I published this commentary on Crikey and in the Newcastle Herald yesterday; I will probably expand on this for my October Debtwatch Report, but here’s a “heads up” before next month–after all, with the speed with which events are unfolding, something else might supplant this topic by then.
Welcome aboard the FF Titanic
Another day, another financial collapse. The effective nationalisation of Fannie Mae and Freddie Mac last week was initially greeted by the market, yet again, as The End Of The Crisis. Then Lehman Brothers teetered and finally fell into bankruptcy. The crisis was, once again, alive and well.
The Our Finance Blogs site (http://ourfinanceblogs.com/forum/) is hosting an online debate on “Property 2009: Crash, Boom or Stagnate?!”. I will be one of the protagonists in the debate. If you’d like to take part, go to:
http://ourfinanceblogs.com/forum/index.php?action=register
and sign in. Check:
http://ourfinanceblogs.com/forum/index.php?topic=7.msg9#msg9
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Click here to log access the debate
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Well Stu Cameron has been on the ball, but clearly I’ve stuffed up linking the files on my site! Several readers have told me that the podcasts 3–6 can’t be accessed.
At some stage they will be available, but I have a rush of work on right now so please wait until I put up a new post with properly tested links. My apologies for the confusion in the meantime.
http://www.debtdeflation.com/podcast/debtwatch.xml
And you can also access the audio files from:
http://www.debtdeflation.com/podcast/
The topics of these three podcasts (Numbers 4, 5 and 6) are:
The sheer volume of coverage I’m getting now, and the level of discussion on this blog, are making it difficult for me to maintain this page. So it will grow less rapidly than the Gems and Brickbats pages, which I regard as more important for keeping a record of this crisis.
At the end of March 2009, the blog had 1137 enrolled members, and a daily average of 5,556 unique readers. Blog participants post up to 100 comments a day in a discussion that is remarkable for its civility as well as its intelligence.
I recently made a submission to the Senate Economics Committee on the RBA (Enhanced Independence) Bill, where I argued against the Bill–as did all four public submissions.
After making that submission (which I’ll post here shortly) I thought I’d check out my submission to the Wallis Committee–since I argued that the RBA and the regulatory authorities in general, while they may appear to have succeeded in controlling inflation, have presided over the biggest speculative bubble in world history.
The securitisation of loans was a major part of this bubble, which of course, no-one could have foreseen… or at least that’s the line from conventional economists.
Nouriel Roubini is one of the world’s foremost experts on the financial system, and like me, was warning of potential crises while most other commentators could only see roses blooming. He is Professor of Economics at New York University’s Stern School of Business, and founded the RGE Monitor, a highly successful commercial intelligence website. He has recently established a new blog with a focus on Asia, and has kindly asked me to be one of the contributors.
Normally I will simply cross-post my Debtwatch blog, but on occasions I’ll write special purpose entries there. Nouriel has also assembled an interesting team of non-orthodox commentators from the academic and business sectors.
Steve Keen’s DebtWatch No 22 May 2008
The Reserve Bank Amendment (Enhanced Independence) Bill 2008, which was tabled in Parliament in March, aims to give the RBA Governor and Deputy Governor “the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician” (Wayne Swann, Hansard, Thursday, 20 March 2008, p. 2381).
Under the current Reserve Bank Act, the Governor and Deputy are appointed by the Treasurer, and the Treasurer must remove them from their positions if either of them:
Section One on ” The future of the Australian economy” starts with the following preamble:
“The Australian Government is committed to modernising our economy so that we can compete with the leading nations in a world economy that is being transformed by globalisation, new technologies, and the rise of China and India. While we take full advantage of the mining boom, we must also build long term competitive strengths in the global industries of tomorrow — industries that will provide the high-paying jobs of the future.
The Australia 2020 Summit will examine:
This blog entry first appeared as a feature in the Daily Telegraph on Wednesday April 9th 2008. If you’re a newcomer to it courtesy of that feature, and you want to look at this issue in more depth, there are links below to more detailed analysis.
The Daily Telegraph lived up to its nickname of “The Daily Terror” last week, with a frontpage attack on Reserve Bank of Australia Governor Glenn Stevens entitled “Is he Australia’s most useless?”, and an editorial that was no less provocative: “RBA boss is losing interest”.
Why Now?
There has been no shortage of commentators and players willing to vouch that this is the worst financial crisis they have ever seen. Equally, there has been no shortage of bailout moves by the Federal Reserve–remedies that put “the Greenspan Put” to shame in their magnitude.
And yet the market meltdown continues, and the casualties continue to mount, with Bear Stearns the latest–and surely not the last.
In all this, no one yet seems to have posed the question of “why now?”. Why is the crisis clearly more severe this time than ever before, and why are remedies that worked relatively quickly in the past (remember the fast turnaround of the market after October 1987, and the rapid recovery from the rescue of Long Term Capital Management?) failling today?
The answer is, simply, that the world has never in its history carried the level of debt that it is carrying today. The remedies that worked when America’s private debt to GDP ratio was a mere 150 percent (see Figure 1) are inadequate when that ratio is 275 percent.
