A world in economic crisis

Australia: moving backwards at a fast pace

Posted in ALP, Australia, Australian Reserve Bank, Cap and Tax, stagflation, unemployment by Aussie on May 16, 2012

First of all, I apologize for the lack of posts. This year is an election year in the USA, and there is not much there that I wish to discuss at this point in time. The US economy as far as I am aware remains weak and it continues to have a problem with burgeoning government debt, with no end in sight because the US Senate will not pass a budget!! There are some new developments in Europe and especially with a renewed Greek crisis. However, I do need to spend some time on the Australian economy.

For a long time, I have pointed out that much of what we have been experiencing is similar to the situation in the 1970s when Gough Whitlam came to power, and nothing has changed in the past year to change my mind on that subject, except of course we are now seeing the nastiness and ugliness of an attempt at class warfare that has been started by the Gillard government. I am not addressing the topic of the class warfare, rather I want to address the stupidity of the Gillard government and its introduction of a tax on the air that we breathe.

The US is already aware of what happens when some bright spark (read that rather stupid Nancy Pelosi) says that you have to pass the the legislation to know what is in it. Well, here in Australia something similar happened when the tax on the air that we breathe was introduced. Insuficient time was spent on vetting the legislation. It was introduced and passed at some haste. Needless to say the whole thing is a lemon, a white elephant and it will do nothing to save the world from the predicted doom and gloom of the green (really sick) doomsayers who claim that the world will end if average temperatures are raised by 1/2 of 1/4 per cent… or something like that, over the next century. The climate debate is also not the subject of this particular post. What is relevant is the impact of this tax upon the Australian economy.

It needs to be pointed out that a price on carbon of $23 per tonne is absolutely ridiculous, especially when those silly contracts in Europe are worth no more than about $5 per tonne. It is also worth pointing out that it is really ridiculous that some people seem to be self-satisfied and smug by letting the world know that they either drive a Prius or have purchased a timber plantation (or whatever the sign on the back of their car proclaimed that allowed them to claim that they were emission neutral – what a load of tosh!!). What is more significant is that the tax itself is going to have a very negative impact upon the Australian economy over the next 15 years.

Whilst in my view I continue to see indicators pointing to stagflation, not all of the indicators have pointed in the same direction so it would seem that my thoughts on the subject might still be a little bit premature…. or are they? Let’s take unemployment as an example here. In the 1970s unemployment was very high. By the time that I graduated from university even graduates were not guaranteed finding employment in their chosen field. In fact the positions available to accounting and economics graduates were extremely tight because the big accounting firms were not hiring new staff in any great numbers. The level of unemployment for graduates by 1976 was at an all time high. The lack of jobs for graduates was indeed a signal that something was very wrong within the economy.  Whilst I am not up with the current situation for graduates I can comment upon a slightly different aspect – the hidden unemployed.  It has remained pretty much the same, and the percentage right now is probably as high as it was in 1975-1976. The hidden unemployed is usually defined as those who have given up looking for work. It should include all those who are not eligible for unemployment benefits but who want to work. These are people who are enrolled with employment agencies. The discrepancy in unemployment numbers as determined by say Roy Morgan research and the official figures from the ABS is something like 5%, and this actually takes in some of the hidden unemployed (those enrolled with the employment agencies). Australia has other structural employment problems as more and more people find themselves in part time work rather than full time employment. In other words, the number of under-employed has been rising.

Another indicator for stagflation is rising inflation. Surprisingly inflation remains a non-problem, or does it? What I would look at here is the basket of goods. The basket of goods since the 1970s have changed. What the government has done, to disguise the inflation rate has been to remove items from the basket of goods and add others. This is not the whole story because in the electronics side of the equation there have been decrease in the prices of goods. Normally, this takes a few cycles after a product has been introduced. As an example take the price of HDTVs which are imported from Japan, South Korea, Malaysia and other Asian nations. When they are introduced the price is normally high, but leave the purchase for a year or two after introduction and the  prices have dropped dramatically. This can be explained by at least 2 factors: a change in the exchange rate that has made imports cheaper, and an increase in competition for the goods. So perhaps this is a reason that the level of inflation has not been so dramatic, but then again I have my doubts because items such as doctor fees and prescriptions have continued to rise, as have increases in the price of petrol, the cost of our utilities such as gas and electricity as well as rates. The Reserve Bank continues to moniter inflation, adjusting the interest rates as required.  All the same at this point in time there is no measurement available relating to the impact of the tax on the air that we breathe.

The remaining indicators are related to any increase in industrial disputes as well as increases in wages that is not justified by a rise in the cost of living. There has been an increase in the number of industrial disputes after industrial laws were changed to once again favour the unions. Of anything we will see a greater impact from this industrial down the track because of lags in the economy. I would think that within the next 12 months we will have a better idea about what effect, if any industrial disputes have had on the economy. One thing is certain, and that is we do not have right now the kind of disruption that we had during the 1970s when it was a union free-for-all.

Despite the fact that the indicators do not totally suggest stagflation, I continue to believe that if Australia does not reverse some of its policies then we will have stagflation and the effects this time around will be even more prolonged because of the impact of the rise in government debt for our nation. This is probably what David Murray, the former Future Fund Chairman and CEO of the Commonwealth Bank means when he warns about the difficult economic times ahead in Australia.

As a result of these developments I will be keeping a sharper eye on the Australian economy than I have done in the past 12 months, because I forsee that Australia could be heading for a downward spiral and it is not in a strong enough position for a fast recovery. This is not 2008 when we had the GFC in full swing and Australia was relatively insulated because of the budget surpluses of the Howard Government – these surpluses were wasted by the Rudd Government and in particular by that goose, Wayne Swan.  There are other problems such as the fact that the expenditure on the NBN white elephant remains off balance, and then there is the over-estimation for taxation reciepts by billions of dollars.

