President Obama’s effort to raise funds to inject into the system will have a number of effects. One of them is not “problem solved”. Pretending that providing more capital to the people will somehow reactivate the flattened markets may have been generated by media expectations but it simply is not real.

It is aimed at saving a number of American families from going to the wall while the bankers sort out the stale paperwork. It also addresses the generalized shortage that prevents the middle class from spending, but the over charging by credit card companies combined with hyper aggressive status marketing has led the average consumer into a very expensive position. There is simply no escape from New Zealand’s (Australian owned) banks charging of rates up about 22% or even 23% in today’s market it is nothing short of criminal.

Pressure by the Governments to bring down the interest margin to a more reasonable level is supported by numerous lower rate debt transfer programs. But the banks want to keep their outrageously distorting rates due to the increased risk they face on the debt.

This is outlandish. Maybe the banks should market a program of credit card debt reduction instead of increasing limits to encourage more spending.

The dual effect of cheap Chinese productivity and excessive consumption in those countries now facing a devaluation of their currency means that those countries will suffer. That both are major trading partners in much of the “Western” world means the disease can spread.

Apparent complacency on the part of the new National New Zealand Government was raised to new heights as John Key seems to continue to find photo opportunities at the edge of any dark cloud. To the extend of lending his name, and image, to a campaign to sell his blue cast when it’s fixed the Prime Minister’s broken arm. Broken by clumsy misstep on a New Year stage exit. An accident.

Having suffered similar injuries all I can say is that it seems to me that John Key is trying to project a positive image as he feels he must and so far his entire political life has been preparing for what he now has, but his bloody arm! What a tragedy for the early days of his office. It is great to set an example as a very wealthy man but, no matter how you look at it, there is something quite odd about the Prime Minister’s medical cast being up for auction in the first place. Especially it being what puts him in the news. Call it connected, the MeSpace generation self declaration as affirmation of being? He must be finding the UFO like blue cast a bit distracting when he looks in the mirror each moring to affirm for himself “You are the Prime Minister. You are. It is not a dream. (That other thing, now, that was a dream!)”

What is our new leader doing “Right NOW” ? Maybe it is not in the public interest to publish his coordinates or even detail every action. But openness from the White House means sanity and representing actions for what they are rather than painting the pretty picture that your dumb manager insisted upon.

But it is in our interests that articulation of hope translates into actions that keep people in their jobs and bettering the world. The empowering of the average person is not going to do much more than increase their chances of pulling through intact. Luck changes. We are paying for all our assumptions about greed driven economics.

Karma may be a better model. Anything is better than what these Monetarists have dealt – by distorting the markets into false confidences based on distortions of the truth has violated the trust of investors.

How do you restore confidence? By open regulation and the frankness we are coming to recognise as the style of this president who does not pause.

It is an extraordinary start to what looks like extraordinary times. They have to be or we are all going to be licking food stamps.

Make the blown out derivatives and securities irrelevant. Cancel the illogical contracts with law. The USA has not been able to reconcile with itself due to years of leadership that has quite literally put faith ahead of logic. Even voting Barack Obama was clearly an act backed by faith ahead of the competition.

To have faith, you must be able to believe in the person. The competition for the White House was not exactly credible, and more-so in retrospect. The only viable candidates for President did not include Republicans. It is now almost ridiculous to contemplate the alternative. The USA is in serious danger. The bailout is merely treating the symptom and it is not what will solve the crisis. It is a breathing space and what we do with it collectively will extend or shorten the continuance of this crisis.

It is a crisis made by the cumulative effect of doing the wrong thing with finance so badly and for so long nobody noticed. It was not just that the Iraq war was fought over false rationale, but that it cost hundreds of billions of dollars year after year. The vacuum accumulates and requires more and more each year to keep up momentum.

The only path out of debt requires that you stop borrowing and start paying. President Obama’s call is not just for funds to keep American lives intact; rents and mortgages being paid so that liquidity does not suddenly just vanish.

