Webdiary - Founded and Inspired by Margo Kingston

Hi Richard,

I have a number of reasons for thinking that local self-reliance in necessities is the direction to head in.

People are human in smallish groups.  As Ivan Illich (how relevant he still is!) pointed out decades ago, the size of group that can be addressed with the unaided human voice is disappearing.  This massification-individualisation has unfortunate consequences in many ways.

The costs of transport in ecological terms are quite high at the moment, and will remain so for some years I think.

It is healthier for people's main living spaces to have the main services accessible by walking. 

In what is a complex, and probably chaotic, situation people can exercise sensible control more easily at a local level.  Or, to coin a phrase: think global, act local.

One of the top two determinants for health is agency (the sense that people control their own lives).  This is more easily achieved at a local level (though far from certain of course - a local beaurecracy can be just as vicious (or even more) than a national one).  The second most important determinant for health is good relationships.  This from the Whitehall Studies lead by expat Aussie Michael Marmot.  Details in his book The Status Syndrome.  There is a good presentation on Radio Nationals Health Report from a few years ago.

Much waste (time and resources) are avoided.  In Brisbane it was found that 70% of car trips were cross commuting.  If people could work close to home most of the traffic congestion would simply disappear. This would have a number of positive consequences I think.

It is easier to undertake and maintain sustainability measures where the results can be seen.  If we get our suburb off the grid / treat our sewage / collect the water we use: this is far more motivating than signing up to green power and so on.  It also could be less resource intensive.  As a rule of thumb generating and collecting what is used close to the site of use is better.  (Though this is of course only partly true - solar panels won't be manufactured in every suburb.)

This is a grab bag of arguments.  I hope they make sense.  For me it adds up to a solid pointer to the direction to pursue.

The changes are designed to crack down on the practice of "stock lending", in which third parties such as international hedge funds borrow shares to trade the market, often betting that stocks will fall.

Industry sources say that at any point in time, up to $200 billion of Australian shares - more than 15 per cent of the entire stock market - are on loan to traders.

Australia's $1.1 trillion superannuation industry warehouses its shares with "custodian" companies, which offer a discount for the service if the fund allows the shares to be lent to third parties.

When the traders with borrowed stock use short-selling techniques to target individual stocks, such as Allco Finance Group and ABC Learning Centres, they can send shares into a tailspin. Short selling is the legal practice of selling a share the broker does not own in the hope of buying it later at a lower price for a profit.

This story in The Australian on Friday leaves many unanswered questions.

Why would our superannuation funds "loan" shares to hedge funds to drive down prices? Surely the resulting stock market crash will cost all those with funds in the share markets? Yet again our $1.2 trillion dollars of superannuation is put at risk. 

THERE is considerable consternation among Allco Equity Partners' smaller shareholders about Allco's pivotal $1 billion role in the proposed $11 billion private equity takeover of Qantas and its plans for a $682 million rights issue to fund its involvement.

How close have we come to losing Qantas?

Allco Finance Group Ltd has revealed that administrators were appointed to major shareholder Allco Principal Investments Pty Ltd (API) last week. In an announcement to the stock exchange on Friday, API said it was likely to go into voluntary administration after it was unable to secure a standstill agreement with its margin lenders.

The rising cost of credit was always going to be a risk to the APA deal had it gone through - imagine the QANTAS deal makers trying to refinance their corporate paper in todays or future debt markets. The rising cost of credit is here to stay even if todays sharemarket are seeing it as a blip.

It's sobering to think that jobs could have been on the line for the sake of a deal which was designed to turn shareholders equity into fees, breakup capital and interest payments only for the benefit of a few.

Thankfully a few (very brave) fund managers saw the deal for what it was - poor value for all concerned but a few!

Alan Greenspan once called it "irrational exuberance"; I am now calling it irrational pessimism.

A buying opportunity is there......

John Pratt

The world's economy is on the verge of collapse and our politicians are fiddling while Rome burns

brrrrrrrrrrrrrrrrrrrrrrrrrrrr

I find sex and drugs helps.

Richard:  Hottest March since 1934 here.  Too hot for either.  Never thought I'd say that! 

"This article in the New York Times is a taste of things to come in Australia."

Maybe, maybe not John; the yanks now have a  massive oversupply of new homes and few buyers. Australia probably has an under supply of new homes. The dynamics are different but nevertheless many battlers are going to have to live with a higher mortgage on a devalued home.

That said things do look ugly and one expects this crises has a long way to go yet. A number of large banks are predicted to go belly up; Citicorp high on the list.

When that happens I will expect many on the right (and champions of the free market) will be quite happy for the losses to be socialised so their bank accounts don't end up as zero.

I think the direction to move is clear. Local self-reliance for necessities.

I agree, we have a growing problem with large scale production costs, which contribute to ecological break down. The cost of transporting goods over large distances is spiralling daily and material support for these approaches is dwindling. Where I come from, people used to travel weekly to Hobart to purchase their goods (110 klms away). Now they go once a month and buy local produce as it's cheaper and more people are growing food and starting again to create local services, because getting things done in Hobart has become uneconomical. I used to go at least twice a week on business and for pleasure, now I go fortnightly or monthly, even though my fuel costs me virtually nothing, other costs are beyond my resources. Two years ago you could get nothing down here, as Woolworth controls all food and fuel in the state, I used to spent a fair bit on food, beer and good Tas wine purchased from Hobart, now we grow most of our food, make my own beer and some wine from local produce and trade with other locals what we produce. So the reckless greed of the elite is beginning to turn against them. We are already negotiating with local farmers to grow seed oil crops here so our local community can start to provide its fuel and they are thinking of forming a co-op to try and set up some form of alternative electrical production as costs spiral and supplies become intermittent and expensive. Many are dumping their landlines for satellite internet and voip because we don't have a decent phone service here. Already Telstra is turning the CDMA service on and off trying to force people onto their useless and expensive 3G non service. We have a phone line on our boundary which telstra dug up to fix 6 years ago and it hangs on a fence in a deteriorating plastic bag, causing failures for our neighbours daily and when it rains, no service whatsoever. The area lost its phones the other Friday when a telstra crew dug up a cable and left it to go back to fix a Hobart fault, telstra refused to come back until the next Tuesday as they couldn't assign a service crewman to the area having rationalised services to the point where they virtually don't exist, except in the cities where the profit greed exists in abundance.

