Labor-ious to Watch

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Did anyone watch the live coverage of the independent’s decision to back Labor? We caught the last few minutes. They were remarkable enough. It went something like this:

“Why do you think that the coalition would be more likely to go to [back to] the polls?” a reported asked.

“Because they are more likely to win!” replied Tony Windsor.

So you’d think they are going to back the Coalition then… The party who would most likely win the democratic election… Nope.

“Aren’t you defying the will of the Australian people?” another reporter accuses the independents.

They reply, “We asked them: Do you want to go back to the polls? And they said no.”

The independents continue with, “We want to keep the minority government alive, not find out who has the support of the people. Two completely different questions.”

One of the independents mentioned they want to back the party, “Who’s got more to lose from [us] not supporting them.”

And to sum it all up, Rob Oakeshott comes up with this gem: “It’s going to be a cracking parliament. Beautiful in its ugliness”.

Oh well, more to write about, I guess.

The situation reminds us of this story involving nudity being used as a weapon to thwart a car thief. The major parties have been so desperate to get away with minority government, they now find themselves with company they don’t particularly like the look of.

The hammer and Fidel

As one bunch of commies declare defeat and give up, another bunch are ramping up their efforts. A journalist from the Atlantic Monthly magazine asked Fidel Castro, “If Cuba’s model — Soviet-style communism — was still worth exporting to other countries.”

The admission in reply: “The Cuban model doesn’t even work for us anymore.”

Oops.

But Hugo Chavez is undeterred by his comrade’s demise. He has decided to introduce a food card, similar to the ones used in Cuba (apparently). The idea is that you conveniently pay for food with your card. Problem is the aptly named “Good Life Card” lends itself rather well to rationing. That’s what the Cubans learned the hard way.

In this environment, even central bankers seem sensible:

If the intention is to beat inflation, they should find a good source of supply for the entire market and not only for centers that are part of social chains,” former director of Venezuela’s Central Bank, Domingo Maza Zavala, said. “To do that, you need to encourage local production with the help of the private sector, since they cannot do it by themselves. The government cannot become the ultimate food distributor.

Ooo. A central banker admitting central planning can’t get complex tasks done. It’s unlikely the Cubans will be able to go into debt on their cards, which puts them head and shoulders ahead of us in the developed world. For the record, your editor uses a debit card and rents. As misled first homebuyers will tell you, a debt free life was a “Good Life”. Card or no.

Speaking of central bankers, they are probably the closest thing we have to communists here in the land of Oz. (Yes, the Greenies were given due consideration.) The idea that a government entity should control the quantity and price of money (interest rate) sounds rather like the Good Life Card, doesn’t it?

Banks dropping like flies

What is the meaning of dropping like flies anyway? Flies fly, don’t they? Maybe someone was being witty.

Banks certainly aren’t lifting off in America. Economics guru Dr Doom Jr. (Nouriel Roubini, not Marc Faber) reckons more than 400 American Banks will fall. Sorry, “fail”. That’s more than half of the 800 on the government’s “critical list”.

Roubini has been making some other valuable points. Firstly, the stimulus is going to begin depressing the economy. Sounds stupid, right? Well, the point is that stimulus may have stimulated economic activity into action. But as stimulus ends, the economic activity that was created will end too. The multiplier effect works both ways. Just like lots of other things.

(If you bothered clicking on the link, you can imagine whoever was in charge of the German central bank during the Weimar years holding the watermelon. Or Gideon Gono of the Reserve Bank of Zimbabwe. Ben Bernanke (Federal Reserve), Trichet (ECB) and Merv King (Bank of England) will be getting a mouthful at some point.)

Back to the failure of stimulus. As Nouriel put it, “tailwinds become headwinds”. Where stimulus was, a void now appears. It’s kind of like watering the desert with a watering can. Stuff dies when you stop pouring. The problem is that this leaves President Obama with a situation where more stimulus won’t help. Obviously, the first thing he does on this news is to announce a new stimulus package. His defiance won’t work.

“We have to expect the new normal,” Roubini claims. “We do not need a double dip for it to feel like recession.”

Our analysis of all this is that stimulus got the US nowhere, except into debt. There was no real water in the watering can to begin with. The correction wasn’t avoided. It was delayed. And made much worse, as the entire financial backing of the US has been gambled on a recovery that won’t eventuate. And the financial backing of the US is the financial backing of the world.

But still the stimulists continue their campaign. Not content with the excesses of the past, they advocate the excesses of the future – as a solution to the excesses of the past, no less:

It is possible – indeed, necessary – for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.