Will the UK turnaround faster than elsewhere?

Posted in Australia, Australian Reserve Bank, Cap and Tax, Gough Whitlam, stagflation by Aussie on August 20, 2011

The BBC reports that there has been a very big drop in Government borrowings in the present year. The financial position is being helped by two things: (1) the levy on bank balance sheets and (2) a significant drop in public sector borrowings.

It is my contention (and yes it is just theory not necessarily fact), that when the Public Sector have the lion’s share of the investment dollar, that the private sector suffers. This is because the Investment pie is limited,  which means any increase in Public Sector borrowings reduces the amount of investment dollars available for the private sector. When the private sector is not able to borrow money to expand this leads to a contraction of the economy as the private sector will not be able to employ more people, or it has to let staff go in order to meet other debt requirements.

In other words, what I am contending is that Government Stimulus action does not work because it takes investment money out of the private sector, which means that the economy is disrputed. What I am arguing here is that the “stimulus” money does not come from tax receipts but from further public sector borrowing. In other words, Government action does not impact in a favourable way within the economy and it actually makes matters worse, not better.

My theory is not based upon the current experience, but upon the experience of the late 1960s, early to mid 1970s when there was global stagflation. Most economists address the stagflation by referring to the oil price shocks, however, I see this as a miniscule reason for the stagflation. There were two price shocks, one around or prior to 1972 and other during the Iran Revolution. In recent years we have experienced more oil shocks for a variety of reasons, but Saudi Arabia has actually pumped out more oil to keep the market smooth. The price of oil is really not as important as some believe, because we do not have any real control over the prices that the cartel (an oligopoly) agree to charge for their output.

One thing that was common in that period, in Australia, the USA and in the UK was that each country had a government that was into prolifigate spending. In the USA it started under LBJ, and Nixon had to try and rein in the spending, followed by Carter, another profligate spendder. In Australia it started at the end of the 1960s when McMahon was Prime Minister, followed by the prolifigate spending of the Whitlam era. In the UK it was the Wilson years of profligate spending. It is my view that the stagflation arose because of the difficulty of providing investment dollars to the private sector because the money available for investment was being swallowed up by the public sector.

During that same period, especially here in Australia, we had rising inflation, strikes and demands for higher wages which were granted because the ALP were in charge, followed by a further rise in inflation. Even though this looks simplistic, by 1974 the stagflation was actually quite evident, and these factors explain why it was a wage-price inflation which was fuelling the problems within the economy. By the end of 1975, and beginning of 1976, here in Australia most jobs had dried up, especially with regard to the requirement for newcomers in the field of accountancy (there were no jobs available for the majority of graduates). This was the point where we had the beginning of the Fraser government which also led to a wages freeze being implemented. (Nixon also imposed a wages freeze).

The turnaround in Australia occurred only when public sector borrowings began to drop and the budget was balanced or was turned into a surplus. Here in Australia this was a gradual process because we went from the Fraser government to the Hawke-Keating government when public sector borrowing got out of hand once again. Note: under Keating as Treasurer there were extremely high interest rates which were very, very painful for mortgagees.  We got through those extremely high interest rates, which were greater than 17% before they began to fall again. Credit card borrowing interest rates were above 20%.  Under the Howard government the Federal Budget went from deficit to surplus, but that has been frittered away by the KRUDD-Dullard governments.

So long as the rise in wages is kept under control, that is, it is related to a shortage of skills and not from some annual or bi-annual increases, then inflation itself is more or less kept under control. The way in which the Reserve Bank has been handling any inflation has been to increase interest rates, but in the present conditions the policy of the Reserve Bank which is to operate through interest rates alone can be quite harmful. The uncertainty that exists today has led to consumers holding off their major and minor purchases as long as possible.

We are yet to see the impact of the proposed carbon-dioxide tax. I have no doubt that the imposition of such a tax will have devastating consequences upon the economy. It will not bring about prosperity. It will cause massive increases in some commodities (which the government model has not predicted), and this is because a number of unknown factors have not been included in any modelling. Take for example the cost of refrigerant for supermarkets. This is something that will be taxed. Can you see how the price of frozen items will rise? Can you see how that will impact upon the cost of meat and dairy products?

As we continue to head towards stagflation, the last thing we need is this particular tax which will cause a massive downturn in the economy. (again this is theory, but so is any model that claims an opposite scenario).

Public sector borrowing eats into the investment dollars, which in turn leads to a decrease in private sector borrowing and expansion within the private sector. The end result of this cycle is that business is not in a postion to continue to hire. At the same time taxes on employment also hold back businesses from permanent hiring. Most businesses have to keep below a certain staff level in order to avoid the higher taxation costs. A reduction or the dropping of such taxes would increase the levels of employment.

What would J.M. Keynes recommend?

Posted in Australian Reserve Bank, Cap and Tax, stagflation by Aussie on August 4, 2011

I am posing this question, not because I consider J.M.Keynes to have had the answers, but because the alleged followers of Keynes are not paying attention to what Keynes actually wrote!!

First of all, it is necessary to be very clear that the application of Keynesian theory had failed by the late 1960s. I have always maintained that the Keynsian solutions for unemployment were only useful in the short term, not the long term and I look to the way in which Australia applied the levers to the economy prior to the election of Gough Whitlam in 1972. The pattern prior to 1972 was: inflation, credit squeeze and stable employment. The goal had been full employment and for the most part after the second world war the Australian economy had been relatively stable.  Then the electorate, who had no idea about a number of issues that had torn the ALP apart in the 1950s decided that there was a need for a change. What a mistake.

