The credit crisis explained

This is a great video on how the credit crisis came about.

It doesn't describe the government programs that led to the crisis, just the mechanics of how things became frozen.

Barney Frank, Chris Dodd et al should watch it...


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

(Nothing Follows)

Capping executive pay will cause an increase in executive pay

In halls of power all across the globe politicians are getting themselves worked up about the issue of executive salaries and payouts, especially in circumstances where companies are going backwards or need government assistance.

Enter a man quickly building a reputation as Australia's worst ever treasurer, Wayne Swan:

EXECUTIVE salaries had reached "sickening" levels, Wayne Swan said today, as he warned the Government is considering a cap on bosses' pay.

The Treasurer said the Government was exploring all options when it came to high salaries for executives in businesses where staff were being laid off.

“I think Australians want to see a fair system for all and I think they are rightly sickened when they see some executives walk away with large payments and many workers walk away with virtually nothing,” Mr Swan said.

He was speaking in Melbourne ahead of crisis talks over the planned sacking of 1850 workers at clothing manufacturer Pacific Brands between the company, unions and Industry Minister Kim Carr.

Parenthetically, Kim Carr is of the hard-left faction and is eerily similar to the incompetent Wesley Mouch of Atlas Shrugged. His tactic is to provide government bailouts to industries that are heavily union controlled. The Wall Street Journal pointed out a few weeks back that Atlas Shrugged had gone from fiction to fact in just 50 years. It's a concern that most of the West's major economies are now run by the Looters.

The opposition has weighed into the debate - pretty much on the side of the government - with Shadow Treasurer Joe Hockey describing executive salaries as 'jarring' to those Australians who are losing their jobs or struggling to pay mortgages.

Ignoring the fact that most of the hype is designed to deflect attention from governments' attempts to 'fix' the crisis by looting the future earnings of today's young people.

In Australia, the government is conveniently ignoring the Institute of Company Directors' current reforms to the issue of executive pay and especially when a company is losing share price.

Leaving the aside, what will be the consequence of governments legislating a cap on executive remuneration?

The answer might be counterintuitive but it's higher executive pay.

Increased controls on company boards led to a number of companies reversing their decision to go public and list on the stock exchange.

This situation will be exacerbated if executive pay is capped as not only will fewer companies choose to list, especially into a poor economy in which increased share price will be a tough ask, but also companies may choose to de-list.

The net result will be that executives operating in companies not subject to public scrutiny will be able to achieve increased earning over their publicly listed counterparts.

With the balance of unlisted-listed companies increasing the overall remuneration for executives can only increase.

I do not believe that any company is entitled to even one cent of public money to bail them out but if it is going to be done then there is a fair case for the government to attach conditions to the assistance, which includes capping executive pay.

What happened on Wall Street was not a failure of government oversight but the direct consequence of government policy.

When people cry that Citigroup is 'too big to fail', for example, I point out that you could say the same thing about the Soviet Union.

(Nothing Follows)

Sharpton channels Muslim cartoon outrage

Has anyone else made the connection between the outrage over the Islamic cartoons by Muslims and Al Sharpton et al's outrage over the New York Post chimp cartoon?



That's one of the reasons I call these groups soulmates though at least Sharpton's group has only called for people's figurative heads and not literal ones.

From a free speech point of view there's absolutely no difference between their reactions.

People should be protected.

Ideas should always be open to debate.

It seems to me that Al Sharpton should unclench his fist...

It's instructive that people on the right would never have made the connection between the NYP cartoon and Obama - because we're pretty much race blind and have been for years - while the vile race baiters on the left use it as a cudgel to promote their racist agenda.

And in the immortal words of Forrest Gump:



(Nothing Follows)

Are people running out of patience with their politicians' spending?

Is this the type of stuff that gets people worked up and off their bums to push back against their political masters?

The problem in the world was caused by too much spending based on easy credit due to artificially low interest rates.

Can someone name one country that is not looking to try and spend its way out of its spending-induced problem?

President Obama gave his non-State of the Union to which Peter Schiff responds:



I don't see how things are going to get better before they get much worse.

As Schiff points out, without savings there is no ability to fund investment.

I still think we'll see 10% unemployment and inflation in the USA and across Europe. Australia will hit 8%/8% and potentially crack double figures.

