The Daily Reckoning Australia Day Special Edition

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*** Commercial property goes on the dole…All Ords Hit Five Year Low…RBA to save the day…and more

*** Wages of sin…Mommas should now be urging their babies to go into other lines of work – politics, maybe…

*** Everyone wants to offload the risks of the financial sector onto the taxpayer…practically the first thing we hear from the Obama administration is worrying…

*** Property development in Europe is a disaster…the best of the web…and more!

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From Dan Denning in Melbourne:

–Fire up the barbecue, but make sure you don’t burn the commercial property market! No matter what you call it-Australia Day to some, Invasion Day to others — today commemorates the landing of the First Fleet in Australia in 1788. Maybe that’s the same day that Australia’s love affair with property began.

–The hot subject today is commercial property. With the lines of global credit available to Australia being cut one at a time, asset values in sectors that have taken that credit for granted over the last twenty years are under pressure. In to this inevitability of falling asset values during a credit deflation steps Australia’s intrepid Prime Minister.

–The Rudd government announced on Saturday plans for a fund that would make loans available to commercial property owners unable to roll over-loans in the international lending market. The Australian reports that, “Mr. Rudd said he would pump $2 billion of public money into a credit fund accessible by owners of commercial property such as shopping centres and office buildings if they lost access to foreign loans.”

–“With up to $75 billion in offshore loans due to be rolled over in the next two years,” the article continues, “Mr. Rudd said a third of the 150,000 jobs in the commercial property sector would be at risk if he failed to act to preserve stability and maintain property values.”

–Hmm.

–It’s not really fair to hold a man accountable for what he hasn’t said. We don’t know exactly what the PM said. But if he’s acting to “maintain property values” he may be acting in vain. Not that it won’t be popular!

–“ACCI acting chief executive Greg Evans backed Mr. Rudd’s move to deliver stability and confidence to the commercial property sector by moving to maintain property values. A reduction in property values would hammer confidence and have implications for the entire economy, not just the finance and property sectors, he said.”

–Yes. All of that is true. When asset values fall (property or shares) it does cause everyone to lose confidence. But you wonder why it doesn’t also cause everyone to reexamine some basic assumptions. One of those assumptions, for example, is that households and businesses will always have access to a cheap line of credit to subsidise their balance sheet.

–But in a Credit Depression you have to rely more on cash-flow and less on borrowing. This means reigning in your spending habits, living beneath your means, and doing a different kind of calculation for the return on your investments. That is, if you need to roll a big pile of loans over every few years to keep your projects going, well then maybe your projects aren’t going to survive long in this new financial world.

–That could be bad news for more than just commercial property owners in Australia. According to a Merrill Lynch study cited by Bloomberg, “Overseas banks accounted for more than half the A$285 billion in syndicated loans issued to Australian businesses since 2006.” If the government and the big four banks go in halfsies to replace that total, it would be a $142 billion in new government loans or government guarantees.

–Now we’re starting to talk real money. But is it just throwing good money after bad borrowing and lending?

–Credit makes a lot of things possible. In fact, if you look around at the world we have, you start to wonder how much of it we’d have without the huge increase in credit of the last thirty years. This is not to say that the quality of life would go down in a world with less credit. But easy credit has clearly made an expansion in commercial real estate and residential housing possible.

–The contraction in credit is going to take some of that expansion with it, not least in the form of falling asset values. What can any government realistically do to try and prop up unsustainable economic activity?

–Meanwhile, in the share market, investors took a beating on Friday. The knowledge that Japan, Korea, and China are all reducing their appetite for Aussie resources in the face of a recession was good for about a four percent decline on the All Ordinaries.

–Friday’s action takes the share market below the November lows, puts us nearly 50% down from the November 2007 highs, and adds up to an $850 billion reduction in the total market capitalisation of Aussie market. It is hard to see how share prices are going to rally on earnings results later in February.

–In fact, all this bad news is prompting economists to speculate that the Reserve Bank will cut Aussie rates by a full percent when it meets in early February. Maybe it will. Maybe it won’t. If it does, or if investors expect it to, look for the Aussie dollar to head lower this week.

–Lots of reader mail came in on Peak Oil last week. We promise a response tomorrow! Until then.

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Over to Bill Bonner in London, England:

People working in the financial sector got paid better than any other professional class…

…which didn’t seem so bad, says Floyd Norris in the New York Times, when they appeared to be the smartest people on the planet.

But now that we’ve discovered that they were the world’s biggest dumbbells the high salaries add insult to injury.