Elite greed always collapses in the end and even though cities think they are insulated from things, its cities which suffer the worst outcomes from the greed of their inhabitants.

The worst fears of consumers, investors and Washington officials were confirmed on Friday, as deepening paralysis on Wall Street collided with stark new evidence of falling employment and a likely recession. In a report that was far worse than most analysts had expected, the Labor Department estimated that the nation had lost 63,000 jobs in February. It was the second consecutive monthly decline, and third straight drop for private-sector jobs...

Paul Ashworth, an economist at Capital Economics, noted that private-sector payroll employment has now declined by an average of 47,000 a month — a decline that has been followed by a recession every time it has happened in the last 50 years. In each of those recessions, Mr. Ashworth added, the job market only recovered after monthly job losses peaked at 200,000 jobs...

 

On Thursday, the Mortgage Bankers Association reported that about 7.9 percent of all loans — a record high — were past due or in foreclosure. Until the third quarter of last year, the rate had not climbed above 7 percent since 1979.

Home prices are falling in almost every part of the country, a phenomenon that Fed officials and many other experts until recently thought was all but impossible, and some analysts now predict that average home prices will ultimately fall 20 percent from their peak in 2006.

“We’re at the beginning of the bursting of the housing bubble,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal research organization in Washington. “The rate of foreclosures is just going to increase as time goes on.”

Eric Rosengren, president of the Federal Reserve Bank of Boston, noted that the housing calamity thus far has occurred even though unemployment is still low, at just 4.8 percent. But a surge in joblessness would almost certainly lead to more foreclosures and more downward pressure on home prices.

Again the news from the US is all bad. This article in the New York Times is a taste of things to come in Australia. The only answer from the Bush government seems to be to pour more taxpayers money into the market. Good money after bad, as we move further into this economic crisis, we will be faced with spiraling energy costs due to peak oil and the cost of reducing GHG emissions. Already billions are
going hungry. A warning from Britain's chief scientist, in The Guardian:

In his first major speech since taking over, Professor John Beddington said the global rush to grow biofuels was compounding the problem, and cutting down rainforest to produce biofuel crops was “profoundly stupid”. He predicted that price rises in staples such as rice, maize and wheat would continue because of increased demand caused by population growth and increasing wealth in developing nations. He also said that climate change would lead to pressure on food supplies because of decreased rainfall in many areas and crop failures related to climate. “The agriculture industry needs to double its food production, using less water than today,” he said. The food crisis would bite more quickly than climate change, he added.

But he reserved some of his most scathing comments for the biofuel industry, which he said had delivered a “major shock” to world food prices. “In terms of biofuels there has been, quite properly, a reaction against it,” he said. “There are real problems with unsustainability.”

Biofuel production is due to increase hugely in the next 15 years. The US plans to produce 30bn gallons of biofuels by 2022 - which will mean trebling maize production. The EU has a target for biofuels to make up 5.75% of transport fuels by 2010.

The world's economy is on the verge of collapse and our politicians are fiddling while Rome burns. We can no longer continue in the hope things will get better, we need to realize the threats faced by all and begin to take action now. The first world can not continue on its path of greed while the second and third world starve. The market economy is about to fail, we need to look for alternatives.

The story of the Dunmores is the story of the nation’s housing crisis writ small, familial and mean: three generations of home builders who got rich from the go-go years of the California real estate boom, only to fall victim to the housing bust. And it is a tale of greed, hubris and denial of economic reality.

For Sidney Dunmore life was good. His own opulent home — all 12,000 square feet of it — is in Granite Bay, an affluent Sacramento suburb. He also has a $2 million 4,600-square-foot second home in the resort town of Palm Desert, Calif.

Then, in late 2005, the housing slowdown hit the region, falling squarely on the corridor south of Sacramento, from Modesto to Merced, where the Dunmores had once been so successful. Builders began offering incentives to move homes as if they were cars on a dealer’s lot: low-interest financing, free appliances, anything to make a sale.

By last August, the company had halted construction altogether, leaving vast tracts peppered with partly finished homes.

At one new ghost town in Yuba City, which is north of Sacramento, the scene looks as if construction workers just picked up and left. Some homes are mere frames, barely suggestive of a dwelling.

Dunmore’s rapid expansion may have been unwise, analysts say, but it was not unusual.

“Any builder, even the best-capitalized builders, drank the Kool-Aid and bought too much land and loaded up at the peak,” said Ivy Zelman, a home building industry analyst. Ms. Zelman, who said she had no direct knowledge of Dunmore Homes, said she believed that the company might have taken on “way too much risk and just assumed values would go up.”

“I imagine that’s what they were thinking and didn’t have good disciplines in place.”

In September, Dunmore Homes changed its name to DHI Development and sold its assets for $500 to a New York entity called Dunmore Homes Inc. The new Dunmore Homes is owned by Michael Kane, a Sacramento mortgage broker. He declined to comment.

