# Spending the surplus to keep economy afloat



## Naked shorts (17 November 2008)

http://www.abc.net.au/news/stories/2008/11/17/2422093.htm


> Govt 'must spend budget surplus to keep economy afloat'
> 
> A senior Australian economist has urged the Federal Government to spend its way out of trouble, regardless of whether it leads to a budget deficit.
> 
> ...




Westpac going to go bankrupt Bill?


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## tech/a (17 November 2008)

Naked shorts said:


> http://www.abc.net.au/news/stories/2008/11/17/2422093.htm
> 
> 
> Westpac going to go bankrupt Bill?




No.

High unemployment = far less Taxes,from both Employees AND companies = far more social security = far less in super = Far more in social security = far worse performance of Super = Far more social security.

Get the picture!

Short term pain long term gain---Well that's the world wide plan!
The only problem is if there isn't enough money to fund the plan!
Highly likely!


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## shaunQ (17 November 2008)

I reckon, or hoping, some tax cuts might be coming our way. Nice little sweetener for the electorate as well - can't see Turnball complaining too much about blanket tax cuts.

From an article I just read, http://users.picknowl.com.au/~eranet/dickson.htm

"Keynesian macroeconomics suggests that in order to recover from depressions or recessions, a stimulus to aggregate demand is required. Examples of measures to bring this about are: increases in government expenditure, reductions in taxation, and reductions in interest rates."

Tax cuts would complete the picture if they do infrastructure development as planned.


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## Ageo (17 November 2008)

shaunQ said:


> I reckon, or hoping, some tax cuts might be coming our way. Nice little sweetener for the electorate as well - can't see Turnball complaining too much about blanket tax cuts.
> 
> From an article I just read, http://users.picknowl.com.au/~eranet/dickson.htm
> 
> ...




Now you understand the stupidity of Keneysian economics which is responsible for many of the boom and busts you have seen in your lifetime i point you into the direction of austrian economics http://mises.org/

And here is an article to a sound alternative http://mises.org/story/3197 (completely opposite to Keneysian theory).


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## Naked shorts (18 November 2008)

shaunQ said:


> I reckon, or hoping, some tax cuts might be coming our way. Nice little sweetener for the electorate as well - can't see Turnball complaining too much about blanket tax cuts.




I think it would be smartest if they used the surplus to cut tax on business...it would attract more investment to Australia.


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## Temjin (18 November 2008)

shaunQ said:


> I reckon, or hoping, some tax cuts might be coming our way. Nice little sweetener for the electorate as well - can't see Turnball complaining too much about blanket tax cuts.
> 
> From an article I just read, http://users.picknowl.com.au/~eranet/dickson.htm
> 
> ...




If you didn't realise already, it is this very "Keynesian" economics that every guy and gal studied in university that caused all this crisis. It's flawed and will never rarely work, or at least delay the whole reckoning day. Solve a "too much money" problem with more money? It's insane! 

There are simply too much malinvestment in the economy and the only way is to bankrupt those who took too much risk and let almost everything crash and start over again. 

Depression? Yep. Massive deflection? Yep. But at least we will come out of the hole much quicker instead of having an extended pain that Japan "enjoyed" for the last decade+. Stagflation/hyperinflation is worse.  

Of course, I do not expect the politicans to act because their economic advisers ARE keynesian anyway and it would be a political suicide move to do such a thing. Have to keep the voters in fairy land and happy.


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## tech/a (18 November 2008)

> Stagflation/hyperinflation is worse.




The next stage I'm afraid.

Just when all those who avoided bankruptcy with falling interest rates and commodity prices,think its all over---I feel its highly possible that Hyper inflation will raise its ugly head and those like myself currently who are handling their gearing well and soon even better----are lulled into a sense of false security where a complete reversal in rates, bites those who thought they had the solution solved.

My view is that it will be pertinent to lock down long term (7 Yr) any carry over debt from strategic liquidation during the lull which will come.

There will be a time of some opportunity but not a time to increase debt.
We have a chance to Manage our risk---if we don't then it will be at our peril.


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## Aussiejeff (18 November 2008)

Temjin said:


> ...I do not expect the politicans to act ... it would be a political suicide move to do such a thing. Have to keep the voters in fairy land and happy.




That's pretty much the nub of the problem.

When it comes to massive problems affecting "business" and/or the "economy", our esteemed leaders almost always revert to the only Joker-In-The-Pack they seem to know how to play - POPULIST POLITICKS. 

