Volcker says its all broken

"The American political process is about as broken as the financial system....The Treasury is an outstanding example of a broken system, but it's not the only one....I think people have lost confidence in government, they've lost trust in government, and it shows. This isn't a question just of this Administration. It's been kind of a steady, downhill path." [*]

[*] Business Week: At the Table December 30, 2009, 5:00PM EST
Paul Volcker: The Lion Lets Loose
Charlie Rose talks financial reform with former Federal Reserve Chairman Paul Volcker
Business Week: At the Table December 30, 2009, 5:00PM EST
http://www.businessweek.com/print/magazine/content/10_02/b4162011026995.htm

The Oil and Money Straitjacket

David Holden and Richard Johns, in their 1981 book ‘The House of Saud: 'The Rise and Rule of the Most Powerful Dynasty in the Arab World’ describe how Saudi oil money was used to hire American firms to industrialise Saudi Arabia with the overall management and fiscal responsibility delegated to the US Department of Treasury. The commission so set up was “independent to the extreme”. “Ultimately, it would spend billions of dollars over a period of more than twenty-five years, with virtually no congressional oversight. Because no US funding was involved, Congress had no authority in the matter, despite Treasury’s role. ”[1]

I wonder how effective monetary policy could be in the US under such a large and secret money regime?

David Holden was murdered in Egypt in December, 1977, while his and Johns’ book was still a work in progress. “Some say that Holden pried too deeply, and that is why he was murdered, others ascribe his death to a case of mistaken identity; almost certainly the truth will never be known.” [2]

A reviewer of Holden and Johns’ work noted that there are “some wonderful nuggets of insight [that are] not discussed in other books. For example a quote from Kissinger's own doctoral dissertation:

"... not shy away from duplicity, cynicism or unscrupulousness, all of which are acceptable tools of statecraft." (p 348)

and, after the death of King Faisal, a quote from the Washington Post:

"[King] Faisal probably did more damage to the West than any other single man since Adolf Hitler." (p382)

Why was the Washington Post so against Faisal?

As it turned out this Saudi Arabian leader was assassinated in March 1975. The timing is interesting. It was only two days before Faisal’s death that the former left-wing Australian Deputy Prime Minister (Jim Cairns) and Australian Senator Wreidt met him in order to negotiate a very large loan for Australia to fully develop its domestic energy infrastructure. This included moves toward the use of solar energy. King Faisal assured Cairns and Wreidt at the time of “the fullest possible cooperation of Saudi Arabia about oil, food and monetary or investment matters.” Cairns believed “it was possible for large sums of money to have been borrowed at far lower rates of interest than would have had to be paid in Australia, and perhaps elsewhere.” [3]

Cairns noted that “the death of King Faisal and later the disarray of the Australian government prevented any progress in 1975. That was the year many Australians point to a coup against Australia’s last social democratic Labor government having occurred with American CIA involvement. [4] Jim Cairns was removed from the office of Treasurer by the then Prime Minister Gough Whitlam after the mainstream newspapers in Australia (virtually then under the control of only three families – Murdoch, Fairfax and Packer) engaged in a campaign attacking the credentials of Cairns. The Melbourne Age, for instance featured banner headlines claiming a member of Cairns family was to get $600,000. Cairns wrote: “It was never possible for anyone to get one cent as a result of anything I, or the government, or any member of it did or did not do.” [5]

Cairns was aware that the aim of the USA at the time was take control of the distribution of oil funds in international financial markets “rather than be lent directly, especially in government to government loans”. “In Washington in October, 1974, OPEC was anathema. If there were to be any ‘cartels they had to be American controlled.”. Cairns added:

“I got the impression, both in Washington and New York, of confidence that oil pressures could be successfully resisted without any military action [6], and that American financial houses could soon regain control of the investment of oil funds.”[7]

And so they did. Wall Street banks monopolized the recycling of petrodollars and the US government acquiesced in vastly inflationary oil price rises in order (at least partially) to bail out its defence contractors. In Australia it was the end of an era. After a relentless oligopoly media campaign, on 11th November 1975 the ‘bunyip aristocracy’ of the Liberal-Country Party coalition came to power in Australia under Malcolm Fraser. It was constantly referred to in Australian corporate media as a ‘landslide’ defeat for Labor, but the party acquired 43.8 percent of the votes – even with the incessant anti-labor campaign – and received only 28 percent of the seats. Cairns thoughtfully wrote in 1976 that such an outcome “may have brought the end of the apparent two-party system.”[8] He was right.

“The strait-jacket was there, and it proved to be one made of money.” [9]...and oil.

[1] [1] David Holden and Richard Johns, ‘The House of Saud: The Rise and Rule of the Most Powerful Dynasty in the Arab World (New York: Holt Rinehart and Winton, 1981), p359. As quoted in ‘Confessions of an Economic Hitman’ by John Perkins. Page 84. Published by Ebury Press Random House, 20 Vauxhall Bridge Road, London SWIV 2SA. 2005. ISBN 978091909109

[2] John P Jones III (reviewer of Holden and Johns book at Amazon).

[3] Jim Cairns ‘Oil in Troubled Waters’1976. Widescope International Publishers, Victoria, Australia. Page 92

[4] A Coup in Australia and the CIA
Brenda Rosser. Saturday, July 5, 2008
http://econospeak.blogspot.com/2008/07/coup-in-australia-and-cia.html

[5] Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 92

[6] Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 82

[7] Jim Cairns wrote: “On January 3, 1975, Dr Kissinger, American Secretary of State, indicated that in some circumstances a ‘takeover of Arab oilfields was a possibility’, not because the cost of fuel had quadrupled, but that it would be ‘another matter where there was some actual strangulation of the industrialized world.’ At about the same time Professor Robert Tucker of John Hopkins University had issued a paper settling out the pros and cons of an American seizure of parts of Kuwait and Qatar. He believed that even if the Arabs set fire to the oil wells it would take only a few months to have the oil flowing freely again. He was satisfied that Russia would not intervene.” Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 79

[8] Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 129

[9] Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 130.