Mr. Kane got not just the assets, but debts amounting to more than $250 million owed to a lengthy list of creditors that includes banks, contractors, landscapers, electricians, plumbers and paving companies.

Mr. Dunmore’s creditors cried foul over the sale, as well as the bankruptcy court filing in New York, a continent away.

A story of greed in the US but how big is this problem  going to be for us when  Australian house prices begin to tumble?

Three indicators of a bubble about to burst. 

1. Interest rates are rising - foreclosures are up.

Foreclosure rates, or repossessions as they are called in Australia, have been on the rise and higher interest rate rises are likely to make matters worse.

Figures from the Reserve Bank of Australia (RBA) show there were 5,368 applications for repossession in NSW in 2006, equivalent to 0.23 per cent of the number of private dwellings in the state, with 3,642 writs of possession granted.

The ratio of writs to applications - at around two thirds - was higher than in the previous two years and was higher again for the first eight months of 2007, the RBA said.

2. First time homebuyers are priced out of the market - the real estate market is a pyramid and the base is crumbling.

Housing in Australia and New Zealand is the least affordable in the world, according to a US-based survey of 227 cities.

Mandurah is the most expensive city in Australia, where homes cost 9.5 times a household’s annual average income. While the State Government offers stamp duty relief to first-home buyers, some say more needs to be done.

3. The psychology of the market has changed so that now people are afraid of the bubble bursting - the mania over real estate is over!

The decline in the market that started Thursday morning in Europe and accelerated in New York hit the Asian markets hard in early trading Friday.

Tokyo was down 3.30 percent at noon, reaching a six-week low, while markets in Hong Kong and Sydney were trading down more than 3 percent, setting the stage for what was shaping up to be a difficult day across Asia. Other markets, including Taiwan and Shanghai, were all opening lower.

The declines came amid renewed anxiety about the availability of bank loans — and fears that the Federal Reserve in Washington may be unable to curb the credit slump.

In New York trading, the broad Standard & Poor’s 500-stock index dropped 2.2 percent, or 29.36 points, reaching its lowest close since September 2006. The index, which closed at 1,304.34, is off more than 16 percent from its peak last fall.................

The 2.2 percent decline in the S.& P. 500 means that the index has lost $2.39 trillion in value in 103 trading days, according to Howard Silverblatt, an analyst of the index.

World markets continue to tumble down the slippery slope. Once a safe haven banks have been among the biggest losers.  I wonder how much Australian superannuation funds have lost over the last few months the future fund must be struggling as well. Has anyone got any idea how the world will pull itself out of this mess? I don't think we can rely on the US and there are doubts that China will be able to maintain its growth.

Inflation in China may go above 8% in the coming months before it retreats. Chinese inflation expectations are also rising and corporates are starting to pass on some of the cost increases to consumers. This argues for policy tightening to defend price stability. At the same time the risk to economic growth is rising, due to damages from the recent snow storms and weakening external demand. This calls for policy easing.

These conflicting forces will create growth and policy uncertainties, and lead to confusion, volatility and downside risk for Chinese asset prices in the short-term. Investors should rebalance their portfolios towards sectors that are less vulnerable to the risks of worsening Chinese inflation, Beijing’s policy interventions and a sharp US economic slowdown.

"I want it all, I want it all, I want it all,and I want it now."

At your service m'dear....

Richard, I did very nicely selling my Harvey Norman shares last year. Harvey has been extremely generous to the clan over the years. Sort of gives you that warm inner glow of capitalism.

Money for nothing and your Potomac for free.

Now Kath, what desire you so?

A year or so ago I watched a small child throwing a tantrum in the supermarket. She wanted some trinket and she wanted it now. Mummy kept saying no, but the kid just kept screaming: I want it now mummy, now. Finally the kid grabbed the thing off the rack in defiance of her mother. The mother did not do anything, just accepted defeat and paid for it at the checkout. (I could not help but remark to her as I passed: Wait till she's 14.)

I have for years become increasingly amazed at the extent to which parents indulge and lavish stuff on their kids, so the kids now just see acquisition of more and more as a right. One soft toy is not enough. They want, and get a room full of the things. Parents seem incapable of saying No, and sticking to it.

And in not being able to deny their kids, parents are also seemingly unable to deny themselves. They want the big house, the two or three car garage - and they want it right from the start of setting up their first home. So when the camera scans those suburbs and massive houses, focusing on the for sale signs, with the reporter talking ominously of mortgage stress, foreclosures and so on, I just shake my head. What did they expect?

I still see new land and house packages being advertised in my home town with 100% finance. Anyone who went into such a deal with a family to raise would need their head/s read. But clearly many families have overextended themselves in borrowings, including credit card debts.

There is no excuse in a time of low unemployment for poor financial management and decision making on the part of families, arising from a policy or desire to have it all, and to have it now.

Families should not be under financial stress when interest rates are below 10%.

My parents started married life in a slab shack in the bush, with me and my three siblings to house, clothe and feed in that shack. No facilities, no washing machine, nothing. Ian's mother was born in a tent on the opal fields and his parents lived in a tent on a vacant suburban block till they managed to build a home for the family of four. There was no such thing as discretionary spending. There was only essential spending. And from that early life experience we learnt some valuable lessons.

Ian and I started out married life in the 70s in an ex govvy weatherboard with a modest mortgage. There were two small children, and we both worked full time. Interest rates rose to around 15% during those early years, but we coped, simply because our mortgage was as modest as the home itself. As was our lifestyle. We had second hand 600 dollar cars to get to work in, or we took the bus, or cycled. Our kids were expected to make their own amusement. There was no room full of expensive toys.

