Webdiary - Founded and Inspired by Margo Kingston

John, transactional analysis is a very interesting approach to psychology and is particularly relevant to my own area of research - developmental psychology. You make a very good point.

Scott, I do like your name for this behaviour (though whether it can be called a syndrome is debatable). I must say that my childhood memories of Till Death Do Us Part were not of a comedy, but a particularly depressing family (and human) tragedy - undoubtedly apt in the present context.

The US government has to raise its $14 trillion debt limit or risk defaulting on its interest payments and, buoyed by their success in winning the biggest annual spending cuts in US history over the weekend, Republicans are now signalling that they are ready for another showdown, even if the stakes are much higher.

Everyone agrees it would be unthinkable. Just listen to how the president's senior political adviser David Plouffe describes the consequences of not raising America's debt ceiling.

"Economist after economist has said it would raise interest rates, it could wreak havoc on the housing market on the economy, it could be a catastrophic failure for the United States economy if we didn't raise it," he said.

However, after the bruising brawl of last week over just a fraction of US government spending, Republicans are refusing to simply sign up to increasing the federal debt limit without bigger concessions from the White House.

With the US on the edge of a catastrophic economic failure, rather than cutting essential services wouldn't it be better to make the rich pay tax?

With Congress returning to Capitol Hill on Monday to debate steep spending cuts, Sen. Bernie Sanders (I-Vt.) said the wealthiest Americans and most profitable corporations must do their share to help bring down our record-breaking deficit.

Sanders renewed his call for shared sacrifice after it was reported that General Electric and other major corporations paid no U.S. taxes after posting huge profits. Sanders said it is grossly unfair for congressional Republicans to propose major cuts to Head Start, Pell Grants, the Social Security Administration, nutrition grants for pregnant low-income women and the Environmental Protection Agency while ignoring the reality that some of the most profitable corporations pay nothing or almost nothing in federal income taxes.

Sanders compiled a list of some of some of the 10 worst corporate income tax avoiders.

1) Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings. (Source: Exxon Mobil's 2009 shareholder report filed with the SEC here.)

2) Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion. (Source: Forbes.com here, ProPublica here and Treasury here.)

3) Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS. (Source: Citizens for Tax Justice here and The New York Times here. Note: despite rumors to the contrary, the Times has stood by its story.)

4) Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009. (Source: See 2009 Chevron annual report here. Note 15 on page FS-46 of this report shows a U.S. federal income tax liability of $128 million, but that it was able to defer $147 million for a U.S. federal income tax liability of $-19 million)

5) Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year. . (Source: Paul Buchheit, professor, DePaul University, here and Citizens for Tax Justice here.)

6) Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction. (Source: the company's 2009 annual report, pg. 112, here.)

7) Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department. (Source: Bloomberg News here, ProPublica here, Treasury Department here.)

8) Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury. (Source: Paul Buchheit, professor, DePaul University, here, ProPublica here, Treasury Department here.)

9) ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction. (Source: the company's 2009 shareholder report, pg. 127, here)

10) Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent. (Source: The New York Times here)

44 million Americans live below the poverty line, Education and health care are out of the reach of many Americans.

It is obscene that the rich do not pay their share, causing millions to suffer.

It is this sort of greed that will bring capitalism to an end.

David Roffey: "I submit to you that gold is just as much a fiat currency as paper money. It has essentially no inherent value except as an agreed means of exchange."

Agreed, however the "means of exchange" is the important part.

The use of fiat currency essentially isn't the problem. Fiat currency makes very practical sense more than anything else. Paper, gold or any other commodity is only as good as the system it's in operation. The means of exchange is another term for "trust".

Historically gold was favored above all others because of its rarity (limited), and the impossibility of duplication. Those two factors alone allowed gold an inherit unverisal "trust". In today's much more complicated world, gold as a currency would still be limited by the good or bad administration of the monetary system.