Mirowski On The Market Crash

At the recently completed AEA/ASSA meetings in Atlanta I organized a joint HES/AEA session on "Complexity in the History of Thought." Speakers included me, David Colander, John Davis, and Phil Mirowski of the Notre Dame department that is about to be abolished. He spoke provocatively to an overflow audience on "Inherent Vice: Complexity vs. Behavioral Explanations of the Crisis." In this he dismissed views that emphasized "bad behavior by individuals" including irrationality and corruption as causes of the crash and larger breakdown. He argued that it was a systemic problem, doing so by extending his recent idea of markomata, that markets are fundamentally algorithms that evolve as competing systems with increasing levels of hierarchy in the form of futures and derivatives markets. While conventional theory says such developments should improve efficiency and spread risk, they can lead to increased fragility as the rising complexity can lead to a breakdown of computation as in the halting problem in computer science, implying an inability of the system to set prices, which was exactly what happened in the crash. I was the discussant, and while I had some technical complaints, I find this a very intriguing argument, and it generated considerable and very lively discussion in the session.

What is the Fed up to Now?

Recently I read that the Financial Services Regulatory Relief Act of 2006 will give the Federal Reserve, for the first time, explicit authority to pay interest on reserve balances, beginning on October 1, 2011. [1] I wondered why this change was being introduced.

A clue came yesterday when I read that, at present, THE FED IS UNINTENDEDLY INCREASING BANK RESERVES by its lowering of long-term interest rates and directly supplying credit to borrowers who can’t get money elsewhere. The excess bank reserves created by this process are claimed not to be a spur on credit growth and inflation because “bank lending is constrained by customer demand and by capital [and] right now loan demand is moribund (in spite of a zero federal funds rate) and capital is in short supply.” The Fed wants to drain the ‘tsunami’ of excess reserves caused by its above intervention so that it can regain its capacity to set the Fed Funds rate.[2] It will want to raise the Fed Funds rate eventually and the author of this article hopes they won’t do this anytime in the near future.

However, according to Mark A Sadowski the Federal Reserve -for the first time in history– is already paying the banks interest on excess reserves [ER]. They can earn 0.25% “absolutely risk free on nearly $1 trillion.” This is more than the banks can earn on 1, 3 or 6 month T-Bills right now. “It is a highly deflationary policy that has sharply reduced the money multiplier and has probably rendered the current quantitative easing largely impotent…The IOER appears to be a tool to help prop up the financial sector while keeping long-run inflation expectations low…It is a tragic deflationary mistake.” [3]

It looks like banking has become an unviable business these days. With claims that there are insufficient borrowers at a time when real interest rates are negative [4]. The banks, in any case, don't generally want to lend because most of their customers are insolvent. The solution, therefore is to pay the banks money for doing absolutely nothing.

There is no broadly accepted modern definition of feudalism nor is there one for this more recent emergence of absolute financial nobility [5]. Therein lies our challenge. To find a more apt description for our new lords.

In the absence of any public control over events, self knowledge will at least give us a little power.

[1] Divorcing Money from Monetary Policy
Todd Keister, Antoine Martin, and James McAndrews
http://www.ny.frb.org/research/EPR/08v14n2/0809keis.pdf

[2] The truth about all those excess reserves
Dec 30th 2009, 19:27 by The Economist | WASHINGTON
http://www.economist.com/blogs/freeexchange/2009/12/the_truth_about_all_those_exce

[3] Mark A. Sadowski commenting on Dec 31st 2009 3:50 GMT at:
The truth about all those excess reserves
Dec 30th 2009, 19:27 by The Economist | WASHINGTON
http://www.economist.com/blogs/freeexchange/2009/12/the_truth_about_all_those_exce

[4] Gold and Real Interest Rates. Mark Berger. 20th November 2009
http://education.wallstreetsurvivor.com/gold-real-interest-rates-negative

[5] It could be easily argued that the financiers have always been part of the 'nobility' all along. This may be the first time in history, though, where all the pretense to banking has been abandoned by this class.

New Measures for Bankruptcy Needed

I was reading a Paul Krugman article last night where this economist was addressing, what appears to be, the single-minded pursuit by Government of 'an inadequacy of demand' in the economy.

"It is possible for economies to suffer from an overall inadequacy of demand--recessions do happen" said Krugman. Then he added: "they can usually be cured by issuing more money--full stop, end of story.”[1]

And this is where the issue of bankruptcy plays in. You can't keep fueling consumption when people can't pay their bills without drawing down or abandoning all of the 'houses' they need to survive in.

