Now Reap The Whirlwind

The Dow Jones Industrial Average today closed down 512 points—the biggest one-day fall since the 2008 financial crisis—in the wake of the stitched-up deal hammered out in the U.S. Congress on raising the debt ceiling. Carnage is expected today on the Australian markets which open in three hours’ time; I’ll keep you posted.

Well, duh. The purest judge of all, the open market, has handed down its verdict on the performance of the government. And not just the United States; renewed calls are expected today for the Gillard government here to at the very least delay the Carbon Tax set to commence on 1st July 2012. Given she must now know the tax is the electoral equivalent of a pair of concrete boots, this might just be the excuse Labor needs to back away from it.

The Trillion Dollar Coin: Obama's escape hatch? (and yes, I can count: the exponent should be twelve, not ten)

Meantime, the Mises Institute’s daily periodical had this fascinating article on the various means by which the U.S Fed could, if pressed, create money out of thin air. Given the current situation, it may not be as far-fetched as some may have thought only a year ago.

That’s all from me today folks. I’m afraid my health has gone backwards the past few days; the whole house is coughing up a lung. I heard on the grapevine yesterday that a large number of cases in Southern Tasmania are turning into pneumonia, which is just what I don’t need as my in-tray is piled high. So a few promised articles may have to wait a bit longer. As I said yesterday though, interesting times.

Update 5 August 13:55… Yep, it’s happened down here all right. Read about it herehere, and most disturbingly, here.

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70 Responses to Now Reap The Whirlwind

  1. Kitler says:

    Well seems great minds sort of think alike…..
    I have a different conclusion that finally consumers have stopped spending again and have run out of spare cash and agreed the debt deal was the spanner/wrench thrown into the machine that sent the markets spiraling downwards.

  2. Kitler says:

    Ozboy just rest up seems like you are all getting the nasty stuff we had last winter doing the rounds. Mine dragged on for three weeks. The missus wrapped herself up and sweated it out in a day.

  3. Ozboy says:

    It’s all coming unstuck now, in a big way. Live updates from Australia here.

    As the report says, the big question now is whether China will get caught up in it too. If they do, then we’re all stuffed.

    Oh and did I say the other day that gold closed at $1617, annualizing its growth since I wrote this at 44%? Well, try today’s close of $1645, annualizing to 54%. Need I say more.

  4. Kitler says:

    Ozboy China is insome serious trouble of it’s own which will get worse when the West stops buying it’s products now they are trying to reign in credit and the property boom at the same time. Actually stuffed will help us sort out the worlds problems a lot quicker.

    “When the West stops buying its products”. Which it’s about to, perforce. And I agree with your last sentence: it’s short-term stuffed versus long-term stuffed. It would be nice to avoid a shooting war this time round though – Oz

  5. farmerbraun says:

    Have a look at the comments here; I like the “Buy Joules, not jewels” one”.
    Not so stupid.

  6. Kitler says:

    farmerbraun well soon enough I shall buy NZ for a buck fifty US. It should make your exports cheaper but your petrol prices will spike and other imports if it hits the sweet spot could be a boom for farmers.

  7. Kitler says:

    Ozboy this has shades of the 1930’s about it. A shooting war is coming it’s the only way to clear debt.

  8. toad says:

    Am I alone in having confidence in the good sense of the Chinese ? Wen Jiabao the Chinese Premier actually lost his job for being part of the ‘American Faction’ back in 1989. He has far more political experience than strutting coxcomb ‘johnny-come-latelies’ like Obama and Cameron, and he and his government can get down to tackling real issues unlike our ‘leaders’ who are ONLY concerned with getting re-elected.
    I never thought I would ever find myself doubting our ‘democratic processes’, but I can only see men like Obama, Cameron and Clegg as totally under the control of their very strong and ambitious wives.

    Them’s dangerous thoughts, Bufo. I suspect you’re conflating two separate issues: the means by which statesmen come to power and their motivations for doing so. BTW check your e-mail – Oz

  9. benfrommo says:

    As a US resident:

    We will see a very big drop. This will be eased with QE like before (they have used this three time since Obama has become president to artifically drive the stock market.)

    This will backfire the opposite direction, and say hello to stagnation. This will spread around the world in the very essence of a global economy, with China of course trying to help us out (because it helps them to keep their money they invested with us safe.) and this makes the problem worse. Its a cycle.

    For us here in the US its just began. I was wondering since the first “lets print money like morons” episode when the inflation would hit: and I told people to watch for it in this order.

    Gas prices rise. CHECK
    Inflation starts to rise slowly. CHECK
    Gas prices rise some more. CHECK
    Inflation rises more. CHECK
    ….this cycle continues for awhile until we arrive to today:
    Gas prices are high, the economy is in the toilet due to this fact, and no one is investing because they all know the real money is in gold and other precious metals.
    Then we have a report about lowest growth since 2007. People panic, because of what I mentioned before, and yes some other countries suffer a bad day.
    President Obama will print more money because he is as predictable as he is stupid.
    Markets go up again.
    Gas prices go up MUCH higher.
    Inflation starts to rise MUCH FASTER.

    The economic cycle of the 70’s returns…and the full glory of stagnation is here. The only difference being that this time with a global economy instead of just sinking ourselves into stagnation, we will sink the entire world into stagnation until we “Smarten up.”

    I don’t think we will see a shooting war, possible, and I do not think we will see a depression, but the recession will get worse as we hit stagnation.

    G’day Ben and a warm welcome to LibertyGibbert. I suspect you’re right about a shooting war. But how the hell else have great empires in debt ended up balancing their books? Professor Niall Ferguson has a pretty scary take on this – Oz

  10. Ozboy says:

    Well, there’s a wild ride on the U.S. markets today, all right. Dow(n) 240, then up 130 on the back of some promising unemployment numbers. Now (2pm Eastern) sliding back…

    Bigger news though, from Italy, where their own sovereign debt crisis has fuelled speculation that it is about to join Greece and Portugal as an insolvent Euro state – only in this case, as one of the G7, it is too big for even the EU to bail out. From this article the other week in CNN as a backgrounder:

    Italy in particular, was shoved into the spotlight. Public sparring last week between Italy’s prime minister, Silvio Berlusconi, and finance minister Giulio Tremonti heightened fears that the debt crisis in Greece and Portugal was spreading to the continent’s third-largest economy.
    “Beware.” Tremonti was quoted as saying by Italian newspapers, in response to rumors that he might resign. “If I fall, then Italy falls. If Italy falls, then so falls the euro. It is a chain.”