The next step is that we must embrace the breathing space – and advance our own economic progress. How many of us reluctantly go to work out of need instead of the old pioneering spirit and a need to make one’s mark? The old fashioned values of extraordinary acts by ordinary people being valued must return. The selfish indulgent culture of “me” epitomized by the recent Time person of the year (“You”) and the rise of the alter of the self indulgent amateur (the Web 2.0 “revolution”).

We need to stop playing with these toys we invented and incorporate and scale them into our lives to become more productive. We need to learn to do more than merely being terribly well accepted or merely cute.

I am not knocking Web 2.0 culture. I am saying it is time to recognize that our nascent electronic culture can advance itself at a faster pace than before. We can take advantage of this breathing space with vastly improved networks. The baby stars of the internet today are like the stars of early film. The potential of the medium is to free us from the bonds of slavery to the great vacuum. The potential to organise humanity more efficiently so that the extraordinary contributions of individuals become valued productive contributions.

The new growth is progress and quality. Not so much work more or harder but to make your actions count. The inverse of war. Collective constructive effort and planning; the gearing of communities; the peaceful resolution of conflict; the preservation of intellectual capital and the promulgation of knowledge – has established a new valuable to society. A new evolution.

In case you have forgot what is causing the “financial crisis” gripping the world in static non-investment, read this NY Times article by Alan Blinder – Six Errors on the Path to the Financial Crisis.

When considered retrospectively, it certainly seems like another one of those things “they should have warned us about”. The role of Government is oversight; but the role of the monetarist post third-way committee of inspired insanity we have been calling Government has been to submit us to ten years of extreme capitalism to prepare the world for some utopia. Trouble is the electorate became greedy as their mortgages became insignificant and their property values escalated things seemed dandy.

Trouble (for Gordon Brown) is that the electorate is swinging away from Tony Blair and his pretense at being a Labour Government in the UK. Gordon Brown’s supreme act of socialism will be to nationalise the banking system? He could. He is not the only Government weighing that option. Is that a financial utopia?

The world just turned a great big corner and we could finally now realise that constant speculation about OWG (One World Government) and being branded with bar codes – the age of fear – the age of conspiracy – it’s over. American culture celebrated this and it celebrated vampires. The walking dead. You gotta wonder why.

It is not the twists and turns of our culture that have caused the financial disaster they are calling “the meltdown”. Read the linked article above for a full description of what caused it (or read Disturbing Trends historically, but that would take far longer).

The way back is to cancel the CDOs that are dragging the system down. Make instruments non-insurable except by the actual current owner and then only allow one payout on insurance hedge bets. Do it retrospectively and wind back some of the nonsense.

It is never going to be a fair recovery when already execs expect to walk away with 30 million dollars in a golden handshake after cash injections by the tax payer. It is not business as usual. Those taking money from the tax payer however legit should consider surrendering a goodly portion of what anyone would recognise as ill gotten gains.

If that is impossible – well it is not impossible, but payment of 61 trillion when no capital is changing hands is impossible. It is either that or allow the economy of the world inflate to enable that additional capital to exist – like an international scale Zimbabwe. Is that where the economies of the world are headed?

Probably not. But the warning signs are there and they are far worse than we ever considered likely. At least it will be a Northern Hemisphere summer as the effects of layoffs start to really bite.

Afterword: also, check this article in the NY Times, especially the last three paragraphs. One guesses that I can quote it – as I have argued the same that Mr Geithner has been arguing (much to my surprise).

Failure is an option. To eject those who now exhibit signs of financial dementia with a safe but realistic exit option is reasonable – but to not effectively insist they are taken out of the future map of investment decisions is futile. If 61 trillion dollars of new capital is added to American and UK pool – both economies will suffer devaluation of what portion that is to current total capital to fund those contracts.

It is an option. It will affect the world economy. But these “bonuses” are based on laws that were being used creatively to squeeze funds for personal retirement funds of executives who did not in fact bring any value beyond actual growth to their own portfolio. It is as though perhaps the world has become so obsessed by gambling which is not surprising considering the nature of the human soul.