In the Bubble Epoque, every mamma wanted her baby to grow up and be an investment banker. Because that’s where the money was. Now…the money ain’t there no more.

The banks are broke. And the people who work in the financial sector are taking big pay cuts. First, their bonuses – which depend on the profitability of the industry – are cut automatically. Then, their salaries will come down too.

Financial sector salaries rise with the credit cycle, says a study done by the National Bureau of Economic Research.

“Wages in finance were excessively high around 1930 and from the mid-1990s until 2006,” says the report.

When animal spirits run high, in other words, the financial industry is able to make a buck. When they run low, earnings and wages in the sector fall. And when earnings in the financial industry go down, so do the economies that depend on them.

It was not a coincidence that New York City went broke in the ’70s, says the report. Speculators were few, credit was low, and the financial industry was in a slump. Coming soon: lower property prices in Manhattan and London.

Mommas should now be urging their babies to go into other lines of work – politics, maybe. The whole financial sector is busted. And if the financial sector is broke, the rest of the economy can’t function – at least, that’s the argument. So, the politicians and economists are desperately looking for solutions. What solution do they find? Shift more power and money to…surprise…politicians! The bankers may be broke, but the politicians act as though money is no problem. “How much do you need,” they ask?

“Don’t insure the banks – nationalize,” writes James Saft in the International Herald Tribune. He believes nationalization – complete government takeover – is the cheapest and most efficient way to bring the banks back to life.

Just a few months ago, ‘nationalization’ was practically a dirty word. No one – except a brain-dead Bolshevik – would have thought it desirable for a government bureaucracy to manage capitalism’s money. Now, few people can think of anything better.

The idea is typically simple-minded. When the bankers saw high earnings and no risk, the last thing they wanted was interference. Like gangsters, they would fight to keep rivals from muscling into their territory. But now, the wages of sin are going down…and the risks seem too high. They’re facing bankruptcy and they’re discouraged.

Everyone wants to offload the risks of the financial sector onto the taxpayer.

But wait…how can capitalism work without capitalists running its most important industry? And of course, there’s the additional cost. In private hands, the financial sector allocates capital and takes risks. The bankers make mistakes…but are least their intentions are pure; they are motivated by greed. In the fat hands of the government, on the other hand, decisions will be more political – they will be made to appease pressure groups, to favor trendy causes, to pay-off supporters or punish opponents. From an economic standpoint, these will slow down real growth…and cause strange misallocations of capital and financial distortions. Instead of being driven by naked, honest greed, in other words…the economy will be whipped forward by corruption, favoritism, and hidden political agendas.

Here at The Daily Reckoning, however, we are squarely against nationalizing the banks. Not that we think bureaucrats won’t do as good a job; how could they do worse? We just don’t think they’ll be as much fun to watch.

*** “Obama says renminbi ‘manipulated'” says the headline in the Financial Times.

Practically the first thing we hear from the Obama administration is worrying. The world is at the beginning of a major downturn. The last thing it needs is a Mr. Smoot in the White House.

*** “It’s a disaster,” said a friend last night. Our friend is a major property developer in Europe.

“You don’t develop large projects with pocket money,” he explained. “You need deep pockets. So you turn to the big banks. But now, not even Warren Buffett could get a loan for a development project. I spend my entire day arguing with bankers. They’ve promised lines of credit. They’ve made commitments. They were backing these projects. And now, they’re pulling out. They use any excuse they can to get out of their obligations…forcing many development projects into bankruptcy.

“In one project, we actually improved the plans…so the houses were finished at lower cost…and were a better product. But the bank cancelled our financing because they said we had changed the plans without approval.

“In France, right now, there is actually a shortage of housing. That’s why, house prices in France aren’t falling the way they are in the rest of the world. There aren’t enough houses to go around.

“Even so, we had to stop projects all over the country…because we can’t get the money to complete them.

“And we had one project in the South of France where we had about 100 units left to sell…all completed. So, I told buyers that I would give them a check for 40,000 euros if they’d buy one of these apartments…selling for about 300,000 euros. It was a great deal. And people knew it was a great deal. In about a week I had 50 signed contracts. But of those 50, guess how many were able to complete? Guess how many were able to get the financing they needed to buy the apartments? Three…just three. The rest lost their deposits.

“It’s a nightmare…I wish I had retired six months ago.”

*** Mad Magazine has come out with what we believe will be the final word on the Obama plan to restart the economy. Its cover has a picture of a fellow who looks like a cross between Obama and its trademark mischief-maker, Alfred E. Neuman. He’s holding a campaign sticker: “Yes We Can’t,” it says.