    Well, that’s an earful all right, from one of the world’s most powerful finance ministers. Mamma mia!

    Update 3:15 pm Eastern: Italy, together with France, has called for an emergency G7 meeting to try to find sufficient rescue funding to bail itself out. I guess that’s what happens when everyone sitting in a lifeboat is handcuffed together. A single smaller person (let’s call him Spiro) falls overboard, the others can drag him back in. but one after another falls in, then one of the biggest people (call him Luigi) starts toppling…

    Update 4:00 pm Eastern: Ding ding ding ding ding!!! NYSE closed with the Dow up fractionally (0.5%), Nasdaq off about 1% and S&P virtually unchanged. A wash really, and the best they could have expected.

    I don’t want to start sounding like a stock ticker tape, but gold finished at $1662 or, to continue the comparison, an annualized growth rate of 60.6% since May. Longer term, since Nixon closed the gold window and terminated Bretton Woods 40 years ago, gold has risen an average of about 10% per year. Strangely, silver was off a little today. Bet the Chinese are buying up big.

  11. Luton Ian says:

    Toad has a very good point;

    The Chinese Communist Party Dynasty has a long term interest in avoiding conflict.

    They’re technocrats not demagogues.

    Their future stretches way beyond the 5 years or so term of a “democratic” government, who likely posses only one skill; getting elected. They then have five years in which to loot all they possibly can for themselves and their vested interest groups.

    To paraphrase the late Lord (John Maynard) Keynes’ “in the long run, we’re all dead”:

    To a “democratically” elected politician, after five years, we’ll likely all be out, and someone else can pick the can up.

  12. Luton Ian says:


    Hope you are all feeling better soon. I had a bad cold that turned to a cough a couple of years back, my mother in law caught it, and it and hers developed into pneumonia. I hate winter time!

    Around here, the heather is beginning to flower a few days early, it is usually at its best for the “Glorious” twelfth and the start of the grouse shooting season. The flowering can be as short as a few days if the weather is wet. In ’86 it was still purple with flowers in mid September. The bee hives are all arriving, in a decent year, they can get over a hundredweight of lovely dark honey per hive from the heather.

    Thanks Ian. Funny, we had an unusually warm day yesterday (please don’t tell Izen!) and all the wattles on the Ozboy estate flowered simultaneously. They’re so bright that when the sun’s out you just about need sunglasses to look at them – Oz

  13. Luton Ian says:

    Mises Daily is quite rightly putting the boot into the mainstream economists, pointing to some of their pieces from 2008 predicting just this scenario, I guess Lord Keynes’ “Animal spirits” must have really shat in their cages* – big parasite laden pools of it!

    I’m going to try to elaborate on a Robinson Crusoe thought experiment which I found somewhere on Mises Daily (I’m working through it from both ends, so I couldn’t tell you which end I found the original at).

    Friday has decided to make a fishing net, so he can improve his productivity and hopefully catch more than enough fish for the two of them in an hour or two each morning, instead of fishing for most of the day with his spear as he does at present, this will allow him to spend more time attending to their other needs and desires.

    There is a problem though. Friday needs to use the best daylight hours for a couple of weeks, to be able to see what he’s doing with his net weaving and, this means that he can’t use those hours for fishing (an opportunity cost) – meaning that both he and Robinson will go short of protein.

    Friday discusses this with Robinson, who agrees to lend Friday, three barrels of dried and salted fish which he claims to have saved up. Friday accepts this offer and agrees to pay Robinson back with five barrels of dried and salted fish, once he gets his net made and working.

    In the discussion, Robinson also reveals that he has a plan, to expand his yam plot, thus securing their staple diet, and allowing them to perhaps brew some booze with the surplus, but to do this, he must use many of the tubers which they would normally have eaten, as “seed” for his expansion. Potentially both will go short on carbs, just like going short on protein, this is potentially very dangerous.

    “Not a problem” says Friday, who offers to lend Robinson a ton of tubers which he claims to have saved, to be repaid with 1/4 of a ton of extra yams as interest at harvest time.

    Just to remember what they agreed to, and to make sure that the budgie doesn’t savage one of them for “stealing” the other’s stash of savings, each writes the other a credit note, detailing the transaction.

    Now if each had genuinely “saved” the provisions which they leant out, there is a very good chance that the projects will be completed, and both will be better off as a result.

    But, if both had used fractional reserves, instead of real savings, then part way through the projects, both the dried fish and the yams had run out.

    Robinson and Friday, each realizing that they had a problem, sat up late into the night pondering. Eventually the budgie# squarks down from its perch, and explains that what they need is “stimulus”, and in return for giving up 50% of their millet ration to the budgie, then he will write them each new credit notes, with ten barrels of fish and three tons of yam tubers…


    *and it smells of phlogiston – another fudge invoked to explain away the holes in an inadequate hypothesis

    #Strangely, for a 19th century novel set on a desert island, the budgie is called, John Maynard K.

    Brilliant! Though I wonder how a certain budgie who haunts a certain British newspaper blog would react to being called a Keynesian – Oz 🙄

  14. Luton Ian says:

    The wattles I saw and smelled in Africa were fantastic.

    do you have bees?

    They were out in swarms yesterday – the air was literally humming with them – beautiful!

    If you’re ever in Tasmania, stop by Mole Creek – honey capital of the universe – Oz

  15. Ozboy says:

    And it’s happened: S&P have downgraded the United States from the AAA rating it has held continuously, through good times and bad, since 1941, to AA+. My American friends, your government is now officially a second-class credit risk (mind you, this is the same Standard and Poors that gave their triple-A rating to all those bundled NINJA mortgages).