It seems that whenever business and industry needs to have a systemic and radical overhaul to improve productivity, employment prospects etc, our pretty pollies seem content to APPEAL TO THE MASSES.

Clearly, big tax cuts to consumers might win sympathy votes in the short term, but are such a waste of time, money and most of all missed opportunity to FIX the things that really DO need fixing (financial accountability, infrastructure etc) for the medium to long term health of our businesses and economy. 

Whatever. I'm wasting my own precious time typing this rubbish. It obviously is the wrong idea. "They" know what suits them best and practice the mantra - "When you are on a good thing, stick to it". 

So, even tho' I am suffering the mental anguish of 30+ years of electoral broken promises, rampant corruption, greed and mis-management by our politicians, I must once more bow to our Esteemed Leader's greater wisdom and knowledge of these things.

What other choice is there? 

*sigh*


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## Temjin (18 November 2008)

tech/a said:


> The next stage I'm afraid.
> 
> Just when all those who avoided bankruptcy with falling interest rates and commodity prices,think its all over---I feel its highly possible that Hyper inflation will raise its ugly head and those like myself currently who are handling their gearing well and soon even better----are lulled into a sense of false security where a complete reversal in rates, bites those who thought they had the solution solved.
> 
> ...




I do sometime feel helpless when I have a friend who told me he is looking to borrow $650k to build a brand new house and he is on single wage. To make things worse, he can be quite a gambler on the stock market, and often reveal what he is doing and how he just lost thousands with his option and sometime how he earned thousands from yesterday trade. 

Anyway, we still don't know for certain whether deflation or hyperinflation will win. It really depends on how those policy makers and central bankers will act. Would they inflate at all cost by continue to spilt out stimulus plans and perhaps even "legalising" illegal inflationary provisions? (you gotta to look at what Ben & co are proposing in one of their previous report, scary stuff!) 

Or would they just give in and let everything deflate? (and default their national debt?)

But yes, save massively and reduce debt while waiting for opportunities (and act on them!) is the best way to go right now.



Aussiejeff said:


> What other choice is there?
> 
> *sigh*




hehe Just like what I was taught with one of the habit in the "The Seven Habits of Highly Effective People" book. Don't worry about things that you have no control in and act on those that you have control in. 

So I would protect myself and my family, hoard everything and ignore everyone else.


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## Aussiejeff (18 November 2008)

tech/a said:


> ....My view is that it will be pertinent to lock down long term (7 Yr) any carry over debt from strategic liquidation during the lull which will come.
> 
> There will be a time of some opportunity but not a time to increase debt.
> *We have a chance to Manage our risk---if we don't then it will be at our peril*.




I agree with the generalised gist of that tech/a.

However, there are many, many Australian "investors" (especially those with managed Super and especially those who are older than, say 70) who might be excused for saying "Management of my retirement portfolio risk is out of my hands - my super fund does it for me" or, "I'm 75 and I don't have time to wait 7-10 years. I'll be incapacitated from health issues or even dead by the time the economy recovers".

My own situation is tight enough, but for a lot of the over 70's who have no idea or comprehension of what this Brave New Computerized World is doing to them and their supposed financial security for the remaining few years of their lives, I really feel the pain....  

So, it's great if you are fortunate enough to be in an age group and circumstances where you actually DO have the option and wherewithall to personally manage that risk.

Good luck,



aj


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## Ageo (18 November 2008)

Temjin said:


> Anyway, we still don't know for certain whether deflation or hyperinflation will win. It really depends on how those policy makers and central bankers will act. Would they inflate at all cost by continue to spilt out stimulus plans and perhaps even "legalising" illegal inflationary provisions? (you gotta to look at what Ben & co are proposing in one of their previous report, scary stuff!)
> 
> Or would they just give in and let everything deflate? (and default their national debt?)
> 
> But yes, save massively and reduce debt while waiting for opportunities (and act on them!) is the best way to go right now.




Temjin i cant see deflation happening before stagflation/hyperinflation for the simple fact that they have already showed us by printing trillions of dollars to (save the world!) it would be stupid now to turn back and let everything fall over (imagine what it would do to their statue and beliefs?) once that 1st bailout was granted it was all engines go and the printing presses going 100 miles an hour.

You see people think that because prices are declining deflation is occuring but thats not true (just a simple transfer in wealth is all thats happening) as i posted a link to the M3 money supply not once has there been a reduction in credit over this whole yr but its actually increasing which means there are on track to the inflation kingdom.


