The author is right there will be a second crash but not for reasons
that he believes.
I suggest he stop talking to economists and start talking to energy experts.

We are in for an energy crunch in the next two to five years and
Australia will be competing for supplies with our cheque book in hand.
Business as Usual is over right now.
Most observers only see the subprime loans in the US as the start
button of the current crash.
However that start was signalled by oil price rising unrelentingly
during 2007 and finally reaching US$147 a barrel.
That forced up prices of food and fuel and people ate instead of
paying their mortgage.
As the economy recovers we will run into demand meeting supply
again and we will get another spike in oil prices and your double crash will occur again.

Growth is finished and will be stalled perhaps for ever.

Yes, absolutely. Our economy is controlled by the world economy and if China doesn't buy our coal, there will be an large economic down turn.

These boom bust cycles have been occuring ever since the start of globalization. When a bust occurs, who ever has all the money at that time, goes around and buys everything at bargon basement prices, China has our rare earths now.

Australia should think very carefully about becoming a member of a world society that has this boom bust mentality.

Personally, I believe we should move rapidly towards being a self sustaining country, independent of what happens in the rest of the world. We have enough energy in the form of solar, geothermal, wind and natural gas to be independent of people like OPEC and big multi nationals that sell us oil. A peoples bank run by the federal government would bring the the big four banks back into line. They have been out of control ever since deregulation by Keating.

The people of Australia have to decide whether they want a big flashy economy, with a big rich end of town and a big poor end of town (present setup), or a economy that distributes wealth more evenly for everones benefit. Australia has the energy in the form of natural gas. The federal government could pass this asset along to the people in the form of cheap car fuel and electricity.

Australia and its citizens should come first, then foreign governments and multi nationals.

Conditions now are almost as identical to conditions prior to the economic chrisis.

There is still too much debt, still too many doubtful mortgages in the US, falling US demand for Chinese goods and too much demand for Chinese money. Stock market prices are unrealisticly high and the spin merchants still in control.

What's changed? Not much except underemployment and unemployment are higher and the really clever Governments have borrowed more and spent all their reserves simply to postpone the inevitable.

That's akin to the effects of Roosevelt's answers to manage the great depression. They simply prolongued the last great depression.

Marko
I can hardly dis agree with you given I've preaching essentially the same for some time.

I don't think that the problem is confined to the Rudd government rather the flaw is Political Parties and specifically their reliance on, fear of the Big end of town. Untill their unofficial testes grip on the majors is broken I can't see the systemic bias (excesses) being broken.

Likewise when it all comes down to it how do you convince the extremely greedy to back off a bit.(the CEO) of a US bailed out Financial house who claimed his $64 million salary was due to his 'doing God's work' not largely due to 'survivor syndrome' (Less competition). Given the 1000 upper staff who got up to $1 million bonus one wonders if they learned anything from the crash(2).
What then is in store for the future.

How do you tell the aspirational voter who can't see past the next new car big screen TV etc that these are the reasons we're in this parless situation, sitting in the top story of house of cards afraid to change less it all collapses. They see what the Greedy have and SIMPLY want their cut.
How do you explain to all parties that argument by extremes is counter productive.

I agree we should concentrate on making Australia more self reliant but how in a Global environment? One can't unravel The spider's web (global economy) much less re-weave it.


the other wild cards is the energy crisis which will be exacerbated by AGW

What a shame Rudd opted to carry on inflating the bubble instead of popping it and beginning the recovery.
Back then he could have rightly pointed the finger at the previous administration, divorced himself from Big Finance (the "Big Leaches") and been a world leader at the end of his term.
Instead he is playing "pass the time-bomb".
Peak oil is now recognised as here or just past.
You would reckon governments would have slowed down the banking system and prevented more leaching...but instead they have accelerated the flow of funds to the bankers. This can only mean: 1) The leaches have more power than any responsible people. 2) The next plunge is due sooner rather than later. The cash grab is on!
This religious deference to financial wankery is stunning and a little bit depressing. You cannot spend money you don't have! A bloody 8 year old could tell you that!

'How do you tell the aspirational[sic] voter who can't see past the next new car big screen TV '

That's a myth, and a patronising and judgemental generalisation akin to the labelling of 'McMansions' for those who dare to participate in society.

The gall that some people think they are somehow 'outside' consumer society, or that their purchases and votes are somehow more morally based or intelligently crafted. That they are in the know, and project this naive lemming behaviour onto anyone they see as different or inferior. It's a common indulgence of preaching lefties.

I don't find the arguments convincing.

"The Deputy Prime Minister, Ken Henry, believes that Australia is headed for a China fueled resources boom that will last to 2050."