At what point are people going to get so fed up as to 'chuck the bums out'?

(Nothing Follows)

Mother Earth comes to mankind's rescue

Oh, no!

What a disaster!

What will we do?

How will we control ourselves?

What is the meaning of our lives?

And our message?

If it's true?

Wailed the Climate Faithful.

Apparently, Mother Earth is doing a pretty good job of protecting us from ourselves...

Africa's tropical forests have stored huge amounts of carbon over the last four decades and become a critical sponge for greenhouse gases, according to a study published Thursday.

Long-term measurements taken across the continent's tropical belt showed that African forests absorb as much carbon dioxide as those in the Amazon.

Tropical forests only account for seven-to-ten percent of the Earth's land area. But they hold up to half of the carbon locked inside the planet's terrestrial vegetation, giving them an outsized role in regulating greenhouse gases in the atmosphere.

Previous studies in South America have shown that Amazonian old-growth forests have absorbed, on average, an extra 620 kilogrammes (1,364 pounds) of carbon per hectare (2.47 acres) per year.

This adds up to some 650 billion kilos every year for the entire Amazon basin, which sits astride eight nations.

Before the new study, however, it was not known whether this trend was common to all tropical forests, or varied from one continent to another, especially in Africa.

Having this information is important to broader attempts to project changes wrought by global warming, and how quickly temperatures are likely to rise.

Two dozen international researchers led by Simon Lewis of the University of Leeds in northern England pulled together data from 79 monitoring plots scattered across 10 countries in western and central Africa.

Sifting through the data, the scientists found that the region's rain forests had pumped progressively more carbon dioxide out of the atmosphere as trees underwent photosynthesis and grew.

The average increase was almost identical to those for Amazonia, a net plus of 630 kilos per hectare each year between 1967 and 2007, reported the study, published in the British science journal Nature.

"African tropical forests are providing important ecosystem services by storing carbon and being a carbon sink, thereby reducing the rate of increase in atmospheric CO2," the main driver of global warming, the authors note.

At least one puzzle remains. Left alone, forests will eventually reach a point at which tree growth and death are in equilibrium, meaning they neither take in or give off extra carbon.

The question, then, is why these tropical forests are continuing to draw down ever more CO2.

"There are two possible explanations," said Helen Muller-Landau in a commentary published in Nature.

One is that major disturbances hundreds, or thousands, of years ago -- massive fires, drought, changes in land use -- destroyed portions of the forest which have been growing back ever since.

The second is that climate change has knocked tropical forests in South America and Africa off balance. "Perhaps the increase in atmospheric carbon dioxide is effectively fertilizing tropical tree growth," speculated Muller-Landau.

It is probable, she added, that both factors were at play.

Whether remaining intact forests will continue to sequester carbon is unknown, and will depend in part on how humans manage this precious resource, Lewis and colleagues conclude.

"With adequate protection, these forests are likey to remain large carbon stores in the longer term," they wrote.

We have spent tens of billions of dollars on climate change and now they tell us that there's some new carbon sink of hitherto unknown capacity?

These people are crazy.

(Nothing Follows)

The Age of Economic Ignorance

Frank Shostak is a former professor of economics who is now M. F. Global's chief economist.

In this article published at Brookesnews he outlines the danger the world faces due to the belief that printing money will somehow lift the world out of recession or even avoid what appears to be an inevitable depression.

There is now no excuse for the layperson to not have spent some time studying up on the reason for the dire economic straits that the world finds itself in.

People should by now understand that consumption does not drive the economy and that the current problem has been created by the expansion of the money supply, exacerbated by ridiculous government intervention in the markets such as the immoral Community Reinvestment Act in the United States.

What's it going to take for people to realise the folly of their ways?

Food lines?

Civil strife?

Worse?

We live in an age of grave economic ignorance, if central-bank policy is an indication of prevailing economic theory. It is apparent that we've learned nothing from several millennia of monetary destruction. The persistent demonstration that capital, not paper, is the basis for prosperity has fallen on deaf ears. Daily, we face the sad spectacle of government officials, pundits, and even Nobel laureates telling us that printing money is the answer to an economic downturn. Consider that since the eruption of the financial credit crisis in the second half of 2007, all major central banks have embraced an irresponsibly loose interest-rate stance. For instance, the policy rate of the Bank of England (BOE) was lowered from 5.75 per cent in November 2007 to the current level of 1 per cent.