*** And here’s something strange. We don’t know where else this might be going on…but a newspaper in Paris is taking articles off the Internet and putting them on paper. “A selection of the best of the Web,” says the cover, which comes out every Friday and sells for 1.5 euros.

We were alerted to this new phenomenon in the publishing world by an alert Dear Reader who found one of our articles from The Daily Reckoning:

“The Strange Plan to Restart the Economy on Planet Obama…”

Keep reading for today’s guest essay…

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The Daily Reckoning PRESENTS: Today, when you get a check marked “insufficient funds,” you don’t know whether it is you or the bank that is out of money. And so, the authorities on both sides of the Atlantic rush to make their deposits, before the banks close forever. If it were up to us, none of them would get bailouts. Not because it would be the best thing to do for the economy; we just like to see grown bankers cry. It is good for them; we will explain why. Read on…

SUPER BAAADDDD

by Bill Bonner

Bankers are idiots, sometimes

As a professional class, bankers are thought to be as immoral as Russian pimps and as incompetent as Renaissance electricians. Thanks to them, the banking system is in trouble. Thanks to the failure of the banking sector, the American and UK economies are in trouble. And thanks to the failure of the Anglo-American economy, the whole world is in trouble.

Everyone is on the bankers’ case. In France, even Jerome Kerviel is criticizing his bosses at Societe Generale for not preventing him from taking “crazy risks.” Meanwhile, in Britain, Sir Fred Goodwin, recently esteemed head of the Royal Bank of Scotland, is now said to be the “world’s worst banker,” according to the Times. Trevor Kavanagh, writing in the SUN, says he is “criminally incompetent.” His purchase of ABN Amro is said to be the “worst acquisition in history.” In the new world, meanwhile, ISI group figures that the top four US banks alone have $1.2 trillion in bad assets. The total market value of those four banks is only about half of that amount. The banks are ‘effectively insolvent,’ says Nouriel Roubini. So, the feds have taken them into their care, if not yet into their custody.

But the bankers are ingrates. They borrow, but they don’t lend. They take but they don’t give. They party ’til the wee hours…and then, when the bill is served, they play dead.

The New York Times reports: “At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

“Make more loans?” Are you kidding, Mr. Hope seemed to say: “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector….”

Bankers don’t make loans in the hopes of getting ‘good citizenship’ awards. They lend money when they think they can make a buck. The remarkable thing is that they’re so bad at it. They lent recklessly when there was little hope of getting their money back. Now, with the widest spreads in history – the difference between their cost of money and their return on it – it’s easier to rob a bank than get a loan from one. There are two explanations for this anomaly – both of them wrong.

The first is that bankers are wicked. A report in the Daily Express, for example, tells us that RBS “bosses spend 50k pounds on champagne banquet” celebrating Burns Night on Friday, before announcing a 45 billion pound loss on Monday morning. Over in the United States, the Wall Street Journal gave out word on Tuesday that much of the $140 million donated to fund the biggest inauguration in history came from banks that had received bailouts.

But wait, say the bankers’ defenders; they’re not evil, they’re just incredibly stupid. Evil bankers might have sold sub-prime debt to widows and orphans, but they never would have kept it in their own accounts. At the end of 2007, for example, the aforementioned Sir Fred Goodwin had shares of RBS worth nearly 6 million pounds; now his pile will barely buy a mid-size apartment in a bad section of London.

We do not reject the ‘bankers are stupid’ hypothesis completely; we simply add an important nuance: they are not stupid permanently; they are – like the rest of us – only stupid episodically.

Among the queerest financial stories of the last week was the proposal to create a ‘bad bank.’ It hardly seemed necessary. There were already dozens of them. The idea is to transfer all the sins of the bubble era to the ‘bad bank’ – funded with public money. Then, the bad bank will be crucified so that the rest of us can have life, and have it more abundantly. We first saw the idea floated in the pages of the New York Times last week. Now, it has made its way to the Financial Times in London, gaining favor as the measure of sin increases. The SUN says British taxpayers are on the hook for as much as 2 trillion pounds. In America, the bankers face $3.5 trillion in losses, says Mr. Roubini.

But if the ‘bad bank’ idea could work, why not create a super baaaddd bank? We could use it to get rid of all our mistakes. Writers could unload their bad novels. Businessmen could sweep their errors under its broad carpet. What the heck, let people get out of bad marriages without penalty; the super baaaddd bank could pay the alimony and divorce costs.