    I posed the question at the DT (but haven’t as yet received a reply), what is the difference in long-term lending rates between AAA and AA+? The simple arithmetic is that, at 14 trillion bucks outstanding, each 0.1% difference in lending rates is an extra 14 billion off your budget’s bottom line, though I’m sure it gets more complicated than that. As Niall Ferguson said in the YouTube clip above, at some point this decade, the U.S. will cross a threshold beyond which it is spending more on servicing debt than it is on military outlays. Today’s news will merely bring that date forward.

  16. Kitler says:

    Ozboy the answer is simple have the CEO of S&P meet with an unfortunate but highly unlikely early death followed strangely by the board of directors. I expect the rating to go back to AAA.

  17. Luton Ian says:


    a week or so ago, I tried a quick and slightly tongue in cheek analysis of violent behaviour, from an Austrian School perspective.

    Trouble is, the Austrian School framework for analysing human actions appears to tell us quite a lot about individuals, and by extension, collections of individuals, choosing to use violence.

    Fortunately, indulging in violence has a high cost for the perpetrators, there are the direct costs of paying thugs, the indirect costs of risk to themselves, their loved ones and their property due to reprisal or self defence by their targets (they’ll never dare set foot out of a heavily guarded “green zone” again), and

    there is also the opportunity cost:

    By acting violently, they are foregoing the opportunity of other actions which they could have taken;

    Put bluntly, if they act violently, they’ll piss off so many people, so badly, that most people will never willingly do business with them again.

  18. Luton Ian says:

    I’m guessing that Bretton Woods has just died.

    I cannot see another currency being used as an international standard, the Renminbi yuán or the Yen (The Deutch Mark – if the French hadn’t bludgeoned it to death in a smoke filled room) would be the closest alternatives to the dollar, but I don’t see them being acceptable, at least not without a war to impose them.

    We are living in very interesting times.

    Gold instead of Gangsters?

  19. Luton Ian says:

    PIIGS r US

    has come home to roost

  20. Kitler says:

    Luton Ian I’m proposing “accidents” like the fact that the head of S&P unknown to everyone enjoyed eating toast in the tub and unfortunately the toaster fell. These things happen unlikely as they are.
    Actually this move is planned as all these people know each other and is a way to funnel funds to the right people the stock market in the next month is going to behave very oddly with some very weird support at the end of closing.

  21. farmerbraun says:

    It is perfectly possible for the wheels of commerce to turn without an international currency. I mentioned that my latest contract with a Chinese supplier was denominated in renminbi ; it used to be $US, but why would you take the risk now?
    With the world retrenching, and with the formation of regional trade partnerships and bilateral trade agreements (NZ-China), the respective currencies of the trading partners will become the default currencies.

    I’m sure the Chinese will be happy with that arrangement FB, and if you are too, then who’s to complain? Never forget though, who founded modern China, as opposed to who founded America. For all its modern veneer, China remains a blood-soaked totalitarian dictatorship whose prison population even today is equal to Australia’s entire population – or if you like, five times New Zealand’s. One dollar in every three spent on Chinese trinkets in Wal-Mart stores in America was on goods made by the hands of prison labour. Not withstanding all the venality of the current U.S. administration, let us not lose sight of the fundamentals: Liberty and democracy. This difference will surely, eventually, re-assert itself in the value of their respective currencies – Oz

  22. Dr. Dave says:

    This piece from Mark Steyn is a “must read”:

    G’day Dave; indeed it is – Oz

  23. Amanda says:

    G’day, Oz. I especially appreciate your comment made to FB’s 6:13 post.
    Freedom is the sine qua non of existence for a happy person. When freedom in sufficient degree is attained, then we can say that ‘the unexamined life is not worth living for a human being’ (Socrates).

    I want to be free not to do what I don’t want to do, and I want to be free to examine life in general and the life proper to a free human being.

    The United States, and the Anglosphere beyond it, are still the last best hopes for humankind.

    I’d boycott Chinese goods if that were in any way possible.

  24. Ozboy says:

    One related topic that’s getting some coverage, particularly down here, is the rise of the so-called “S3”, or shadow currencies. With chronic uncertainty surrounding the traditional reserve currencies (euro, greenback and yen), a lot of currency speculators are gravitating to three “proxies”: the Canadian dollar, the Swiss franc and the Aussie dollar. You can read about it here. In the case of the Aussie, which has risen from a base of US0.73 to over US1.10, what has happened is that Australian government bonds are being seen, Juliar notwithstanding, as a good place to park low-return, “safe” money until the smoke clears in the Northern hemisphere. Australian government bonds can only be bought with Aussie dollars, hence the price surge. Doesn’t do our exports any good; great time to buy a car though 😉

  25. Ozboy says:

    VALE NANCY WAKE 1912-2011

    Australia’s most decorated servicewoman, Nancy Wake, “the White Mouse”, whose efforts in the French Resistance saved thousands of Allied soldiers, died yesterday in London at the age of 98.

    What a lady.

    Requiscat In Pace.

  26. izen says:

    Been on holiday in this WARM weather (AGW!) and come back to all this….!

    Actually its just the usual capitalist cyclic crisis.
    Solved by massive government investment either in social infrastructure a la FDR and roads and bridges,…
    or in war.

    The rest is froth related to the rich and powerful ensuring they are the LEAST affected by any economic downturn.

  27. izen says:

    @- Ozboy
    “China remains a blood-soaked totalitarian dictatorship whose prison population even today is equal to Australia’s entire population – or if you like, five times New Zealand’s. One dollar in every three spent on Chinese trinkets in Wal-Mart stores in America was on goods made by the hands of prison labour. Not withstanding all the venality of the current U.S. administration, let us not lose sight of the fundamentals: Liberty and democracy. ”

    While I agree that China is an authoritarian collectivist state and a nightmare from the libertarian POV…
    China’s prison population is large as a function of its large population, in terms of the numbers per 100,000 people its about the same as Australia, it puts ~72 people in prison per 100,000.

    America, land of liberty and freedom puts TEN TIMES that number in prison, over 700 per 100,000. Its actually a significant percentage of the potentially working male population, but the amount of US made goods that are in fact made by prisoners: –
    100% of military helmets, ammo belts, and ID tags
    93% of US paint
    36% of home appliances
    21% of office furniture

    odd that…..