There are those who worked for genuine reward and there are those who have not. They know who they are – in the end it does not matter. A country depends upon the intelligence of rich economic manipulators (like insurance giants) to legally exercise choice with money, ultimately led to a plethora of greedy decisions. To fix the problem Western Governments are prepared to continue to inflate their economies, just enough so that leverage takes over and grinds these fruitless contracts out at a huge discount to counter capital gains tax?

In a world with all this additional capital, it has the potential to be extremely inflationary. It may seem like the start of a depression because the banks do not know what liabilities they will suddenly face. It looks like one because all these companies are being driven by a belief that they have to layoff staff like mad. It is utterly silly, decisions being made to make the numbers look good.

Why do we not recognise this for what it obviously is?

Next article to explore that…

It took Bush 8 years to fail to do this. It would have saved an awful lot of public purse squeezing, but then again that was the Bush objective. To bring about financial Armageddon.

Conversely, it has taken President Obama about 48 hours to start moving on regulations that Bush has ignored since September due to his “faith in the market”. The market has behaved pretty much as you would expect with the policies Bush championed.

I predict that if Obama can get his Democrat house to agree to this – that the recession start to be over and may just take one year instead of ten.

Disturbing trends predicted that Bush would need more bail out funds and it looks like we sort of got it right. Though he has left the White House, he is still technically President – and the Bank of America and Citibank are moping up the bail out cash like blotting paper. It is not the end yet. But it may be the end of the beginning of this crisis, although I have seen that prediction before.

Sorry, we were right. Them pesky derivatives.

Independent.co.uk

A question in The Guardian (UK) was – will we miss GW Bush?  My answer…

“Bush did his best against odds that his imagination had no room to consider. His stern resolve resulted in near total collapse of the world economy, the peace forged from WW1 has been damaged and America is seen in a completely different light. Miss him? In a “grizzly beat took my eye out but I still feel for the old beast” sort of way.

See: The Guardian

The memories of the last eight years are not complete without an understanding that a person was controlling things in the White House that did not understand economics but treated the entire game as a machine he could manipulate.  I agree with the sentiment of another opinion piece – why have a rich person in control – they generally got there due to the actions of others.  Why not a genius?  Perhaps GW Bush has simply enabled democracy to take the next fabled leap – without GW Bush millions of Americans would still be moderately well off.  His economic policies seemed aimed at subjecting everyone to substantial economic risk.

That article, from April 2008 shows the start of the end for 1.5 million American taxpayers who queue for backruptcy protection then.  Made it easier for families to bankrupt themselves.  Interesting form of herd management.

From the blogs:

“Bush has not bequeathed us a shining city on a hill in Afghanistan, but a crippled state in need of billions of dollars of investments that we no longer have because of Bush’s kleptomaniac buddies, whom he enabled.”

Juan Cole

The Credit Crunch has been in the news for over a year and many have not noticed anything except the news being reported. But for some it has been horrible and life changing. Houses bought on zero or little equity have turned into negative equity and being forced to sell in those conditions is locking that loss into reality.

Credit card debt has been the silent bane of many lives removing any hope of wealth, usually when it could do the most good. There are about five stages of any life, and after young families with their expanding social needs are very likely to quickly create a mountain of debt without realizing just how difficult it will be to reduce it. Years later, the seething remains still extract a portion of their pay-cheque and a greater portion of their youthful promise has been absorbed into a life of debt. Stages 3 and 4 of many lives are spent undoing what they enjoyed in Stage 2.

“Generation Y” seems the most adept at accumulating debt. The student loan culture experiment that “funds education” is nothing but an extended form of slavery. It is an intergenerational con. We will teach you kids if you sign your life away here, here and here. Now you work and pay it back! Political pressure keeps the interest on such loans minimalised until the student decides to strike out on their own, and then it is pretty similar to a mortgage.

Mobile phones are in the same league. How many 18 – 25 year olds spend more than they earn? How many run up huge bills on their mobiles?

But now, we have a whole new problem. The wild enthusiasm getting into debt now has to find a way of going the other way. We have had a credit crunch. Next we have a huge consequence. Will the debt not get repaid?