Second, my theory is that when government takes “initiative” and “stimulates” the economy when it is not necessary, this actually has an adverse affect on the private sector. In the long term the result of such measures in inevitably the drying up of available investment dollars for the private sector. When investment dollars for the private sector dries up, this ultimately leads to an increase in unemployment, but at the same time it also leads to a lack of consumer confidence because workers begin to fear losing their jobs.  Ultimately the lack of consumer confidence leads to a lack of spending for goods and services, which then leads to the necessity of more lay-offs, thus increasing the number of unemployed.

Third, individuals who claim to be Keynesians, such as Dick Krugman, do not in fact expound Keynesian theory. Instead what they offer is like a Prius – it is hybrid Keynes, with a large dollop of Marxism added into the mix. Keynes actually wrote that he thought that his theory worked best in a Communist style economy, but he never advocated that western economies such as the UK, Australia, New Zealand, Canada and the United States should in fact become Communist or Marxist. Keynes was in reality a capitalist. His proposals for unemployment via government assistance were only meant to be implemented in the short term, not the long term. Keynes was not responsible for the measures undertaken by Roosevelt, neither is he responsible for the twit ideas of Krugman and co who have been advising the worst President ever in the United States. 

The world has been watching the kabuki theatre that took place in Washington D.C. To be honest, from an outsider point of view, this debt ceiling and the way in which a “budget” is determined is very foreign. Here in Australia, because our Parliamentary system is based upon the Westminster system, it is the Government, that is the party with the majority that must produce a budget. This happens once a year. For a very long time the budget was announced in August, but this was changed to about May each year. The budget is actually prepared by the Public Servants who run Treasury, with some input from the governing politicians.

For the most part the budget gets passed by both houses of the Parliament. The one time in my memory where there was a refusal by the Senate to pass the budget was in 1975 and the drama was all a part of the dismissal of the Whitlam Government – the majority of Australians gave their verdict on December 2 1975 when Malcolm Fraser was returned with a landslide victory.  The reason that this happened was to do with the various scandals that had erupted at the time, and in particular the Khemlani affair.

The whole process in D.C. seemed to not make a lot of sense and for a variety of reasons.  Østupid has been pushing for tax increases, but my question here is: what would J.M. Keynes recommend? Keynes had advocated that in a time of war taxes needed to be increased to pay for wartime equipment and the increase in defence personnel, and at other times taxes should be lowered. What Keynes had not factored into his economic theory was the Welfare State. There was no real welfare state when Keynes was alive. He did recommend that the government needed to provide short term assistance for the unemployed, but he did not factor in for long term unemployment.  The truth is: a country cannot support or sustain the welfare state unless there is full employment. I think that this is something that has been neglected by the Socialist governments everywhere. They see workers, especially the middle class as some kind of cash cow to be squeezed, but they never seem to see the full picture.

The absurdity of the kabuki theatre in D.C. would have to be Østupid lecturing Americans about “living beyond their means”, when in fact the national debt is not about what the general public borrows and spends, but is about what government is spending which is well beyond the level of the taxes that are being collected. There are many issues involved. Probably the most important that arose in 2009 was the ramming through of the health insurance Abominablecare bill. Health insurance should be a matter for the individual, not government. If government wants to provide assistance for the less well off, then that should be done through the programs already in existence – Medicare and Medicaid. Here in Australia we have had the same kind of thing, and quite frankly the government interference has led to a product that is not affordable for many people. On top of that the quality of the service provided has deteriorated whilst there are people who think that they should get assistance for things like IVF. Paying out for these expensive IVF treatments, and at the same time paying for abortions (in my view this seems to be hypocrisy) ultimately means that fewer dollars are available to treat cancer patients or patients with other diseases. It is a vicious cycle.

Australia is facing yet another form of kabuki theatre – the proposed tax on the air that we breathe in the belief that this will somehow change the climate – which has had the ultimate effect of reducing consumer confidence. The reduced consumer confidence has led to a decrease in sales, which in turn has led to job losses, which has led to a decrease in tax revenue collected. Ultimately if the tax is implemented, the effect will be prices going through the roof. I have no doubt that this will lead to the double digit inflation that we have not seen since the 1970s.

The conditions for stagflation are: high interest rates, high unemployment and high inflation. The governors of the Reserve Bank are keeping a lid on the high interest rates by their decision to not increase those interest rates in response to the changes in the consumer price index. However, what will they decide once this tax is implemented? If they decide to try and stop the inflation by raising interest rates then we will have a return to the 1970s which we have been avoiding.  Any rise in interest rates will in turn hurt small business owners in Australia with many making the decision to leave the market place due to the rising costs caused by price increases in utilities such as electricity.

So again, in these circumstances, what would Keynes recommend? Would Keynes agree with the appalling government decisions that have allowed government debt as a percentage of GDP to get out of hand? Would Keynes recommend a tax on the very air that we breathe? Would Keynes go along with the “green economists” who advocate for such a tax? Would Keynes advocate something like the ETS scheme? Or would Keynes have seen through this kind of scam, and have been one of the economists who speaks up against it? Would Keynes have recommended going off the gold standard?

 

Fallout

Posted in Australia, Cap and Tax by Aussie on July 4, 2011

The disastrous Juliar-the Marxist-Gillard government continues to teeter and to topple Australian industry. The most severely hit at the moment is the rural industry involved in the live export of cattle to Indonesia. The latest information is that Indonesia has decided to slap on a ban for imports which affects more than just Australia. It goes to show that when an amateurish decision from an amateurish government is taken, and that decision is taken without adequate consultation, the result is an absolute disaster. The cost to the rural industry is more than $60 million.

