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Summertime, and the living is easy.. for now!

Summer time, and the living is easy..

Xmass is now just a memory, the nation, well fed, sleepy and sated with the heroics of our allegedly defunct cricket team, bestirs after the annual excesses of gluttony and consumerism gone ballistic.

But as folk dust off the mistletoe,cigarette ash and snow flakes, they find themselves becoming overcome with an uncomfortable, free-floating sensation of impending financial peril, as they torpidly await the accounting for previous excesses.

For, as the shutdown ends and news starts percolating in both from the outside world and locally, it is recalled that the world is still the same imperfect location as before Xmass.

We hear of continuing problems from Europe- how deeply in trouble economically is it? Cameron and co continue to implement "austerity" in Britain, to pay for the bail out for the City of London financial establishment, while in the troubled USA, the hard right Republicans call for dismemberment of social security and the government there reacts by building more jails, trimming defence spending and winding back some of the US's less fruitful adventures offshore (sabre-rattling over Iran not withstanding).

This all a long way from suburban barbies in Australia, what could what happens ten thousand miles away remotely have to do with us?

In my home state of South Australia, it could count for quite a lot.

Here, we have attempted to move from sunset industries in manufacturing to a new future as a defence hub. Yet the SA government, like Victoria with Ford, have just had to retreat to a default position that is likely to involve many subsidy dollars, just to hold the aging (altho, mecifully, somewhat reconstructed) auto industry together for a bit longer and this may well be due to a diminishing likelihood of future lucrative defence and techno contracts, given off shore conditions. Yes, the auto  industry is the default position and it must be held on to for the preservation of a number of technologies,but its hard not to see the recent events as anything but an economic retreat.

 So, in SA at least,we are left with uranium and sunset industries that will require help to keep their role as a big employers of  skilled, semi skilled and unskilled labour. This is money that may have to be kept back from education and social infrastructure spending, unlike in the situation where a foothold in defence hi tech may have been a revenue puller, within previous projections made in more optimistic times.

 Also, technology changes so quickly; so much obsolescence as the global economy remains barely in recovery  from the excesses in war and high finance over the last decade, that have induced so much pain for so many people across the world.  If global demand falls in the wake of the "austerity" that is the euphemism for the picking the 99%'s pocket so the 1% might yet save their own skins after their earlier delinquencies, and exports tail off in the wake of the bursting of the Chinese real estate bubble and through global recession in general, you begin to suspect that governments here will be thinking more carefully about where shrinking revenues might be used and the question that comes to mind is, who/what will be preserved and who/what what may be jeopardised or jettisoned.

My guess is that if you are not wealthy do not presume that the good times will last forever, or that now is the time for risky spending or investing, even though economists will say that this sort of pessimism accelerates recessionary forces.

My sense is that the politicians have a challenging year in front of them- no more time for the sort of arcane antics of the sort that Teresa Gambargroggily insulted the public's intelligence with on her return from holidays. The antic warns us that the opposition, like its American counterparts, is likely to remain obstructionist.

If the Gillard government overcomes this, it also has to overcome its own tendency to creeping inertia and funny deals with unknown vested interests at the expense of productive or socially desirable social spending. Its first adventure will come shortly,  as it awaits the Queensland public's decision at the polls there in a couple of months. A convincing defeat for Bligh would be a blow to Labor morale generally and leave much closer the prospect of a future Abbott government, anti-intellectual, vengeful on industrial relations and social policy and hell- bent on austerity imposed on blue collar people that could represent a major blow to small business s employers as demand remains resultantly static.  

And if fed Labor eventually does get back in, what chance of some level of austerity in a post election budget being avoided, given the grip neoliberal thinking has on economic policy.

No, not quite the time for champagne cork popping just yet, thinks this little black duck.

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The modern signs of democracy

In China, a local leader who led sometimes violent protests is appointed  village party chief.

On the other side of the world, Obama introduced grass roots democracy, with a website welcoming petitions directly from the public, expecting public discourse on topics such as the economy and health. They were surprised that the most number of petitions, and votes  largest number, and receiving by far the largest number of votes was to legalise marijuana.

 

The administration, whose platform was against legalising marijuana thrashed the idea. So, now, the petition with the largest number of votes is actually take these petitions seriously instead just using them to pretend you are listening 

(note - this is the official white house website) 

More

Here's a link to Zerohedge re Bank of America off loading it's huge derivative exposure (risk) to the taxpayer.

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

 

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Derivative contracts have no transparency, therefore know one really knows how this interconnected maize of transactions will unwind when they eventually have to.

And that is why Greece has not been allowed to fail. The derivative exposure US banks have in relation to Greece would trigger unknown consequences if Greece was to turn it's back on the Euro and it's bond holders.

Everything is getting worse, for derivative exposure is increasing, and the counter-parties will never be able to honour their contracts should a significant credit event occur- it's in the arithmetic.

Nonsense!

The point is, Scott, that ordinary people are not always a wake up to the damage neolib economics has done to global civilisation. The trillionsof dollars handed over to the corporations after the Meltdown are an example of profits privatised and debts socialised; an exampleof a giant swindle and "stand and deliver".Off shore people are paying with cuts to basic services, this bill. 

How long before they decide we are worth further plunder?

When Abbott gets in? 