I really do not have much sympathy for those under mortgage stress if that stress is as a result of a policy of we want it all, and we want it all now, both for ourselves, and for the kids.

Greed. There is no other word for it.

Scott, you'd have to define intellectual snobbery to me and whether it would include those who left school at 14 and have no other qualifications, except a very varied and adventurous life experience. The reason we have the situation we are facing is because of the ideological clone approach of the population and I agree with your remarks about Keating, which would equate to every politician for the last 50 years. You'd certainly find it very hard to find one who has made a positive contribution to society’s future. From my point of view it’s the complete opposite. As for Rudd the dud, he hasn't got a clue and is basically there to boost his ego and increase his wealth, just like them all.

Political candidates are selected for their easily led stupidity and mostly by party vested interests. Look at the current government, full of brain dead unionists with no idea about anything, but power and corruption for a price. Why would big business, unions, and senior bureaucrats want intelligent people in office? It completely defeats the purpose. They want big heads who can babble out empty nonsense on cue; they don't want ideas. As for the current ministers and shadow ministers country wide, not a brain between any of them and no idea of anything but to push the rhetoric replay button. Every one of them sounds like a recorded message, no substance and no vision. Let's take Peter parrot (Garrett), a completely empty ideological clone only willing to do the bidding of his masters. He's proud to be the minister for environmental destruction.

Is it not time to put the verifiable truth upfront, rather than cling desperately to dying ideological fantasies? I watched Kevin from heaven on Sunrise this morning and his only idea is to let the markets control the future, whilst feeding big business with public funds as quickly as he can. He's relying on the supposed consumer watchdog to reel business in, yet the one running it is aligned to some of the biggest companies in Aus. Now that's real rational logic if you're an economic educated clone. We need to strip all big business of subsidies and make them stand on their own feet just as the people are expected to and we need to make then really accountable along with senior bureaucrats and politicians. Why do people put up with being ripped of at every turn in their lives by the rich, professions, academics and bureaucrats? If you're an average person, you have no access to legal justice. Business can rip you off and get away with it with the full support of all governments, but the people are hit for everything they do.

I won’t hold my breath waiting for change. It won't come, and all that'll happen is the supposed elite will waffle on fluffing their feathers as they feed their greedy faces and bank balances. I'm not an intellectual, Scott, just a hard knocks self educated person and definitely not a programmed clone.

Kevin from heaven has shown he's fully behind his insane ideology with his latest deceptive fantasies. Before our country operated under market forced control, we had a high level of home ownership and affordability. Governments built and provided low cost housing which controlled the private rental and purchase market, by offering affordable housing for rent and finally purchase. Now Rudd has decided the best course of action is to give the rich more of our money in the hope they will build affordable rental accommodation for the poor. As a sign of his love for his corrupt vested interests, rich investors have been given tax breaks, so they can make even more money. Yet nothing for the people.

If people expect giving money to the corporate rich will change things, just look at what privatisation, market take over and rationalisation have done for competition: destroyed it completely. There is nothing to control what corporations or the elite can do. Only the people are controlled and restricted by government intervention, the market has free reign and total support from the lab/lab coalition. Huge private health insurance subsidies and growing corporate profits from rising prices purely determined by profit growth haven't made it better for the average person or family; things just get worse. The lab/lib coalition has subsidised private roads, infrastructure maintenance and construction, which has given us toll roads, collapsing health and essential services. Rudd the dud's only interest and direction is more profits for his ilk, irrelevant of the cost to the electorate, yet he has an approval rate of more then 70%. Just shows how gullible, enslaved and stupid the populace really is. A market controlled economy is a disaster.

Financial firms are likely to face at least $600 billion of losses as the crisis triggered by the collapse of subprime mortgages batters banks, brokers and insurers, UBS AG analysts said today. Federal Reserve Chairman Ben S. Bernanke said yesterday some smaller banks will probably fail and unemployment will rise, fueling concern that a recession is inevitable.

"The subprime crisis is still intact and there is no relief in sight,'' said Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit SpA, Italy's biggest bank. "Credit markets have never experienced a worse two months.''

Runaway oil prices hit a record high of $US103.95 ($110.86) per barrel in the US overnight, as traders reacted to the plunging US dollar amid expectations that OPEC will hold output this week.

New York's main contract, light sweet crude for delivery in April, hit the historic peak as the dollar dived to a fresh record low against the European single currency.

London's Brent North Sea crude for April delivery, meanwhile, smashed through $US102 per barrel for the first ever time to reach a record $US102.29 per barrel.

The RBA is today expected to hike rates by 0.25 per cent to 7.25 per cent.

It would be the 12th increase since May 2002 and would keep the official rate at its highest level in 12 years.

The Reserve Bank is determined to put the brakes on demand in the economy to stop prices rising out of control.

But Mr Fraser, RBA governor from 1989 to 1996, says rates should remain on hold.

He believes inflation is not as bad as widely thought, saying it is being reined in by the US economic slowdown, the lack of credit, and flagging consumer confidence.

Mr Fraser says he also cannot see any signs of workers or unions pushing for untoward wage rises.

Local stocks have finished the day down 3 per cent, wiping $38 billion worth of value from the Australian market.

The All Ordinaries index lost 164 points to 5,511 and the ASX 200 dropped 166 points to 5,406.

It has been a particularly bloody day for the banks.

Macquarie Capital has tumbled 13.3 per cent.

The Commonwealth Bank, National Australia Bank and St George have all fallen more than 5 per cent.

Local insurers have also suffered, QBE falling 6.1 per cent to $21.20.