Deputy Prime Minister? Has anyone told Julia?

"...before September 2008 that had then BHP boss Chip Goodyear also predicting that the commodity price boom would last for decades."

Both predictions seem to have every chance of being proven correct.

>>...any long term escape from the business cycle would not be due to the structure of the Australian economy itself. His case depends upon what is happening in the global economy.<<

Well of course our economy is dependent upon international trade. Isn't everyone's?

But it's exactly the "structure of the Australian economy", with a significant component being the export of raw materials to manufacturing countries, that will allow us to ride most of the financial storm that other economies -e.g. the UK and much of Europe - are finding more difficult to handle.

"There seems to be an underlying presupposition that another big boom is on the horizon."

People less prone to panic and doom-and-gloom forecasting, simply make the assumption that we are a little bit better placed than most, and hope that China's economy doesn't overheat badly.

The author seems preoccupied with "moral hazard".

"...the rich of the West and the rich of the Third World engaged in a fancy little game which involved offsetting risk to the poorest of the poor. This offsetting of risk is known as moral hazard.<<

This "offsetting of risk" in particular, Mr Beljac?

Or do you claim that all "offsetting of risk" is a moral hazard?

It would seem so, as you allow yourself the sweeping catch-all that:

"Whenever we have moral hazard systemic risk will be under priced by financial markets"

That may make sense to you. But if you accept your own suggestion that "offsetting of risk is known as moral hazard", then your sentence reads

"Whenever we have offsetting of risk, systemic risk will be under priced by financial markets"

Which even you have to admit is a pretty meaningless, and inaccurate, generalization.

The US is headed for an almighty collapse.They have sacrificed the real productive economy to further inflate the derivative bubble.The result is inevitable.The next collapse will be bigger than the last.

Whether or not China can save us is debatable,since we like the USA, have lost most of our manufacturing industry.

If the US economy is reduced to chaos,will we then be expendible allies who are no longer under the protection of the US nuclear umbrella? The USA could easily break up into separate states just like the USSR.

pericles

he said >>...any long term escape from the business cycle would not be due to the structure of the Australian economy itself. His case depends upon what is happening in the global economy.<<

I understood him to be saying that we are too dependent on resources. Also Henry is relying on there being no change in China's attitudes towards buying from us. If for example (which seems to be indicated) China gets the hump because we won't sell them controlling interests in our mining resources and buys from where they can have more influence (Africa, etc). Our economy could go into free fall.

In essence I think you do the article a disservice by not taking it in context of the whole rather than deduction to the ridiculous (meaningless phrases) I would encourage you to a rebuttal (by way of an alternative.

Knowing your ability to offer a logical argumentI for one would be interested.

If there is a long period of economic gloom, it's a result of demographics... To few babies in the middle-class countries and too many in the poor growing ones.

Have a look at Harry Dent for some great analysis. http://en.wikipedia.org/wiki/Harry_Dent

In short, the poor countries are only poor because they are investing in their future by financing their large numbers of children.

And our wealth, like the decline of the ROman empire, is because we are dying out... Fewer and fewer people are sharing our wealth and resoures

If you want to read about the reasons the author is right read the
following link to Gail Tverberg's article on the Energy Bulletin.
It is intended as a primer on oil depletion but successfully covers the
field and explains the surrounding economics.
The economics are mainly related to the US's debt but as we are all
in the same boat it becomes very relevant.

http://www.energybulletin.net/node/50722

The magic number is about US$85 a barrel, over that and a recession
is a virtual certainty. Yesterdays price US$77. Highest recent
price was US$82. Makes you think doesn't it ?

The following is certain

after this period of "recession and downturn", an economic recovery will ensue, building to a “boom”, the exact size and extent of which is indeterminable.

However, that boom (of indeterminable size and duration) will, in turn, be followed by another downturn.

The danger lies in the hubris of government to plan and manage such events.

The more any government intervenes to sustain a boom condition, the greater the price ultimately paid by ordinary folk, dealing with a failing economic cycle and additionally burdened with the debts incurred by government to fend off the inevitable.

(building up the banks of the Yangtze river for instance... it maintains the flow only at the price of increasing the flood plain. So when the banks burst the devastation is even greater and over a wider area than if nothing had been done)

The following is worth remembering:

"Adam Smith's 'invisible hand' is not above sudden, disturbing, movements. Since its inception, capitalism has known slumps and recessions, bubble and froth; no one has yet dis-invented the business cycle, and probably no one will; and what Schumpeter famously called the 'gales of creative destruction' still roar mightily from time to time. To lament these things is ultimately to lament the bracing blast of freedom itself."