Please read that quote again. And again, until you feel your blood boil. If it doesn’t read this.

Only a Nobel laureate like Paul Krugman would write that. (Only the New York Times would print it.) It should be the Keynesian intellectual family motto. “It is necessary for the nation to spend its way out of debt” and “excess can cure problems brought on by past excess”. If you could translate the above into Latin, please send it to dr@dailyreckoning.com.au. Perhaps check out Emperor Nero’s family motto for a guide.

But even the Roman Emperor did better than Obama with his spending. Rebuilding Rome outclasses this performance by miles:

With a few exceptions, the data show little correlation between the level of unemployment and stimulus spending. In fact, the opposite is true. The federal government has given far fewer stimulus dollars to states with high unemployment than it has to states with low unemployment.

Oh well, at least our Aussie politicians aren’t that stupid. To quote a former minister, “how do we sleep while our [roofs] are burning?”

What happens when a bank stubs its toe?

It took the intelligent part of the financial world seconds to spot the flaws in the European bank stress tests. The result itself was a giveaway. Heck, it was predictable that the analysis would be a joke. Several weeks after the result, the rest of the world has come to the same conclusion. (This performance is better than usual and our comments are intended as a compliment.)

The underpinning problem of the EU banking system is the sovereign debt that is at risk of default. And this default scenario is one of the things that was excluded from the banking stress test. I mean how dumb can you get? Even dumber, according to the Wall Street Journal. The exposed flaws are too long to list.

Cardinal sin

This one should be included in the Guinness book of world records for hypocrisy. It refers to the fact that the Greeks still haven’t disclosed their true debt figures to the EU. “What the Greeks did was an absolute cardinal sin. They deserve to be punished for it. I think they have been severely punished for it.” said Ruairi Quinn, former finance minister of … guess where?

Ireland! One of the Is in PIIGS.

Better still, this is the guy, “who presided over the 1996 meeting where debt and deficit limits for countries joining the euro were set.” In other words, he didn’t do his job properly at the time, which led to excessive debts building up throughout Europe.

Shady dealings don’t make the bond market happy, which is leading to high yields that the Greeks have to pay on their government’s debt. That’s the punishment Ruairi is referring to. But keep in mind that it’s the politicians and head honchos of the public sector that did the shady deals, while it’s the Greek taxpayer that is being punished.

State of the European Union

To find out how sentiment sits amongst Europeans for their Union, check this out. It’s good entertainment value too.

Isn’t it nice to be sitting on the opposite site of the globe, atop a pile of iron ore, while Europe squabbles? Each time sovereign debt troubles flare up, the global financial market wobbles. We are all in this together isn’t always such a good policy.

The pen vs the sword vs humour

Hey, who hijacked the meaning of speculation? Speculation means thinking, pondering and wondering about things, doesn’t it? And now it’s synonymous with evil betting. Here are some more analogies of how the world has changed due to the financial crisis:

  • CEO’s are now playing miniature golf.
  • The economy is so bad that I got a pre-declined credit card in the mail.
  • Parents in Beverly Hills and Malibu [think latte drinkers of Lygon Street] are firing their nannies and learning their children’s names.
  • A truckload of Americans was caught sneaking into Mexico [think walking forwards from Melbourne to Burke]
  • If the bank returns your check marked “Insufficient Funds,” you have to call them and ask if they mean you or them.

Thanks to the reader who emailed them in. We can’t figure out the original source.

Yours,

Nickolai Hubble.
The Daily Reckoning Week in Review

P.S. Just to keep the controversy rumbling, check out climate science’s latest stumble. And China’s solution to energy targets: turn off the power.

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
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Comments

  1. My parents met in Bourke, nice town too in the 50’s with a great social life for the young that took town jobs out there. Now isn’t that a proposition that would have Nickolai’s perceptions in a spin. All downhill at Bourke after the Korean War wool boom though and that ground is only OK for so many years, especially with sheep that rip up the grass by the roots.

    I wan’t to transcribe Marcia Colish selectively on Thomas Aquinas (and remember this is the Aquinas that was the champion of demand based pricing) below:

    The single most influential ursury theorist, not only in his own century, but foe the rest of the middle ages was Acquinas. His authority on this subject was massive, swamping the cause of the moderate canonists and convincing toher scholastics however opposed they may be to Thomism in other respects. Acquinas is a rigorist who calls on natural law, Roman law, and Aristotle alike, using them as sources for arguments against a practice which neither Roman law nor Aristotle found problematic. Aquinas on ursury is thus a good example of the medieval rcycling of authorities to achieve the desired conclusions. As Aristotle says, he notes, all things have final causes. For its part money is not an end but a means to the end of securing the goods we need. Ursurers, Aquinas argues, confuse ends and means. They make money for the sake of making money.