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## Surly (18 November 2008)

Wasn't this the plan in the US in the thirties and saw the construction of massive civil works projects such as the Hoover Dam?

cheers
Surly


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## Indie (18 November 2008)

Ageo said:


> You see people think that because prices are declining deflation is occuring but thats not true (just a simple transfer in wealth is all thats happening) as i posted a link to the M3 money supply not once has there been a reduction in credit over this whole yr but its actually increasing which means there are on track to the inflation kingdom.





This from the European Central Bank:

T_he annual rate of growth of M3 decreased to 8.6% in September 2008, from 8.8% in August 2008.1 The 
three-month average of the annual growth rates of M3 over the period July 2008 - September 2008 
declined to 8.9%, from 9.2% in the period June 2008 - August 2008_

This is clearly deflationary.


And from Mish a better explanation of how misleading the M3 chart is in the US:

http://globaleconomicanalysis.blogspot.com/2008/01/money-supply-trends-are-deflationary.html

This report was posted in early January, over 10 months ago. Since the trends have accelerated appreciably.


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## Smurf1976 (18 November 2008)

tech/a said:


> The next stage I'm afraid.
> 
> Just when all those who avoided bankruptcy with falling interest rates and commodity prices,think its all over---I feel its highly possible that Hyper inflation will raise its ugly head and those like myself currently who are handling their gearing well and soon even better----are lulled into a sense of false security where a complete reversal in rates, bites those who thought they had the solution solved.
> 
> ...



Totally agreed there tech and I've been thinking that for quite some time. A dip then it's up, up and away with inflation and interest rates.


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## BradK (18 November 2008)

tech/a said:


> My view is that it will be pertinent to lock down long term (7 Yr) any carry over debt from strategic liquidation during the lull which will come.




Absolutely agree Tech, 

I am looking to lock for 7 to 10 years and then I am finished my mortgage. 

I think interest rates are going to sky rocket in the medium term - good for savers who can go back to their pokies and plasma jibes - but for the wise mortgage holder, finding a lock point in the next 6 - 9 months is going to be crucial. 

Those who are lulled into a false sense of security and start funding lifestyles from mortgages again will be hurt the most. 

Last Chance.


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## xoa (18 November 2008)

The neo-Keynesian lunatics in charge of Australia think that we can spend our way out of any problem. Screw the budget, screw infrastructure, just go out and buy more Chinese-made widgets! The brilliance of their plan, is that any trained monkey can do it.


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## Ageo (18 November 2008)

Indie said:


> This from the European Central Bank:
> 
> T_he annual rate of growth of M3 decreased to 8.6% in September 2008, from 8.8% in August 2008.1 The
> three-month average of the annual growth rates of M3 over the period July 2008 - September 2008
> ...





Well since we live in Australia perhaps we should look at what the RBA has to say

http://www.rba.gov.au/Statistics/financial_aggregates.html



> Total credit provided to the private sector by financial intermediaries rose by 0.7 per cent over September 2008, following a rise of 0.5 per cent over August. Over the year to September, total credit rose by 10.1 per cent.
> 
> Over the month of September, M3 grew by 1.4 per cent and broad money by 1.3 per cent. Over the year to September, broad money grew by 14.7 per cent.




You can download the excel sheets to show that it has not decreased, so this is obviously inflation for us (pumping more money into the system).

P.S i have read Mish's view regarding how money supply is calculated and how inflation can be distorted, i also noticed he is an avid learner of mises teachings. Thanks for the link


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## Aussiejeff (18 November 2008)

Q1. The Rudd Guv-Mint WILL soon have spent all the surplus (in all likelihood by Xmas at the current rate!) Once that occurs, how deep can they spend into deficit next year in an attempt to keep our little BananaBoat afloat and still manage to get Oz back on its feet? $30 Billion? $50 Billion?

Q2. Given the likely scenario of a World Recession from now until at least end of 2009, if the Guv-Mint spends its way into a massive current account deficit hole, won't Oz consumer and investor confidence be even more rattled? The markets feed off the media and a massive deficit is unlikely to help the confidence factor?

Q3. What will happen to the Lil' Aussie Bleeder err... you know, the BananaBuck, if the GuvMint spends/falls into a big deficit hole? Will it be trashed bad?