Governments cannot stop business cycles for they are based on “confidence” in the future.

All that government can do is try to maintain confidence

Of course, some would suggest government should plan and manage the economy… well, just like global warming, somethings represent too many independent and interdependent variables for even the most despotic of governments to plan for or manage (communism being the classic and most despicable example of this failing).

I agree Col.

I watched this ABC special on the 'GFC' the other night and I cant believe the propaganda. Seriously it was shocking. Some guy waltzing around trying to blame the banks for people using easy credit. It was more biased than Michael Moore.

I was sitting there thinking, hang on, nobody held a gun to these people's heads and said they must max out a 20% interest credit card. The boom/bust cycle seems pretty old news to me, so wouldn't it be prudent for people to save for a rainy day if they are worried about their jobs? They kept going on about the greed of the banks, and totally neglected the greed of their customers. Having said that I cant believe we bailed the stupid companies out either.

They kept this stupid analogy going of the banks as 'drug' dealers and the populace 'addicted' to money. If I overdosed on drugs the last person I'd blame is my dealer.

pontificator,

I would encourage you to be a little less pompous and patronising. Just because you use cowardly little weasel words doesn't mean the context of your posts are missed. I'd rate Pericles effort about 5 times the better logical argument than your sad clichéd effort proposing you're somehow 'outside' consumer society, or that your purchases and votes are somehow more morally based or intelligently crafted than this inferior naive lemming 'other' you talk of.

'The Deputy Prime Minister, Ken Henry' pretty much sums up the whole article.

Well,the International Reserve Banks have a lot to answer for.It is they through their fractional resereve system of creating money from nothing,that steals people's wealth via the depreciation of currency.I will gladly have that debate with anyone.

Where's Pericles?

You won't really, Arjay.

>>.I will gladly have that debate with anyone. Where's Pericles?<<

Your idea of a "debate" is to parrot a whole lot of slogans that you dredge up from the web, that you don't really understand, and cannot support.

The minute you show the remotest understanding of finance, inflation, currency exchange and the role of debt, it might make for an interesting discussion. But until you do, there's not much point.

Anyone who believes as you appear to, if I may quote you from another thread, that...

>>There would be plenty of money for all in this country if we were able to create our own credit like the USA prior 1913<<

...needs to a lot more homework. On history, as well as finance.

Every time you are challenged to put some substance behind the slogans, you simply dive back into the web, look up Mises or LaRouche or that loopy Ron Paul, and deliver another cartful of (someone else's) utopian theory.

There is definitely a place for discussion on the role of lending in the sorting out of our boom and bust cycles. But ignorance is not generally considered the ideal starting point.

Have a great day.

Pericles cannot deny the facts.Since 1913 our currency along with the US has depreciated 96%.$1.00 today will only buy 4c worth of goods back in 1913.Now to halve the value of a currency ,you have to double the money supply above pop growth and GDP.To depreciate a currency by 96% you have to increase the money supply by 24 times above pop growth and GDP.If Pericles counterfeits $22 million equal to the pop of Aust,this is like stealing $1.00 from every person since it depreciates our money.It is not the wage earner who creates inflation but more our Govts and the Banks.

So who creates all this new money.We as individuals cannnot,since this is counterfeiting and we will be gaoled for it.Our Govts create a bit via cash ,but most of it is created by the banks though the fractional reserve system when they create money to loan to us.money is created via the system of debt.By depreciating a currency they are stealing from the general populace.

This is why people like Pericles do not like this knowledge being aired ,since it is this very system that props up the derivative market at the expense of the real economy.

You only have to look at the depreciation of our dollar to realise how much this system has stolen from the average punter.
This is why our country is in so much debt.It has nothing to do with working harder or smarter.There are just too many big parasites.

Arjay & Pericles;
I suspect that you are both arguing about the wrong thing.
To generate money by making credit was OK so long as work had to be
done for the money when it is spent. Life time is the real value.
That was all very fine while there was growth to not just pay back
the capital but the interest as well.

However we are now entering a no growth period and may soon be coming
to a contraction period. All the interest due on all those loans that
government, companies and individuals have committed themselves to
will not be repaid.

That is when we will see another big bang, ie not another bubble but
the big bang that the US is worried about.

You are so, so right, Arjay.

>>Pericles cannot deny the facts.<<

That's the very last thing I would do.

Facts are important. Facts are critical to our understanding of the world.

Slogans, on the other hand, are as unedifying as they are lazy.

>>Since 1913 our currency along with the US has depreciated 96%.$1.00 today will only buy 4c worth of goods back in 1913.<<

As I have pointed out to you on any number of occasions, this is a nonsense argument. If you took your weekly pay back to 1913, you be considered extraordinarily wealthy.

