all. Economic guru ?

Govt watchdog, the ASIC exec Tony Alorsio recently announced he championed budget deficits, derivatives, short selling, and hedge fund trading. Rigorously defending the financial debacles of Storm, ABC, MFS, Opes etc which have lost billions of investors funds in shonky manipulations that..cont.

Jacinta and others,
It does not matter a fig what the government pays
out in largess or by other means it is all just pixel money.

I suggest you read this link.
I warn it is a worse case as the writer emphasises.

http://www.theoildrum.com/node/5160

However I will add a couple of other bits of information one of which
will make Australia's situation worse than the world average.

The first is that it now appears that Saudi Arabia's oil output
peaked in 2005, therefore it is virtually certain that the world has
peaked.

The second is that Australia produces a bit less than half of our
oil consumption. The half that we do import is so small in the world
market that it will be gobbled up by the EU, US and China in their
rush to get enough supply.

Right now demand is down so we are not seeing a supply problem.
However the International Energy Authority expects depletion to be 6.9% a year.

If we have no increased energy production we cannot have growth.
We are now in a new paradigm, a no growth economy.
In fact we can expect a negative growth economy permanently.

It will be interesting to see if this scenario plays out like this
or will there be some techniques that will mitigate the problem ?