    Acquinas has two other arguments against ursury based on natural law theory, one invoking Aristotle and the other Roman law.

    By nature, he asserts, money bears no fruit. Its function is to measure the fruits derived from economic activity. In making money out of money, ursurers thus commit a crime against nature. Money, moreover is a substance possessing matter and form. The fluctuations of the economy and the correlative changes in the purchasing power of money are material. The formal attribute of money is the face value stamped on coins. Now, if money itself were sold, Aquinas continues, its formal character, which is its changeless, essential, and intelligible principal, would be submerged into its material character, since its price would fluctuate along with the market. This outcome would annihilate money as a substance. Money, he concludes, is a non vendible commodity, the measure of things sold but not saleable itself. This argument, a highly original one is also a triumph of Aristotlelian metaphysics over economic reality.

    Acquinas offers a final argument based on the idea that ursury conflicts with the nature of money. In it he calls on a Roman legal distinction between goods consumptible in use and goods not consumptible in use. Payment in kind is an example of goods consumptible in use. After the goods are eaten or used their value is no longer available to the payee. A plot of land on which crops are grown is a good not consumptible in use on the land (ross’s note – beware Bourke above). The owner can profit, repeatedly, from the crops grown on the land without dimishing the land’s value. With this distinction in place, Aquinas states that money is a form of goods consumptible in use. Since money is consumptible in use, the use of money cannot be distguished logically from the substance of money. Therefore, an ursurer who loans both money and the use of money and receives back the money loaned and a fee for its use is guilty of selling the same thing twice, the money and its use. He sins against natural justice. Like Aquinas’ other arguments, this one is grounded on the idea that money by nature bears no fruit.

    Ross comment again below,

    Obviously the market said differently to Aquinas and demand and tradeability (which he uses in his pricing theory) created the value of money and ursury. But I’m not sure the basis of the issues that he has raised here have been dealt with sufficiently, expecially the first one.

    Reply
  2. I’m confused, Ross. This ursury of which you speak… . Is this ursine, ie., perhaps the traditional monetary unit of bears? I _usury_ understand your posts, but this time I’m baffled… .

    Reply
  3. Ursury is charging someone interest Biker. Muslims still don’t allow it. Neither did Christians officially through medieval times.

    Reply
  4. I think the Christian objection to usury was probably a very subtle xenophobic tactic. The Jews had practised usury long before Aquinas’ time and the whole thirty-pieces-of-silver paradigm was an effective example to illustrate their incredible wickedness… .

    Reply
  5. “Ursurers, Aquinas argues, confuse ends and means. They make money for the sake of making money.”
    And then we have this to explain how that works out…if only it was so simple :)
    http://www.youtube.com/watch?v=NIfH0vY2ANA&feature=rec-LGOUT-real-rev-rn-1r-1-HM
    But the grand deception is grand.

    Reply
  6. I’m with the Pagans on this one – There is NO way I’m lending my loot in this world to anyone who tells me he believes in an afterlife without gaining secure title to all that he owns and that he or his ever could be or could ever own ever again! ;)

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  7. … “believes in an afterlife” where everything gets squared up …

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  8. Who are these damned ursurers?!

    http://www.yourdictionary.com/ursine

    Cashed-up bears, right?!~

    Reply
  9. Sorry BP I think your on the wrong track. Its a spelling error but understandable post consideration of possible distractions.
    The most likely contender.
    http://www.nndb.com/people/897/oooo23828

    Reply
  10. Nothing more than the bear essentials, Lachlan… ! ;)

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  11. What happens for me is that economics can sometimes seem anti-human, and it is that aspect I can take offense to. Money can appear to matter more than people, with the tremendous irony that it is people who ultimately make most people, in my observation, happy. It can look like a lack of common sense.

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  12. nice comments Ross. I’ve always actively not understood the realtions between abstract money$ and on the ground realities.
    as for the Muslims doing fees and not interest, I should do some research on it. if the fee goes up with risk, then why is that not interst. and where does the excess money required for the fee come from, if not from printing more money?
    as for the Cubans, they grow something like 60% of their food in urban gardens.. they were forced to by the polically inspired sanctions. as a beneficiary in the last few months of a halving of dietary intake I can confidentally say that eating less is good for you, up to a point of course, something short of a vanishing point I would guess.

    Reply

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