Wednesday, March 7, 2012

124 Michael Hudson on the "Jobless Recovery"

(1) David Cameron promises to tear down Labour's Big Brother government
(2) Michael Hudson on the "Jobless Recovery"
(3) UK 'becomes top financial centre'
(4) Ross Garnaut condemns Australian government's stimulus, defends laissez-faire
(5) Asian Central banks prop up the $

(1) David Cameron promises to tear down Labour's Big Brother government

David Cameron promises to 'tear down big government'

David Cameron used his keynote speech at the Conservative Conference to make a powerful personal appeal to the public to trust him to repair Britain by tearing down Labour's "big government".

By Andrew Porter, Political Editor at the Conservative Party Conference
Published: 8:30AM BST 09 Oct 2009

In a deeply personal speech, Mr Cameron returned repeatedly to what he described as 'my DNA: family, community, country' Photo: REUTERS

Declaring himself ready to be prime minister, the Conservative leader called on voters to place their faith in his judgment to put the country "back on her feet".

In a wide-ranging critique of Labour's 12 years in power, Mr Cameron repeatedly pledged to cut government bureaucracy and return "power to the people". The economy, society and political life had been left "broken" by more than a decade of Labour rule, he said, as he promised to tackle Britain's "culture of irresponsibility". Most strikingly, Mr Cameron, the son of a stockbroker, attempted to position the Conservatives as the defenders of the country's poor and disadvantaged.

In an angry attack on Labour's record on poverty that won him a standing ovation, he said of Gordon Brown's administration: "Don't you dare lecture us about poverty. You have failed and it falls to us, the modern Conservative Party, to fight for the poorest who you have let down."

"Family, community and country", he said, lay at the heart of his beliefs.

In stark contrast to Mr Brown, who littered his conference speech last week with policy announcements, Mr Cameron made no new manifesto pledges during his hour-long address, his last to the party before the general election. Instead, he set out a broader vision, urging voters to rate the party leaders on their judgment ahead of their policies.

"It's your character, your temperament and your judgment that in the end count so much more than your policies and your manifesto," he said. "If we cut big government back. If we move society forward and if we rebuild responsibility, then we can put Britain back on her feet. None of this will be easy. We will be tested. I will be tested. I'm ready for that, and so, I believe, are the British people.

"I know that today there aren't many reasons to be cheerful. But there are reasons to believe. Yes, it will be a steep climb. But the view from the summit will be worth it."

The Tory leader said that big government had led to "the steady erosion of responsibility" and left Britain with a "dark side" of poverty, crime, addiction, failing schools, sink estates and broken homes. He would lead Britain "in a completely different direction".

He vowed to "tear down Labour's bureaucracy, ripping up its time-wasting, money-draining, responsibility-sapping nonsense".

"This is my DNA: family, community, country. These are the things I care about. They are what made me," he said. "We will reward those who take responsibility, and care for those who can't."

Reserving his fiercest criticism for Labour's record on poverty, he said: "Labour still have the arrogance to think that they are the ones who will fight poverty and deprivation. When we announced our plan to Get Britain Working you know what Labour called it? 'Callous'.

"Excuse me? Who made the poorest poorer? Who left youth unemployment higher? Who made inequality greater? No, not the wicked Tories, you, Labour: you're the ones that did this to our society." His speech attempted to bring some optimism to the conference after the bleak economic picture painted on Tuesday by George Osborne, the shadow chancellor.

"What I want to talk about is how good things will be," said Mr Cameron.

But he warned his supporters and voters that the immediate future would be grim. "I have no illusions," he said. "If we win this election, it is going to be tough. There will have to be cutbacks in public spending, and that will be painful.

"We will need to confront Britain's culture of irresponsibility and that will be hard to take for many people."

In a highly personal passage of the speech, Mr Cameron spoke movingly about the death of his disabled son, Ivan, in February and the doubts he had experienced afterwards. He said: "When such a big part of your life suddenly ends, nothing else – nothing outside – matters. It's like the world has stopped turning and the clocks have stopped ticking.