    Very true. And if you can show me where I said America was perfect, I’ll accept I’ve contradicted myself. Of course, it isn’t; and the Americans on this blog are the first to acknowledge its problems, and the loudest to rail against them.

    The historical fallout from slavery IMHO is one big factor in the incarceration rate. Populist-derived drug law, as Dave described last year, is the other big one. Check out this graph as an illustration.

    We also need to heed Farmerbraun’s words below, and remember that individual Chinese aren’t bloodthirsty totalitarians; they are just like us, and want pretty much the same things out of life. The difference being, if we dislike the job our government is doing, we have the ultimate recourse at the ballot box. and if we don’t like any candidates running, we can run ourselves, as individuals or band together as a party.

    As I said above: fundamentals – Oz

  28. Kitler says:

    izen yes but obummer and co have spent it on god only knows what and they have nothing left to do that.

  29. izen says:

    @- Kitler
    “….but obummer and co have spent it on god only knows what and they have nothing left to do that.”

    Bailing out the banks who told them that it was much better the government had the debts than the banks should fail….
    These same financial institutions are now judging the nations for taking on all this debt that was first invented, as fake money via ‘fiscal instruments’ like CDS by the same institutions!
    Hard to take it seriously when its such a Orwellian doublethink system. Credit agencies sell you debt….
    Be hilarious if it didn’t have such profound effects on social stability and progress.

    Some was used in the US to buy of his political opponents of course, similar situation in the UK with token appeasement of the coalition liberal party.

    I would expect the same trade-off will happen in Australia. modified by the relative bargaining strengths of the political opponents. Concessions’ (money) will be sought and given while the rhetoric of fiscal probity is exchanged.

    Pretty much agree Izen – see my comment to Andrew below – Oz

  30. Kitler says:

    Izen bailing out your buddies with other peoples money is not only morally wrong but most likely criminal whomever does it.
    As for the banks most of us here would have let them fall.

  31. Ozboy says:

    Morning All,

    Izen, welcome back. The stock markets across the globe continue to tumble. I’m on a plane today so won’t be able to check in for another 10 hours at least. So behave yourselves.

  32. Andrew Richards says:

    Can anyonebe surprised at this? Brenton Woods 2 was a sick joke and the complete opposite of Brenton Woods 1, while Brenton Woods died out in the States with Truman and in Australia with Hawke and Keating.

    This has been coming to pass for the past 50 years. Be glad we had this long? But for those who support free market economics, does that mean they support and are glad about the current economic crisis as it spirals further and further out of control? This is where a free market leads- with the physical economies trashed, self-sufficiency destroyed, the wealth of the nation being sucked dry, the fascism of privatisation and the ultimate descent into poverty.

    People need to realise that the only ones who have ever and will ever benefit from a free market economy are the biggest and baddest multinationals, with a bloody and long trail of the corpses of competing small businesses in their wake.

    People need to wake up and start spotting the lies they’ve been brainwashed into believing….

    This is where the free market leads?? How could you possibly know – we don’t have a free market – we have a mish-mash of socialism and crony capitalism. This you must know. And look where it’s got us.

    Of course, no-one can be glad that innocent people are going to suffer out of this (and the guilty get off scot-free, as usual), but as long as both sides of politics were suppressing a genuine free market, it was inevitable. And the further the conniption was kicked into the future, the more painful the correction – Oz

  33. farmerbraun says:

    Amanda , the people that I deal with at grass-roots level in China would agree with this sentence:
    “I want to be free not to do what I don’t want to do, and I want to be free to examine life in general and the life proper to a free human being.”
    These people are well down the ladder, they are diligent, hard-working, courteous, and unswervingly helpful and dutiful. It is a real pleasure to deal with them. I think they have the same aspirations as you and I. The only difference is that they were borne in China. I do not think that they would accept your next sentence for a nanosecond:
    “The United States, and the Anglosphere beyond it, are still the last best hopes for humankind.”
    They are proud and full of hope, and would consider that statement to be arrogant at best.
    And if they could read your last sentence:
    “I’d boycott Chinese goods if that were in any way possible.”, they would would wonder why you want to deny them the chance to better themselves, and why you wish them harm.

  34. farmerbraun says:

    Izen wrote: ‘it […] have such profound effects on social stability and progress.
    Farmerbraun asks: ” so you think that this won’t be all that bad then?”

  35. farmerbraun says:

    Sorry Amanda, that was badly worded; it should have read:-” why you appear to want to deny them the chance to better themselves, and why you appear to wish them harm.”
    I apprehend that you probably want neither of those things.

  36. Luton Ian says:

    Have you ever checked out the economics policies and the bailouts in early thirties Italy and Germany, or the social democrat policies in the decade and a half which preceded them?

    ” This is where a free market leads- with the physical economies trashed, self-sufficiency destroyed, the wealth of the nation being sucked dry, the fascism of privatisation and the ultimate descent into poverty.”

    pray tell me, how does any business in a free market get big and stay big, unless it is offering what individual consumers want to buy and at a price they are willing to pay, and at all times, others are entering that market and competing with it on all combinations of price and quality?

    What you are describing in the paragraph I’ve just quoted, is the situation where corporations are able to call on governments coercive powers to keep competition out. This is just the system of state cartellization which was overtly followed by Mussolini, Hitler and their (at that time) admirers, FDR (and US radio demagogue, Father Coughlin!).

    It is also the system followed implicitly in the current system of central bank approval for financial institutions, and more widely, by the intensive system of state permitting and licensing for entering business.

    This is sold to us as avoiding the “Anarchy and chaos” of an un regulated market, what it amounts to is using state coercion to allow favoured businesses to operate without having to worry about pleasing their consumers, or having some upstart pleasing those customers better.

    The corollary of “too big to be allowed to fail” is “Too small to be allowed to succeed”

    How does using tax payers money (earned by freely selling goods, labour or services to others – and taken with the implicit and explicit threats of state violence) to prop up businesses that individuals do not freely choose to buy from in sufficeint numbers to support their current structure, do anything other than what you described in the paragraph which I quoted?