The fact is that any monetary system can theoretically be subverted (as any security system can be). That subversion moves from theory to fact when the "rule makers" become the "rule breakers". In plain English the "trust pact" is broken, and the means of exchange becomes questioned, which in turn causes instability. Trust and stability must work hand in hand with any monetary system in existence, if that system is to be successful.

The only non-fiat currency would be something valued highly for its actual usefulness: James Blish's Cities in Flight  stories from the 50s/60s suggested that the ultimate non-fiat currency would be life-prolonging drugs

I couldn't think of a worse option. The lynch-pin of the means of exchange should be something of non-practical use (many obvious reasons). As I've written it's not the commodity used it's the system it's used in.

Justin Obodie, while Mr Bernanke probably deserves some blame, I must say that I simply adore the rather persuasive portrayal of his predecessor, Alan Greenspan, as an Ayn Rand warrior - and hence as the more reprehensible guilty party.

I'm not sure if he ever was a "libertarian". He did once write a paper defending the gold standard. That was a long time ago, and he's long since walked away from the belief.  Long before he was the Fed Chairman.

During Alan Greenspan's time at the Fed, the only time Ayn Rand would've got in the Fed was on a postage stamp.

Already it looks as though over the last six months there has been no British economic growth at all and that's before the coalition's breathtaking austerity measures bite. I said to one top British official that I thought that not only was there a real chance of British growth being subdued for years, but that the whole economy risked sliding towards Japanese-style stagnation. He indicated that others in government thought so too.

Economists and business leaders should not let the chancellor get away with Tea party-style statements about Britain risking bankruptcy and having no choices but to suffer. Keynes dedicated his life to challenge that thinking and for some years kept it at bay. The bad news is that it may only be disasters, like the one Keynes lived through, that will make people change their minds.

The British economy is dead in the water and the Tea Party is pursuing the same ideas in the US. With massive cuts promised the US economy will also continue to stagnate.

Emboldened by their victory in the 2010 mid-term elections, and propelled by their Tea Party base, the Republicans in Congress had refused to pass the 2011 budget unless it introduced billions of dollars of cuts. Leading Republicans had wanted far more cuts than the $38bn eventually agreed.

In 2012 even more cuts.

The House Republican Study Committee (RSC) on Thursday released an alternative to the 2012 budget resolution from Budget Committee Chairman Paul Ryan (R-Wis.) that would cut $9.1 trillion in spending over the next decade.

Meanwhile the Chinese economy is about to burst.

While the economic systems of China and precrisis America are certainly different, below the surface China is plagued by staggering levels of credit expansion, speculation, malinvestment, and toxic loans — much like what we saw in America. The notion that the iron-fisted Chinese government is in control of this situation is a dangerous one. The laws of economics are omnipresentand cannot be overridden simply by force. Trying to apply top-down central planning to an economy that is more and more driven by bottom-up market forces will inevitably have grave consequences. Wild credit expansion always leads to the same things: price inflation, malinvestment, and bubbles.

Mr Swan and the Prime Minister, Julia Gillard, have warned in recent days there will need to be ''tough'' measures to ensure a budget surplus in 2012-13.

''Central to Keynesian theory is that just as governments should increase spending going into a recession, once growth and prosperity have been restored they need to restrain expenditure, budget for surpluses and reduce debt.''

The problem with Mr Swan's thinking is that we have a two speed economy. Mining is going gangbusters, but manufacturing, tourism, and housing are stagnant if not going backwards.

Unemployment in Cairns is at 13%.

Unemployment in the Cairns region is still suffering from the effects of a high Australian dollar and subsequent decline in tourism and construction.

All opinions welcome - but...

OK, butts are wonderful and look delightful, butt should only be used as conjunctions, butt when used as a form of hypocrisy it all gets confusing.

BTW silver just hit an all time thirty year high of US$40.21, if you bought this time last year you'd be up over 120%. Funny that, when compared to fiat.

I really don't know how it works butt it is delightful.

David could you explain it too me, please?

Dear President B.O.