Defaulting on a huge scale leaves lives undone. Not just the lives of the defaulters. Their families and the people they do business with. Not to mention their bankers.

2009 could be a very rocky ride. Economic extinctions are the real threat. When sections of the economy cease to exist. These bail outs mean that the extinction is now a shared thing. It will affect a larger number by letting the economic cancer spread.

Economic Responsibility

The elephant in the room was ignored way past its fat carcass rotting in the corner. The consumption of average American is unmatched in history. The output of the average Chinese is unmatched in history. To compete in the big world, the Chinese made their products less expensive and held their currency very low and the Americans had ridiculous wealth. Over generations this leveraged American citizens into debt, at first by the liquidity arising from short term debt (credit cards) which returns lots of value as payment demands mount, so does liability ramp up. In other words, debtors are given reasons to pay them back (to US banks). So the secondary mortgage market and being able to work the system. By arbitrage on property sales, investors were being given a free and rapid rise. This lead to an increase in property investment vehicles and these in turn would lend on their “assets”, thus becoming, in effect, banks. The additional capital availability was then leveraged into bonds and futures and then derivatives. As the money served more and more future up now based upon this internal explosion of capitalisation. The consumers vs producer equation went seriously out of whack. Why do we consume so much? Maybe it is just risks taken are more when there is an excess of capital. The US excells at bigger and better, but sheer quantity is another type of strength.

The trick is to leverage both together. To understand how our different economies have evolved to serve our society and live with a relativity to one another. Competition is for rats. We humans can enjoy our path of life without having to win. Losing is now also quite a lot of fun.

Does this mean American consumption has been making China economically successful? What happens next as Americans can no longer afford to buy buy buy.

It seems almost fashionable to be fatalistic, and there seems a slight gasp when economic conditions are mentioned. Nobody seems to have a definite plan, but having a definite plan is the key to success when things are good. Why should it be any different now?

Normal things are not that easy, either. You always have to try hard, to make a go of things. Orderly thinking is good. Planning is good. Dusting off a few of those management skills that they used to talk about. But the question is, what is the world going to want as everything else, including imported goods descend in value. There may be a time when a car costs five hundred dollars and nobody can buy one.

Unlike Zimbabwe. As the rest of the world edges with depreciation, this land is being throttled with extraordinary inflation. It is being ruined by a leader ten times more dumb than W. He knows what to do. And by George they had better do what he says or he will have them shot. There simply are not that many humans, historically, who could cause so much misery as Mugabe has. Zimbabwe would be better off if a pile of shit ran it than the power mad imbecile, Robert Mugabe. It is time he gave it up.

George Bush is trying to do something similar to the world economy.

The path that GW Bush has set the United States upon is inverse socialism. It is regression. It has produced an incipient depression in the world economy by creating a inverse bubble. A huge cash vacuum has removed 2 trillion from the American federal reserve.

To reduce the treasury into a funding agency for the seriously wealthy, bankers and those who take a cut from everyone, is grand scale theft.

It is a brutal feudal solution to the problem of the masses. The enormous populations of the world are increasingly applying economic pressure to the social competition between “races”. It is interesting that in English at least we choose the same word “race” to depict each strain of humanity, each wild attempt by God or Nature at maxiumising survival odds; and, the mad dash for the finish line of runners, horses or companies in the stock market. The implication is that in our frenzied dash toward death we are in competition. The leemings that do not fall off the cliff live to try again another day.

Social evolution could see human communities feeding each other due to their cooperative understanding and mutual wealth and living within its means. Trade was the connective tissue of the late twentieth century.

Consider a mad bear, thrashing about on the ice floe bent on the destruction of the reflection of that “other” bear mirrored in the sunlight – isolationism can lead to war. Destruction to remove elements of the economic equation as in the image of Nero and a burning Rome or Nakasaki or the WTC – flatten the old order to bring in a new order – this is the product of the Bush world. Like that game where you hit moles. Keep paying the banker like this, and ten more will arrive needing “bail out”.