Q4. IF the Lil' Aussie Bleeder starts to get trashed real bad by a rapidly deepening deficit hole, can the RBA hope to do ANYTHING to stop it? How much can THEY spend as well as the GuvMint?

Sheesh.

My head is spinning.

So many questions.

So little time.


aj


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## Indie (18 November 2008)

Ageo said:


> Well since we live in Australia perhaps we should look at what the RBA has to say
> 
> http://www.rba.gov.au/Statistics/financial_aggregates.html
> 
> ...





You're probably a Keynesian. But Mish is looking more right this year than you are IMO.

The point of Mish's article is that M3 charts only tell part of the story. 

Besides the RBA says it's no longer concerned about inflation and is now slashing rates at record pace. So you can point to their charts all you want but their official view regarding inflation is contrary to yours so I'm not sure why you are using their info to support your argument. But if you really believe that we are experiencing inflation then load up on the debt, it's probably a classic contrarian play atm since most of the world is deleveraging. 

Maybe your point is that official government figures point to increased money supply and this is the classic definition of inflation? Sure, fair enough. I agree, M3 says inflated money supply. However, the market is saying dollars are increasing in value vs all other asset classes. Particular the worlds reserve currency the USD, despite massive printing. That sounds pretty deflationary to me.


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## Ageo (18 November 2008)

Indie said:


> You're probably a Keynesian. But Mish is looking more right this year than you are IMO.
> 
> The point of Mish's article is that M3 charts only tell part of the story.
> 
> ...




Me Keynesian?? lol obviously you havent read my other posts before....

Here is an interesting article from Frank Shostak (recommended by mish btw) http://mises.org/story/2525

And this what Frank thinks 







> But if the Fed were to acknowledge that inflation is actually printing money, then it would mean that the US central bank is not an inflation fighter but is itself the key source of inflation. After all, without the Fed's monetary expansion, the whole machinery of inflation would have fallen apart.




So unless the RBA is showing us somewhere that the actual money in circulation has decreased i cant see how this is deflationary??? (perhaps by using the AMS (Austrian Money Supply) formula we could determine where we are at?


Jim Rogers (a billionaire investor) and Peter Schiff who also follow austrian economics believe increased printing of money is going to cause more and more inflation.........

What is probably happening now is stagflation where prices are coming down (moving to zero growth) but our purchasing power is also getting weaker.



Indie said:


> However, the market is saying dollars are increasing in value vs all other asset classes. Particular the worlds reserve currency the USD, despite massive printing. That sounds pretty deflationary to me.




And you think the USD will stay where it is forever? with all this printing???? why is it physical gold is in shortage yet the price has fallen?????? its called paper/electronic markets where anything in that statue can be manipulated...


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## sinner (18 November 2008)

Pretty funny this comment as I'm at work right now watching Sky Business with Dr Shane Oliver right now in big headline capitals "INFLATION PROBLEM STILL EXISTS", he reckons 5% is neutral, so at 5.25% currently we are still inflating. Although he "would not be surprised to see the cash rate with a 2 in front"....


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## Indie (18 November 2008)

> Ageo said:
> 
> 
> > So unless the RBA is showing us somewhere that the actual money in circulation has decreased i cant see how this is deflationary??? (perhaps by using the AMS (Austrian Money Supply) formula we could determine where we are at?
> ...




No, I never said USD would stay there forever. Don't be ridiculous. I said that USD is outperforming all other asset classes except Yen this year. This is an irrefutable fact. This is happening because the liquidity being supplied to banks is being used to re-capitalize an insolvent banking system not to expand lending. 

Whatever you think the difference between physical and paper price of gold is I can't really comment on. It's too difficult to get an accurate gauge of the selling price an individual can get with different buyers. Ebay? Your local store? Who knows what you are going to get? Give me an idea.

Obviously re-inflation or even hyper-inflation will come at some point since the system is cyclical. I mean, you'll eventually be right, but your wrong this year. Even about stagflation.


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## Glen48 (18 November 2008)

Today the world faces its largest economic challenge since the Great Depression of 1929. Ben Bernanke, who has been an avid reader of the causes and solutions to the Depression of 1929, has concluded that throwing a lot of government money at the problem will stimulate the private economy and help us work our way out of the problem. It worked pretty well in the Great Depression.

However, this time it will not work. The risk we face with a continuation of this strategy is destroying the value of the US dollar and causing a greater problem, hyperinflation, than we had with the 1929 Depression. The plans presented by Secretary Paulson and the Fed Chief Bernanke are not viable and will not achieve the objective of stabilizing the economy, preserving the banking system and promoting employment.