"And as they slowly start again, weeks later, you ask yourself all over again: do I really want to do this?"

Mr Cameron then paid tribute to his wife, Samantha, who sat in the front row of the packed Manchester Central arena.

"I know what sustains me the most. She is sitting right there and I'm incredibly proud to call her my wife," he said.

Mr Cameron paid tribute to the Armed Forces and promised to equip them properly; he pledged to defend and reform the NHS and also to sweep away the "surveillance state", including ID cards; and he talked of his determination to make sure education funding goes directly to head teachers rather than quangos.

Turning to The Daily Telegraph's disclosures on MPs' expenses, he said: "We are just starting the job of building the new politics we need. Because the anger over expenses reflected something deeper."

(2) Michael Hudson on the "Jobless Recovery"

What recovery?

30 Sep 2009

On the eve of an Australian speaking tour, highly-regarded US economist Dr Michael Hudson, of the University of Missouri, Kansas City, talks to Isabelle Oderberg about the economic recovery that isn't, and tells her:

 The world is in the midst of a serious depression that's continuing to spread

 A rise in Australian interest rates would result in a financial raid that would dramatically increase the tax burden on Australian taxpayers

 Bursting real estate bubbles and rampant debt deflation are driving economies around the world to the brink

 The Obama administration's determination to rescue the financial sector amounts to the "assisted suicide" of the US economy

Isabelle Oderberg: Quite a few of the economists that I've been speaking to seem to believe that the recovery is going to have sort of a W shape and that we're only at the bottom of the first V and that there's going to be more pain to come. What's your view on that? Would you agree?

Michael Hudson: Yes, I would. I don't see how there can be a serious long term recovery when the volume of debt is as high as it is. In the United States and other countries, although the residential real estate crash has happened, the commercial real estate crash has not yet happened. Here in New York, the largest residential real estate operation in the country is facing bankruptcy – Stuyvesant Town and Peter Cooper Village residential complex. The largest US commercial real estate firms are going under. And walking down Oxford Street in London the other day the big streets have vacancy signs, vacant stores that used to be bustling and this is going to lead to commercial property defaults in many countries – Iceland and Latvia I've been in – people are having to pay so much more money as their mortgages escalate that they don't have enough money to buy goods and services. If you pay the creditor the money you owe on debt, you don't have this available for spending on the market, so markets are going to shrink here and as markets shrink, stores pull out of malls and, certainly in the United States, when one big store pulls out of a mall all the other stores have the right to stop their leases and pull out.

So, what we see is a really serious depression continuing to spread and the only reason the stock market has gone up is because the government has given $US13 trillion of giveaway money to the large banks. Now, if you give $US13 trillion to the banks, obviously the net worth of the bank stocks is going to go up by $US13 trillion and there's going to be a recovery. But this isn't the economy, this is the stock market.

IO: But then if you're talking about a stock market recovery that's been inflated by a stimulus, some might say artificially because the core value of the rest of the market hasn't risen, then it's not really a recovery, is it?

MH: That's right. That's right and I was at a monetary conference in Chicago over the weekend and economists were talking about a jobless recovery. Well, that's sounds like an oxymoron; if it's a jobless recovery, how can you call it a recovery? If markets are shrinking and bankruptcy rates are rising and people are further and further behind on their mortgage, that's not a recovery.

IO: We've got two issues here, when you talk about debt. We've got, obviously, the rising levels of debt and the need to service those debts among the general populace; then we've also got the issue of debt deflation, where we've got the assets that have been funded by debt going down and the values decreasing. Can you tell me how those two relate to each other and what they mean in the context of either a recovery or another decline?