Australia's biggest transport company Asciano has lost 8.3 per cent to $4.56.

Today it reported a $71 million first-half loss.

It's good news week with housing affordability at its worst ever.

"It is no exaggeration to say that in early 2008 housing affordability is the worst it has been in living memory," Mr Rudd told reporters.

"There are now 1.1 million low to middle income households spending more than 30 per cent of their income on housing.

"This is a stunning statistic. And it is a disturbing statistic."

With all this negative news on the state of the economy the RBA is still expected to increase interest rates. Why does all the pain have to be borne by those that can least afford it?

Justin Obodie, if the government were to announce tomorrow they would be printing the equivalent of the surplus people would call them crazy. Basically with the current surplus that is exactly what has been done. We know this by looking at the growth of the money supply since the dot com boom came to a crashing halt. The inflation figures are now known to everyone. The government by cutting spending and not dipping into the surplus is for all intents and purposes (at least temporarily) burning it now.

Also with fewer $100 dollars notes in circulation one would expect a corresponding reduction in the use of cocaine and other substances people stuff up their snouts.

Think of the surplus as a huge pile of cocaine. You can bet the house that there are coke junkies everywhere with straw in hand just itching to get to it - the reason the government will come under constant pressure of wage rises and spending proposals. Given the nature of democratic government they will crack and eventually give into the temptation making matters a whole lot worse.

After every crash there will always be those pointing fingers - often in the wrong direction. The fact is the banks and business are not to blame. They were all handed the licence for mal investments and that is exactly what occurred - the exact same thing that will occur if the Australian government is allowed to spend the surplus.

PS people wanting to have more government involvement in trading bank lending have no idea. The fact is the world is now in a credit crunch - meaning businesses (good as well as poor) can't get finance. Wanting to worsen this situation at the present time is completely idiotic. Though when these types of situations occur the real culprits never get the blame - that is why these situations have a habit of repeating.

Gold continued its recent rally on record oil prices, the dollar hitting record lows and growing fears of a U.S. recession yesterday. The GDP and initial jobless claim figures continued the recent trend of very poor economic data and may also have contributed to gold's strength yesterday.

Gold rose in the aftermath of Bernanke's worrying comments that there probably will be some bank failures. Understandably, financial stocks in the U.S. weakened on the news. Bernanke acknowledged that stagflation was a possibility yesterday but said that "I don't anticipate stagflation. I don't think we are anywhere near the situation that prevailed in the 1970s." Never believe anything until it's been officially denied.

Craig, its a pity bank notes are not pegged to gold any more. Maybe we should peg it now: let's say $1000 note is worth 1 ounce of gold. An ounce of silver worth $20. What would you rather an ounce of gold or $1000?

I bet the Zimbabweans  wish their  dollar  was  pegged  to gold.

Zimbabwe's annual inflation rate has soared to more than 100,000 per cent, according to official figures.

"The year-on-year inflation rate for the month of January 2008, as measured by the all items Consumer Price Index (CPI) stood at 100,580.2 per cent, gaining 34,367.9 percentage points on the December rate of 66,212.3 per cent," the Central Statistical Office (CSO) said in a statement.

"This means that prices as measured by the all items CPI increased by an average of 100,580.2 per cent between January 2007 and January 2008."

Makes you wonder what a superannuation pay out of $500,000 or so will be worth in ten or twenty years time. Would you prefer a payout of 500 ounces of gold?

Following its foundation in 1694, the Bank of England would print pieces of paper that bore upon them the promise to repay the holder with gold coins "on demand". Depositors of coins in the Bank would receive such a piece of paper in evidence of their deposit. Any individual bearing the paper to the Bank could then reclaim the underlying gold on any business day.

With its reputation assured by government charter, people came to trust the Bank of England's paper receipts. Soon they began to use them not just as receipts for money deposited in the bank, but as money itself.

At this point the Bank could print large amounts of paper money at next to no cost and lend it at interest. A big profit resulted, as indeed it would for any person who obtained a "licence to print money".

Bank charters soon became highly sought after things. In all developed countries today it is the banking system that creates the majority of new money. Banks create new money by lending it into existence, yet more debt results and so the cycle goes on. More and more money floating around, leading to higher and higher prices, and a debt pile that never seems to shrink.

And the most essential flaw in the system remains.

When the banks create money they do not create sufficient of it to repay the interest on the loan which created that money in the first place.

PARIS - World stock markets lost $5.2 trillion (3.6 trillion euros) in January thanks to the fallout from the US subprime crisis and fears of a global economic slowdown, Standard & Poor's said Saturday.

"If investors thought the market could only go up, January's wake-up call pulled them back into reality," said Standard and Poor's index division.

Standard & Poor's said the world's equity markets lost a combined 5.2 trillion dollars as emerging markets fell 12.44 percent and developed markets lost 7.83 percent to register one of the worst starts to a new year.

"There were few safe havens in January as 50 of the 52 global equity markets ended the month in negative territory, with 25 of them posting double-digit losses," said Howard Silverblatt, senior index analyst at S&Ps.

All 26 developed equity markets posted negative returns in January, with 16 losing at least 10 percent of their value.

In February, the Dow dropped another 3 per cent, and the S&P fell 3.5 per cent, bringing its losses since markets peaked in October to about 15 per cent. The Nasdaq dropped 5 per cent for the month.

February - another bad month; the losses worldwide are now about ten trillion dollars and rising.

The Dow Jones industrials plunged 315 points, and every major index shed more than 2.5 percent. The Standard & Poor’s 500-stock index is off to its worst start to a year since 1941.