The sharp decline in the BOE policy interest rate is in line with policies of other central banks. The US central bank (the Fed) has lowered its policy rate (the federal-funds rate target) from 5.25 per cent in August 2007 to around zero at present. Also, the relatively "conservative" European Central Bank (ECB) has been aggressively lowering its policy interest rate. The rate was lowered from 4.25 per cent in September last year to the present target of 2 per cent. Similarly, the Bank of Japan (BOJ) has visibly eased its interest rate stance. The policy rate was reduced from 0.5 per cent in September 2008 to the current level of 0.1 per cent.

Given that, so far, already extremely low interest rates have failed to revive economic activity, central bankers are now considering another approach. Last Wednesday, February 11, the governor of the Bank of England said that the UK central bank is going to embrace a quantitative easing policy to revive the economy. The idea here is to flood the economy with money by buying government bonds. US central-bank policy makers are currently contemplating a simliar idea. We shouldn't overlook the fact that, since embracing the aggressive lowering of rates, central banks have been aggressively pushing money into the banking system without succeeding in reviving economic activity. So why should aggressive money pumping work now?

The yearly rate of growth of the US central-bank balance sheet (money pumping) jumped from 3.9 per cent in August last year to 152.8 per cent in December 2008 before falling to 127.5 per cent in January. The yearly rate of growth of the balance sheet of the Bank of England jumped from negative 7.2 per cent in May 2007 to positive 179.4 per cent by October 2008 before easing to 157.6 per cent in November last year and 129 per cent in January.

The growth momentum of the European Central Bank balance sheet has accelerated in January. Year on year, the rate of growth jumped from 7 per cent in July 2007 to 45.5 per cent in December and to 56.5 per cent in January. Also, the yearly rate of growth of the BOJ balance sheet follows a visible uptrend. The rate of growth climbed from negative 0.8 per cent in August last year to 10.3 per cent in December before easing to 5.7 per cent in January.

What permits real economic growth is an improvement in the investment infrastructure of the production process. What makes the improvement possible is real savings. It is real savings that fund the enhancement of infrastructure through various tools and machinery, i.e., capital goods. With better tools and machinery, a better quality and a greater quantity of goods and services can be produced.

In a free, unhampered market economy the established infrastructure is in accordance with the tendency toward harmony between various activities. This means that the flow of real savings is sufficient to fund various lines of production without any disruption. On this Murray Rothbard, paraphrasing Ludwig Lachmann, wrote,

Capital is an intricate, delicate, interweaving structure of capital goods. All of the delicate strands of this structure have to fit, and fit precisely, or else malinvestment occurs. The free market is almost an automatic mechanism for such fitting; … with its price system and profit-and-loss criteria, [it] adjusts the output and variety of the different strands of production, preventing any one from getting long out of alignment. (Murray N. Rothbard, Man, Economy, and State with Power and Market, Mises Institute, 2004, p. 967).

As a result of the artificial lowering of interest rates and massive money pumping, an additional demand for various goods and services emerges. This leads to an attempt to expand the infrastructure. This attempt is bound to fail since the flow of real savings is not large enough to support the expansion of the capital structure. Consequently, the attempt to expand the infrastructure leads to the diversion of real funding from various activities that make the present flow of real savings possible. Thus, the flow of real savings comes under pressure and the rate of real economic growth follows suit.

Neither an artificial lowering of interest rates nor monetary pumping by central banks has direct input in the production of capital goods and the production of goods and services that are required to promote and maintain human life and well-being. The artificial lowering of interest rates and monetary pumping only give rise to various false activities by diverting a portion of the flow of real savings to these activities. The more false activities that emerge on the back of the artificial lowering of interest rates and monetary pumping, the less real savings will be available for wealth-generating activities.

The fact that economic conditions have continued to deteriorate despite the aggressive lowering of interest rates and massive money pumping by central banks raises the likelihood that the flow of real savings is in trouble. Note again that monetary pumping and the artificial lowering of interest rates can't replace nonexistent real savings. Without additional real savings, it is not possible to undertake various new projects without weakening the existent structure of production.