It is common knowledge that the US dollar is pretty well worthless these days, probably because the colour of your currency is a dreadful green, yuk. But fear not Mr B.O. for all is not lost, yours truly has a solution.

The dollar desperately needs a make over, it needs to regain its sex appeal, so this is what we could do:

Instead of that yuky green colour why not make new gold and silver coloured notes printed with ink that actually has gold and silver mixed in, only a tiny amount would be necessary, however, it could be rightfully declared that the currency was truly backed by gold and silver.

Now here's the bit you are gunna love: rather than have the faces of stuffy old dead presidents on the notes why not have the bodies of famous icons.

For example rather than have a drab green $50 General Grant you could have a busty $50 golden Marilyn. Rather than a $100 Ben Franklin I reckon a beautiful silver $100 Betty Page would far more desirable.

In fact I predict that such a currency would be in high demand, as such it would be advisable to issue as many denominations as possible i.e. $3, $4, $6, $7, $8, $9 and all the way up to a 1 trillion dollar note. They will be collectors items. The customers will want more of this sexy sound currency for sure and no doubt will work hard to get it.

B.O. please feel free to borrow this idea as I'm sure it will solve all of your financial problems, and if such a plan doesn't (financially) succeed then all is not lost -  we could use our sexy currency to perv at while jerking off, which is about what we've been doing anyway, except it hasn't been fun.

Yours truly

Winnifred Wombat

PS. Don't forget to include Audrey H. - but I'd prefer her not to be naked.

PPS. Michelle, please don't get upset about the above sexist currency - don't forget there is two sides to a bank note - yin and yang. Enjoy.

PPPS. OK OK OK I suppose we'll have to have a cheerful set of notes as well to cater for all of our society.

If I was holding US fiat/paper I'd seriously be thinking of trading (some) of it for shiny stuff.  Now would be a good time to think about eliminating the counter party, just in case (of the inevitable).  If you bought gold this time last year you'd be smiling, if you bought silver, you'd be giggling your tits off.

Literally translated the mandarin word for bank, yin hang, means "silver house".

Thanks to Mr Bernanke precious metals are in demand (especially in Asia), for a very good reason.

"Without understanding this fundamental truth, all talk about stabilizing the monetary system and reining in the runaway budget deficit is an exercise in futility."

 Yours very sincerely

Antal E. Fekete Professor (retired)

Memorial University of Newfoundland

The provision being that sensible economic strategies are followed.

Paul mate, don't you think such a provision is out of the question, all things considered.

The greedy bastards have captured the US government, lock stock and barrel. As I mentioned before, this aint a cyclical thing, it's a secular thing.

The fat lady is singing loud and clear, and the proposed budget cuts (targetted at the working poor) will do little to change the fact that the yanks will never be able to repay their creditors.

Default is inevitable, but the nature of the default is yet to be determined.

Personally, in this case, I would like to see the Austrian theory put to the test: let those inefficient, bankrupt and corrupt corporations go bust - especially the financial services ones, we don't need them.

Sooner or later (probably sooner) our current financial paradigm is going fall to apart (anybody paying attention knows this), hopefully what is rebuilt from the ashes will be underpinned by a true economy based on producing real things that we need, that help us survive and will educate us. This is the stuff that we need, along with sound money management (and creation).

What we don't need is a complex financial system that nobody understands, and that operates in a virtual world of its own. Sadly the financial services industry has subordinated everybody and everything else. The reverse should be true, money should be a catalyst, not the thing in itself. Money should be the people's servant, not their master.

Today we face many problems, the financial thing is only part of the problem, the real problem is psychological, as the people at large have no idea what really goes on in the financial services industry, as such they become easy prey, without even knowing it - (think superannuation).

Hey, even the good Christian Peter Jensen lost many millions to "investments" he didn't even understand.