The hitch with the bad bank idea is so obvious even a banker could spot it. If the cost of mistakes is reduced, people might make more of them. Like the rest of us, bankers are neither good nor bad, but subject to influence. Unlike metallurgy or particle physics, banking does not have a rising learning curve. It’s not science. Instead, it’s more like love and gambling…with a circular learning pattern. They learn…and then they forget. They get carried away in the boom upswing; then they get whacked when it turns down.

So let them have a good beating. It will give them of a lesson that will last a lifetime…and give the next generation a solid banking sector.

Enjoy your weekend,

Bill Bonner

The Daily Reckoning Australia

Editor’s Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of the national best sellers Financial Reckoning Day: Surviving the Soft Depression of the 21st Century and Empire of Debt: The Rise of an Epic Financial Crisis.

Bill’s latest book, Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics, written with co-author Lila Rajiva, is available now by clicking here:

Mobs, Messiahs and Markets

The Daily Reckoning
The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.
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  1. Patterns of the past for the future

    “We are entering an era where it is now politically acceptable to avoid recessions and higher unemployment by doing the exact things that created these economic problems to begin with” (Kenneth J. Gerbino, Coconuts and Gold, 321gold.com, January 26, 2009).

    To see how this latest new era is likely to play out, comments from a research paper form the foundation of a template to view the future:

    “It is common to associate the origins of the Great Stagflation of the 1970s with the two major oil price increases of 1973/74 and 1979/80. This paper argues that oil price increases were not nearly as essential a part of the causal mechanism generating stagflation as is often thought. We provide a model that can explain the bulk of stagflation by monetary expansions and contractions without reference to supply shocks… The oil supply shock view also fails to explain the dramatic surge in the price of other industrial commodities that preceded the 1973/74 oil price increase and the fact that increases in industrial commodity prices lead oil price increases in the OPEC period. (Abstract).

    “The two most prominent increases in the price of oil in 1973/74 and 1979/80 were both preceded by periods of unusually low real interest rates … and economic expansion. (p.26).

    “The monetary model of stagflation … relies on some initial monetary expansion to induce the countercyclical movements in output and inflation. A first test of the model is to verify that the two main episodes of global “stagflation” in 1973/74 and 1979/80 were indeed preceded by unusually large increases in world excess money supply…One indicator of liquidity is world money growth…

    “Figure 2a shows a sharp increase in world money growth in 1971-72 and in 1977-78 preceding the two primary stagflationary episodes… The increase in world money growth is followed by an unprecedented rise in world price inflation in 1973-74 and in 1979-80…

    “We now turn to the United States where the monetary expansions of the 1970s originated. Figure 3 shows that U.S. liquidity followed a pattern similar to that of other industrial countries.

    “Figure 3a shows two unprecedented spikes in money growth in 1971-1972 and in 1975-1977 that
    preceded two episodes of unusually high deflator inflation in 1974 and in 1980 … and that coincided with two episodes of significantly negative growth in real money balances in 1973-74 and 1978-1980…

    “Additional evidence of excess liquidity in the 1970s is provided by the U.S. real interest rate. Figure 3d shows that 1972-76 and 1976-80 were periods of abnormally low real interest rates… the timing of the 1973/74 and 1979/80 oil price increases coincided with a sharp rise in real interest rates. For that reason we conclude that the likely source of the low real interest rates observed in the 1970s is the preceding monetary expansion…

    “The Bernanke-Blinder index based on the Federal Funds rate shows a strongly expansionary stance from mid-1970 to the end of 1972… The contractionary response of the Fed in 1973 to the inflationary pressures set in motion by earlier Fed policy is a key element of our monetary explanation of stagflation…

    “As the U.S. economy slid into recession in 1974, the Fed again reversed course to ward off an even deeper recession. Indicators show a renewed monetary expansion that lasted into the late 1970s. The Bernanke-Blinder index from late 1974 into 1977 indicates that monetary policy was strongly expansionary. This expansion was not reflected in high inflation initially, consistent with a partial rebuilding of real balances … and the well-documented fact that inflation only occurs with a delay (see Nelson 1998)… Around 1978, the monetary stance turned slightly contractionary, becoming strongly contractionary in late 1979 and early 1980 under Paul Volcker, as inflation continued to worsen. Once again, the monetary policy stance provides an alternative explanation for the genesis of stagflation” (Robert B. Barsky, University of Michigan, NBER, and Lutz Kilian, University of Michigan CEPR, A Monetary Explanation of the Great Stagflation of the 1970s, fordschool.umich.edu/rsie/workingpapers/Papers451-475/r452.pdf, January 27, 2000).