Remember that the interest rate is just an indicator of the state of demand and supply for real savings. The falsification of this indicator cannot expand the flow of real savings. Likewise money is just a medium of exchange. Its function is to permit the exchange of the products of one specialist for the products of another specialist. More money cannot generate more real savings or real economic growth.

On the contrary, a further planned expansion in monetary pumping by central banks can only weaken the flow of real savings and undermine prospects for a sustained economic revival.

I can't see how any - any - of the so called stimulus packages around the world can have any other effect than to make the situation worse.

(Nothing Follows)

Sunday night rock 'n' roll covers

"Born to Be Wild" is a rock song written by Mars Bonfire and made famous by the Canadian rock band, Steppenwolf. It is often used in popular culture to denote a biker appearance or attitude. The song is sometimes described as the first heavy metal song ever written and is also said to have inspired the name of the emerging heavy metal genre; although these claims are disputed, the song's second verse (which refers to "heavy metal thunder," though it is either a reference to the weight of the motorcycle or a powerful car) contains the first recorded reference to "heavy metal" in the context of rock music.

Although initially offered to other bands – the Human Expression, for one – Born to Be Wild was first recorded in 1968 by Steppenwolf. (Under an earlier stage name, Dennis Edmonton, Mars Bonfire was previously a member of the Sparrows, the predecessor band to Steppenwolf). "Born to be Wild" was the band's second and most successful single, reaching #2 on the Billboard Hot 100 singles charts. In 2004, Rolling Stone magazine placed "Born to be Wild" at #129 on the 500 Greatest Songs of All Time list. In 2009, it was named the 53rd best hard rock song of all time by VH1.

The song was initially released in 1968, but it was subsequently included in many compilation albums and soundtracks. The first of these was the soundtrack for the movie Easy Rider (1969). Unlike the album or single version, the song on this soundtrack is accompanied by the sounds of motorcycles as an introduction. (Another Steppenwolf song from their first album, "The Pusher" was also used in the film.) When the movie was in production, Born to Be Wild was used simply as a placeholder, since Peter Fonda had wanted Crosby, Stills and Nash to do the movie's soundtrack. Eventually, it became clear that the song was well suited for the movie. At least in part because of its prominence in this movie, Born to Be Wild is probably the song that is most closely associated with motorcycles.

If you don't have Slade Alive in your collection then you're missing out on one of the great live albums, as well as their fantastic version of this song.

The Original - Steppenwolf




Thumping Cover - Slade



And a terrible cover - Kim Wilde



(Nothing Follows)

How much is a trillion?

So how much is a trillion US dollars?

Here are a few ways to think about it:

It's a billion 40" LCD TVs. The US could give a TV to every household in the world that didn't have one.

It's 25 billion pairs of Jessica Strappy Sandles. Women might think that's a good deal.

It's the cost of raising 5 million children to the age of 17. Someone should think about that.



It's 500 million Craftsman ride on mowers - with headlights. It's important to keep the grass cut in poor economic times.

It's 16 million Chevrolet Corvettes. If there's going to be a meltdown then at least you can enjoy your wheels.



It's the GDP of the following countries, which gives one pause for thought...

It's 250 times the GDP of Zimbabwe, Malawi or Fiji...

It's 3,333 sequels of Pirates of the Caribbean!

Give the money to Walt Disney, I reckon, and at least we can enjoy miserable economic times.

(Nothing Follows)

US markets heading down, down, down while debt levels increase

So here's a graph of the US stock market priced in gold since 1886.



People like Peter Schiff and Marc Faber predict that the market will drop again to be worth one ounce of gold.

It'd take a brave man to bet against that prediction.

Here's another scary chart showing US debt vs income levels since 1970.



Can someone please explain to me how the 'stimulus' plan addresses the underlying structural issues in the US economy?

Without fixing these issues how will any country be it the US, Australia or any in Europe get their economies back on track?

I suspect that once things have bottomed out, which will not happen for 12-18 months, many economies will resemble Japan's with slow, slow growth.

And if you seppos think that your stimulus package stinks then you might wonder why the Australian government, overseer of what has been described over recent years as the soundest economy in the world, is spending 6.5% of GDP on its stimulus package vs the US figure of 5.8%...

(Nothing Follows)

Devil Exorcised

I have exorcised the devil from my PC.