You see, it's a bit like that Pura milk advert on TV, you know the one where the guy walks into a corner shop and asks for milk. The frump behind the counter asks him what sort of milk he would like and rattles of a whole list (what the fuck is extra dollup?). The customer has no idea, as such the frump makes the choice for him, the "smart choice" and everybody is happy.

Smart choice, dumb customer.

The financial services industry preys on the ill informed: by creating a whole heap of products that ordinary people (and many not so ordinary) could never really understand, then investors too often surrender their decision making to the "experts" - in the same way the customer surrendered his choice of milk to a stranger.

There were many Peter Jensens who bought CDOs and didn't have a clue what they were getting into. Hey, but they were rated AAA.

The whole financial system has been rogered well and truly by the greedy bastards, and it aint gunna recover until the whole financial services industry is restructured equitably (and comprehensively) and plays handmaiden to real production and services.

That's how it was always intended, sort of.

Anyway I would rather live in a world where understanding money is a catholic thing, rather than an esoteric thing where only the very clever, cunning and corrupt can win.

John Pratt: "Either way the US is going to face increasing unemployment."

Not necessarily.

A recession is really nothing more than a correction. A depression a much larger correction. All that booms must eventually bust. Actually, economically speaking it's healthy, not nice, but healthy.

The trap you're falling in is the same trap the Fed is in. You think all things can be solved with "paper" (money) - printed and spent it makes no difference. Unfortunately the paper itself isn't worth any more than paper. It's the value placed in the representation of the particular paper.

The American economy is going through a massive restructure bout. It's in training so to speak, and it's becoming leaner and meaner - as training happens to make somebody. Eventually, this training will begin to pay dividends.

My tip is that in five to ten years time, the USA economy will be much stronger than the Australian economy. The provision being that sensible economic strategies are followed. Cutting the budget deficit would be one such sensible strategy.

I'll paraphrase the words of boxing legend and champion Marvin Hagler: It's hard to go for that five o'clock run when you're waking up in silk sheets. Doing it tough has a habit of making you tough.

"So they ran computer models simulating the economy forward.

"The models break in 2037. The computer literally crashes in 2037 because according to the CBO they can't conceive of a time in which the economy can continue past that moment because of this burden of debt.

"If we don't take on these fiscal challenges head-on, we will not be able to do this under our own terms in the kind of gradual, important, sensible way that we are proposing here today."

It is a debate becoming all the more urgent with the US national debt topping $14 trillion and rising.

With the US debt above $14 trillion and the Republicans refusing to pass money bills, something must give - increase taxes or start cutting the size of the public service.

Either way the US is going to face increasing unemployment.

The future for the global economy look very grim.

Speaking of Al Capone, caught a dubbed doco on SBS from Italy about how Berlusconi and co blew ten billion Euros destined for the repair of the earthquake town of Aquila, through a quango that went be some virtuous name that belied its actual function (as to the intentions of Berlusconi and the mafia)

Ok, not high economics.

But in a way, I felt it served as an analogy of what's being discussed here. Certainly a very large and dead albatross hung from the beleagured necks of the Aquilans.

The Irish central bank instructed four lenders yesterday to raise 24 billion euros ($34 billion) and announced plans to merge two of them, taking the bill to clean up Europe’s worst banking crisis to as much as 100 billion euros. That equates to about two-thirds the size of the Irish economy.

Roubini said that a better solution would be to take the senior secured and unsecured debt of the banks “reduce it, convert it into equity so you recapitalize the banks that way and you’re not adding further losses to the balance sheet of the government. Otherwise, you’re going to have not only a banking crisis, but also a sovereign debt crisis.”

More governments are borrowing to avoid bank failures, pushing each of them closer to a sovereign debt crisis.

On a seasonally adjusted basis, the jobless rate in the fourth quarter rose to 14.7 percentfrom 13.7 percent. Unemployment has more than doubled since 2008 as the country’s 10-year property boom burst, saddling banks with bad loans.

It seems to me that if you spent the money creating jobs it would have a better result than throwing good money after bad.

If governments are going to borrow they should at least invest in real assets and create jobs for the millions of unemployed.