    Mark Twain, it is said, noted that history rhymes. So when comparing rhymes, where they occur in the inflation/deflation longwave cycle needs to be taken into consideration.

    So in this war/peace influenced cycle, in the Cold War period consumer price inflation is primary and asset price inflation is secondary while in the post-Cold War period asset price inflation is primary and consumer price is secondary. In the former the crisis concerns inflation; and in the latter the crisis concerns deflation – credit crunch/decrease in money supply leading to asset price deflation.

    This article argues that the pattern of events of the 1970s/80s, informed by the above consideration, provides a template to view the 2000s/2010s.

    Trade provides a starting comparison.

    Trade – early-1970 & mid-2000s

    “After four years of 4.9% average growth in world GDP over the 2003-06 interval, the IMF is projecting two more years of the same…

    “The IMF has calculated its official estimates of world GDP as measured on a purchasing power parity basis back to 1970. Over this 37-year history, there is only one four-year growth spurt that is stronger than that of 2003-06 – the 5.4% average annual growth outcome for 1970-73. Unlike the current IMF forecast, which calls for another two years of boom-like conditions, the four-year growth surge of the early 1970s was followed by a sharp recession in the global economy, with average gains of just 2.3% over the 1974-75 period” (Stephen Roach, Rosy Goes Global, morganstanley.com, April 13, 2007).

    Australia benefited from trade in the early 1970s and followed the pattern of the research paper.

    “Australia’s position in the global economy appeared to improve significantly in the early 1970s. Strong economic growth in the industrial nations drove up international demand for primary products, pushing their prices to record levels and Australia’s exports boomed. The world economy was shaken by the dramatic oil price rises in 1972 and 1973, but Australia seemed better placed than most of the OECD in that it was … and its coal exports made it a net energy exporter. Australia’s exports earnings were so great in 1972 and 1973 that they produced an overall current account balance of payments surplus, a rare occurrence…

    “The Long Boom came to an end in 1974 when the industrial economies entered a severe recession that impacted one on the other. The economic indicators of the period were reversed: … economic growth declined and unemployment increased…

    “Weak recovery from the 1974-75 world recession occurred from 1976 and continued to 1980…

    “There was a brief upswing in the world economy at the end of the 1970s as the industrial countries expanded output. Demand for primary products recovered and Australia’s terms of trade improved…” (David Meredith & Barrie Dyster, Australia in the Global Economy, (Cambridge, CUP, 1999), pp.225-26, 231, 247).

    (“Sydney had never experienced a property boom on the scale of that between 1969 and 1974. It involved a frenzy of buying, selling and building which reshaped the central business district, greatly increased the supply of industrial and retailing space, and accelerated the expansion of the city’s fringe. Its visible legacy of empty offices and stunted subdivisions was matched by a host of financial casualties which incorporated an unknown, but very large, contingent of small investors, together with the spectacular demise of a number of development and construction companies and financial institutions. The boom was the most significant happening of the 1970s and the shock waves from the inevitable crash were felt right up to 1980. It was an extraordinary event for Sydney and Australia…” (M.T. Daly, Sydney Boom Sydney Bust, (Sydney, George Allen & Unwin, 1982), p.1).

    America key to the future

    Now that the argument that the world could decouple from America’s problems has been discredited, a theory that history did not support, at this stage of the hegemonic cycle, America in the 1960s/1970s/1980s provides a good guide to observing the 1990s/2000s/2010s.

    “During Bill Clinton’s administration, the number of new jobs created was greater than the growth in the population of working-age Americans, something that had happened in only one previous administration since World War II, that of Lyndon B. Johnson” (Floyd Norris, Economic Setbacks That Define the Bush Years, nytimes.com, January 24, 2008).

    In both ‘rhymes’ – 1960s/1970s and 1990s/2000s – we have had two Democrat Administrations followed by two Republican Administrations followed by a Democrat administration.

    The 1970s may said to have two expansions separated by a severe recession. The first expansion of the 1970s during the Nixon years rhymes with the first expansion of the 2000s during the Bush years.

    Both these expansions occurred after mild recessions that started in the first year of both Nixon’s and Bush’s first terms in office.

    “President George W. Bush is the first president since Richard Nixon to preside over two recessions” (Emily Kaiser, Recession started in December 2007: panel, reuters.com, December 1, 2008).