So here's some reminders to Paul Krugman and company of what an ultimate bankruptcy really means:

“The risk that a 50-year-old white woman will develop breast cancer has soared to 12 percent today from one percent in 1975. Likewise, asthma rates have tripled over the last 25 years and childhood leukemia is increasing by one percent per year.”[2]

"Three out of every four Tasmanians suffer from a chronic health condition. This renders them unable to hold down a job and sees them struggle with simple daily tasks." [3]

"[consumptive water use across the Murray-Darling Basin in Australia] has reduced average annual streamflow at the Murray Mouth by 61 percent. The river now ceases to flow through the mouth 40 percent of the time compared to one percent of the time."[4]

"..In recent years [1992]... we have been witnessing another dramatic drop in biological diversity as a result of human activity, with both species extinctions and gene pool declines occurring at rates unprecedented in the earth’s history."[5]

"The Environmental Protection Agency is ready [April 2009] to start testing 67 pesticide ingredients for their possible endocrine disruption effects. But the testing program the agency plans to use is only a pitiful skeleton of what
it needs to be. This battery of tests, first recommended in 1998, is outdated, insensitive, crude, and narrowly limited. Each test and assay was designed under the surveillance of corporate lawyers who had bottom lines to protect and assorted toxicologists who were not trained in endocrinology and developmental biology."[6]

[1] The Accidental Theorist, All work and no play makes William Greider a dull boy.
By Paul KrugmanPosted Friday, Jan. 24, 1997, at 3:30 AM ET
http://www.slate.com/id/1916/

[2] As quoted in the Tasmanian Times and sourced from:
Cancer From the Kitchen?
By NICHOLAS D. KRISTOF Op-Ed Columnist
Published: December 5, 2009
http://www.nytimes.com/2009/12/06/opinion/06kristof.html?_r=4

[3] Plan to fight chronic disease. DAMIEN BROWN
December 07, 2009 09:13am
http://tasmaniantimes.com/index.php?/weblog/article/plan-to-fight-chronic-disease/
The Mercury link: http://www.themercury.com.au/article/2009/12/07/114171_lifestyle.html

[4] CSIRO, Water Availability in the Murray-Darling Basin- A report from CSIRO to the Australian Government, October 2008, p 5. See www.csiro.au for further information. As quoted in:
Native Title Report 2008, Case Study 2
The Murray-Darling Basin – an ecological and human tragedy
http://www.hreoc.gov.au/social_justice/nt_report/ntreport08/casestudy2.html
..\..\..\Environment\Water\Murray-Darling-Basin\casestudy2.doc

[5] Spellerberg and Hardes 1992 as quoted in:
Biodiversity and Ecosystem Function: Do Species Matter?
Paul S. Giller and Grace O’Donovan. Paul S. Giller, Department of Zoology and Animal Ecology, University College Cork, Republic of Ireland (corresponding author; e-mail: p.giller@ucc.ie); Grace O’Donovan, Department of Environmental Resource Management, University College Dublin, Belfield, Dublin 4, Republic of Ireland.

[6] EPA's new pesticide testing is outdated, crude
http://www.environmentalhealthnews.org/
In its search for endocrine-disrupting chemicals, the EPA should turn to scientists who think outside the box and inside the womb. The agency's testing program is "a pitiful skeleton" that will fail to detect many serious effects on human development.
By Theo Colborn, The Endocrine Disruption Exchange. April 27, 2009

The Doppelgänger Effect

by the Sandwichman (his farewell address)

Ere Babylon was dust,
The Magus Zoroaster, my dear child,
Met his own image walking in the garden.
That apparition, sole of men, he saw.
For know there are two worlds of life and death:
One that which thou beholdest; but the other
Is underneath the grave, where do inhabit
The shadows of all forms that think and live
Till death unite them and they part no more....

Economics has a double. Whenever an economist encounters that shade he lets out a terrified shriek. For Marx, the spectre haunting Europe was called communism. For Dilke, it was disposable time. It was Nassau Senior's "Last Hour". But for militantly anti-union employers at the turn of the 20th century -- and economics textbooks thereafter -- it was a humble lump-of-labor fallacy.

Make no mistake. When economists do it, it is arcane and learned ceteris paribus hokus pokus. But it is a fallacy and an aberration when the uncouth and uninitiated try their hand and apply it to the Great Shibboleth.

Classical political economy did not survive Marx's critique. To get around that embarrassment, economists erected the hydra-headed neo-classical scaffolding of a marginalist analysis whose elusive variations and elaborations make it harder to pin down.

In their heart of hearts, though, contemporary economists cling to a cherished inheritance from their classical forebears: the "wage-fund" of a fixed amount. But in this case, the error of this assumption is projected onto a hazily unspecified Other -- politicians, unionists, Luddites, Utopians or cranks. Whoever. This Other is the tremulous economists' doppelgänger

Economizing is labor saving. Economy means doing more with less. People specialize and trade so that they can have more with less effort. The purpose of technology is to reduce the amount of effort required to make something -- that is, to reduce the amount of wasted effort.

The purpose even of many consumer goods is to bring greater ease into our lives. A washing machine spares the housewife hours of scrubbing and wringing. A car relieves the shopper from the tedium of walking to the grocery store and the burden of carrying groceries back home.

The end of work, that is to say, is leisure. Even when the labor-saving capabilities of specialization, trading and technology are turned toward the production and consumption of more goods, those goods themselves are overwhelmingly aimed at expanding ease and leisure. Adam Smith observed this peculiar fact in his Theory of Moral Sentiments. And he wasn't the only one.

If the end of work is leisure, the end of growth is more work. Houston, we have a paradox. To economize is to save labor but to "grow the economy" is to waste it. Every economic action leads to a fork in the road. To save or to spend? To have more or to work less?

This bifurcation, this paradox, makes any conceivable economic calculation indeterminate. All the great economic thinkers -- Smith, Marx, Mill, Marshall, Veblen, Keynes -- acknowledged this paradox. Economics, then, is in essence the elaboration of a riddle -- an "unsolved riddle" in Leacock's phrase -- not the mechanical grinding out of predictions.

But statesmen, generals and captains of industry don't want to be bothered with silly riddles. They want predictions -- but, of course, only certain kinds of predictions, "mirror, mirror on the wall." And it is the statesmen, generals and captains of industry who write the checks -- even though the toiling masses are the ones who will be compelled to honor those checks with their blood, sweat and tears.