However, it is not just the cattlemen who are suffering as a result of this arrogant cabinet decision that was taken when Kevin Rudd the Foreign Minister was in another country at a meeting. It also affects a very large trucking business that has millions of dollars worth of rigs and road trains in the north. This means that the jobs of the drivers of the road trains are on the line as well.  This will impoverish a lot of people, not just the cattlemen.

However, wait…. there is more…. the distastrous and unnecessary carbon tax that is being foisted upon us at the insistence of the greens is going to cause enormous hardship upon the population. The reasoning of the greens is so bad that it is truly amazing that people have fallen for their particular style of spin. One very big issue is the fact that such a tax is going to affect the price at the pump… or is it? According to Juliar-the Marxist-Gillard, petrol is to be exempt. However, the well-known Watermelon Bob Brown says differently and the Watermelons claim that the exemption will have to be lifted. In their airy fairy world of pot smoking and other drug taking, the Watermelons cling to the idea that if the petrol prices are so high that people cannot afford to pay to put petrol in their cars then this will reduce the number of cars on the road, thus reducing emissions. This ideas sounds like someone only attended Economics A at university but forgot to attend the rest of the courses.

Let me explain just a little bit, and again I will use the experience of the 1970s to put it in perspective. The oil industry is an oligopoly. It means that there is a tight group that controls the means of production – OPEC. This group determines the output that will bring the best price for fuel. During the 1970s when we had both the first and second oil shocks, the price of petrol began to rise. The economic theory is that when a commodity, such as oil, is inelastic, and there is a shift in the price of the commodity, there will be a temporary shift downwards in demand for the product. Since there are few suppliers and the market is not one where thousands of new suppliers will enter the market then there is actually little change in supply and demand for the commodity.  However, what we have seen is that there was a shift in the type of product for cars to both diesel and LPG… but the shift was very small. During that initial period people moved into smaller more fuel efficient cars, but gradually there was a shift back to the 6-cylinder cars.

The illogic of the watermelons is that the price rise which they are demanding will affect the driving habits of the general population, who will then choose other forms of transport over driving cars. They have this airy fairy idea that people will be prepared to shift to electric cars (which are very inefficient with regard to transport). The other expected shift will be a move to use public transport over the use of a car.

Let’s break this down to the micro family level, to see how the thinking of the watermelons remains in Fantasyland. Take for example, a military family, where the husband has family in one state (Newcastle, NSW) and the wife has family in another state (Melbourne, Victoria), and they have three children. As a military family they can get posted anywhere in Australia, including Townsville.  Some of the areas where they are posted do not have public transport, and that means that there is a dependence upon the use of a car. It is not possible to fit baby seats etc. into the back of a small car, so out of necessity, the family has a larger car to carry the family. Now imagine for a moment that the family is posted to Richmond, NSW. What is the cheapest method for visiting the family of either husband or wife? Considering the location, as well as fares to and from the actual locations, as well as family size, the obvious answer is that it is cheaper for the family to travel by car. The travelling time from Richmond to Melbourne was as much as 10 hours but this has been cut significantly due to the building of better roads – the better roads actually means better fuel efficiency on the open road. The travelling time from Richmond to Newcastle was approximately 2 hours, but this has also been reduced due to the building of better roads. The awkwardness of the location means that it is not viable for the family to fly to and from Newcastle, and ditto for the train services. Also, the cost of using the public transport makes this kind of alternative prohibitive, as does the luggage limitations that are imposed by airlines and other forms of transport.  Another point to make here is that in the Richmond-Windsor district the transport system was rather abysmal, and buses were pretty useless when it comes to toting around a pram because of children. On top of that it is not possible to cart one’s groceries on public transport and taxis are an expensive alternative.

Now imagine that the family is posted to Melbourne, and they find a house in Sth. Oakleigh, followed by a move to Mt. Waverley. Both locations also suffer from a lack of good transport, which is ok if the weather is fine, but limiting when it comes to being able to visit family. A car in this situation is absolutely essential especially when shopping centres are not close at hand, and there is no logical way to bring home the groceries. Now imagine that in this situation, the husband learns that a family member is dying from cancer. Once again the costs of travel for the whole family are prohibitive if they have to choose to fly between Melbourne and Newcastle. It is also a bit complicated to make the tripe that way, and the car is the best alternative for the transport of the family.

My point here is that on this micro level, decisions have to be made about the best means of getting around, and the car is often the best way because of the prohibitive costs of moving a whole family from one part of Australia to another part, sometimes at short notice, as was the case when a family member was dying of cancer, and the word came that the end was close (the call came on the Saturday). This was true in other situations where the trip being made was between Sydney and Melbourne (to attend another funeral or two, or three). There are many reasons why, for example, flying is not always the best alternative to move from one place to another.

The watermelons, on the other hand, are not capable of understanding the scenarios that I have set out, because they have never experienced those situations. They live in their own little worlds. They even think that it is possible to ride bicycles everywhere… again that is a bit of a joke… what if due to an accident (like slipping down the stairs and fracturing one’s coccyx) means that one is unable to sit upon the bicycle saddle? How many people understand what it is like when it hurts to sit down, especially on a little bicycle saddle? The watermelons seem incapable of thinking things through, to the point that they are a total embarrassment with their ideas.