    The mild Nixon recession from December 1968 to November 1970 is rhymed with the mild Bush recession of March 2001 to November 2001.

    The monetary and fiscal response to mild recession was followed by economic expansion, which ended after the Dow Jones topping in 1973 and 2007 respectively.

    (The Dow peaked five weeks after the Australian Labor took office in 1972; and 8 weeks before Labor took office in 2007).

    The severe recession of November 1973 to March 1975 is rhymed with the severe Bush recession beginning December 2007.

    The monetary response to the earlier period of severe recession contributed to the sharemarket rally of 1974-76.

    The present monetary response also suggest a major sharemarket rally.

    But the sharemarket peak in the boom following the mild Nixon recession occurred in the last year of Nixon’s first term, whereas the sharemarket peak in the boom following the mild Bush recession occurred in the third year of Bush’s second term.

    With the peak in the stockmarket occurring late in Bush’s second term it suggests that the sharemarket rally, following the severe Bush recession, will occur in the Obama administration.

    “As the U.S. economy slid into recession in 1974, the Fed again reversed course to ward off an even deeper recession. Indicators show a renewed monetary expansion that lasted into the late 1970s. The Bernanke-Blinder index from late 1974 into 1977 indicates that monetary policy was strongly expansionary. This expansion was not reflected in high inflation initially, consistent with a partial rebuilding of real balances … Around 1978, the monetary stance turned slightly contractionary, becoming strongly contractionary in late 1979 and early 1980 under Paul Volcker, as inflation continued to worsen” (Barsky & Kilian).

    The Fed is now engaged in a monetary expansionary to ward off an even deeper Bush recession, just as the Fed responded to the severe Nixon recession.

    “Based on the market’s history of anticipating economic recoveries, the S&P 500 may embark on its next bull market in February, about a month after Obama’s inauguration on Jan. 20” (Elizabeth Stanton, U.S. Stocks Post Biggest Post-Election Drop on Economic Concern, bloomberg.com, November 5, 2008).

    History suggests that there will be a significant sharemarket and commodities rally ahead. The Dow rose 75.7% between 1974 and 1976.

    “The brutal 1981-82 recession ended the high inflation” (Robert J. Samuelson, A ‘Wealth Effect’ in Reverse, washingtonpost.com, November 25, 2008).

    Inflation will once again raises its ugly head and the Fed will have to raise interest rates precipitating severe recession – a far deeper recession than if the 2007 recession allowed the market to fix the problem, which eventually it will.

    The recession of January 1980 to July 1980 occurred in the last year of Jimmy Carter’s administration which suggest a recession will occur in Obama’s administration following the sharemarket rally.

    The Carter recession was followed by the Reagan recession from July 1981 to November 1982.

    Severe recessions occur more often in Republican administrations suggesting that Obama may only be a one term president.

    The recession/s following a future sharemarket bust will lead not to Carter/Reagan type recessions but to Hoover/Roosevelt type depressions.

    The 2010s will be a time of severe deflation, instead of the dis-inflation of the 1980s.

    The end of the recovery of the 1980s coincided with the end of the Soviet Union. This also suggest that the end of a comparable recovery will coincide with the end of the United States.

    The military build-up under Reagan in the arms race with the Soviet Union has a rhyme with the Anglo-German naval race after the Great Depression of the Nineteenth Century. (Hitler followed in the footsteps of the Kaiser with a military build-up after the Great Depression in Germany in the Twentieth Century).

    But this time around the United States, after its invasion of Afghanistan, will find itself in the position of the Soviet Union in the 1980s, after its invasion of Afghanistan, but with a German-dominated Europe winning the arms race and then unleashing its fire-power on America.

    “Battleships were a potent symbol of naval dominance and national might, and for decades the battleship was a major factor in both diplomacy and military strategy. The global arms race in battleship construction in the early 20th century was one of the causes of World War I, which saw a clash of huge battle fleets at the battle of Jutland…” (Wikipedia, Battleship).

    Just as the Germans built up a fleet of Dreadnoughts to take on the might of the British navy so the Europeans, after the Great Depression of the Twenty-first Century, will build up a fleet of aircraft-carriers to take on the might of the American navy.

    (A German-dominated Europe will come up with an aircraft-carrier to compete with the new Ford-class carriers).

    “Germany under Kaiser Wilhelm had drawn up detailed plans in 1900 for an invasion of the United States centered on attacks on New York City and Boston… One plan foresaw a force of 100,000 soldiers transported across the Atlantic on 60 ships.