Economists who cash those checks with their mystically pedantic predictions are impostors and charlatans. One of the time-honored ruses of charlatans and crooks is to loudly denounce others as quacks and cranks. It's a good distraction and it establishes the bona fides of the confidence man as someone who can be trusted to proclaim the difference between truth and falsehood. And if the accused replies with a counter-claim? Well, who spoke first? It is to entrap the mark in a hall of mirrors.

Is there a way out? Listen. Touch. Smell. Explore. Remember.

Ten years ago, Tom Walker comprehensively refuted the lump-of-labor fallacy claim in a chapter, "The 'lump of labor' case against work-sharing: Populist fallacy or marginalist throwback," included in the anthology Working Time: International trends, theory and policy perspectives.

Four years after that refutation was published, the bogus fallacy claims again blossomed -- presumably in response to the French 35-hour workweek experiment and to the jobless recovery after the 2001 recession. The Sandwichman began a series of postings to MaxSpeak re-iterating the debunking of the fallacy claim. Those posts evolved into a second article, "Why Economists Dislike a Lump of Labor," published in the September 2007 Review of Social Economy.

The nonsensical nature of the fallacy claim is extreme. It is akin to the innumerable sayings attributed to Mark Twain that he never said or the many beliefs attributed to Marx that, in actuality, he quoted only to criticize. And like those misquotations, the fallacy claim circulates on, oblivious to the truth of its origin, its logical coherence or its factual ground.

The real shame, though, is not so much in the thoughtless circulation of this baseless claim as in the almost unanimous deference paid to the blustering pronouncements by the economics profession. It is a shame because leisure, unemployment, waste, environmental sustainability, social justice and war are important issues and to trivialize and marginalize a potentially effective policy approach to those issues is, to say the least, "inappropriate", if not technically criminal negligence.

Some would say that those who knowingly, or through flagrant and obstinate refusal to perform their duty of due diligence, bring on a war, plague or famine are guilty of mass murder. They are little and not-so-little Eichmanns. But the Sandwichman is wary of such name-calling. The Sandwichman would rather offer incentives than invectives.

On May 1, 2008, the Sandwichman offered a $10,000 prize to anyone who could successfully refute Tom Walker's debunking of the lump-of-labor fallacy and get it published in a leading economics journal. The judge for whether the rebuttal was successful or not would thus have been not the Sandwichman himself but a pillar of the economics profession.

Academics warned the Sandwichman that such a bet was foolhardy because respected journals will publish "all kinds of crap" as long as it conforms to the prevailing ideology. Nevertheless, the deadline for entering the prize competition -- December 31, 2009 -- came and went and the Sandwichman didn't receive a single entry or even an inquiry. Zilch, zip, nada. Not only will the lump-of-labor mongers not put their money where their mouth is, they won't even put their mouths where the money is!

Last year (2009) alone, "Charlemagne" at The Economist, Peter Coy at Business Week, Harvard Economics Professor Edward Glaeser, Ed Crooks at the Financial Times and Northwestern Economics Professor Robert J. Gordon each invoked the lump-of-labor fallacy claim in complete ignorance of what they were talking about. The Sandwichman has been accused of being repetitive. The Sandwichman doesn't like to be repetitive. But when people who get paid to know what they are talking about keep repeating nonsense and lies, the Sandwichman suspects that maybe folks haven't heard yet that the jig is up on the lump-of-labor scam.

Ten thousand dollars says Robert J. Gordon is a buffoon, Edward Glaeser is a impostor, Peter Coy is a con-man, Ed Crooks is a crook and Charlemagne is a charlatan. The Sandwichman is not calling these gentlemen those names, though. He is offering them a wager. Although the original prize offer has expired, terms for an extension remain negotiable.

Listen. Touch. Smell. Explore. Remember. Above all, remember.

1983 'Ponzi Game' prediction

I'm reading William Greider's 1989 book 'The Secrets of the Temple - How the Federal Reserve Runs the Country' and came across the following acknowledgement and prediction of and for a global 'ponzi scheme' playing out to an ultimate crisis.

"A genuine solution, [US Federal Reserve governor] Philip Coldwell predicted, would not be acceptable, either to bankers or politicians, until the consequences of the LDC debt reached a sufficiently frightening level of crisis - when the "Ponzi game" broke down and everyone was forced to acknowledge it. Like all illusions, this one might continue for quite a long time, perhaps many years, but it could also collapse abruptly at any time shattered by random events.

"The way out of this thing is a shift in the way we treat the LDC debt," Coldwell argued. "The banks would have to take a big hit on their balance sheets, but then it's over. If you give them a definitive hit, then they could say it's behind us. If you get down to a crisis stage, the banks would accept that. They would have no choice."[1]

Looking at contemporary economic history it seems clear that the beginning of the current global financial crisis can be traced at least as far back to the Johnson administration in the early-mid 1960s. This is when inflation and accompanying inflationary expectations were set in concrete by huge military expenditures on the Vietnam War as well as through what is arguably, an accompanied global oil price hike that was deliberately manipulated to help pay for it.[2][3] It was also the time the evolution to bigness in capitalism made it possible for large firms to: (i)increase their prices as a response to a rise in inflation, (ii)increase their prices in response to a general drop in demand for their services and products, (iii) increase their prices in response to losses caused by speculative activities gone wrong, (iv) generate revenue from activities not linked to employment nor the creation of wealth.

Permanent recession and economic zero sum games played out as astounding levels of economic concentration became commonplace both in the industrialised nations and around the globe.