Let’s first see what the problem is. The root cause of our current problem is an excessive amount of money, highly leveraged and as a result, we have a lot of bad credit. While an excessive amount of money and bad credit are different issues, practically, they are intimately related. A reader of history finds that excessive amounts of money are almost always related to financial busts and panics.

What’s different this time from 1929 is the pervasiveness of the excessive credit and poor credit. In the 1930s, debt was about 150% of the GDP. Today it is about 350% of the GDP and this is before derivatives. While we do not know exactly how much derivatives increase leverage, it probably doubles the indebtedness. We probably have more than 5 times the indebtedness in terms of GDP now than we had in the Depression of the 1930s. In the 30s, we could increase further our indebtedness. Today, we are obliged to lower our indebtedness to assure the viability of our financial system. Fed Chief Bernanke is applying a solution for a 1929 problem which is not applicable to our highly over leveraged economy of today.

Starting late last year, the world started the process of deleveraging. Every type of financial class now recognizes we have excessive debt level which has created a situation where our financial institutions are not safe. We have many institutions with leverage ranging from 30 to as high as 100, when derivative leverage is taken into account. If you really want to see excessive leverage, look at Freddie Mac. They now have only about $9 billion of net worth going quickly to zero net worth, and they owe much more than $1 trillion in direct liabilities and guarantees. That is more than 100 to 1 leverage in a government supported institution. And it is equally bad in many unregulated and regulated financial institutions, particularly where there is a high use of Credit Default Swaps.

The rise of private equity, hedge funds and investment banking activities for the last 5 to 10 years has been predicated on higher leverage to increase profits. The leverage that made things so profitable in the past years is the same leverage that today makes investments so unprofitable in a down market. Only much lower leverage can make financial, industrial and commercial operations with acceptable risk levels in the markets for the coming few years while we are in the down market. (And if we are smart, we will not return to high levels of leverage even when the markets begin their upward climb)

The need to deleverage the economy is what makes the Bernanke strategy of providing more money to the economy a losing strategy. First, the old saying: You can lead a horse to water, but you cannot make him drink. The Fed can provide money to the banks, but the Fed cannot make the banks lend if they think they will not get back their money from the borrower. The Fed is completely powerless in this situation. They can put the cost of money at zero and they will not convince a bank to lend if the bank does not believe in the capacity of the borrower to repay. The $100+ billion given to the banks in recent weeks from TARP will have no direct benefit to bank borrowers. The recipient banks have said publicly they will hold the money as a cash cushion or they will use the money to buy other banks. Secretary Paulson says his measures are stabilizing the banks. The truth is a $100 billion will provide slightly improved liquidity for the banks for a few weeks but do nothing to fix the underlying problem.

Banks lend based on cash flow and security. First let’s look at cash flow. Profits are going to be dropping like a rock at the vast majority of borrowers. Who can say what they will earn in their business in the next year? Furthermore, many, perhaps most, people and businesses also find they have debts which their bank is asking to have repaid. Not only does the borrower have a problem of not earning what he hoped, but also banks now want their money back. That situation will cause many bankruptcies. Now look at the value of guarantees. Take, for example, houses. It is likely the value of houses will continue to decline for at least another year or two and very likely more. As a banker, if I do not know the value of my security, I do not know the relation of security value to the loan I have made. Prudent bankers, who are already losing fortunes, are unlikely to want to lend in this situation where they can neither determine the estimated cash flow for repayment nor the value of their security guarantee.

In short, the fundamental plan of Paulson and Bernanke will fail to stimulate new lending even if they give away $700 billion. The Paulson plan is primarily bailing out bank equity investors; it is not stimulating the economy and banks to lend. Increasing the money supply at this time runs the risk of creating hyperinflation and destroying the value of the US dollar. We are fundamentally in a deflationary cycle which needs to be worked through.

Summarizing

   1. The Bernanke and Paulson plan for the economy does not work because it depends upon pumping money into the economy. It might have been a solution in the 1930s, but it will not work today.
   2. The real problem with the economy is over leverage and we are obliged to dramatically reduce leverage in the economy today, not increase the money supply and leverage. Deleveraging will inevitably cause some very bad short term consequences in the economy as a result of deleveraging.
   3. The Bernanke / Paulson plan to provide liquidity to banks and ask them to on lend these funds is bound to fail because banks are afraid to lend to their borrowers
   4. The sad result is that the Bush government represented by Bernanke and Paulson does not have a viable plan to help the economy.