On top of that the push towards electric cars is nothing more than sheer fantasy as well. The electric cars are inefficient. They can only go short distances. They require electricity to recharge the batteries. The electricity is based upon the coal industry. However, the watermelons want to push us towards even more inefficient methods for producing electricity such as windpower – they want those ugly wind turbines with their noise etc. to pop up everywhere. Again, they have no idea because they do not live near the locations. They do not understand the actual harm to the wildlife in the environment that is caused by those wind turbines. This is not clean energy!! If they wanted clean energy then they would look to other alternatives such as nuclear and hydro-electrictiy. However, they refuse to contemplate the nuclear industry and they are attempting to shut down the hydro-electric schemes as well!! 

The obvious consequences of following the wet dreams of watermelons is that everything will become more expensive, and on top of that the watermelons are determined that there will be no exemption at the petrol pump from the carbon tax that they want to see introduced. The long term effect of their stupidity will be higher prices for every product – groceries, clothing, transport, etc. etc.  This will mean a lot of hardship for families that are already struggling to survive.

I have concentrated on the car aspect of the policies, but there are other aspects because so many products actually use the other bits of the oil production e.g. nylon and other synthetic materials are based upon oil. Also, things like soap and shampoos use oils as part of their ingredients. This affects almost everything that is produced in one way or another. We need to think hard about the long-term consequences of this short-sightedness, because this policy will help to propel us towards one very deep recession, which will be much worse than just the consequences of the stagflation that is almost upon us.

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An economy that is anaemic

Posted in Cap and Tax, stagflation, unemployment, watermelons aka Greens by Aussie on June 5, 2011

The economy in the USA remains more or less moribund. The official unemployment rate has once again increased to 9.1%, but of course the hidden unemployed – those who are no longer looking for work – means that the unemployment rate is a lot higher than the 9.1%.

According to this report, Larry Kudlow has a few things to say about the state of the US economy as a result of the latest figures. It is anaemic. Kudlow actually identifies a few factors which were present in the 1970s when we went through a period of prolonged stagflation:

“We’re not creating jobs,” he said, adding that “the energy spike, the energy price shock and the commodity price shock is basically eating into the economy.” For this he blamed the Federal Reserve and stimulus spending.

Read more: http://dailycaller.com/2011/06/03/economists-say-slow-economic-growth-evidenced-by-jobs-report-is-becoming-more-problematic/#ixzz1OOXGrIxL

There are at least 2 factors that he mentions that were considered a reason for the prolongation of the stagflation in the 1970s:
 
1. the oil price shock (there were 2 of those in the 1970s)
2. the energy spike
3. the commodity price shock
 
I note that he also blames the stimulus spending and the policies of the Federal Reserve. I agree with Kudlow in this instance. It is my belief that the stagflation of the 1970s was prolonged because of wasteful government spending, together with the other factors that were outside the control of any one country.
 
However, when you look at the factors he named, there is something that has struck me, with regard to the American situation: the oil price shock in the USA is a result of the deliberate policies of the Østupid Administration. The refusal to grant offshore leases, and the locking up of land that is oil rich has meant that these resources are not being mined, which in turn has been leading to an increase in world oil prices because countries without oil reserves are scrambling to obtain oil. 
 
The market for oil is one that is termed an oligopoly, that is the price is determined by a cartel, known as OPEC. It was the decision making of OPEC that caused the first oil shock, and the second was due to things like the takeover in Iran, followed by the Iran-Iraq war.
 
The next factor is that of the energy spike, and again there is a man-made element in that spike. Once again it is the activity of the watermelons aka the Greens, that is helping to cause the situation. It is the climate change crap that is causing governments to re-evaluate energy policy and to implement expensive and useless technology such as wind power and solar power. (The solar power is probably less useless than wind).  Those policies have also led to a rapid rise in the price of energy as some sources of energy generation are being shut down, and replaced by the more expensive alternatives. 
 
The commodity price shock sounds more like a description of inflation, which is on the rise in most countries, due in part to government policies relating to energy.
 
The stiumulus spending was never going to work because it was always the wrong remedy for the situation that had developed in 2008. A government led stimulus like we saw in the USA and also in Australia was nothing more than an exercise in pork-barrelling on steroids. In Australia we had the government wasting a budget surplus by giving money to people who had not paid taxes in the first place, whilst the middle income tax payers received no relief, and we also had things like:
 
1. the failed pink batt program (it caused fires and deaths);
2. the overpriced and failed schools BER program ( this one is really bad)
3. the white elephant NBN rollout which most householders will not be able to afford.
 
One of the problems that I see with the “stimulus” is that money was not being injected into the economy via the private sector, which led to government competing with the private sector for the investment dollar. It also meant that government was spending on a bunch of useless programs that were meant to benefit most the regions were the government had the most voters. 
 
An additional problem that can be identified, especially in Australia, is the uncertainty being created by the determination to introduce the useless price on carbon. Those who are clamouring for the introduction of this iniquitous tax do not seem to understand that putting a price on carbon-dioxide is not going to change anything. The whole thing is nothing more than a scam.

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Here it comes – another leg for stagflation

Posted in ALP, Australia, Cap and Tax, stagflation by Aussie on May 24, 2011

The ABC news site is running with a story that mortgagees, that is home owners and others who have a mortgage will soon be hit with higher interest rates because of the continuing global financial crisis.

Up until now, Australia had been somewhat isolated from the crisis. In fact I had argued that the “stimulus” in 2008 was totally unnecessary because Australia did not have a problem – it was a problem for the USA and Europe at the time. I should add here that my husband was one of thousands made redundant or who lost their jobs in the November (his redundancy was delayed until January 2009) of 2008 as some companies such as QANTAS responded to their own crisis needs.

