This Alice in Wonderland Economic Downturn

An Open Letter to Ali Naroozi, Dr. Ken Henry, Michael O’Neill, Arnold Bates, Ian Thomas, Tom Norwood, Peter Lang, Kevin Rudd and, offshore, Barak Obama, and all others who have shown ability to step outside ‘conventional wisdom’ and think for themselves about matters relating to superannuation.

I have seen all this before. In 1930 we crashed from the prosperity of 1928 to the greatest world financial depression ever. Those who perpetrated that hoax declared that nobody understood it and that it was an ‘act of God’. I hope they have learned some lessons which they may remember in their next life on Earth.

In Australia we called it ‘Poverty Amidst Plenty’. There was no real shortage of food, of clothing materials or of buildings and building materials. Also, we could produce many of the items needed by some to maintain health or treat diseases and injuries.

Yet many of our people were kept in want because they could not find employment and so earn the money they needed to buy those necessities.

Likewise farmers who produced so many of the needs of people could not afford to continue their efforts because they could not sell their produce.

My parents’ dairy farm income dropped within less than two years when the price of butter fat fell from 2/8 (32 cents) a pound in 1928 to 8d (8 cents) a pound in 1930. I was the eldest of five children at various levels of education. Only the two youngest in the local State School could continue. I was lucky enough to get a job.

For those in the cities in more desperate need, the Government introduced construction projects, giving workers two days’ manual work a week for meagre ‘sustenance’ pay to buy their most pressing needs.

Nine years later, this same nation was asking tens of thousands of us, its most fit citizens, to become ‘unemployed’ and cease producing the ordinary needs of life. This wholesale withdrawal from the work force included not only those in the armed forces, but also those producing war materials and weapons of destruction. Yet those who remained in their former work could easily produce enough food and the other needs of all our citizens.

The problem lies not in the world around us, but in our thinking. Ever since money was invented to make trade more flexible, people on the make have lent it at interest, indexed goods and services to it, and indexed wages and salaries as percentages, so that the highest paid get the most extra pay, though the rich do not need any more food than the poor.

This is my remedy, which we should apply now, then adjust as found necessary.

First, compile a list of the common needs of all families; something like the ‘basket of goods’ used in determining the Consumer Price Index.

Second, set up our own national money system; call it by some name other than dollar. I suggest ‘wombat’, as it would not jump about like other currencies, but would just do its proper job.

Third, fix the value of our new money so that the same amount of it will always buy the goods on our ‘basket of goods’ list.

Fourth, make it illegal to lend our currency at interest, or move any of it offshore, or include it in the trade in currency, offshore or locally.

These are the basic changes, which would effectively place money management in the hands of our elected government and out of the hands of private profiteers.

In our next issue of POV I will go into the far reaching secondary changes which would be needed.

A Long Line to Maggie?

It may seem a bit of a stretch, but can we blame Maggie, for the current financial crisis and economic chaos, spreading around the world from Wall Street?

There is an American myth Ronald Reagan influenced Maggie and the source of her ideas. She, on the other hand, came to power before he had even declared himself a candidate for the Presidency. She was the maven of ‘Privatization’, to my mind.

She hit the streets in a hurry, to wipe away any signs of socialism from the British way of life. Her early, big targets were the unions and particularly the miners. She also wanted to downsize Government and destroy the national monopolies providing central services, like electricity, natural gas, water, telephones, railways and a few others. Her claim was that private businessmen could run these services far more efficiently, and would lead to cheaper prices. Let the theories of ‘perfect markets’ prevail.

This attitude spread around the world and many advanced countries followed that model. Entrepreneurs were encouraged and sought, to enter the market and compete against the old regimes and each other. Initially there was some success, but then failures started to appear. In Britain, water rates went sky high and shortages were experienced for the first time, raising rates even further. (Don’t mention ideas of water privatization, enforced by the IMF, to any Latin American or South African.) And then there were the railways in Britain – because they retained the rail beds in public hands, that industry never had a hope and before long the service deteriorated and prices kept climbing.

Britain had other failures, persisting to this day, and equally experienced in service areas by Europeans, Australians, New Zealanders, Canadians, Americans and others. Just mention Enron and you see how greed and avarice, together with manipulation, led to disaster in the electricity markets of California. They determined how to control the ‘spot market’, by restricting supply they influenced, thus sending spot rates sky high. Then they started to move assets off the balance sheet to hide what was really happening. This led to the Sarbanes Oxley Act, the usual overreaction by Congress to any excesses; that did not cure the ills.

At the time Enron was showing the way, Wall Street bankers and real estate brokers came up with new games in their markets, to emulate the aims of excessive greed, with no limits. Why not increase mortgage lending to all and sundry, on whatever terms initially seem attractive and affordable, while charging these poor people enormous upfront fees, together with a hidden kicker of rising interest at unstated rates, not too far off in the future? But, not wanting to hold those assets on their balance sheets when everything hit the inevitable fan, they dreamed up systems of complicated and opaque securities that could fool everyone, including themselves and dependent rating agencies. Thus were born asset and mortgage securitization, a toxic disaster in waiting.

These schemes, together with an apparent endless supply of credit, partially created by ever rising real estate prices, led to loans to everybody and any business, at lower rates of interest, as the Federal Reserve encouraged it all by holding rates to record lows for years on end. At this point you have to figure Alan Greenspan as another of the culprits. But he was not alone and include here the argument of reduced regulation of business, on the promise they are the most economic answer for consumers, and could be trusted to do the right thing, through open competition. For a really absurd illustration, think of the Oligarchs in Russia, and their current demise under megalomaniacal ambitions of Putin.

Bubbles will always burst; ask the Dutch and consider their love for tulips. In the US and then Europe, the housing bubbles burst, rather like pyramid schemes that will always fail in the end, leaving a long trail of the deceived. This is where we are now, while the merchant bankers still continue to pay themselves huge bonuses, as their employers become insolvent, and need bailouts so they don’t collapse. You have to notice that the US will never ‘nationalize’ their banks, but a rose by any other name ……………

So is it fair to blame Maggie for all this, along with a long line of bankers, brokers, The Fed, SEC, regulators, rating agencies and our hallowed leaders? I think I can draw a line that links them all. How about you?