Now it is the automotive industry asking for tax payers funding. The great American Auto Industry is so symbolic and such a huge employer that the new Government may prop it up until it starts to produce a product that people want and does not corrupt the environment by burning hydrocarbons, then it will no longer need support.

But just giving them dosh to support their largesse is simply bad management. The oil corporations and the consumers of their product rely on the social cost their product exacts. If we, the tax paying inhabitants of the world were to charge the oil/vehicle industry what they cost, it would cost more than the bail out.

One expects Barack Obama’s administration to do something smarter than paying for supplication. Like attach new non-polluting technology to the loans to the auto makers. It is a first step away from the antediluvian end game that GW Bush is playing out.

Roger Cohen in a NYTimes opinion piece suggests that America is built upon the survival of the fittest and that has to involve the death of the unfittest as in the case of Pan Am. Recent times has seen an unnatural injection of capital into an engine that does not want to start. Why is the response to 0% interest so slow? Because of fear?

Fear of death drives us to do something about survival. As the indulgent soon learn – cash will simply run out. That is because it is merely a reflection of effective productivity. The great failing of the Bush years was that America effectively stopped being productive. Completely indulged in the wild fantasies of a meglomaniac who could not protect America because the facts did not line up with his thinking.

To solve the financial crisis, connect productivity to wealth. Tax capital accumulation and reward work. The Bush way was to allow rampant accumulation, which in turn leads to excessive speculation as has occurred with the property market distortion. People do not see this rush on capital as growing pains, but when you expand the effective capital base of the community without any actual exchangable accumulating, the sound of the bubble popping is inevitable.

A social correction is about to occur. If governments raise taxes from consumption and capital, but returns it for productivity and we find a way to stabilise our population, we have a chance of living in a real nice, if somewhat degraded world. Carry on like we are, it will be far less wonderful for our grandchildren.

Tax transactions, especially speculation. The “free market” seems to be a very unfair mechanism when the bankers carry no risk as well as no cash. Taxing income vs expenditure stifles progress and ultimately provides cause for speculation. Ecomonic systems work due to exchange. Encourage profitability, reduce consumption. Invest in education.

Reducing world population would then be possible without the mad house of cards falling over.

NZ Herald reports on New Zealand’s fresh prime minister John Key who just won an election and has formed a progressive doubled valved powerhouse with Right Wing and Maori support – a clever prank or a progressive miracle?

It could be an opportunity for Maori to find new identity as a treaty partner (the Treaty of Waitangi was unlike other British colonial constitutions – it was a power sharing agreement, and maybe, just maybe, that is what is evolving now); or, it could become an impossible machine that just consumes energy instead of providing it. It is new ground, politically, but with the highly intelligent Dr Pita Sharples as Minister of Maori Affairs there is hope that genunine political traction in his hands will help transform Aotearoa, New Zealand.

In true business leader fashion, Key’s first act once forming this unusual government is to leave them to it while he meets at APEC with the rest of the worlds’ leaders. And he instantly is trying to get his view heard on centre stage – his voice is on the same side as GW Bush (who wants to meet with Key) – that the world markets need to be stabilized. Alan Garcia – the leader of Peru – and host to the conference has descibed the world market glitch as “growing pains”. Key seeks to increase regulation around times of economic growth. Good idea? We think so.

Meantime, American business leaders have warned that if the 60 trillion dollars worth of derivatives are not “deleveraged” from the market, we are facing “absolute carnage” on the market.

This APEC meeting is the last chance for the world’s leaders to:

a) override the legality of multiple insurance bets on assets not owned by the owner of the contract. By override, I mean cancel, burn, reduce to no value.

b) get honest about world trade, make it an even playing field with unbiased referees.

c) undertake a rewrite of the financial system to reduce the additiction to “growth” as the sole goal of economics. Stop labelling those, who oppose the logic of continual growth, communists.

Downside economics are not like upside. It is the opportunity for Governments to fix the broken veins and arteries so that productivity does has its rewards.

The 60 trillion dollars worth of speculative derivatives are simply of no real value. They do not represent growth of anything but the bank accounts of the henchmen. And the draining of all blood from the unwitting mortgage holders.