  37. Luton Ian says:

    I’ll just give a couple of examples of retail businesses which grew big, and then lost touch with their consumers:

    Woolworths – now gone

    Marks & Spencer; still regarded as one of the “anchor tennants” required for a financial institution to lend for a new shopping centre development – but over the last 20 years, hasn’t it had a hammering from its customers finding others who provided things they were more willing to pay their limited funds for?

    Now compare that to your local council?
    I’ve a pal who’s been waiting six months for a site visit from the local highways department for a new entrance to his business, he’s paid the money -up front as required- and still he can neither get to speak to the people, nor get a date for the visit (even evil fast food and soda pop companies have very good customer service lines).

    If the visit goes successfully, he must wait for the paperwork to come through, then use one of the contractors on the council’s approved list to carry out the work.

    Meanwhile, pal has the finances, the building contractors and the site all waiting, and is ready to use the new building, which he isn’t allowed to begin constructing, until the entrance is done.

    and somehow state central planning and provision is supposed to save us all from our selfish selves?

    Now for the example of London’s state monopoly cops the past few nights…

    After they shot a young man for – it appears- one of the cops shooting his own colleague.

    I’m sure they are even now, very busy counting hoody wearing rioters on last nights CCTV recordings.

    It all goes to show, they’ll need even more tax payer funds to provide a service [not].

  38. Luton Ian says:

    good luck on your trip.

    hope your feeling better.

  39. izen says:

    The ‘free market’ advocates always deny that we have a ‘REAL’ free market in the West and blame the problems on government regulation. The anti-capitalists always point to the failures of the present system, which re-occurr with periodic frequency, as a failure of free markets….

    I know of no examples, present or historical of a ‘real’ free market operating succesfully. Societies with very low levels of market regulation do exist, but are hardly glowing examples of success that encourage emulation. The fall of the USSR was followed by an experiment in free market capitalism – without government regulation it degenrated to gangstrism very quickly, a situation only ‘solved’ by government corperatism. South American attempts at ‘free’ markets have also been less than effective. Historically free markets have resulted in government regulation because they are ineffective and unstable. As well as grossly differentiated as unregulated markets without controls on cartel/monopoly emergence result in extremely high GINI indices.

    Of course the problems of government regulation and manipulation of the markets, often at the instigation of a power elite who want a rentier advantage, are just as toxic, but that dosen’t validate market de-regulation….

    Capitalism is a marvellous way to coopt the advantages of evolutionary competition into financial enterpreniership to develop and exploit resouces. But like biological change the evolutionary responses tend to be short-term, reactive kludges and entierly lacking in foresight.

    Intelligent design would probably eb a better method, unfortunately there is no intelligence available sufficiently developed to do better than capitalist evolutionary competition at present.

    Roll on the AI singularity….-grin-

  40. izen says:

    @- Farmerbraun asks: ” so you think that this won’t be all that bad then?”

    Slightly worse than the last time there was a tory government, a warm August, an economic depression and rioting in the streets….

    Globally…. there is a problem of resource shortages, agriculture/food production is holding up well, but fossil fuel production is problematic. Oil has not increased in production for around 5 years and the alternatives are only viable at $90-$100 price levels.
    The banks and finacial meltdowns are a sideshow compared to a serious resource limit on economic development.

  41. Andrew Richards says:

    I am very familiar enough with what happened in the 30s to understand that Brenton Woods was needed (in fact it has ALWAYS been needed- and I mean the original Woods, not the “in name only” crap that that proud old Nazi Soros tried to make happen) and that the reason that it didn’t is because of the threat that it’s posed to the monetary system of the British Empire- the very reason why they’ve shut it down.the bailouts and depression.

    The problem is that a true free market has ZERO regulations. The whole philosophy behind it is that you completely leave the markets alone and trust them to regulate themselves. Unfortunately trusting big business in that environment is a bit like trusting a pedophile and leaving them unattended in a room full of kids.

    You asked how businesses get big and stay big. Take a good look at things like predatory pricing, like exclusive deals with suppliers (sometimes through coercion). Your logic here is like saying that you can’t blame a shark for staying healthy when it’s wiped out entire species of smaller fish in an area.

    The fact is that you need regulation. Business ethics become an “in name only” joke once companies get big enough that by their sheer size they devour their competition (which works well for them- more business, but ultimately less competition and choice for consumers, which then in turn leads to oligopalies and price collusion).

    Having regulations to protect small business does not mean communism, any more that having laws against murder requires manned police checkpoints at the end of every street.

    However having no regulations at all will definitely create a culture of “might makes right” as the past 30+ years have proven.

  42. Andrew Richards says:

    izen, or problem isn’t a lack of resources, it’s a lack of harvesting resources. Safe nuclear power is about to be made a full scale reality by the Chinese (funny how that’s what happens when you move back to high temperature pebble bed reactors), while the use of thorium fuel and waste reprocessing reduces your waste storage times to a few years. Meanwhile projects like deep tropical farming could easily solve world food shortages.

    The problem there is the genocide being attempted by this rebranded nazism posing as the modern environmental movement. I’m going to presume that people here are familiair with the history of the movement and the way it was borne out of the British Eugenics Society and wasn’t our old friend Maynard their president? – Oz and their attitude of Hitler being “misunderstood”, but if people aren’t, I’m, more than happy to fill people in, complete with multiple direct quotes by those who founded the movement.

  43. Luton Ian says:

    My goodness Izen, where to begin on that lot?

    I’ll agree that we’ve never been completely free from statist or absolutist interference in markets, from Medieval guilds, letters of royal patent, Elizabethan “Companies of the Mines Royal”, East India Companies, Virginia companies, South Seas companies, state oil companies, Nationalised this that or the other, from nationalised coal industries, to a state monopoly wool marketing board – still in existence in Britain, apparently.

    I will also agree that from time to time, a whole economy can end up in trouble, and a correction is needed, where I will disagree is the usual cause of the problem. In the past it was usually the monarch confiscating merchant’s gold because he’d over spent, however, since the invention of fractional reserve banking, the whole economy of a nation becomes enmeshed in a business cycle by the central bank’s coordination of credit expansion and the implicit and explicit guarantees of the central bank bailing out the “private” banks rather than them having to face the consequences of their unwise lending.