MH: Between about 2002 and 2006 people were able to, homeowners on a mortgage were able to pay their mortgage interest by taking out a new loan against the asset price inflation of their house. So, if their house went up in price they could borrow the money to pay the interest to the bank. But now that the housing prices are not going up anymore, you have negative equity and with negative equity you're not able to borrow against the bank. And that means that you can't borrow against the house to pay your credit card, you actually have to pay the credit card out of money that you earned. And that means you have to pay it by not spending on things you were spending before. So that's debt deflation.

There are economies like the Baltic economies and almost all of the post Soviet economies that have been in chronic trade deficit since they got their independence in 1991. The trade deficit was financed by foreign currency borrowing to fund their real estate bubble, but now the real estate bubble has burst, so there's no foreign exchange money coming in to finance their real estate bubble anymore and so this won't finance their trade deficit, so the currencies are collapsing. The IMF came in and told Latvia "close down half of your hospitals, fire half of your doctors, close down your schools, lay off your school teachers, tell your people to emigrate." Now, when that happens that's debt deflation.

IO: You're painting a grim picture.

MH: Well, that's what I'm hearing all over the world.

IO: So, we've got a situation where consumers all over the world are in debt up to their eyeballs; where do we go from here? How do you fix it? A nice, easy question for you!

MH: There's a basic mathematical principle; a debt that can't be paid won't be paid. These debts are beyond people's ability to pay and so we're going to see breaks in the chain of payment and this means that a lot of debts are going to go bad. It means that people are going to hesitate to realise that they can't pay, a kind of cognitive diffidence that people have about the fact that they really can't pay their debts. They're willing to run down their savings, they're willing to sell off their assets and do everything, but in the end they default and this is what breaks the back of an economy. The houses are defaulted on, they're put up for sale, that crashes real estate prices all the more and, again, the commercial real estate is even in more serious condition than residential real estate right now.

So, it looks as if all of the debt that's been run up is now going to work on the opposite end of debt deflation and just squeeze the economy below subsistence standards for many people, and unless they have assets to sell off, they're going to be homeless.

IO: I just want to touch on the financial sector especially in the US. You've described it as parasitic and said that, since the American economy is dead, the finance sector in America is trying to suck as much blood out while the corpse is still warm.

MH: I don't remember saying that at all... I think that may have been somebody's attempt to paraphrase.

IO: I guess I was interested in the description of parasitic and whether that has changed at all over the last few months and how you see it evolving in future.

MH: Well, parasite-ism is a word that's usually misused and very few people who use the word parasite study it in biology. Most people think of a parasite simply as extracting nourishment from the host, like the financial sector adding $US13 trillion worth of government bonds, making taxpayers pay to bail out the sector, squeezing debt service out of the economy and all of that. But in nature, the distinguishing feature of a parasite is it takes over the host's brain. It makes the host imagine that the parasite is part of the body and even the baby to be nurtured. So Obama, in this country, and the Liberals abroad have a choice – they can either save the economy or they can save the finance sector.

Obama has said to the economy here; drop dead. There's not enough unemployment. It has to go up. Wage levels have to go down, way down. Living standards have to go down, way down, if we're to give money to the financial sector – my major campaign contributors – at the rate that compound interest grows mathematically. So the real economy here is being sacrificed to the financial sector and that's done by the lobbyists taking over the brain, the public media, to believe that, somehow, making Wall Street and the financial sector rich is making the people rich.

In Australia, people thought they were getting rich when housing prices were going up since about 1990, but the reality is that a house is worth what a bank will lend and all of this rise in housing prices for Australia has forced people to go further and further into debt to obtain housing, so now an Australian has to work many more years of their life to repay the mortgage than they did when housing prices were much lower. Meanwhile, now that taxes have been cut on real estate to push housing prices higher, this had to be shifted onto labour, so labour has less of a take-home pay than it had before and it believes that it's getting wealthy. They call this wealth creation and in fact it's debt creation. That's what the parasite does when it takes over the mind of the economic media.