“Between 1950 and 1971 the 200 leading U.S. corporations increased their control of all U.S. manufacturing assets from 46 to 87 percent. By 1971 the assets of the top 100 equaled those of the other 194,000 corporations. [4]”

The US Federal Reserve - whose key staff are often former corporate CEOs - worked intimately with global transnational corporations (with the latter's origins based in the US).[5] From the mid 1960s to late 1979 the Fed's focus was on hitting its interest rates targets (the price of money) over and above controlling the quantity of money. [6] The resulting inflation foreshortened horizons in thinking and led to increases in debt and increases in long-term interest rates. Creditors received negative returns on loans that were contracted at times when inflation was lower. Corporations began to engage in much deeper levels of exploitation through globalisation where imprudent loans were pushed on third world nations to recycle the massive increase in excess US dollars resulting from the oil shocks of the 1970s.

By 1979 that game was up. By that time negative real interest rates couldn't be sustained. and the US dollar had come under severe speculative attack.

"The dollar-based monetary system was about to collapse. The core of the problem was that for the second time in a year corporations, banks, central banks and other investors (including moneyed Arab interests) had stopped accepting dollars as the universal currency. Instead, there was heavy dollar selling on a global scale and the proceeds were going into gold, silver, deutsche marks, Swiss francs and even art and real estate." [7].

The Carter administration instituted the Money Control Act of 1980, lifting controls of interest rates and making usury legal. The new Fed chairman Paul Volker took advantage of the ability of the US to freely decide the price of the world’s trading and reserve currency and increased global interest rates to levels that were unprecedented. Third World debt [8] had escalated already because of high oil prices and the extraordinary rise in the global interest rate (denominated in US dollars) became essentially unpayable for them.

This is the background to the Ponzi scheme described by Coldwell in 1983. It's ironic that in a time of such overproduction of money that a small minority of creditors took all the power and forced up interest rates across the world, permanently damaging their economies. Nothing much has changed since then. In the early 1980s:

"Volker and his international aides worked assiduously to protect the earnings of the banks, particularly the money-center banks which were most exposed [to third world nation default]. In the negotiations over new loans, Volcker usually supported the bankers in their persistent refusal to make any concessions on interest rates. The Fed also took care to instruct its bank examiners to treat the huge portfolios of questionable LDC loans with special solicitude. If the rules were applied to strictly, major banks might be confronted with huge loan write-offs that would wipe out their capital.

The central bank, as regulator and protector, had worked itself into a compromising position. On the one hand, the Fed was trying to gradually extricate the largest banks from their overexposure and preaching sterner discipline for the future. On the other hand, the Fed was bending the banking standards and pressuring hundreds of other wary bankers to make new loans they regarded as dubious....when the [smaller regional] bankers balked at committing more money to the new loan packages, they were pressured by the major banks. If that didn't work, they received a friendly call from the president of the local Federal Reserve Bank, urging them to reconsider."

In most cases, William Greider takes care to point out, such successful persuasion "implied an unstated guarantee by the government."

This observation leads to yet another powerful phrophecy in Greider's book:

"The problem is that by the time the crisis ends, the regulatory authorities may be so deeply compromised by the concessions that they have made to the banks that there is no return."[9]

As we now see, the gambling in the world's financial markets went on and on and increased. It didn't ever stop because of government intervention. History shows, wrote Michael Moffit, that eventually the game will end. Vast abused freedom on the part of US government administrations - Democrat and Republican alike - and of that of global TNCs have shackled both them and us.

We are all among the losers now.

REFERENCES:
[1] William Greider. 'The Secrets of the Temple - How the Federal Reserve Runs the Country' Touchstone 1989. Page 549

[2] See William Endaghl 'The Fake Oil Crisis of 1973'
http://www.engdahl.oilgeopolitics.net/1973_Oil_Shock/1973_oil_shock.html

[3] The ex-ambassador to Saudi Arabia, James E. Akins… argued [around 1980] that Kissinger acquiesced in the Shah-led oil price hikes beginning in 1974 to provide Iran with the finances to help out ailing Northrup, McDonnell Douglas, General Dynamics, Boeing, Grumman and Litton Industries.
The Multinational Monitor
DECEMBER 1980 - VOLUME 1 - NUMBER 11
I R A N
Business In the Shah's Iran
by John Cavanagh
http://multinationalmonitor.org/hyper/issues/1980/12/cavanagh.html

[4] Quoted from: American Global Enterprise and Asia
Journal article by Mark Selden; Bulletin of Concerned Asian Scholars, Vol. 7, 1975

[5] In 1975 it was reported that "“A recent survey of 1,029 executives of leading U.S. global corporations, for example, found just 19 foreign citizens.”
American Global Enterprise and Asia
Journal article by Mark Selden; Bulletin of Concerned Asian Scholars, Vol. 7, 1975
http://www.questia.com/

[6] "the Fed [as a monopolist] cannot control both the price of money...and the quantity of money...at the same time."
Maxwell Newton 'The Fed - Inside the Federal Reserve, the Secret Power Center that Controls the American Economy' Times Books, 1983. Page 211

[7] Michael Moffit 'The World's Money' 1983. Page 196

[8] These were syndicated loans originating from the concentrated financial markets of Wall Street.

[9] Karen Lissakers 'Dateline Wall Street: Faustian Finance', Foreign Policy, Summer 1983.

Good News In The Muslim World

Juan Cole today http://www.juancole.com has posted ten items of good news from the Muslim world, which, with one exception, have been largely unreported in the media. I simply list them, although some might question whether they are all "good news."