    A market where new entrants are free to come in is not going to degenerate into monopoly, and there are established systems for dealing with business insolvency – which government impositions like limited liability and protection from creditors hinder

    I’ll disagree with most of your examples of “free” markets being anything like free, especially the former Soviet Union. Alexander Litvinenko was convinced that the post Soviet, Russian “mafia” consisted of the former KGB. Unfortunately, he’s no longer around to contribute to the debate (polonium cocktails being available on the “free” market…)

    “Historically free markets have resulted in government regulation because they are ineffective and unstable”
    or was it because some in government sought to increase their power, influence and income? A government , as the final arbiter in conflict, is hardly likely to refrain from causing conflicts which it can then settle in its own favour.

    Here’s Maggie, she grew the state, she was as fond as any of big solutions and her replies are full of logical fallacies, the good bit is from about 2 minutes:

  44. Luton Ian says:

    “But like biological change the evolutionary responses tend to be short-term, reactive kludges and entierly lacking in foresight.”


    are individual human beings incapable of any foresight or planning, unless they are employed by that magical collective the state?

    a sort of collectivist iteration of all human activity being destined to come to naught as it is irredeemably contaminated with original sin… 😉

  45. Luton Ian says:

    Fossil fuel production is massively cyclical and blighted by state sector and state cronyism.

    Most places on the planet, energy minerals are nationalised, and in many of those places, the state energy company has a monopoly on exploitation.

    The US is just the best known example of many, with oil drilling moratoria in Alaska and offshore. Add in the EPA predation on coal mining and coal burning.

    Oil exploration presently only occurs during price booms, and, following the discoveries, activity ceases, most of the personnel are let go, and the knowledge of the other likely targets is lost for ever

    Lead time from the first drilling of an oil resource, to its proving to reserve level, to the construction of a pipeline and export terminal or refinery, and drilling of production wells is of the order of 10 years.

    There is serious activity going on, with Brazil’s deep water finds, the Bakken in the north central US (more oil there than in the middle east), and these little Irish guys off west Africa and in the Western Rift Valley there is also something of a revolution in shale gas exploitation, and the previously neglected coal resources of Africa (they’re absolutely massive!).

    “The banks and finacial meltdowns are a sideshow compared to a serious resource limit on economic development.”

    Resources, including human skills and savings are always a limit on development, the long overdue meltdown of the banks may (and this is a very long shot) point out to the statists that we’d be able to better utilize those scarce resources without funny money screwing up the price signals in the market.

  46. farmerbraun says:

    Izen wrote:-” Societies with very low levels of market regulation do exist, but are hardly glowing examples of success that encourage emulation.”
    Farmerbraun observes: you omitted to mention the notable exceptions of Australia and New Zealand

  47. Luton Ian says:

    allong with the People’s Republic of China’s “Special Economic Zones” eg Hong Kong; 12% income tax!

    I think Albania currently has the fastest growth in Europe, with around 10% income and 10% business tax.

    My mainland Chinese extended family were astounded that Britain is in many respects

    “More communist than China”
    And that was from a card carrying party member!

  48. meltemian says:

    Ian, I’ve just looked up the growth figures and you’re right. Albania has the same growth rate as Germany! Surprising as I thought most Albanians were working here – most of the manual workers here seem to be Albanians and I have to say they do a good job.

  49. Luton Ian says:

    Mrs Ian did aid work with the Kosovar Albanians during the war. She says that the aid deliveries into Albania itself had to pay a different gangster about every 500m along the road, as did the refugees. I don’t think anyone really asked the gangster’s origins. I’m guessing now that they were likely former Hoxa regime cops.

    For a really good belly laugh, try P.J. O’Rourke’s treatise on economics, “Eat the Rich”, which has a chapter entitled “Bad Capitalism: Albania” – Oz 😆

  50. Andrew Richards says:

    After the comments by a couple of people about us not having free markets, I thought it was worth pointing out the cycle and progression of free market economics.

    The idea behind free market economics of course is that you have a completely deregulated market- ergo, you impose no regulations on the market whatsoever and trust the market to regulate itself and for everyone to “play nice”. In theory it sounds great but in practice it’s the embodiment of the old saying of “the road to hell is paved with good intentions.

    The problem with that is that you will always have more ruthless players who will not just seek to compete, but to devour their opposition. As this progresses, the canibalistic players get larger and larger, with their level of power growing linearly with their market share. Which, we keep saying, they cannot do without government cronyism. But do go on – Oz (sigh)

    Eventually they become big enough and large enough that they’re able to donate enough to govts or control an essential enough commodity that they can dictate terms to govts. At this point the system has become fascist and is more akin to organised crime and cartells.

    At this point govts start drafting regulations to benefit said larger players which then allows the corporations to use laws to act unethically towards their clients and the shut out and disadvantage their competition.

    Furthermore, said players if they’re wealthy enough diversify through privatisation, which is blatant fascism where the power of the people becomes transfered to a select few through the corrupt sell-off of public essential infrastructure, until eventually, democratic govts are nothing more than puppets and the real rulers of this world are the ultra rich…

  51. izen says:

    @- “Farmerbraun observes: you omitted to mention the notable exceptions of Australia and New Zealand”

    I am not aware that Australia or New Zealand can claim particulary low levels of regulation or corperate tax, both are ‘modern’ economies with around 50% of GDP going to government to fund welfare provision. Australia is slightly more equal than the UK, NZ slightly more unequal, but all have a GINI coefficient in the low/mid 30s.

    @- Luton Ian -“Are individual human beings incapable of any foresight or planning, unless they are employed by that magical collective the state?”

    No, the state is just as limited, reactive and lacking in foresight as private industry.