Has there been some malware, some virus, some keystroke detector interfering with my machine?

Yes. And No.

I have removed...



...Norton 360.

And not before time.

You may wonder how I happened to have it installed at all.

My initial mistake was installing Norton Internet Security 2006. It had topped the tests in terms of virus protection and even though it was known it would have an impact on PC performance I figured it couldn't be that much.

How wrong I was.

It was a disaster. The machine went like me on Sunday morning.

When the one year subscription was up I took advantage of the upgrade to the 2007 version hoping that Symantec had fixed the speed issue.

Wrong again.

It was terrible. But I still clung to hope that an upgrade would come and my machine could breathe again so I paid for another year's subscription.

At the end of the next year - now 2008 - I took off my head, put on a pumpkin and upgraded to Norton 360, which was meant to be the ducks guts and fix all previous issues, as well as adding in a whole bunch of new features.

Incredibly, given my history with the Norton product, I subscribed for two years to take advantage of the cheaper yearly price.

In chess that move would be annotated with a ?? meaning game losing blunder.

It is a shocking product. Truly shocking.

It is always stealing CPU time, scanning at seemingly random times but especially when I had a lot going on. It's as if it knew exactly when it could cause the greatest slow down. The impact on system boot time was remarkable; it would take 15-20 minutes before the bastard thing would stop its scanning and let me do something. I turned on every quick boot setting I could but to no avail.

While my life expectancy was greater then the men standing on the deck of the Titanic singing Near My God To Thee their spirits were higher than mine.

Until today.

For today I exorcised Norton 360.

I have installed the trial version of AVG Internet Security. My machine is ready to go within 2 minutes of booting up. I can load my 10Mb+ Excel files in no time at all. With Norton 360 I had to turn MS Office scanning off, as it would take over a minute to load the files.

All is good.

The devil is gone.

While my arse still points towards the ground I will never buy another Symantec product again.

You shouldn't either.

(Nothing Follows)

The Obama of Id

Indeed...

(click on the image to embiggen)

...why does anyone need to work if Obama delivers all he's promised?

The question reveals the unreality of his rhetoric.

If you haven't read Ayn Rand's classic Atlas Shrugged then do yourself a favour.

She uses the term 'looters' for those who take money from, and impose ever more restrictive rules on, the most productive elements of society, the elements that actually create sustainable jobs and increase our standard of living.

If there's ever been a better word to describe what the Obama administration is doing with its 'stimulus' bill then I haven't seen it.

Unfortunately for Australia it also describes what the Rudd government is doing; looting future generations for short term political expediency.

Do-somethingism really is a curse. All sides of politics suffer from it.

(Nothing Follows)

Parked Plod Prius

I have a gift for spotting a Prius at long range, sometimes even over the horizon.

It must be the cloud of smug that envelopes the car and their occupants.

I wasn't particularly on the lookout for a Prius today but it was hard to miss this one - parked in the middle of Canberra - that must qualify as the ultimate in law enforcement embarrassment.

A Prius police car owned by the Australian Federal Police.



Who drew the short straw to drive this thing?

And what would Sheriff JW Pepper have to say about it all?

When James Bond drives a Prius then you'll know our culture is doomed...

(Nothing Follows)

Sunday night rock 'n' roll covers

"The Final Countdown" is a rock song written by Joey Tempest for the Swedish rock band Europe. It was the first single released from the band's third studio album, The Final Countdown, in 1986. It is one of Europe's most recognizable and popular songs. The song reached No. 1 in 25 countries, including the United Kingdom. In the United States the song peaked at No. 8 on the Billboard Hot 100 and 18 on the Billboard Mainstream Rock Tracks chart. The single was certified Gold in the United Kingdom in 1986.

I've never understood why The Final Countdown has been so derided; it seems a pretty good song to me even if it does represent the height of European Pomp Rock. When I said I was doing cover versions on Sunday night I never said they'd be good covers and this one is so bad as to be a classic in its own right, which is demonstrated by the fact it's had over a million views on YouTube...!

The Original - Europe (Live)



The Cover - Some School Band (also live, unfortunately)



(Nothing Follows)

Green Manslaughter

It has to be said.