If MiCawber's comment had been applied correctly through the moral hazard doctrine applied to the 99%  as to our affairs by the Right, where do you think think the Wall st scum on $80million a year, still whining after their mortgage foreclosure bonuses recently, despite the grief theyve caused so many other people, would be?

We're not adversaries

Ordinary people Paul do not read Wd or Zerohedge and for the very good reason as you saw from my previus post that it takes a hell of a lot of  thought to get you're head around this stuff and if like most people one is consumed with the day to day hassles of paying bills, following the fortunes of one's sporting heroes, not to mention the inanities that pass for entertainment, time and inclination are not present.

Some of us have seen this coming for years and the only surprise is that it has taken so long to unfold. I can remember arguing with  Geoff (I think,) about short selling and at the time had no inkling of the variety of derivatives available to the smarties to manipulate finance. Democracy is a joke; we live in a one party world, It's called Big Business. Time to dam the river and flush the stables.

Collateral and Crooks - but legal never the less

Yep it's a mess, simple arithmetic informs one that it will all end in tears.

The greedy bastards are now actively exchanging worthless paper into hard assets, taxpayer assets, national infrastructure and savings.

As well all know, there is no way the western democracies can work the debt off, especially when they continue pumping out deficits which simply add more to the mountain of debt.

So what have the banks got in stall? Especially when the majority are insolvent.

It's in the numbers, simply compare all the debt in the world with the real wealth that underpins it. Debt = quadtrillions at least (on and off balance sheet). Global wealth = circa 215 trillion only.

Think about it and then read this article:

Plan B – How to loot nations and their banks legally

 

But if I am not wrong, then the banks have created a financial Armageddon looting machine. Their Plan B is a mechanism to loot not just the more vulnerable banks in weaker nations, but those nations themselves. And the looting will not take months not even days. It could happen in hours if not minutes. Our leaders would have only a few hours to decide who they would side with: the banks or us. The past four years give me no faith they would chose us.

Try to understand this piece, especially in light of recent events regarding the MF Global rip off,  but even if you don't understand it fully, it helps one understand were we are headed - up shit creek.

Here's how it works

Well some of it anyway, unless you're steeped from birth into the arcane logic of the financial world it is seriously hard to get your head around it.

"it meant they had no reason at all to try to stop a bank from going under. Quite the opposite."

Credit Default Swaps. Roughly, A lends B money and takes out default insurance then by some process unknown to me the insurance polcy becomes a commodity to be traded. Now if you happen to be holding that insurance via the CDS process and B defaults, you get the payout not A.

Makes sense? not to me either.

Take Greece the stupid bastards; some of their debt is held by private investors and the plan that is not yet in place is to ask them to take a 50% haircut to save Greece and thereby some of their money rather than lose the lot. Enter the hedge funds. The price on Greek debt is currently 32 cents in the Euro and for an extra 8 cents you get the CDS, nett 40c. Here's the delicious bit, if Greece does default, payout is 100 E. In the part of the world I grew up, a nice little earner so you'd be bloody daft to be so altruistic to voluntarily accept Greece's offer and guess who suffers.

 

Financial Fascism

Here's the delicious bit, if Greece does default, payout is 100 E.

Only if the counter-party is solvent Scott. Think AIG; the taxpayer became the counter-party, and that was unsavoury.

Credit default swaps are an off balance sheet transaction, they are not regulated (like our insurance industry), nor do they (necessarily) have a cent underwriting them.  How easy it is to sell insurance without security.

At present notional OTC (over the counter, off balance sheet) derivatives is reckoned well over 700 trillion dollars, according to the BIS. JP Morgan's exposure  alone totals well over 60 trillion dollars (larger than global GDP). Think about it in relation to my previous link - and this one as well.

It looks like the banking lobby have well and truly rigged the law, with the nod of morons like BO and his corrupt crew, that allow the greedy bastards to immediately claim any collateral  underpinning a maze of hypothecation and rehypothecation deals. As did JP Morgan in relation to the MF Global thing - in short JPM walked with the assets while the (innocent) punters were kept at bay (unable to trade or close positions) by the JPM appointed the administrators. Investors, farmers and producers have been wiped out of their hard earned cash and commodities. 

Expect more of this, because the black fella in the white house is a stooge.

 

What a mess

 "the taxpayer became the counter-party" and that me old wombat is precisely the point I was making. Let insurance companies go under and what's left? No default insurance hence no lending and hell freezes over. It's going to take a lot more than occupying Wall St to get this sorted. The kid's got to speak out, "the emperor's got no clothes," and that's only going to happen when the shit really hits the fan; Joe Blow can't re-finance and gets wiped out; un-employment hits 25% and natural balance is restored. Real estate values come back to their traditional proportion of household income and securities reflect real worth. A lot of pain, a long time coming.

And what is your point?

To the topic: what conclusions do you draw from your observations and take?

I find myself in agreement with everything you have written but it strikes me that you haven't followed it through and it's not rocket science.

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

That it is what it comes down to as it did in the twenties and in the contemporary situation, you can put it down to "globalisation" and with it the export (for nothing in return,) of jobs. How many times do we go over this shit?

"And the gods ot the copybook headings limp up to explain it once more."

We're OK for another year or so but I won't put a time frame on it. Europe and America will no longer be able to afford Asian produced goods. China, as hollow a shell as western countries will implode with it's economy almost totally geared to exporting to countries massively in debt. Australia will follow, inexorably when the source of our (apparent) wealth, commodities, will no longer be in demand.

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