    @- Luton Ian – “GINI?… Here’s Maggie, she grew the state, she was as fond as any of big solutions and her replies are full of logical fallacies, the good bit is from about 2 minutes:”

    Many states with a low GINI index are post-communist nations which had an imposed equality at a low level, as Maggie claims in that speach, the poor were more equal, but poorer than if inequality had been greater.
    But if you look at a table of Nations ranked by GINI index it is evident that the richest societies to live in also have low GINI coefficients. The Scandinavian countries being the obvious example…
    If you compare with the countries with GINI indices over 40 its pretty clear you would not want to be a citizen in those countries – unless you were in the small minority who recieve the majority of the GDP!

    The GINI index given in most of these tables are calculated on income, which tends to reduce the actual societal inequalities because capital assets are usually even MORE skewed in distribution than income.

    One thing Australia does have (not sure about NZ) is a tightly-regulated banking sector. This left out banks in better shape than those of any other developed nation following the 2008 GFC. The banking sector is one area that does require such regulation IMHO, and the proof of the pudding is right there – Oz

  52. Luton Ian says:

    Hi Izen,
    It’s worth checking your figure for the Swedes (poorer than black Americans according to this)

    I can’t remember whether it was Mises or Hayek, (I’m thinking it was in Hayek’s “Road to Serfdom”) which quoted figures for, I think the spread from mean to top 1 percent of incomes for the US and the Soviet Union, using figures from Leon Trotsky for the Soviets. The US was about 14:1 and the USSR about 16:1 in around the 1930s. some animals were more equal than others.

    The real disparities emerge in the few remaining avowedly marxist nations, like Angola and Zim.

  53. izen says:

    @- Luton Ian says: – It’s worth checking your figure for the Swedes (poorer than black Americans according to this)

    Yes, I’ve seen that claim before, a brief search fails to back it up, While the median income of Americans MAY be higher, the Black Africans are predominately in the lowest socio-economic strata so THEIR median is much lower – especially given the wide disparity in US society.

    The claim probably doesn’t apply to the just under 10% of the Black American population the nation imprisons….
    Look at the average income by ancestry from the most recent US census and consider whether it is credible that Black Americans are averaging a better standard of living than the average Swede –

    (yes, I know it wiki, but in this case they have just processed the data, other sources are available…)

    The claim also crops up here –

    Along with the wonderful assertion sourced to KMPG that people in Spain and Portugal were the richest in Europe!

    It might possibly be considered that KPMG may perhaps be partial in their analysis… certainly looks silly now!

    If you follow up on the source for the original ‘Swedes poorer than black Americans’ – Peter Stein you might suspect his claims might have an agenda….. especially when you find his work is published and glowingly reviewed by… The Cato institute.

    I know some (many) here may view that as a credible source, but for anyone trying to avoid ideological distortions its the obverse of something like ‘’!

    Looking at available raw data is usually better than relying on commentators with unknown agendas. Life expectancy, infant mortality, educational attainment, work hours and unemployment rates for Sweden all easily exceed or better those for black Americans.
    It would appear that the Swedes are getting SOMETHING back for the high taxes they pay. -grin-

  54. Luton Ian says:

    Did you check the source of the study?
    the Swedish Institute of Trade

  55. Dr. Dave says:

    This excellent report should provide a good perspective as to what America’s “poor” look like:

    Click to access bg2575.pdf

  56. izen says:

    @- Luton Ian says:
    August 11, 2011 at 8:48 pm
    “Did you check the source of the study?
    the Swedish Institute of Trade”

    Yes, the only mention I can find of the ‘Swedish Institute of Trade; is in connection with the writer of the article – Sweden: From Capitalist Success to Welfare-State Sclerosis by Peter Stein.
    He is decribed on the CATO site as – “a Swedish economist and secretary of the Privatization Task Force of the International Chamber of Commerce.”

    There is a similar sounding ‘Swedish trade and manufacturing institute which has government connections, but I can find no link to Peter Stein. Neither is he mentioned by the Swedish equivalent of the Chamber of commerce or the CBI. The Swedish Institute of Trade’ is, as far as I can ascertain, a private advocacy organization without significant links to government or the mainstream business organisations. Perhaps someone with more knowledge of Peter Stein or Sweden can reveal more.
    But all the evidence I can find, including the main source of his writings on the Cato Institute site indicates that this is a fringe ideological economic advocacy operation rather than anything with mainstream government, academic or business connections.

    @- Dr. Dave says:
    August 11, 2011 at 11:19 pm
    “This excellent report should provide a good perspective as to what America’s “poor” look like:”

    Click to access bg2575.pdf

    I am sure we could have a long and fruitless argument about whether the possession of ubiquitous consumer gadgets negates any classification of ‘poverty’.

    The report you link to is from the Heritage Foundation.
    You may regard that as a credible source, but IF I was equally enthusiastic about ideologically slanted analysis, but in the opposite direction I could say –
    “This excellent report should provide a good perspective as to what America’s “poor” look like:”

    Personally I view the abstract concept of ‘The Free Market’ as functionally equivalent to ‘The Socialist Society’. They both embody an idea of society that does not exist, has never existed and could not exist.
    They are both an ‘ETHOS’ as defined by may favourite novel.
    Absolute and unrealizable principles that can be used as a fixed ideological position or marker from which the variance (deviance?!) of reality can be measured. Other examples would be the Catholic ideas on marriage, contraception and abortion.

    Once humans live in cities, societies always become a dynamic system of collectivism and markets. The tension between the two elements drives a good deal of the political froth, but I suspect they are co-dependent aspects of a single system – that which enables millions to live in high density urban/business cities.

    I am less interested in how closely a particular society may approach the socialist/free market dogma, more interested in how resources are distributed within a society. Resources that include a rather wider category of benefit to individuals than a TV, AC and Xbox.

  57. Ozboy says:

    G’day folks,

    I’m still on the road, should be home in about 36 hours.

    The current thread’s still topical so I won’t interrupt what’s a lively discussion. New thread next week.



  58. Luton Ian says:

    If wide screen TVs and whatever the other things are, appeal to people, then why should they not have them?

    I know that wasn’t your point, but as the balance tips more to the state, so the availability of goods and the resources available to spend on them are taken from individual’s who have found ways to satisfy others needs, that those others are willing to freely enter into a deal for and pay for.

    Instead they are put into a central plan, and (usually) into vanity projects, after significant handling fees and payments to vested interests have been taken.