10. Opening of first coeducational university in Saudi Arabia in 2009
9. GDP growth rate of 7.5% in Qatar (lots of natural gas)
8. US Muslims reasonably well integrated into society (in contrast with much of Europe)
7. rising use of internet in Arab world
6. Albania having 10% GDP growth rate, highest in Europe
5. increased democracy and womens' rights in Kuwait
4. Indonesia holding successful elections and increased support for moderate Islam, partly due to influence of former resident Obama
3. good economic performance in Turkey, not hit too hard by recession and growing at 5.8% GDP between 2002 and 2008
2. stabilization in Lebanon with peaceful elections in June without Syrian interference
1. anti-regime demonstrations in Iran (the one much-reported on item)

Happy New Year ... And Goodnight.

My posting has become less and less frequent over recent months because of heckling from one of my co-bloggers. A communal blog is sort of like shared accommodation. The repetitive sniping from one individual has made me feel like an unwelcome guest in my own home.

I have written a book, which I would have hoped to promote on EconoSpeak as it progresses toward publication. Much of the analysis originated here or at MaxSpeak over the last eight years. I'll probably start up a new blog sometime in the future. Send me a note at lumpoflabor at gmail dot com and I'll put you on the announcement list. In the meanwhile, thanks for listening!

On Syllabic Efficiency --- "Twenty Ten" Or "Two Thousand Ten"?

So, for something light on the last day of the decade during which we have said "two thousand one" and "two thousand nine" and so on, even though we say "ten sixty six" when referring to the date of the Norman conquest of England. Allow me to define "syllabic efficiency" as saying something with the fewest syllables.

During this still nameless decade it has been of equal syllabic efficiency to say "two thousand one" versus "twenty oh one," which was the alternative nobody ever did, probably because since 1968, if not earlier, we had been saying "Two Thousand One: A Space Odyssey" for the book/movie by Arthur C. Clarke, which put us into a path dependence favoring saying "two thousand." Now we are at the potential switch point where it would be more syllabically efficient from tomorrow on to say "twenty..." rather than "two thousand..." by one syllable, because there is no more need to say that "oh" that nobody said anyway. In listening I have heard a split in speaking of next year, with some people saying "twenty ten" and some saying "two thousand ten." Which will it be, folks? Will syllabic efficiency (and the practice prior to this century) win out, or will be stuck with syllabic inefficiency due to a path dependence that Arthur C. Clarke bequeathed to us?

Robert J. Gordon is TRULY a Buffoon

In his closing remarks in The Economist debate on European vacations, Professor Robert J. Gordon once again invoked the bogus lump-of-labour fallacy but not before himself committing the "fixed-amount-of-this-that-and-the-other-thing fallacy" oh, about four or five times in a "calculation" of how much income Europeans would take home if they worked as many hours as Americans.

Let us figure out how much Europeans pay for shorter annual hours of work in general and their longer days of vacation in particular. International data comparing Europe and the United States in dollars of equivalent purchasing power show that the ratio of Europe to the United States is 90% for output per hour, 68% for output per person and 75% for hours of work per person. Converting these ratios to real GDP per household (using 2.5 people per household, the US figure for 2004) yields a US GDP per household of $120,000 compared with a European value of $81,600.

But Europeans are not allowed to keep this amount, because OECD data show that they pay 39.15 of GDP in taxes, compared with 25% in the United States. This brings European take-home pay down to $49,700 compared with $90,000 in the United States, or 55% as much. If Europeans worked as many annual hours as Americans, their per-household GDP would be 90% as high (the remaining difference is due to lower productivity) and their take-home pay would leap to $76,100, an increase of 53%. The disproportionate impact on take-home pay occurs because total government tax revenue stays the same, greatly reducing the share of taxes in GDP due to spreading the costs of European government across many more hours of work. Given the large discrepancy in GDP per head, the lower American tax rates generate almost as much tax revenue as the higher European rates: $30,000 compared with $31,900.

This multiplier effect, that raising European hours of work by 32% would raise take-home pay by 53%, carries over to the portion of shorter European hours attributable to longer vacations. So the proper question Mr de Graaf should be asking Europeans is not whether they like their long vacations or would like to enjoy longer ones. Rather, he should be asking whether lengthening their vacations by one more week, five out of the 365 days in the year, or 1.4%, would be worth giving up an extra 4.4% ($2,200) in take-home pay.

Unfortunately, Europeans have not been asked to vote on this question, nor on the question of whether the alternative of working American hours per year (including lower unemployment, higher labour force participation, shorter vacations and a higher age of retirement) would be worth an extra 53% ($26,400 per household) higher take-home pay. Politicians and union leaders have been taken in by the "lump of labour" fallacy and have spun a web of employment protection regulations, restrictions on hours, early retirement and high taxes, in the mistaken belief forcing people to work less creates new jobs for others. Most Europeans would be surprised to learn how much real money they have sacrificed at the altar of this fallacy.

Three Different Paths On Ashura

Monday was the 10th of Muharram in the lunar Islamic calendar, which slides by 10-11 days per Gregorian solar year, which is celebrated by Shi'i Muslims as Ashura, their holiest sectarian day, the anniversary of the martyrdom at the hands of Sunni Muslims commanded by Caliph Yezid of the grandson of the Prophet Muhammed, Hussein, now buried in Karbala, Iraq. Traditionally, devout Shi'a march in the streets flagellating themselves in his memory and honor. This year there was violence in three neighboring countries on this day, Iraq, Iran, and Pakistan, but for different reasons in each case.

In majority Shi'i Iraq celebrating Ashura used to be banned under Sadaam Hussein. After his overthrow it was joyously celebrated and was supported by the new regime. For the first time this year many of those celebrating manifested anti-government slogans and speeches, mostly accusing the al-Maliki government of corruption. The violence erupted when a Sunni radical suicide bombed some marchers, killing six and setting off riots.