“The drumbeat of economic news has been unrelentingly bad,” said  Edward Yardeni, an investment strategist. “The recession scenario is looking more and more credible.”

The sell-off accelerated from there. A bellwether report on Midwestern business activity unexpectedly fell to its lowest level in more than six years. A survey showed consumer confidence at a 16-year low. And analysts predicted that banks stand to lose an additional $350 billion from the subprime mortgage collapse.

The bad news added up, and so did the losses. At the closing bell, the Dow had given up 315.79 points, or 2.5 percent, to 12,266.39. All 30 of its components closed down.

The S.& P. lost 2.7 percent, to finish at 1,330.63. The technology-heavy Nasdaq composite index dropped 2.6 percent, to 2,271.48.

The Dow Jones plunged over 300 points to give the US the worst start to a year since 1941. World war II pulled the US out of recession 67 years ago, is there anything on the cards that will pull the US out of this mess.

Not the 9 trillion dollar debt that is nearly $80,000 per US taxpayer.

Not the 1.116 trillion dollar trade deficit so far for 2008. The US has not had a trade surplus since 2002.

According to LEAP/E2020, the end of the third quarter of 2008 will be marked by a new tipping point in the unfolding of the global systemic crisis. At that time indeed, the cumulated impact of the various sequences of the crisis (see table below) will reach its maximum strength and affect decisively the very heart of the systems concerned, on the frontline of which the United States, epicentre of the current crisis. In the United States, this new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles (1) and of the pursuance of the US dollar fall. The collapse of US real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down massively (2),...

A revealing harbinger: from March 2008 onward, the US government will stop a service publishing its economic indicators due to budget restrictions (3). Those who read the GEAB N°2 (02/2006) and included Alert certainly keep in mind our anticipation which connected the upcoming fall of the US dollar with the US Fed's decision to cease publishing the M3 indicator. This new decision is another clear sign that US leaders are now anticipating a very bleak economic outlook for their country.

On the occasion of the second anniversary of the publication of our famous “Global systemic crisis Alert” which toured the world in February 2006 (4), LEAP/E2020 wishes to remind that we are now resolutely stepping into an era with no historical precedent. Our researchers insisted on that many times in the last two years: any comparison with the previous crises of our modern economy would be fallacious. It is neither a “remake” of the 1929 crisis nor a repetition of the 1970s oil crises or 1987 stock market crisis. It is truly a global systemic crisis, that is to say a crisis affecting the entire planet and questioning the very foundations of the international system upon which the world was organised in the last decades.

The blame game continues as ideologists of all persuasion pass the buck and avoid the reality of their insane approaches. There's not one political force in this country, which is capable or able to stop the inevitable looming collapse. Only fools refuse to recognise the lab/lib coalition as one and the same. Rudd was elected on his platform of new leadership, not new government or new directions, just a different leader. He has categorically stated there will no changes which will harm the current economic direction he and his ilk believe is all that counts. Why? Because he, like all in power, is of the economic elite. Millionaires and brain dead corrupt bureaucrats run our country, not sensible people or reality.

The fallacy of superannuation was clear to see when it first introduced, along with the clearly irresponsible actions of all political persuasions to avoid the responsibilities of the future by not providing public service superannuation provisions and forcing people from secure and economic stabilising pension systems, to market driven retirement investment. Now every ordinary person on super is looking a future of uncertainty. Not only are their money losses creating this, but rising profit driven prices. Unless you are rich, peaceful secure retirement is a thing of the past. Fewer and fewer people can afford housing of any description, and profit driven rate rises are just putting people out of homes and giving them to the corporate rich. The corporate rich buy them for lower prices upon eviction, them sell them back to other people for higher prices and profits. Whichever way it goes, the people lose in every way: the rich get more from their investments as rates rise, more from housing and commodity repossession, then again from reselling houses bought cheap and then sold dearer.

Until this country returns to controlling its own destiny and not the global market, the direction for all is downhill rapidly. Any money put into infrastructure is gobbled up by the corporate world via privatisation and subsidies, and things get worse. Without the people controlling essential services the market dictates the outcomes. The only direction of the corporate world is rationalisation and profit at any cost, even functionality goes out the window in the greed for more money and less outlay. Without legislative control on all industry, prices and services, nothing will change, only get worse. A market controlled world is a recipe for massive overall disaster for societies worldwide, as we are clearly seeing.

Craig Rowley: "It could be done by requiring banks to hold a higher proportion of their total assets in reserve."

Why not make every car dealer hold a higher proportion of inventory? There could always be a run on cars one week. Ever suspected like the car dealer the trading bank isn't the problem? I look forward to the reply.

Dear Paul

Re: Positions Vacant - Prime Minister

Yours truly has had the utmost pleasure in following some of your posts. I fully agree that burning the surplus on a clear night is something that would be un-Australian not to do.

There may be some however who disagree with this excellent and necessary course of action; as such I would enthusiastically encourage you to apply for the above position.

Yours truly would be only too happy to assist you on this noble quest and with our combined ability and energies we should have PM as PM by 2011.

Should this be the case it would be appreciated if the burning of the surplus was entrusted to someone who not only believes in your monetary policies but also someone you can trust to do the task in an efficient manner.

As such it would be appreciated if in return for my loyalty and support you will consider me for the position of the pyro. I have had much experience in burning cash and can assure you that every worthless bank note will never see the light of day.

Your obedient servant

Justin Obodie

PS. We can do this, we can spin it to the altruistic left, the free market liberals and the fiscal conservatives; and the plebs will believe anything subprime.