House prices in the United States have sunk to new lows, dashing hopes of a sustained recovery in a key pillar of the overall economy.

Home prices in 20 major American cities fell for the seventh month in a row in January, and were down on average by more than 3 per cent compared to this time last year.

The US and the world are still still hoping for a recovery. We need to understand that there probably will be no recovery.

The financial system is broke.

China has a housing bubble.

No one knows where this will end. But if Australia thinks it can avoid the ‘Dutch disease’ by relying on the relentless construction of empty Chinese shopping malls, ghost cities and unused infrastructure, then we too could be in for a hard landing.

The Great Tax Clawback Scam

Scott Dunmore: "The problem isn't money, it's the nature of the smart-arses and slack governance. So called "wealth creation" a la hedge funds and the like is exactly the opposite. It is the garnering of wealth at others expense: in other words, parasitic. People who've never done a productive days work in their lives have the best lifestyle."

Statements such as the above are unhelpful and driven by media myth.

The fund industry is the most diverse industry in the world, it also attracts the most diverse people. I could give multiple examples to prove my statement.

The biggest myth of all is that nobody, not one person, in the industry saw the meltdown coming. Or if some people did they conspired to hide the fact. It's a complete fiction driven by profit making hypocrites such as Mikey Moore.

For every position taken in a financial market, somebody, somewhere, is holding the opposite. That's actually the reason for origin of the word "hedge" in the fund (many so called hedge funds aren't hedging at all).

An example: During the recent housing meltdown one small fund manager was holding a mass of credit default swaps (he was banking on what happened would happen). It eventually netted him  three billion for the year. A tidy sum in any mans language. My point is that somebody, somewhere, did indeed see a meltdown coming, and there wasn't any "secret" about it.

The doom mongers on here should pull their money and place it in a fund short on everything. When the "certain" apocalypse eventuates they could then proceed to fund the "feeding the world".

John Pratt: "I suggest we may have to put a wealth tax on anyone with say over a million dollars worth of bandwidth in the bank."

I suggest that any person with over a million in an Australian domiciled bank is an idiot. Why in Gods name would anyone pay the current excessive taxes (very legally avoidable)? See an international tax adviser and don't pass go!

Someone has to spend! To kick start the economy.

If you want people spending, why are you calling for broad taxation increases? That's the thing I just don't get. Far from picking you out, I also understand the same logic is a widely held one. As I've written, I just don't get it.

In very simple terms, governments collect money from tax. To collect tax one needs "others" making a profit or spending. Discouraging business through excessive taxes will decrease the overall tax take. That's simple mathematics.

Tax and spend for the hell of it is called churn - ultimately a futile project. Did you ever play pass the parcel as a child?

Governments need business making profits, that's how governments make profits called tax. Sure, government could take charge of all business and return all profit to "the people". This particular noble idea worked a treat in the now defunct Soviet Union.

I was recently in Asia and I heard a European stock analyst caution against the currently red hot Australian economy. He summed it up the Australian business environment as two international miners, a couple of banks and a supermarket (poetic licence).

The Australian company tax take tells a tale. A cooling in commodity prices or volumes will be problematic.

Large sums come from a very limited source. That's not a good thing moving forward.

Basically the above means Australia has a limited business environment, with a small number of large entrenched players. The government revenue stream is very reliant on those limited players. Ultimately it means whatever taxes are placed on these businesses, the Australian consumer will pay as the end user.

I think the smart solution would be rather than try and collect large amounts from small pool, why not encourage activity and collect smaller amounts from large pool? Why not encourage a business environment?

Australia isn't an island in its current backward thinking (it's nowhere near the worse offender), however it's not anywhere near world's best practice either.

When the financial crisis hit the United States in 2008, Americans briefly turned away from unfettered free markets and a do-nothing government that had been the hallmark of President George W. Bush’s two terms in office. They wanted their government to implement economic reforms that would help revive economic growth. But a more responsible attitude lasted only a few months, until the money supplied by the Federal Reserve and the government stabilized the economy. Since then, the failed policies of the past not only reasserted themselves, but the radical right-wing ideology that underpinned them has become even more extremist.