Conclusion: In a worst case scenario, still of low probability, the current administration plan could lead us to hyperinflation which is worse than the Depression of the 1930s. At a minimum, the current administration does not have a feasible work out plan. President-elect Obama needs new ideas because the current administration does not have a viable idea to cure the economic problems we have.


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## Whiskers (18 November 2008)

Glen48 said:


> Summarizing
> 
> 1. The Bernanke and Paulson plan for the economy does not work because it depends upon pumping money into the economy. It might have been a solution in the 1930s, but it will not work today.
> 2. The real problem with the economy is over leverage and we are obliged to dramatically reduce leverage in the economy today, not increase the money supply and leverage. Deleveraging will inevitably cause some very bad short term consequences in the economy as a result of deleveraging.
> ...




One thing is now certain, the Bush admin is not going to improve and make financial regulation more uniform world wide.

Similarly, they are not going to kerb leveraging and Wall St to any significant degree. 

Not very clear what Obama's stratergy will be, but I think it will certainly address both of above at the same time as increasing money supply. In an imperfect world, I think that's probably the best we'll get... just hope Bush doesn't do anything 'STUPID' before he vacates office for Obama. 

I've got a bit of a feeling Obama's gonna hit the ground running pretty hard, looking to undo some of Bush's damage mainly from lack of commitment, asap.

Be interesting to see how much of the multi billions rescue package Bush has handed out/ leaves for Obama, before he leaves office.

For Aus economy, I don't have a lot of problems with increasing public expenditure, so long as it's targeted at things like infrastructure, that has become run down of late, and will increase effeciency and productivity down the line.


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## Mr Capital (19 November 2008)

Great Thread, a very interesting read & times ahead. Thanks.


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## Aussiejeff (19 November 2008)

Glen48 said:


> ....*What’s different this time from 1929* is the pervasiveness of the excessive credit and poor credit. In the 1930s, debt was about 150% of the GDP. Today it is about 350% of the GDP and this is before derivatives. While we do not know exactly how much derivatives increase leverage, it probably doubles the indebtedness. We probably have more than 5 times the indebtedness in terms of GDP now than we had in the Depression of the 1930s. In the 30s, we could increase further our indebtedness. Today, we are obliged to lower our indebtedness to assure the viability of our financial system. Fed Chief Bernanke is applying a solution for a 1929 problem which is not applicable to our highly over leveraged economy of today.




What's different this time from The Great Depression? I see these two factors as being the most "different" - 

(a) The truly MASSIVE scale of the modern world's collective economies is the first major differerence. The two events simply can't be compared as far as the SCALE of the problem. Compared to today, the number of companies and consumers involved or affected by the Great Depression was a TINY fraction compared to what the world faces now.

(b) The truly MASSIVE inter-connection and inter-dependence of global financial markets and trading resulting from years of governments promoting the policy of "globalization" and more recently, the World Wide Web connectivity. There simply was no such thing as totally computerised electronic markets where instant "stop loss or buy" orders can be made at the tap of a refresh monkey. The sheer, mind-boggling scale of this global inter-connectivity (which reaches right down to level of a single investor/trader sitting in his/her underpants shuffling electronic "paper" from their own loungeroom) introduces it's own unique logistical problems for any governments trying to get on top of what is now a truly GLOBAL economic crisis. 

In 1929, most countries were relatively self-sufficient in so many ways, which in itself allowed them to dig their way out their economic holes over time (with the help of a WW2-inspired technological & industrial "boom") - unlike today where most countries and economies have become ultra-reliant on each other to buy each other's specialty products. As we have seen, if one major player goes into recession today, everyone else inevitably is affected so badly that they, too, must follow the slippery slope. There is no stopping it. Even our own Lil' Tuff Ozzie Econ got the flu - regardless that our leaders felt we had been "immunized" by our wealth in raw materials. We have too many fingers in everyone else's pies to NOT be greatly affected by their demise.

So, for me it is the SHEER GLOBAL SCALE of the world economic crisis that I think is going to drag this mess out for longer and deeper than anyone is currently forecasting.  

Forget 1929. In comparison it was a rolling stone that gathered moss on the slippery slope.

Now, we have a 5,000 tonne boulder slowly gathering steam down Mount Everest....