  59. Luton Ian says:

    Slightly OT

    I’ve still to confirm this, but I was told that the Baltic Mills (now converted to a fancy art Gallery in Newcastle-Upon-Tyne. well, actually in Gatesheed) was originally built by the cooperative societies to receive grain exported from the Soviet Union, by Stalin, The other end of the story being the death of around 10 Million Ukrainians, whom the land, labour and produce had been stolen from.

  60. Amanda says:

    Farmer Brown, I think you misunderstand the meaning of my comment about boycotting Chinese goods. I am aware that much of what we buy in the West is produced by prison labour, or by people whose conditions of life we would consider unacceptable.

    The following is one of the blog post suggestions I submitted last summer to Damian Thompson at the Daily Telegraph, or Telegraph UK or whatever the proper name is for the online version, when it was suggested that I might have a blog of my own. He turned me down.

    Foxconn Technology’s ‘Suicide Incentives’

    Is it an ‘incentive’ to commit suicide at work if your employer makes posthumous pay-outs to your family? This is how the news of 13 actual and attempted suicides, in one year, at a Chinese live-and-work compound was reported in the Western media. The idea that one can be ‘incentivised’ to chuck it all in, eternally and for non-existential reasons, is nothing less than bizarre. Can you imagine workers at a Vauxhall car factory jumping off buildings for the sake of a juicy suicide pension-extension? Now, if you think for a moment about living among 400,000 other workers, on one of two ‘campuses’, as they are called, for what amounts to prisoners’ wages, in a Communist regime that cares little for the rights of the individual, it’s hard to believe that life is a bowl of cherries and ambrosia. Never mind ‘fat farms’: if you want to dull your appetite for life, move to a ‘campus’ in China. In those conditions, with no meaningful freedoms and nothing more on the horizon, it would hardly take a $15,000 pay-out to ‘incentivise’ suicide. If these people need ‘incentives’, their dismal lives provide plenty already.

    People around the world differ in a million ways but most of them are life-clingers, with a simple, instinctual will to live. Survivors of POW camps and other atrocious imprisonments have told tales of grasping at anything that seems good or that allows hopefulness: an illicit raw egg brought by a prison guard, a cross drawn in the gravel by a secret Christian, a glance of solidarity from another prisoner. One victim of a Nazi camp even drew comfort from the sight of a cigarette butt, as a sign of life. So the idea that paltry pay-offs can overcome fundamental drives or put them where they don’t exist is absurd.

    If 13 people were desperate enough to take the money and jump, just think how many of their 400,000 colleagues feel nearly as wretched, but hang on to life and limb anyway – and would willingly lose $15,000 if they had it, to keep struggling in the hope that things might get better one day. Foxconn itself accepts this. The company has now ceased the suicide stipend and has more than doubled everyone’s wages. That is a real incentive – one that makes life easier, not death. The fact is that, whether they decide to live or not, people in oppressive regimes are always closer to the brink than we imagine, their lives an endless stream of broken hopes and unspoken agonies. This news story is not just about a baker’s dozen of Chinese who took a short-cut to getting out, it is more fundamentally a window into the lives of the whole 400,000, and countless more millions just like them — a reminder of what it costs in human happiness to live in a workers’ prison camp.

  61. farmerbraun says:

    Amanda, I see now what you were talking about. The company I deal with is Ecolean, Swedish -owned and manufacturing in China. There is no comparison with the situation that you describe.
    I do think that China may not be alone in having workers’ prison-camps such as you have described.

  62. Luton Ian says:

    France, Spain etc have banned shorting of bank stocks.

    I know shorting gets a bad name, but…

    Some folk make their living by identifying what they consider to be over valued stock, and shorting it.

    If their judgement of likely future earnings is different to the majority of investors, then the stock will soon re-appreciate, no long term harm done.

    If other investors take a closer look at the company, and agree that its stock was over valued, then the price change has conveyed useful information to everyone, including the company management, and potential corporate predators.

    Strikes me that some of the Euros want to silence the messengers.

    If the banks aren’t overvalued, then the shorters will take a bath, and the Eurocrats will have the last laugh and be vindicated.

    Those banks aren’t overvalued, you Eurocrats… are they? – Oz 😈

  63. Luton Ian says:

    I’m listening to Nick Leeson, and his ex wife, and his former big boss on BBC Radio 4!

    He lives in Ireland now, and has been on the radio quite a bit, pointing out that the Irish banking crisis was little different to what he went to prison for.

  64. Luton Ian says:

    I thought you guys down under had a fancy taxpayer funded cricket academy, to avoid just that sort of thing happening.

    All in good time – Oz

  65. Luton Ian says:

    A good quarter of a century ago (and many many test match centuries ago) I was paying a visit to one of the Geology lecturers at Durham Uni.

    He was speaking to a student, and after the student was out of earshot he said:
    “some day, I expect that young gentleman to be one of England’s best cricketers”.

    Years later, some Durham graduates told me he was likely to be Nasser Hussain. He’s one of us – in the geology sense anyway.

    I knew about that – not sure if I can match it with a story from this side of the planet; Bradman was a stockbroker FFS – Oz 👿

  66. Luton Ian says:

    Supposedly some uni departments were alleged to select students on basis of sporting ability, yet their graduates were reckoned to be as successful as those which claimed to select on academic grounds only.

    I guess we’ve had tax funded sports academies for a long time, they were just in stealth mode.

  67. Luton Ian says:

    The pound went from £1,000 / oz gold to £1,100 /oz gold last week, a loss of 10% of its value, which may account for some of the “stabilisation” seen in the Dow – the actual loss in share prices being masked by the dramatic loss in the purchasing power of sterling.

    There is a very good piece at mises daily by Andy Duncan, primarily about the looting in Britain, but which also points out that up to 1914, £4 Sterling had held constant value of 1 oz of gold for 200 years.

    I get the uneasy feeling that the “interesting times” are yet to come. Maybe after the US [p]Residential elections? if the can will survive kicking that far down the road, without the much needed liquidation phase starting, or, heaven forbid, more wars and riots to distract us while the printing presses run.

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