The Tea Party movement has no plans to revitalize the U.S. economy. It merely wants the federal government to slash its spending at a time when the money spent by the public sector is the only thing that keeps the economy from slumping and suffering a double-dip recession.

Alexei Bayer, a New York based economist.

Yet another economist who thinks that if we stop public sector spending we are in for a double dip recession.

It is no time for a tea party.

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that.

Matt Taibbi - Rollng Stone

Madoff: Government a ponzi scheme.

So, by the above reckoning the dominant global financial system is a Ponzi scheme run by criminals.

QED

Fiona: Exactly, Justin. Those who know where the bodies are buried are always safe ... but given that they are the (amoral) offspring of the Robber Barons and Al Capone, what else could one expect?

The problem with modern capitalist economics is that it sells a Ponzi scheme. If people spend up, the more they earn as the money comes back to them.

According to Accounting 101, there are two critical financial statements, the balance sheet and a profit and loss account. Governments, of course, don't comply with Accounting 101, and it is very hard to see whether a country is actually developing, or putting on a show while selling the furniture (minerals in our case).

There are good years and bad years, years when we can save for a rainy day and years with rainy days (cyclones in our case).

The real question is how wisely we use our money. Do we invest in assets that deliver solid investments, or do we fritter it away on upgrading it to the latest iphone? 

To the specific topic, I'm like the others, I wish the politians, economists, and bankers would grow out of economic rationalism.

Interesting to catch a brief excepts from an ABC show today about the Chinese about to liberalise their currency policies a move toward integration.

Moodys and so on were discredited in 2007 and it is a testament to the stubborn unimaginativeness of economic mandarins that they cling to the enforcement of these Bs ratings at the three levels of government. But of course the politicians love them too, it gives them excuse to wangle out of taking responsibility for bounties promised earlier. 

 It has me in mind of a question Jay Somasundaram once put to me, about whether we need growth.

What we need is personal growth and economic growth provides an opportunity for that. Thinking personally, i was born in Australia and of a generation brought up with and to great things, universal nutrition, health, education and the like. But I cringe at the wastage.

And I wonder why we've got hooked on growth and its material diversions, for its/ their own sake and maybe losing touch a bit with the common person's life and life itself.

So the next time you hear some Republican declaring that he’s concerned about deficits because he cares about his children — or, for that matter, the next time you hear Mr. Obama talk about winning the future — you should remember that the clear and present danger to the prospects of young Americans isn’t the deficit. It’s the absence of jobs.

But, as I said, these days Washington doesn’t seem to care about any of that. And you have to wonder what it will take to get politicians caring again about America’s forgotten millions. 

This is an extract of an opinion piece by Paul Krugman in the New York Times.

Today's headlines in the Cairns Post is unemployment now at 13% and rising. Yes its more proof of  the two speed economy.

People are more important than deficits: destroy the hopes of millions and you end up with streets of blood. Look at what is happening in the Middle East.

Scott, sorry you are getting weary. But let's try to use a bit of logic here.

Money is what makes the world go around, I think we can all agree on that.

If no money is being spent there is no work for those of us that are forced to work for a living. The world stops spinning.

Governments can print money.

People love to spend money.

Companies love to make profit

All good so far.

If people have no money and are scared to borrow because of falling asset prices, there is no way people will kick start the economy.

If companies have high debt levels and no cash flow because of the GFC or similar economic disaster companies will pay off debt before they invest money, so we can not rely on the private sector to kick start the economy.

This leaves us with the government, the only people that can print money.

The government prints money builds infrastructure people are employed (instead of being on the dole).

Companies eventually pay off there debt look for ways to invest and eventually have more money than the government.

The government can stop printing money and start collecting tax.

And yes the world begins to spin.