To give you another angle on how ridiculous your comparison is, ask yourself how many loaves of bread you could buy with a trillion Deutschmarks in 1923, and how many you could buy today with the same number.

>>So who creates all this new money.We as individuals cannnot...<<

Counterquestion: who uses "all this new money", and what do they use it for?

>>You only have to look at the depreciation of our dollar to realise how much this system has stolen from the average punter<<

Have you looked at today's exchange rate? Looks pretty strong to me. To the point where exporters are starting to look anxious. Any thoughts on that, Arjay?

Bazz, I think you are a few months out of date.

>>However we are now entering a no growth period and may soon be coming to a contraction period.<<

I would be - albeit cautiously - optimistic about growth right now. Most of the signs are positive, at least.

>>All the interest due on all those loans that government, companies and individuals have committed themselves to will not be repaid.<<

It is quite possible that this is the reason that interest rates - at least in those economies still hurting badly - will stay low for a while longer.

With any luck, the short, sharp shock the global economy has experienced will rinse out some of the more egregious financial practices that helped it come about in the first place.

But I'm not actually holding my breath.

Pericles wrote;
>I would be - albeit cautiously - optimistic about growth right now.
>Most of the signs are positive, at least.

Growth means more energy available.
Well there will be until we use up the spare capacity that was
generated by the recession. It started out as about 4 Million barrels
a day, but has decreased to about 1 Mbd.

Since the whistle blowers at the IEA woke everyone up last week there
has been a lot of rethink. I will be interested to see what the
experts have to say when the figures are all recalculated on reality.

To see how fast asleep our pollies are read this;

http://anz.theoildrum.com/

The senate vote was 36 to 6 to suck their thumbs.

Pericles posts more nonsense, and more relativism.Why cannot the individual create money from nothing like the corporate banks?
To depreciate a currency at a rate of 25% pa over 96 yrs via creating money from nothing, is pure theft.

Why can't the individual do exactly what the banks and Govts do?
Ron Paul Pericles, represents the economy of Texas,which is 25% bigger than Australia.Is he also an economic illiterate in your judgement?

I strongly recommend that you learn a little more about the topic, Arjay.

Apart from sounding like a cracked record (which, now I think about it, is a phrase that you are too young to understand), you continue to talk in empty slogans.

>>.Why cannot the individual create money from nothing like the corporate banks?<<

But that's exactly what happens when you get the bank to lend you some money.

The bank will look at the security that backs up your application - it might be a house, or a business with cashflow - before they "create" the money that you use to build an extension, expand your business or whatever.

There's no difference at the Bank level. They have to look at their lending limits as determined by their reserve requirements, as well as the nature of the loan itself, to avoid being exposed too much to a particular industry, city, currency or whatever.

So in effect, it is not the Banks that are "creating the money from nothing" - it is you.

And we've been here before, haven't we...

>>To depreciate a currency at a rate of 25% pa over 96 yrs via creating money from nothing, is pure theft.<<

If the dollar had "depreciated" at 25% per annum over 96 years, it would now be "worth" $0.000000000101

You keep forgetting to compound, don't you?

The actual amount is 3.2975% per annum

Now that's not so bad, is it? Especially considering that we have had two world wars and a depression since 1913.

>>Ron Paul Pericles, represents the economy of Texas,which is 25% bigger than Australia.Is he also an economic illiterate in your judgement?<<

Ron Paul represents nobody but himself. He has no official position to represent Texas on anything whatsoever, let alone its economy.

He is merely a noisy, chip-on-the-shoulder activist who represents Texas' 14th Congressional District, whose largest city is Galveston (pop: 60,000).

Far from being "25% bigger than Australia" Ron Paul's remit covers a population of around 300,000 people.

That's about the size of Wollongong.

But you never do very much fact-checking, do you Arjay?

The actual average infaltion was until 2 yrs ago 3.4%.We had this converstaion before and you agreed.In flation compounds like interest.You get inflation build upon inflation.So 3.4% pa coumpounds to 2500% over 96 yrs.The US $ is now depreciation faster because of the policies of Bernanke who could not manage a riot.

Why don't you try arguing the facts Pericles instead of denegrating things of which you have so little knowledge?

I do know some facts, Arjay.

>>Why don't you try arguing the facts Pericles instead of denegrating things of which you have so little knowledge?<<

And one of those is that Ron Paul's Congressional District is about the size of Wollongong.

It is also a fact that you said:

>>To depreciate a currency at a rate of 25% pa<<

When you really meant 3.3%

How can we possibly take seriously anything you say?