    “”Wilhelm II wanted colonies and military bases around the world,” author Henning Sietz wrote in Die Zeit. “The United States was increasingly getting in the Kaiser’s way.”

    “Beginning in 1897, a German navy lieutenant named Eberhard von Mantey was assigned the task of preparing an invasion of the United States after German and American interests had collided in the Pacific.

    “Von Mantey’s aim was to find a way to force the United States to sign a treaty giving Germany free reign in the Pacific and Atlantic. He rejected ideas of a naval blockade or a naval battle and made plans for an invasion of the northeast instead” (Kaiser Wilhelm’s Germany Had Plan to Take New York, reuters.com, May 8, 2002).

    While WWI was an anticlimax for the dreadnoughts it will not be so with the aircraft-carriers which will play a significant part in the invasion of America.

    “Gorbachev was especially anxious to reduce military expenditure, which he new was bleeding his country. It was obvious, however, that Reagan was not only building up America’s conventional weaponry; he was also calling for the extraordinarily ambitious Strategic Defense Initiative. Gorbachev believed that if the Soviet Union was forced to engage in astronomically expensive spending for defensive weapons, it might never remedy its internal weaknesses. He concluded that he had to try to reach an arms reduction agreement with the United States. Nothing else would enable him to advance the perestroika that would rescue the Soviet economy” (James T. Patterson, Restless Giant, (New York, OUP, 2005), p.214).

    “… Roosevelt himself stood before the world in 1938 [the year of the Munich Agreement] as a badly weakened leader, unable to summon the imagination or to secure the political strength to cure his own country’s apparently endless economic crisis. In the ninth year of the Great Depression and the sixth year of Roosevelt’s New Deal, with more than ten million workers still unemployed, America had still not found a formula for economic recovery. From such a leader, what could the democracies hope? From such a troubled nation, what did the dictators have to fear” (David M. Kennedy, Freedom from fear, (New York: OUP, 1999), p.362).

    A future American leader will find himself in a position which rhymes with Neville Chamberlain and Mikhail Gorbachev.

    “The Soviet Union, he [Gorbachev] said, would except “without delay” the elimination within five years of Soviet and American intermediate-range missiles in Europe. This was a major break through, enabling Reagan and Gorbachev to agree to a intermediate nuclear forces (INF) treaty, which the two leaders signed with great fanfare in Washington in December 1987…

    “Reagan then had to convince Cold War hard-liners to accept the treaty. This proved problematic at first; some foes of the treaty likened him to Britain’s Neville Chamberlain, who had appeased Hitler in the 1930s. But Gorbachev soon announced that the USSR would begin to pull its troops out of Afghanistan and complete the process by February 1989” (Patterson, p.216).

    A future American ‘appeasement’ treaty with Europe will not abode well for America as the British ‘appeasement’ treaty with Germany in the 1930s did not abode well for Britain.

    Winston Churchill’s denouncement of the Munich Agreement in the House of Commons is a warning from history for America when she, in weakness, commits to a yet future treaty:

    “We have suffered a total and unmitigated defeat…you will find that in a period of time which may be measured by years, but may be measured by months, Czechoslovakia will be engulfed in the Nazi régime. We are in the presence of a disaster of the first magnitude…we have sustained a defeat without a war, the consequences of which will travel far with us along our road…we have passed an awful milestone in our history, when the whole equilibrium of Europe has been deranged, and that the terrible words have for the time being been pronounced against the Western democracies: “Thou art weighed in the balance and found wanting”. And do not suppose that this is the end. This is only the beginning of the reckoning. This is only the first sip, the first foretaste of a bitter cup which will be proffered to us year by year unless by a supreme recovery of moral health and martial vigour, we arise again and take our stand for freedom as in the olden time” (Wikipedia, Munich Agreement).

    Unfortunately America will not genuinely repent – a supreme recovery of moral health – and the Anglo-Celtic component of the United States, left alive after the conquest of the north America – a ‘turkey shoot’, estimated at around 25 million, will begin their enforced removal from the land of the now unfree, by Europe and her allies, probably still incensed by Anglo-Saxon ‘casino’ capitalism’s depression.

    The defeat of the United States will be facilitated if she tears herself apart in the coming Great Depression and its aftermath, which is highly likely. [Multi-ethnic states will experience severe strain and/or breakup in this second or greater depression].