Environmental policies pushed hard by 'morally superior' but misanthropic green activists led directly to the loss of not only 300+ people in the Victorian bushfires but also over a million animals and a huge number of trees that these green pieces of human excrement are supposedly trying to protect.

But that's not all...

VICTORIA'S bushfires have released a massive amount of carbon dioxide into the atmosphere - almost equal to Australia's industrial emission for an entire year.

Mark Adams, from the University of Sydney, said the emissions from bushfires were far beyond what could be contained through carbon capture and needed to be addressed in the next international agreement.

"Once you are starting to burn millions of hectares of eucalypt forest, then you are putting into the atmosphere very large amounts of carbon," Professor Adams said.

How much greater can the disaster be?

At least Joe Public is waking up to the fact that it's Green Fascism responsible for causing the problem in the first place.

The Australian is running a poll asking whether environmental policies are to blame for the disaster. The Yes vote leads 62-38 with 12,000 votes entered so far. No doubt the vote-riggers on the left will swing into action shortly to 'fix' that poll.

How about this for an idea?

Why not publish the names of every green group that has advocated against land clearing over the last 5-10 years?

Why not publish the names of every one of the individuals who has made representation on behalf of the sick fantasy that we can let fuel load build up in forests to levels 5-10 times higher than what is considered safe?

And then let the Australian public judge these people both at the ballot box next time they get the chance and by stopping their donations to such a rotten, destructive cause.

There has been no greater destructive force for the environment in the last 30 years than 'big E' Environmentalism.

It's time that they were called on it.

(Nothing Follows)

Climate Faithful plumb new low by blaming Victorian bushfire disaster on global warming

It seems that whenever a natural disaster occurs anywhere in the world it is only a matter of time before some zealot concludes that the cause is global warming.

Thus, it has been so with the Victorian bushfire disaster in which more than 300 people may have lost their lives.

Tim Blair has being skewering those who are blaming global warming:

Just as they used Hurricane Katrina, warmenists are preparing to use Australia’s fires:

• I’m an American climate activist. My heart goes out to all suffering this devastation. I also appeal to you to tell your stories, in blogs or wherever you can; we need your voices to help get climate change laws and treaties passed. Americans don’t understand the harsh reality of GW coming to us all - Karen, San Francisco, USA

Thanks for the kind thoughts, Karen.

UPDATE. It’s on. A warmenist swarm commences at the ABC, Crikey and the Age, where Freya Mathews—a research fellow in the philosophy department at La Trobe University, if you don’t mind—writes:

• It is only a couple of years since scientists first told us we could expect a whole new order of fires in south-eastern Australia, fires of such ferocity they would simply engulf the towns in their path. And here they are.

Congratulations, geniuses. You’ve successfully predicted bushfires in Australia during the Australian bushfire season.

I have pointed out before that there is a deep immorality behind the accusation that mankind's CO2 emissions are responsible, or will be responsible, for all sorts of disasters.

Australia's Greens leader, Bob Brown, demonstrates thusly:

Greens leader Bob Brown says bushfires like the ones raging across Victoria and New South Wales this weekend will be more frequent if climate change continues…

“Global warming is predicted to make this sort of event happen 25 per cent, 50 per cent more,” he told Sky News.

“It’s a sobering reminder of the need for this nation and the whole world to act and put at a priority our need to tackle climate change.”

At the time he made the statement people were being killed by the fires.

Immoral, indeed.

It's hard to imagine how one could plumb lower depths than that.

However, it's almost possible, as this disgusting cartoon in Indonesia's Jakarta Post proves:

(Nothing Follows)

Australia on the Road To Serfdom

Prior to the Global Financial Crisis (aka bloated market correction) Australia was the envy of the world for the soundness of its economy.

It's true, the Rudd Labor government inherited the strongest economy in Australia's history when it won the 2007 election.

Yet now, a little over a year later, our $20+ billion surplus has not only been frittered away but flushed down the drain of Keynesian Do-Somethingism so that we'll end up with at least a $20 billion deficit this financial year.

Why, then, if our economy was so sound do we need to spend 6.4% of GDP on our bail out plan when the US is spending 5.8% and other countries with economies not as robust as Australia's are spending less?

We can't afford the mortgage so we're borrowing money to put in a swimming pool.