Much more publicity has attended to majority Shi'i Iran, where both the government and the opposition support celebrating it, and there were some pro-government groups who celebrated it in the usual fashion, without incident. However, opposition groups used it to criticize the anti-democratic and repressive regime, with this bolstered by demonstrations following the death seven days earlier of the most prominent anti-regime Grand Ayatollah, Hossein Ali Montazeri. The new demonstations included for the first time open criticism of Supreme Jurisprudent, Ali Khamene'i, as well as attacks on Basiji (private militia) outposts, and some security people refusing to fire on the crowds. Ashura is traditionally supposed to be a time of peace and truces, and the government is in total violation of this, along with the latest report that they are holding the bodies of five people killed to avoid demonstrations at their funerals, one of those being the nephew of the main opponent of Ahmadinejad in the June presidential election, Moussavi.

Pakistan is majority Sunni, with about 20% of the population Shi'a. Ashura is often accompanied by riots there whenever Sunnis mock the marching Shi'a. Last year 40 died when a Sunni attacked the Shi'a in the Hongu, which was under strict curfew this year. This year only 30 died in a suicide bomb attack by a radical Sunni in Karachi, the country's largest city, which, big surprise, triggered rioting by Shi'a in that city.

550,000 Names

So a member in good standing of the Nigerian economic and political elite contacts the US embassy in Yemen. He says his son has gone off the deep end, fallen in with radical jihadis, and has traveled to Yemen to link up with fellow combatants.

And what does the embassy do? They put the son’s name on a list with 550,000 others—people who have attracted suspicion for any reason and no reason, intellectuals or just ordinary people who have expressed ideas evoking the disapproval of US officials (think of Tariq Ramadan), and untold numbers whose names were flagged purely by profiling.

Of course, a list of 550,000 names is no list at all. You are not going to do expanded searches on all of them in airport security lines, nor run all their luggage past canine noses. No, they will just board the airplane, and you must hope for the best.

Welcome to the Third World, Tasmania

The first decade of the New Millenium saw the state of Tasmania, Australia reach third world status.

Hundreds of thousands of hectares of native forest, much of it pristine old-growth and rare temperate rainforest, were converted to a vast gigantic monoculture. A single species of tree in neat rows now spans almost the entire north of the state from the West Coast to the East Coast in a land the size of Ireland.[1]

Environment, land-occupancy, planning and zoning laws were changed to facilitate the takeover of family farms by a privileged network of heavily-taxpayer-subsidised agribusiness corporations. Bands of former Australian politicians soon joined the staff of these new 'enterprises' to share in the extraordinary windfall profits that flowed from this stepped-up rape and pillage. Annual reports and meetings included assurances to global investors that there were no serious impediments to profit-taking by way of environmental laws or considerations for conservation.

In a mere decade common and iconic animals such as the Tasmanian devil, the bandicoot [2] the Tasmanian quoll and four species of burrowing crayfish[3] became an endangered species. The wedge-tailed eagle is "under threat from all fronts" [4] while the local platypus were reported to display a "unique sensitivity to developing chronic skin ulcers ... whereas the disease is not seen in mainland platypus" [5]. State and Federal Governments deliberately failed to incorporate scientific evidence into government decision making. [6] Nor did the Government provide adequate protection plans for these animals. [7] The abuse and neglect of our wildlife and flora was further reinforced when the Federal Environment Protection and Biodiversity Conservation Act was amended to accommodate trumped-up government notions of what constituted 'protection'. [8]

After ten years water courses used for irrigation and domestic water supplies began to dry up[9] and became repeatedly contaminated by pesticides [10]. These chemicals have been long banned in other nations because of their toxicity and ease of movement in the environment. So, it was no surprise to read that in this state, where residents are forced to live in what amounts to a giant agribusiness industrial zone, that Tasmanians have significantly 'poorer health outcomes compared to other Australians" [11] . In fact, three out of every four Tasmanians suffer from a chronic health condition which often "renders them unable to hold down a job and sees them struggle with simple daily tasks." [12] Given the sheer scale of environmental and health degradation the Tasmanian Government has clearly found it a much more lucrative proposition to protect themselves over and above their constituency. Epidemiological and public health research outcomes remain long suppressed [13] as are the spray drift models for current 'forestry' aerial spray practices, for instance.[14]

Globally, it is hard to calculate exactly how huge the Tasmanian 'forest' industry's contribution is to global warming. It must be massive, however. Hundreds of giant infernos are now lit with napalm; deliberately and routinely each year across the state as well as over the nation as a whole. Hundred of years of biomass in old growth forests have been put to the match, ancient stumps turned to charcoal and soils baked to a brick red. Now the plantations that have replaced these destroyed forests provide perfect fuel for much bigger wild fires that have begun to rage out of control with the advent of a dryer and hotter climate in South East Australia. [15]

Tasmania's communities are struggling like they never have before. The state's economy is quickly coming to a standstill with the biggest woodchipper, Gunns Ltd, now unable (at least for the time being) to find sufficient buyers for it 'product'. But the story of Tasmania's precipitous decline was foretold by many ordinary people whose clarity of thought was not polluted by heedless self-interest and bad morals. To see now that the dirty invisible hands of unfettered markets have spread their grasp into the first world makes me wonder just how little there must now be left to plunder in third world nations.

After all this, though, I can see that our forests and habitats in Tasmania have been killed - not by an enemy separate from ourselves - but by the aggregate consumption habits of a billion people on earth today. This is h-u-g-e and nothing more nor less than the enigma of people limited irrevocably to thoughts of childhood self-gratification. The state, says Tocqueville has prompted us to "dream of nothing other than being happy."