    “The Nazi German invasion of Britain would have not been a gentle affair. The captured German papers leave no doubt of that. On September 9 [1940] Brauchitsch, the Commander in chief of the Army, signed a directive providing that “the able-bodied male population between the ages of seventeen and forty-five [in Britain] will, unless the local situation calls for an exceptional ruling, be interned and dispatched to the Continent… In no other conquered country, not even in Poland, had the Germans begun with such a drastic step … [the plans]… seem designed to ensure the systematic plunder of the island and the terrorization of its inhabitants… Everything but normal household stocks were to be confiscated at once” (William L. Shirer, The Rise and Fall of the Third Reich, (Sydney: Random House Australia, 1998), p.782).

    Just as the ‘experts’ were shocked by the unexpected fall of the Berlin Wall and the Soviet Union the world will be shocked by the end of America; and of course Anglo-Celtic Australia.

    The three words “it won’t happen” rhymes with its four word counterpart – “it’s a new era”. There is nothing new under the sun. Defeat and deportation has been the pattern of the past and will be of the future.

    Reply
  2. WoW watcher7, you covered a lot of ground there!
    And the point was……..?

    Paul Tredgett
    January 26, 2009
    Reply
  3. James Dale Davidson & William Rees-Mogg wrote in their book “The Great Reckoning”, at the end of the introduction chapter that:

    “… from what we understand of economic history, it would be startling if we were able to accurately gauge details of time and place in advance of the actual event. Our claims are more modest. We simply believe that it is possible to anticipate events rather than merely react to them. Lessons to this effect have been driven home since the earliest days of human interaction.

    “The book of Genesis tells the story of Joseph. By listening to Joseph’s hint, the Pharaoh rightly anticipated the seven leans years that followed seven years of plenty. From this date to this, it has always been true that the future belongs to those who prepared for it” (Revised Edition, p.50).

    Future Watch, informed by Bible prophecy, tries to inform, so that people may be better prepared to deal with the future from both a secular and spiritual point of view.

    FW tries to present a secular perspective, to supplement the Biblical view, for those who are not yet, or never will be, or perhaps, until it is to late, ready to accommodate the latter view.

    The post “Patterns of the past for the future” was put together on Australia day, which we know commemorates the beginning of Anglo-Celtic settlement of Australia.

    FW argues from secular sources and from Bible prophecy that the Anglo-Celtic peoples will be defeated in WW3 and that those who survive the invasion will be deported from their homelands and will suffer terribly in exile. (The imperial Japanese Water Purification Unit 731 provides a glimpse of the future for many Australians).

    Because of personal and national sins God is going to defeat and spew the Anglo-Celtic people put of Australia.

    So the post’s point of view was to present a possible scenario that will lead up to WW3 so that those who have eyes to see may respond and prepare as they see things moving towatds war.

    As God brought back the remnant of his people from Babylonian captivity God will rescue the remnant of the Anglo-Celtic peoples from a future captivity and will bless them even more than they have been blessed over the last two hundred or so years.

    If you say it can’t happen it may be good to reflect on what Winston Churchill wrote in 1924 concerning “the utter impossibility of war with Japan”:

    “I do not believe there is the slightest chance of it in our lifetime. The Japanese are our allies… She has no reason whatever to come into collision with us… war with Japan is not a possibility which any reasonable government need take into account” (quoted by Paul Johnson, Modern Times, (London: Orion Books, 1994), p.175).

    “History is littered with wars which everybody knew would never happen” – Enoch Powell

    Reply
  4. Paul…Don’t ask him any more questions…Please mate no more encouragement

    Reply
  5. Gotcha.

    Paul Tredgett
    January 26, 2009
    Reply
  6. my sympathies, i too had a computer which spat out such gobbledegook
    – turns out it was a religious virus, had to re-format my hard drive.

    fiscalferret
    January 28, 2009
    Reply
  7. So I’m a brain dead bolshie now am I Bill? I thought that was your Argentinian mate? Or was he the crony capitalist? Nationalisation was and is inevitable, I go with Andrew Mellon but liquidation has to be practical. The good bank-bad bank rouse is just another desperate fling to save as many of your crony mates as you can for as long as you can and they will totally over estimate what could be called good assets (meaning just more bail out after bail out). Any nationalised banks must be refloated quicker than. Underwater borrowers should be directly subsidised by way of mortagage payment co-contribution for the life of the loan and given a penalised exit possibility. They should be bound to the consequences of their bad decisions but not enslaved to it.

    Reply
  8. Oops I’ve been told that I implied they were your banking mates, not so.

    Reply

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