Also with fewer $100 dollars notes in circulation one would expect a corresponding reduction in the use of cocaine and other substances people stuff up their snouts.

Mate I reckon we are on a real winner here!

Why hasn't there been a move to use available regulatory control over banks to implement a contractionary monetary policy? It could be done by requiring banks to hold a higher proportion of their total assets in reserve.

John Pratt, the article parrots exactly what I wrote the previous day or so. The Australian problem is one of money supply - although I doubt the Australian Treasurer understands this. The exact same people that put Australia into this position are the same people charged with unquestionably solving the problem. This nonsense of bottlenecks, government under funding blah, blah, blah is an idiot's ruse. Cut the money supply solve the problem - end of.

Unfortunately the government surplus is a direct result of the inflation that the Australian Fed created. The government surplus is not worth the paper it is printed on. Burning it on a clear night would be my advice.

In theWest this morning:

The standard economic instrument in Australia’s case is to try to hose down inflation and demand by raising interest rates. This the Reserve Bank is doing, and will continue to do — perhaps twice more over the next few months. But it doesn’t seem to be making much difference. One look at the growth in retail spending is enough to see that. And there is increasingly a question of whether the traditional blunt instrument of interest rates is now appropriate, given that we are seeing steady, world-wide increases in commodity prices, prices which are in most cases beyond the reach of any reserve bank or government to influence. And there is a further open question about what really constitutes unacceptably high inflation — the more so since by international standards ours is not remarkably high.

With the Reserve Bank indicating that it will increase interest rates again it is time to think this through. If you are rich and have no debt and  dollars in the bank this would be good news - more interest payments more money to spend. If you are poor and struggling to pay your house payments this might be the straw that breaks the camel's back.  Interest rate rises rob the poor and give to the rich. It is the rich who have spent more and caused the inflation in the first place, the poor are not over spending. Inflation is being fueled by higher commodity prices including oil. A rise in interest rates only going to fuel inflation.

The private sector delivers at least 70 per cent of all long day care in Australia, much of it excellent quality. Private child care is widely accepted as part of the landscape. It is not the existence of private care that causes disquiet among policy analysts and child development experts, but rather corporate dominance. In recent years, more and more individually owned services have been bought by ABC.

There are three reasons why this matters. First, many families value the ability to choose between providers of different types. By introducing subsidies which parents can use to buy child care from any approved provider, governments intended to increase diversity and choice for parents.

But for many parents their choices have actually been restricted. Many small owner-operators have sold to ABC or to one of the corporate chains that ABC has now absorbed. Community-based child care, highly valued by many families, has been marginalised and now barely exists in many areas. Good quality community-based services often have extremely long waiting lists and are extremely hard to get into.

Second, the dominance of a single company in any industry can distort government decision-making. Would any government be willing to strengthen child-care regulations if this threatened the prospect of corporate flight? In 2006 a taskforce recommended strengthening the child-care regulations to require one staff member for every four babies under the age of two. This would have brought NSW in line with states like Queensland and Western Australia. The minority report of the private, for-profit members scuttled this recommendation.

Third, corporate dominance may make it harder for governments to achieve some of their goals.

Labor's concern about high child-care costs is a good example. During the election campaign, Labor made a commitment to increase the child-care tax rebate to 50 per cent of out-of-pocket expenses (that is, the amount paid by parents, taking into account the child-care benefit). This is a gift to for-profit child-care services. They will be able to lift their prices knowing the taxpayer will foot the bill for at least half the cost of any increase.

While an increase in the rebate may ease the costs faced by parents in the short term, inevitably the additional subsidies will be absorbed into higher prices and the spiral will continue. The Government should urgently explore alternative subsidy structures that would enable it to keep a lid on costs, rather than endlessly chasing after higher prices with taxpayer dollars.

Deborah Brennan Professor of social policy at the University of NSW, in the SMH this morning. 

ABC learning is now providing 70 percent of Australia's child care. The financial future of the company is in doubt, even with government subsidies of a million dollars a day. A lesson for the Rudd government is never put all your eggs in one basket. I believe we should we nationalise child care and bring it into our existing education departments. Using existing schools would bring costs down and help parents who would have one drop off point for their children.

ABC yesterday called in investment bank Goldman Sachs JB Were to deal with an approach by offshore interests to sell its operations in the US.

The company's US expansion was behind ballooning debt, which soared from $110 million in June 2006 to $1.67 billion last December as the company expanded to 2300 centres across four countries. In December, ABC negotiated a $1.43 billion facility from a syndicate of eight banks, including Australia's big four retail banks.

Mr Kemp, as the person in day-to-day charge of childcare centres across the two countries, would have been in possession of sensitive market information as he helped prepare the result for release to the stock market on Monday night. His sale of shares on Friday, armed with this information, raises the prospect of insider trading under the Corporations Act, a crime that carries a possible five-year jail sentence.

Mr Kemp, who not long ago was the largest individual holder of ABC shares after the Groves, has been hit with a number of margin calls as the ABC share price has fallen.

On December 24 he sold 600,000 shares at $4.99 each, and he was hit again in January.

ABC is the world's largest childcare group, owning and running centres in Australia, New Zealand, Britain and the US. Its revenue in Australia is underpinned by federal government subsidies of as much as $1 million a day, and are set to grow under the new benefits promised by Kevin Rudd.

Pity the shareholders of ABC Learning. Just over 12 months ago the share price was $8.46. Last week they were selling for $1.15. The Australian government was subsidising this company by up to 1 million dollars a day. Tell me again that the stock market is not about gambling.

Now the sharks are at the door and who knows what the final outcome will be. Questions have been raised about insider trading. Questions should also be asked about links between the former Howard government, and the directors of ABC.