I want to dream of a future; to dream of downed-wallets and powered-down lives. Maintenance of the huge possibility of continued human life on the planet requires our urgent change, now.

[1] “Tasmania ran up the country’s largest area of new plantation in 2008, with 27% of the total from slightly less than 0.9 of Australia’s land area”. This was all proudly reported by the Bureau of Rural Science in Tasmania’s Examiner newspaper on 23rd April 2009, notwithstanding the announced collapse of MIS giant Timbercorp, also reported on this day.
Comment by Tasmanian resident John Hayward
http://tasmaniantimes.com/index.php?/weblog/comments/mckim/

[2] http://www.dpiw.tas.gov.au/inter.nsf/WebPages/SJON-58K8WK?open
http://www.tct.org.au/1080d.htm#Tasmanian

[3] Tasmania’s Freshwater Burrowing Crayfish (Engaeus sp.)
and the Mainland Yabby: Dispelling myths and informing
Students, Landowners, Fisheries Inspectors, Parks and
Wildlife Officers and Police
BUSHWATCH: 1800 00 5555
The Launceston Environment Centre: (03) 6331 8406
Threatened Species Unit at the Department of Primary
Industries, Water and Environment: (03) 62336556
Inland Fisheries Services: Launceston (03) 63365231
Hobart (03) 6233 4140

[4] *Rare eagles diving toward extinction*
By SIMON BEVILACQUA
14may06

[5] Failures in endangered species management. 10th March 2009
http://tasmaniantimes.com/index.php?/weblog/article/failures-in-endangered-species-management/

[6] The insidious invasion of Bioterror
http://tasmaniantimes.com/index.php/weblog/comments/the-insidious-invasion-of-bioterror/
David Obendorf and Joanne Connolly

[7] Quoll management plan released too late, trust says
http://www.abc.net.au/news/items/200509/1458178.htm?northtas
Monday, 12 September 2005. 11:34 (AEST)Monday, 12 September 2005. 11:34

[8] Protection of the environment was converted in meaning to a mere presumption of law that cannot be rebutted by evidence and must be taken to be the case whatever the evidence to the contrary. See the history of Brown v Forestry Tasmania [The Wielangta Case]

[9] "After about 10 years' growth under intensive plantations, about one-in-eight of the streams that were in the areas that we studied had no flow for a year or more, and overall there was a 50 per cent reduction in stream flow,"
As quoted in: Plantations may do more harm than good, says CSIRO
Last Update: Sunday, January 1, 2006. 9:10am (AEDT)
http://www.abc.net.au/news/newsitems/200601/s1540198.htm

[10] Editorial: Not weak on water, 4th August 2009
www.themercury.com.au/article/2009/08/04/33155_editorial.html

[11] Lara Giddings, MP, Deputy Premier and Minister for Health and Human Services
Thursday, 29 May 2008
State of Public Health Report 2008
http://www.media.tas.gov.au/release.php?id=23855

[12] Plan to fight chronic disease. DAMIEN BROWN
December 07, 2009 09:13am
http://tasmaniantimes.com/index.php?/weblog/article/plan-to-fight-chronic-disease/
The Mercury link: http://www.themercury.com.au/article/2009/12/07/114171_lifestyle.html

[13] Medical researchers angered by Govt suppression
By PM's David Mark
http://www.abc.net.au/news/stories/2008/03/01/2177010.htm?section=justin

[14] The Australian Pesticides and Veterinary Medicines Authority (APVMA) had repeatedly failed to provide the aerial spray drift model outcomes requested by Brenda Rosser (moderator, Tasmanian Clean Water Network) for years now.

[15] The record bushfires of Victoria in February 2009 bear witness to this new and frightening development:
(i)Fire/land tenure map of the Murrindindi fire that burnt through Marysville overlaid onto the latest NASA satellite Infrared Image.25/02/2009 8:46 am
http://www.myenvironment.net.au/index.php/me/resources/bush_fire/research/fire_land_tenure_map_of_the_murrindindi_fire_that_burnt_through_marysville_overlaid_onto_the_latest_nasa_satellite_infrared_image

(ii) Links between bush fire and logging coupes
08/03/2009 1:24 pm
http://www.myenvironment.net.au/index.php/me/resources/bush_fire/research/links_between_bush_fire_and_logging_coupes
“….a logging map created from the DSEs forest explorer interactive maps. It may be more than a coincidence that the fire pattern just happens to follow coups logged over the last 30 years - hence lots of regen/regrowth, thirstier young trees, dryer undergrowth etc etc....

(iii) http://www.hancock.forests.org.au/docs/09feb.htm
Churchill Bushfire/plantation fire Feb 7 2009.

(iv) Feb 15 2009: Strzelecki Ranges/Jeeralang Creek West Branch from Jeeralang West Road. Plantations still smouldering but Hancock leave this unattended.
http://www.hancock.forests.org.au/docs/09feb.htm

Etc

The Danger of Overcapacity

While the US frittered away much of the stimulus on throwing money at banks, the Chinese actually created much more capacity. Business Week used to do a good job of understanding real issues. Here the new Bloomberg magazine notes that the extra capacity poses a risk to the West because China will now have to export more, creating a different sort of imbalance.

Roberts, Dexter. 2009. "China's 'Made in China' Problem: The Downside to Beijing's Huge Stimulus is a Glut of Factories and Output That May Spur Trade Frictions." Business Week (21 December): pp. 20-21.

While Beijing's $586 billion stimulus package has helped the mainland navigate the global financial crisis, there's a downside. Fixed asset investment -- money spent on factories, highways, and other big-ticket projects -- soared 40% in the first half and accounted for nearly all of the country's growth.