Australians are being hit by a rather stupid Federal Government who wants to increase our taxes over non-existent climate change (they do not seem to understand that it is called “weather”). As a result we are being burdened with the likelihood of a new carbon tax that will cause an increasing amount of stress and strain on families. Many of us are also burdened by the introduction of a flood levy that covers the butt of the Queensland government because it does not have disaster insurance.  If tha levy had been a fair one, then the burden would be shared by all taxpayers. Well it is not, and it was a tax on the middle class a la the usual Marxist pap.

This is what the ABC has to say about the coming interest rate hikes:

Analysts say the increasing cost of funding for the banks will mean higher interest rates, creating another headache for consumers already under pressure from rising rents and utility prices.

Investors bailed out of banking stocks on Monday morning, wiping $8 billion off the banking index.

They are concerned that bank profits are coming under pressure from the rising cost of sourcing wholesale funds offshore, particularly from Europe.

James Rosenberg, a private client stockbroker with Macquarie Bank, says the whole banking sector was affected by the bailout.

“I think ongoing issues in sovereign debt, particularly in the Iberian and Mediterranean nations, are leading to a view that there will be a scramble for wholesale funding,” he said.

“And given the Australian banks have a wholesale funding gap, the costs of it will be putting them under pressure and we’re seeing a pretty broad sell-off across the sector.”

The Australian banking sector may not be under threat yet, but the risks remain for homeowners.

Mr Rosenberg says the banks have a history of passing their cost increases onto customers.

“[The] simple fact is that Australian banks have to source a lot of their funding offshore,” he said.

“As the rises in that funding cost go on, some of it is often passed on to shareholders and some of it to customers.”

He predicts mortgage holders will be hit by a sharp rise in interest rates.

“There has been quite well-publicised history recently of banks passing on rate rises over and above the Reserve Bank rises,” he said.

“That’s because they don’t source their funding primarily from the Reserve Bank; they’ve sourced a lot of it from overseas.

If this report is correct, and there is yet another hike in mortgage interest rates, because Australian banks are sourcing gap funds from overseas, and having to pay higher interest for those funds, then this will be yet another sign that we are hitting a period of stagflation.

The measures taken in 2008 are now starting to come home to roost. This is because the Government borrowings have increased and the Government budget is in deficit instead of surplus. This is due to the wasteful spending which is still not being brought under control. Giving $900 tax rebate to people who do not pay taxes was not going to help a non-existent problem in Australia. The schools building program is well over budget due to the misappropriation of money (what has been built for the money expended is very small i.e. the builders were overcharging for their services). The Insulation program was a total disaster and a bungle and there was a lot of waste – there has been some clawback on the money expended. The Solar panel installation program is also a debacle and with some of the same problems associated with the insuatlion program – unscrupulous people cashing in on the free money. The NBN network rollout is another disaster in the making, especially when it is more than likely that there will be a very slow uptake for the services (the pricing so far is very high).

The end result of these disasters and bungles happens to be that we Australians will be paying for the Government waste through our taxes, but we will be paying a much higher price as stagflation begins to take hold.

This is further evidence that the mistakes of the Whitlam government have been repeated with steroids, and that as a result of these mistakes Australia is about to enter a period of prolonged stagflation. Once the increase in interest rates begins to hit, one can expect further increases in prices leading to higher inflation, followed by an increase in strikes and demands for higher wages, as more and more Australians will find themselves floundering because they are being squeezed.

None of this would have been necessary if the government had been one that was committed to a balanced budget. However with the ALP in charge, and a Marxist as Prime Minister, the aim of a balance budget is nothing but a pipe dream.

More signs of a move towards stagflation – 1970s redux

Posted in Cap and Tax by Aussie on May 18, 2011

Whilst several European nations have been on the verge of financial collapse, the USA has hit a $14trillion debt ceiling, the chief of the IMF has been arrested on suspicion of raping a young West African woman in the Sofitel hotel, Greece is about to default on its loans (and the lazy Greeks have continued their riots), there is now further evidence that the world is heading towards a period of stagflation, just like in the 1970s.

I started this blog as a means of examining the present in light of the past, which in this case is attempting to examine and re-evaluate the period of the 1970s, which is the period in which stagflation was first recognized. The factors associated with stagflation are: high interest rates, high inflation, and high unemployment. Whilst some people talk about the impact of the first oil shock on the rate of inflation at the time, there is very little analysis of the government policies that were put in place during that era.

I am been looking at the Australian experience because I am more familiar with what took place at the time. It would have been around 1973 when I first heard about stagflation during my economics course at Melbourne University. I do in fact remember the subject being introduced in the last semester. For this reason, I have tried to compare the possible factors that were similar between that period and what is happening in the current period. This is because there has been an eerie similarity between these two periods in time. My theory is that socialist government policies do in fact create the conditions that are ripe for stagflation to become apparent and set in. In articulating this theory, I am looking the impact of government insisting on following the green agenda, which includes higher taxation as well as higher utility bills for water, electricity and other utilities.

My memory of the situation in the 1970s was that the stagflation grew out of wage-price inflation. As prices went up, the unions demanded more and more wage increases. In those days, one of the heavy costs to the economy was the days lost due to strikes, especially due to strikes in the power industry. At this particular time I remember being taught that due to the oligopoly that is the oil industry there was little that could be done to influence the consumption of oil in a population. I was taught that there was an inelastic supply and demand for oil. This inelasticity usually meant that government could tax consumption at the pump with little impact.

In some respects, the oil shocks of the 1970s also turned this kind of theory on its head for a time. This is because when the price of petrol was driven higher, there was an increase in the purchase of more fuel efficient cars. However, by the 1990s, there was also a reverse of that particular trend, and we were once more driving cars that were less fuel efficient. Since then however, we have seen a rise in the Climate Change agenda (which is nothing more than a ponzi scheme) and we are yet to feel the full impact of measures that are being introduced by government in an effort to influence the kind of vehicles that we drive. 