This is going to turn out extremely poorly, as Gerard Jackson describes in his weekly analysis:

Rudd's solution to the financial crisis and the recession is the discredited Keynesian one of swilling billions of dollars down a toilet bowl. In this he has the full support Treasury Secretary Dr Ken Henry who argued that Rudd's spending binge would prevent the economy from stalling. According to Henry's fallacious economic thinking investing in infrastructure and using cash handouts to promote consumption will create enough spending power to lift the economy out of recession. If it doesn't, then spend and borrow some more until it does. This line of 'economic thought' is complete hogwash.

The brilliant Dr Henry has stated that cash handouts are more effective than tax cuts. Turnbull's response to this nonsense was to dredge up Friedman's permanent income hypothesis, which immediately swung public opinion behind him (some hope). The problem is that Turnbull and his advisors are a bunch of economic illiterates while Henry is nothing but a vulgar little Keynesian whose lousy economics — that are also shared by officials at the Reserve Bank of Australia — are in grave danger of making matters much worse than they would otherwise be.

Australia's economic state — and that of the rest of the world — is the result of the appalling economic fallacies that have shackled the central banks. Without exception every central banker believes that he can stabilise the economy by manipulating interest rates. Let us once again turn to our own central banking experience. March 1996 to October 2008 currency grew by 129 per cent, bank deposits by 201 per cent and M1 by 185 per cent. It was this utterly incompetent (some would call it criminal) monetary policy that created a boom that once again gave us a "recession we had to have".

A loose monetary policy always distorts the production structure. By this it is meant that activities are encouraged that rely for their continued expansion — if not existence — on more and more monetary injections. The longer this policy is pursued the greater will be the distortions. Sooner or later the central bank will gradually begin to raise interest rates. A turning point will finally be reached where rising rates will cause manufacturing to start contracting*.

The latest Australian Industry Group's PricewaterhouseCoopers performance of manufacturing index reports that "seasonally adjusted manufacturing employment fell for an 11th consecutive month", which suggest that the turning point was reached in early 2008 when the cash rate target was raised to 7 per cent. That it was also reported that while manufacturing contracted for the eighth consecutive month in January might suggest to readers that there is a contradiction here. Not at all.

Austrian theory explains that the production structure consists of complex stages of production, which each stage being further from the point of consumption than the preceding stage. (Austrian capital theory is a lot more complicated than this might suggest). Therefore, because of the structure's time dimension — we expect the higher stages to contract first then in turn by the lower stages. Therefore a manufacturing index could for a time conceal the fact that some manufacturing activities are contracting and shedding labour. It would not be until the contraction became more widespread that the index would drop below 50.

Without a reasonable grasp of capital theory it is impossible to fully comprehend what is going on with the economy. This is why so much economic commentary is very bad, including the stuff Treasury officials come out with, which brings us right back to Dr Henry's nonsense. His only argument for increased government spending as opposed to tax cuts has to rest on Keynes' magical multiplier, according to which, the less you save and the more you consume the richer you will become. Hence wealth springs from consumption (demand) and not production.

Rudd is going to give — with Dr Henry's approval — small businesses a temporary $2.7 billion tax break. It ought to be obvious, even to a Keynesian, that no business is going to expand production on the basis of a temporary tax break. This is why tax cuts need to be permanent. Unfortunately, even the sound idea of tax cuts is burdened with fallacies. For example, Andrew Norton, a research fellow at the Centre for Independent Studies, argues that "tax cuts would be less inflationary than the spending we are seeing, because they would be partly saved". But tax cuts are never inflationary. Moreover, government spending is only inflationary when it is monetised by the central bank. In addition, to save, as Ricardo pointed out to Malthus, is to spend.

The question is not one of tax cuts v. government spending but the fact that not a single member of the economic commentariat gets it. First and foremost, nearly all of the spending is directed to personal and government consumption. For instance, nearly $4 billion is going to be spent on home insulation and just over $21 billion is to be spent on schools and public housing. That's a total of some $25 billion alone.

All of the spending is taking place at the lower end of the production structure. This is guaranteed to worsen the plight of the higher stages of production. The orthodox argument is that because consumption spending is about 66 per cent of GDP Rudd's spending binge will jump start the economy by spurring consumer spending. This approach is totally blind to the fact that total spending is about three time the size of GDP with business spending being about 66 per cent. It is not consumption that needs to be promoted but savings and production, out of which consumption springs — irrespective of what Dr Henry thinks.