This is the New World Order of things.


aj


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## ROE (19 November 2008)

Spend spend spend are such society but alas

"History shows that people who save and invest grow and prosper, and the others deteriorate and collapse"


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## Ageo (19 November 2008)

Indie said:


> No, I never said USD would stay there forever. Don't be ridiculous. I said that USD is outperforming all other asset classes except Yen this year. This is an irrefutable fact. This is happening because the liquidity being supplied to banks is being used to re-capitalize an insolvent banking system not to expand lending.
> 
> Whatever you think the difference between physical and paper price of gold is I can't really comment on. It's too difficult to get an accurate gauge of the selling price an individual can get with different buyers. Ebay? Your local store? Who knows what you are going to get? Give me an idea.
> 
> Obviously re-inflation or even hyper-inflation will come at some point since the system is cyclical. I mean, you'll eventually be right, but your wrong this year. Even about stagflation.





Indie regarding stagflation i meant i believe thats the next phase (when that will happen who knows) im no short term person as i suck at timing the market but my beliefs are that when it happens i will be prepared (same as hyperinflation but that could be yrs and yrs if it even does happen here).

Regarding the physical/paper gold pricing read here which will save me some time http://www.kitco.com/ind/willie/oct302008.html

And Indie i think your forgetting that im not trying to predict market patterns in a specific time frame but just pointing out my beliefs on what is to come (without a time frame). As Jim rogers says he will make most of his money in agriculture commodities but when that happens who knows.....


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## Glen48 (19 November 2008)

This is a cyst that has been getting pumped up for 25 yrs and only lancing it will cure the problem not rubbing ointment on it.
Another problem will be cars which have been leased and the re-sale value will be a long way short of the residual.
GE could be on borrowed time. Sad to see USA icons tumble after so many years.


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## Julia (19 November 2008)

From Colin Twiggs' newsletter:


> President Bush and the Group of 20 blame the global recession on imprudent investors who "sought higher yields without an adequate appreciation of the risks" (Bloomberg). That is an interesting statement considering who suppressed interest rates to artificially low levels ”” forcing investors to assume greater risk in order to earn an adequate return on their investments. Was it not the major central banks, at the urging of their governments? The attempt to engineer a soft landing in 2002/2003 caused far more pain than it saved. The cure almost killed the patient. Political leaders are not prepared to admit that we are currently reaping the results of their past intervention. And they fail to realize that further intervention to prevent falling prices is likely to cause more trouble in the future ”” prolonging the current recession


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## prawn_86 (19 November 2008)

Glen48 said:


> Sad to see USA icons tumble after so many years.




I have to disagree. Thats business for you...


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## Ageo (19 November 2008)

Interesting clip about inflation and martial law (oct 13) with peter schiff

http://au.youtube.com/watch?v=OVnf07PXvqs


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## Indie (19 November 2008)

Ageo said:


> Indie regarding stagflation i meant i believe thats the next phase (when that will happen who knows) im no short term person as i suck at timing the market but my beliefs are that when it happens i will be prepared (same as hyperinflation but that could be yrs and yrs if it even does happen here).
> 
> Regarding the physical/paper gold pricing read here which will save me some time http://www.kitco.com/ind/willie/oct302008.html
> 
> And Indie i think your forgetting that im not trying to predict market patterns in a specific time frame but just pointing out my beliefs on what is to come (without a time frame). As Jim rogers says he will make most of his money in agriculture commodities but when that happens who knows.....





All fair enough Ageo. 

My perspective is always from my investment viewpoint at the time, i.e where my money actually is at that time and what I plan to do with it in the short to medium term. I can't predict the future better than anyone else, so if the investment climate changes I move my position accordingly. For example, if the government started mailing out $100k cheques to everyone, instead of giving it to insolvent businesses, I'd be buying gold today. I agree that fiat will be utterly destroyed at some point when the USD starts its final death spiral, but I think that can only begin once we have reached the bottom of the markets.


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## Naked shorts (19 November 2008)

Glen48 said:


> Today the world faces its largest economic challenge since the Great Depression of 1929. Ben Bernanke, who has been an avid reader of the causes and solutions to the Depression of 1929, has concluded that throwing a lot of government money at the problem will stimulate the private economy and help us work our way out of the problem. It worked pretty well in the Great Depression.
> ........................




Thank you for this addition to the thread, it must have taken sometime for you to write.

I don't agree that all leverage is bad, it is my view that if you are an incompetent, then leverage is bad.