These measures go beyond influencing our habits at the petrol pump because they also include are requirements to heat our homes, have showers, cook our food and light our homes. These are the rising costs that are now fueling the rise in inflation that is becoming more and more apparent.  Such measures have been introduced in order to force a change away from coal power stations to the more expensive and less efficient wind turbines.

Whilst I have believed for at least the past 12 months that the world is heading towards another period of stagflation, the real evidence that this is the case is only now beginning to emerge. This is because of the lag times associated with the collection of economic data that measures the impact of government policies that have been put in place.

The direction that I will be taking in the future will be to continue to look at those policies and how those policies are impacting upon inflationary trends in countries such as the UK, USA and Australia.  One particular policy, which will absolutely no influence on weather trends is that of Cap and Tax (crap’n’tax), the effort to put in place an ETS and to introduce a carbon price which will seriously impact the household budget.

 

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Never let a crisis go to waste

Posted in attempted flood levy, Australia, Cap and Tax by Aussie on February 2, 2011

This post is not directly about the economic crisis, but indirectly will have a link to a growing world wide situation. No I am not talking about Egypt. I will attempt to cover that situation when I learn more facts (without anything from Al Jazzera).  This is about the economic consequences of the floods in Queensland.

I have covered the floods in posts on my other blogs, so I am not talking about the stupidity of the watermelons or that of the SEQ water authority. The purpose of this post is to discuss the daring of Julia-the-Marxist Gillard to push up taxes and implement wealth distribution by stealth.

I have written elsewhere about how the KRUDD-Gillard the Marxist Government is the worst since Gough Whitlam came to power. In fact with Gillard in control it is much worse than the Whitlam government. I have also written elsewhere that I believe that we are heading towards a period of Stagflation, just like we experienced in the 1970s. Not all of the indicators are in place at this present time, but there is a feel about what is happening that is so reminiscent of the 1970s.

My research into the 1970s, which is really a refresher for me, has shown me that there is good reason to believe that high government spending has consequences and that one particular reason that we had prolonged Stagflation was the prolifigate spending over a very short period of time that took place after Whitlam won the election in December 1972.  Since KRUDD became Prime Minister and Gillard his Deputy and then after stabbing KRUDD in the back, Gillard as Prime Minister the Australian Government has been at the forefront of wasteful spending.

Australia was relatively unaffected by the Global Financial Crisis. There was no need to send out $900 cheques to taxpayers on low incomes (no one in a higher bracket received the $900). Besides the money was wasted on items that are imported from overseas.  This action depleted the budget surplus that had been set in place by the outgoing Howard Government. However, the waste did not stop there because Australia then had its own version of Porkulus complete with wasteful pork projects in ALP and marginal electorates that was supposed to shore up the government. It did not really work, yet we are stuck with Gillard as Prime Minister.

The wasteful programs set in place included the solar hot water subsidies, the pink batts debacle (this caused house fires and several deaths), as well as the extremely wasteful BER (Building Education Reform?) which has led to overpriced buildings that have feathered the nests of the builders involved in the program. Australia was also set to have its version of cash for clunkers but thankfully that program has been scrapped. Then there is the white elephant NBN roll out which is estimated to cost more than $40 billion for fibre optics to go to every house even though this is old technology and there are better Internet options available.

This brings me to the floods that have been experienced throughout most of Australia – Queensland, NSW, Victoria and Tasmania. The most devasting floods have been in Queensland, where there was extensive damage in Brisbane because of the incompetence of the South East Queensland Water Authority. The cost or rebuilding will be billions of dollars. This will hit the insurance industry.

However, the Federal Government believes it is necessary to get in on the act, to provide funds for the rebuilding that is required in Queensland. There is no mention of helping anyone in Tasmania or Victoria. This is where Gillard has been extremely devious. Instead of delaying the white elephant NBN in order to provide the necessary funds, Gillard has proposed a levy that will be placed on top of the Medicare levy. However, unlike the Medicare levy, anyone earning more than $50k will be the ones paying and if you earn more than $100k then you will pay double.

This levy is not equitable. Gillard calls it progressive. I would dare to state that rather than progressive this is very much a regressive tax because it takes a larger slice of income away from households already struggling with mortgages, high utility costs, high food prices and high land taxes plus water and council rates. It is like the straw that breaks the camel’s back and it is very much an unnecessary tax.

So let’s look at some factors as to why Gillard the Marxist was leaping for joy when these floods struck:

1. Gillard promised to bring the budget back to surplus, but by continuing with the white elephant NBN this goal was not going to be met.

2. The floods have provided an opportunity to slug “the rich” who are not in fact rich, but the envious Marxist believe that anyone earning more than $50k deserve to be slugged.

3. Gillard saw this as an opportunity for wealth redistribution by stealth.

We do not know, as yet, the impact of this proposal. What is most likely is that this proposed tax will impact in such a way that when the Stagflation hits, it will be prolonged, just like in the 1970s when Stagflation was identified for the first time, and then it was prolonged well into the 1980s.

What can we expect in the future? First of all, we will probably continue to see the rise in interest rates. Second, as interest rates rise, there will be less money available for investment. Third, as investment dries up then employment opportunities will also dry up. Fourth, we can expect higher supermarket commodity prices for fresh meat and vegetables. Fifth as a result of the crisis in Egypt we can expect higher fuel prices. Sixth, if the watermelons continue to hold sway we can expect further increases in our utility bills. Seventh, with this kind of pressure, there will be an increased demand for higher wages to cover the impact of the higher commodity prices. Eight, we will see cost-push inflation start to spiral… Then we will head into Stagflation once again.