The RBA recently said it expected GDP to bottom out at an annual pace of 0.25 per cent by the June quarter of 2009. But if the Reserve had used total spending (or total outlays) as its measure it would have found that the economy had actually contracted. Our so-called meagre growth figure is in fact negative. The country is in recession and Rudd's so-called stimulus will make it worse.

The following are a couple of examples of the type of economic commentary that I am forever condemning

Terry McCrann stated:

Now we've got massive co-ordinated stimulus for the first time in 17 years — and indeed arguably much more than back then. It's a big, bold experiment. (The phone call that never came , Herald Sun, 4 February 2009).

It's neither bold nor experimental. This kind of economic hooey has always failed whenever it has been tried. What is needed is sound economic advice, which is not what McCrann is offering. However, McCrann is a fount of economic wisdom when compared with Anatole Kaletsky. According to this expert:

As a result of moralistic witch-hunts against debt and consumption, pragmatic Keynesian solutions to the credit crunch have been thwarted by an unholy alliance of ideological monetarists who believe that the market is always right...(How we all got it wrong this year , The Australian, 30 December 2008).

It is completely beyond the ken of this vulgar little Keynesian that it was his "debt and consumption" policies that caused the bloody crisis in the first place. But what can we expect from a moralising twit who thinks that a country can grow rich by bombing its own cities.

The economy sinks deeper into recession while the economic commentariat flounders.

(Nothing Follows)

Sunday night rock 'n' roll covers

"Tainted Love" is a song composed by Ed Cobb, formerly of The Four Preps, which was originally recorded by Gloria Jones. It attained worldwide fame after being covered by Soft Cell in 1981, reaching number one in the UK Singles Chart, and has since been covered by numerous other groups and artists.

Soft Cell's record label chose to release "Tainted Love" on July 7, 1981 as the band's second single (their first was "Memorabilia", which did not chart). The label implied that this single would be Soft Cell's final release if the single did not sell. Produced by Mike Thorne, the track was recorded in a day and a half with the first of two vocal takes being ultimately used on the record. Buoyed by the then-dominant Synthpop sound of the time and a memorable performance on Top of the Pops it rapidly reached number one on the UK singles chart, eventually repeating the feat in 17 territories. The following year it charted in the US. Although it took a record-breaking 19 weeks to crack the US Top 40, the song eventually reached #8 and spent a then-record breaking 43 weeks on the Billboard Hot 100.

Most people will only ever have heard Soft Cell's version of Tainted Love not realising that it's actually a cover of the song by Gloria Jones, which was terrific, especially given it was recorded in 1964 and not the electronic 80s.

The Original - Gloria Jones - audio track



The Cover - Soft Cell



(Nothing Follows)

Victoria is burning. 36 dead. Please donate if you can.

Victoria is burning.

36 people are already confirmed dead and the number is expected to rise (update: the toll is now 106 and rising)

Two towns have been razed to the ground.

Marysville north of Melbourne has been all but wiped off the map and ambulance authorities say there are not enough vehicles to reach all the injured in nearby Kinglake, a town which is also feared to have been destroyed.

It is unclear how many homes have been destroyed in the fires, but tens of thousands of hectares have been razed and the army has been called in to assist exhausted firefighters.

The number of destroyed homes will be in the hundreds.

This morning there were also unconfirmed reports of bodies being found in cars overtaken by the fires in Gippsland in the state's east.

Six of the confirmed dead have been found at Kinglake, six at Kinglake West and four each at St Andrews and Wandong, all north of Melbourne.

Five people are dead in Callignee, three in Hazelwood and one in Jeeralang. More bodies have been found at Humevale, Bendigo, and Arthurs Creek.

Victoria's deputy police commissioner Kieran Walshe says the death toll will rise and it is expected to include children.

Please help in any way you can.

Donations can be made to the Victorian Bushfire Relief Fund via any National Australia Branch or via internet banking. BSB: 082-001. Account number: 860 046 797.

(Nothing Follows)

A bunch of graphs of the US economy

Thanks to Mark Perry, Calculatedrisk and others here are some graphs of the US economy.

Some are quite revealing...and concerning.

(Nothing Follows)