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## sinner (19 November 2008)

Indie said:


> However, the market is saying dollars are increasing in value vs all other asset classes. Particular the worlds reserve currency the USD, despite massive printing. That sounds pretty deflationary to me.




Sorry, just wanted to quote this again. Not really contrary to your view or anything, just thought it would be an appropriate time to quote this.



> In his infamous "helicopter" speech delivered in November 2002, Mr Bernanke raised the question, "Suppose that, despite all precautions, deflation were to take hold in the US-economy and moreover, that the Fed's policy instrument, the federal funds rate, were to fall to zero. What then? Well, the US government has a technology, called a printing press, or today, its electronic equivalent, that allows it to produce as many US-dollars as it wishes at essentially no cost," Bernanke said.
> 
> "Under a paper-money system, a determined government can always generate higher spending and hence positive inflation. Normally, money is injected into the economy through asset purchases by the Fed. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys."
> 
> "One approach, similar to an action taken by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero-percent for some specified period, which would induce a decline in longer-term rates. A more direct method, which I prefer, would be for the Fed to enforce interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, yields on longer-term public and private debt, such as mortgages, would likely fall as well," Bernanke said.


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## ROE (19 November 2008)

Naked shorts said:


> Thank you for this addition to the thread, it must have taken sometime for you to write.
> 
> I don't agree that all leverage is bad, it is my view that if you are an incompetent, then leverage is bad.




The only time leverage is not bad is you correctly predicting something will appreciate in values and you sell out at the right time before the tides turn.. and to me that not much better than throw a dice.

consider this logical explanation

No one ever goes bankrupt because they have less money or no debt
but some goes bankrupt because of debt so you can safely conclude your chance of going belly up is there if you leverage.

Consider the richest man in the word said he would never borrow a dime even if interest was at 1%...but he buy when company drop by 50% or 60% and everyone shout the company is going under tell me it's more risky to borrow  even at 1% 
and this quote is true through out human history

"History shows that people who save and invest grow and prosper, and the others deteriorate and collapse"

but people cant make a living if you save any invest ...so they finance engineer clever ways to separate you from your money and they called it investment when it's really debt


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## Indie (19 November 2008)

sinner said:


> Sorry, just wanted to quote this again. Not really contrary to your view or anything, just thought it would be an appropriate time to quote this.




Eventually Ben might do what he says and actually drop money on taxpayers instead of throwing it into the debt abyss on Wall Street. By then gold will be a bargain at anywhere between $300-$600 oz USD. I'll be ready and waiting.


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## shaunQ (20 November 2008)

Personally, I see the Government providing money to banks and trying to further credit as VERY different to a government investing in Infrastructure, such as the 300M Local Council fund, a stimulus package and maybe personal and business tax cuts etc.

The latter provide more disposable income to people/businesses enabling thm to deleverage or spend, helping businesses, helping employment, helping income, helping sales.

Yes it can falsely prop up the situation, but thats the idea.


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## sinner (20 November 2008)

Indie said:


> Eventually Ben might do what he says and actually drop money on taxpayers instead of throwing it into the debt abyss on Wall Street. By then gold will be a bargain at anywhere between $300-$600 oz USD. I'll be ready and waiting.




If you can get it


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## Naked shorts (21 November 2008)

ROE said:


> but people cant make a living if you save any invest ...so they finance engineer clever ways to separate you from your money and they called it investment when it's really debt




Do you think some of these great companies today would be where they were if they didn't borrow to begin with? Not everyone starts out with $10mil in the bank

anyways

*Update on subject matter*
http://www.abc.net.au/news/stories/2008/11/20/2425520.htm


> The federal Opposition has joined the Government dismissing the Reserve Bank governor's suggestion that a budget deficit would keep the Australian economy growing.
> 
> RBA governor Glenn Stevens says governments should continue spending money on worthwhile public investments, even if that means going into deficit.
> 
> ...


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## chops_a_must (21 November 2008)

I don't think they have a choice.

If they aren't already in deficit, or aren't soon, then you know they are cooking the books.


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## IFocus (21 November 2008)

Spending isn't the reason for losing the surplus, slowing economy less tax, rising unemployment alone will impact on the bottom line, throwing in some spending for stimulus just means a *bigger* deficit

At some point Malcolm Turnbull will have to get serious about telling it as it is rather than politicking or else he and the Libs will lose total credibility.


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