Almost all the 21 million shares the directors still hold are covered by margin loans and remain at risk of a forced sale if ABC's share price falls further. ABC's board also includes former conservative politicians Sallyanne Atkinson, the group's chairwoman, and Larry Anthony.

John Pratt, the federal government has no control over monetary policy, that’s the RBA’s job. The federal govt looks after fiscal policy. Inflation is not just rising because of resource and commodity prices, if this were the case the RBA would not be raising rates. Here’s a quote that indicates the RBA reasoning for lifting interest rates:

“The Australian economy has remained robust in the recent period, notwithstanding a more difficult international environment. Domestic demand and activity have remained strong and capacity usage is high after a long period of economic expansion. These conditions have been associated with a rise in inflation. Hence Australian monetary policy has had to take into account sharply contrasting domestic and international developments.” 

The RBA is lifting rates to curb this domestic demand that is straining capacity (infrastructure, labour etc), not because of rising oil and commodity prices. Lifting interest rates isn’t going to create more oil or grow more wheat.

A large federal govt surplus can act to reduce demand, however the Rudd govt would need the states to help out, e.g. Queensland. Not much effect in running a $10B surplus while some states are doing the opposite.

Another inflation driver has been wages growth outpacing productivity. If the mean/median wage rises 4% but productivity only rises 1%, you’re going to get inflation. Rudd govt policies relating to industrial relations (so far) are unlikely to reverse this recent trend. The guest worker program mentioned by Helen Clark today, is one way to reduce the pressure on inflation from excess (over productivity) wage growth.

Gasoline prices, which for months lagged the big run-up in the price of oil, are suddenly rising quickly, with some experts fearing they could hit $4 a gallon by spring. Diesel is hitting new records daily and oil closed at an all-time high on Tuesday of $100.88 a barrel.

The increases could not come at a worse time for the economy. With growth slowing, high energy prices that were once easily absorbed by consumers are now more likely to act as a drag on household budgets, leaving people with less money to spend elsewhere. These costs could exacerbate the nation’s economic woes, piling a fresh energy shock on top of the turmoil in credit and housing.

“The effect of high oil prices today could be the difference between having a recession and not having a recession,” said Kenneth S. Rogoff, a Harvard University economist.

The depth of the nation’s economic problems became clearer Tuesday with the release of figures showing that prices at the producer level rose 1 percent in January, driven in large measure by energy costs. Compared with a year ago, prices were up 7.4 percent, the worst producer price inflation in the United States since 1981.

Another nail in the coffin of the US economy.

US banks have no reserves; they are for all intents and purposes, broke. In fact they are beyond broke and as I suggested last year banks are now sub-prime. 150% of the reserves at depository institutions are borrowed. That can only mean one thing, the banks have "lost" 1.5 times their original non borrowed reserves. Not only have they lost what they had, they went on and lost half as much again. If you or I did that, we would be bankrupted and probably arrested for attempting to defraud the lender.

Notice the amount of total reserves (yellow line) is roughly equal and appears cyclical to the Federal Reserve TAF lending programme. The Fed is no longer the "lender of last resort" it has become the de-facto Bank of the USA.

I am amazed that so little attention has been paid to this state of affairs. The Northern Rock debacle, one overstretched bank in the UK, has had all the headlines, yet with the WHOLE banking industry in the US insolvent you hardly see it mentioned.

With the term safe as houses becoming a bit of joke in the US, and now it seems the US banks are broke, is there anywhere safe to put your cash? Under the mattress seems the only choice. So much for capitalism.

Ian McPherson, certainly we could all go in to the reasons why inflation in Australia presently exists - that though is past history. Take all of the surplus out back and burn it. Hold a ceremonial burning if it makes you feel better (damp those expectations) - inflation finito.

How ingracious that we here, and the powers-that-be, have not realised your worth and hired you to fix the country?

Doubt they could afford me.

Once upon a time, the share market was used to raise capital for new ventures, acquisitions and to upgrade infrastructure. No longer. It is purely a casino these days, with companies valuing themselves by the share price, and executives valuing themselves by the company value. Never in the history of mankind have so many had the wool pulled over their eyes by so few. Do you really believe that financing debt with more debt can possibly work, just because a few CEO's with vested interests use doublespeak to tell you it can?

Most of us have trusted the spin we have been fed for over 20 years now, just because we don't understand what is being said. Did anybody else ever stop to think that if it seemed too good to be true, it probably was? Did anybody stop to think that the share market, the cornerstone of a capitalist society, had been turned into little more than a gambling den? People that have wisely accumulated their money and stupidly invested in this house of cards deserve what is inevitably coming. And it ain't going to be pretty.

The criminal part is that they are dragging the rest of us down the gutter with them.

Richard Tonkin

Doesn't the fact that the current government has, on the tail of a decade-long administration, only been holding the reins for a couple of months suggest to you that they may have inherited some problems from their predecessors?

What they have inherited is a reasonable economy with slight inflation problems (hardly hyper). Australia also has way too many taxes and charges which is helping fuel inflation. That is why the government should most definitely go forward with tax cuts - finding the equivalent savings through cutting government spending. Bottlenecks and capacity constraints is politically fueled gibberish that is being used as an excuse to avoid facing up to what is the real problem.

In very basic language the inflation problem is a direct result of loose and irresponsible monetary policy over the years - blame the Australian Fed for that error. Want to end inflation tomorrow? Take the surplus out back with a drum of gas and burn it. Inflation problem over!

This problem can be solved and it should be solved. If it is not solved this government and its economic illiterate cronies should be held directly responsible.