 

Oil Spill Gulf of Mexico – the LSM is complicit in its silence.

Posted in Cap and Tax, Gulf of Mexico oil spill, USA by Aussie on July 4, 2010

MSM Wall Protecting Obama Gulf Oil Spill Response Cracks With Latest AP Report | NewsBusters.org

What to do? Where should I post about what has become a very serious crisis situation in the USA, yet one that is being ignored? I am choosing to post this on my blog regarding a world in economic crisis because the long term consequences of this oil spill and the lack of clean up have yet to be determined. I will outline why I see this as leading to an even greater crisis in the future.

I do not agree with the conspiracy theorists that the oil spill was the result of a terror attack. Probably the most ludicrous story that I have heard so far is the one implicating Cheney and his company – claiming that they set charges on board the rig and blew it up. Here is what I think happened, and yes my theory is conjecture too.

First of all I tie the incident to the Haitian earthquake which happened in January 2010. The reason that I believe that there is a possible link is that the Horizon rig first reported leaking in the well as far back as February. In fact the crew and BP notified the Government that there was a problem in February 2010. After this notification there was an attempt to shut down the well, and this is why a BP executive type of person was giving directions on shutting down the well. If I am correct and the earthquake was the catalyst for the initial leak, then it is more than likely that we have not heard the last of problems associated with this particular well.

Second, I see the attempting capping of the well and the clean-up as two separate functions. Certainly, the attempt to cap the well should be left in the hands of BP and the crew that they have brought in to achieve the task. This is now being done by a successor to Red Adair. However, the clean-up operation is the province of the Federal Government of the USA according to an act that was passed after the Exxon Valdez oil spill disaster. Unfortunately, what is all too apparent, is that the person who should be in charge of making sure that the clean up happens at a fast pace has been doing the following:

  • playing golf;
  • going on vacation;
  • having parties;
  • going to concerts and theatre;
  • looking for photo opportunities;
  • creating a crisis on the Arizona border with Mexico;
  • playing more rounds of golf;
  • fund raising and holding town hall meetings for loyal obots.

and the list goes on and on… very little time has been spent in co-ordinating a fruitful clean-up effort. Instead there have been impediments being placed in the way of the States that have been affected in such a disastrous way, and this includes stopping the operation of the skimmers to do a fire extinguisher and life-jacket survey, preventing the building of sand berms, not ensuring that an adequate number of skimmers are available, taking time to assess offers of help from international countries, refusing the waive the Jones act… and the list of the incompetence goes on and on. One of the most damning though, is the refusal to allow the Dutch skimmers because a very minute amount of oil would have been released back into the sea.

Third, the Obama regime has used the oil spill to put a moratorium on offshore oil drilling. What is little understood is that offshore oil drilling has been going on for a very long time in a lot of countries without such disastrous consequences. When oil rigs explode or have a problem it takes very little time to bring everything under control, and do very little damage to the environment. For example in November 2009 an oil rig exploded off the coast of Australia. The rig itself has been capped, and it seems that there is very little in the way of any spillage that has reached the shores of northern Australian beaches (if this is not the case, then the lack of information is the fault of the LSM). The 6 month moratorium will be disastrous for the Gulf States in the USA because it will bring the mining industry to its knees, and will affect thousands of workers at the same time. The owners of the rigs that are now idle, will not want them to remain that way, and this could see those rigs moving to the coast off Brazil or moving to Africa where they can be put to immediate use. This will mean even more suffering of economic consequences for the Gulf States.

Interestingly, what is escaping a lot of attention by the LSM is that the Obama regime has given more than $2billion to Petrobas of Brazil for the purpose of offshore drilling in waters that are deeper than the well that is leaking. Why? Well the answer to that question is: GEORGE SOROS. It seems that the billionaire backer of Barack Obama has a very big monetary interest in Petrobas. As soon as the moratorium was announced for the offshore leases Petrobas attempted to try and hire the rigs that are now lying idle. Is it a coincidence? I do not think so.

Fourth, the Obama regime sees this as an opportunity to push through the unnecessary Cap and Tax legislation. The end result of this “energy” bill is that all energy prices will rise substantially. As a result of such increases in the price of gas, natural gas, electricity other prices will also rise and will include practically everything from clothing to food. The consequences are simply enormous because the petro-chemicals are the basis of so many products, especially clothing items made out of synthetic materials such as nylon, as well as hair shampoo etc. etc.

It should be obvious to the astute observer that the plan of the Obama regime is to allow the oil slick in the Gulf States to get as bad as possible as a means to point the finger at the oil industry and then to attempt to shut the industry down. If this happens then the USA will become dependent upon foreign oil. Who would be the beneficiary? Brazil? Iran? Venezuela? Who knows? However, one beneficiary will be the billionaire George Soros. 

One of the more disgraceful aspects of the situation is the way in which the Obama regime has been attempting to shut out the press, and the one reporter that has taken a stand about the situation is Anderson Cooper from CNN. Even Newsbusters has remarked upon the stand that is being taken by Cooper during this oil spill crisis. The lack of effort, and the bungling of the clean up operation should be big news, but most outlets remain silent.

I do not know for certain what the long term impact of this whole disaster will be, but I do know that if the Obama regime is successful in shuttting down the oil industry in the Gulf states and elsewhere then the USA will be most likely in a free fall, and  economic recovery will be very hard and slow. The country is already suffering from high unemployment and high hidden inflation. The future impact upon the world is at this point unknown.

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