IO: There's been some suggestion in some of the commentary I've read coming out of the US lately that the US economy is sort of dying and there's no indication that it's going to become healthier…

MH: Dying is what happens naturally. This is not natural. It is being killed by the financial sector, or persuaded to commit suicide voluntarily. When the government of Latvia says we are going to close down half the hospitals, fire half the doctors and shorten lifespans, increase the heart attack rate, increase the rate of stroke, this is not simply dying, this is assisted suicide.

IO: But if that is the case, and the American economy continues to ail as it will under this scenario, unless something changes there's been some suggestion that the finance sector will jump to another host in the parasitic model. Do you believe that's true and if so where would it go?

MH: We're looking at a worldwide phenomenon here. America, actually, is in a better position than many other countries because its diplomats around the world are aggressive enough to make the other countries bear the pain. America will tell England or Europe or Japan to commit economic suicide and they will gladly do it. Other countries are willing to die quickly in order to make Americans a little bit richer. That's their philosophy.

IO: In Australia there have been indications over the last couple of days that our Reserve Bank is considering upping interest rates. Now, I know that we've been somewhat buffered by our much healthier banking sector in Australia, but do you think it would be a mistake to start increasing interest rates now when the international community is predicting more pain overseas and we are so susceptible to overseas ailments?

MH: The effect of raising interest rates is going to be to attract capital from abroad. If Australia raises its interest rates, then speculators in the US, where you can borrow for almost zero, there'll be a carry trade converting out of the dollars into the Australian dollar to buy higher yielding bonds. And what this will do will be to not only strengthen the currency, but to increase Australia's reserves and at a certain point corporate raiders can come in and they'll say, here is a country with a lot of reserves. Well, that's like a country with a big oil well. We can come in, empty them out and raid them and make the Australian people pay and we'll get rich. So, Australia is setting itself up for a financial raid that's going to increase its taxes much more, so Australia has just… is planning to sharply increase the tax burden on most Australian taxpayers.

IO: So, bad then?

MH: Very bad. Very bad. Why would Australia need to attract foreign capital when it already has the natural resources to make it one of the prime economies in the world?

IO: Companies here have been complaining about a lack of capital. There has been a lack of capital in the Australian market just like there has everywhere in the world, I guess.

MH: But if you lower the interest rate, then a company can afford to borrow much more capital on the basis of a given flow of earnings. The lower the interest rate, the larger the flow of revenue can be capitalised into a bank loan.

IO: In terms of the US economy where can it go to from here? Where do you think it will go and do you think that the Obama Administration has the qualifications to deal with it?

MH: The Obama Administration has the qualifications to drive the economy downwards and tax labour and impoverish the economy much more than the Bush Administration had. If you're going to bleed an economy to take money out and pay yourself, the Obama Administration certainly has the power to give yet more bailouts and to become the most exploitative, unequal administration in the last 50 years in its viciousness towards labour and its desire to extract income for its main campaign contributors which are Wall Street and that's what I see for the future. I think the Obama Administration will succeed in increasing the amount of government debt that it pays to the financial sector. I think that it will be very successful in destroying what industrial base is left. It will succeed in reducing living standards here. That's its job. That's what its backers financed it for in the election. That's what the economic advisors believe will cure the problem. To Obama and his economic advisors, they believe there's not enough poverty here and they're going to cure the problem by increasing the degree of poverty and reducing the standard of living to promote the financial sector in the belief that the economy is the financial sector, not the real economy.

IO: Thank you so much for your time today. I really appreciate it.

Financial economist and historian Professor Michael Hudson of the University of Missouri, Kansas City will be touring Australia October 12 – 27

(3) UK 'becomes top financial centre'

Page last updated at 07:09 GMT, Friday, 9 October 2009 08:09 UK

The UK has overtaken the United States to be ranked as the World's leading financial centre, despite doubts about its economic stability.

The rankings, compiled by the World Economic Forum (WEF), put the UK top of the list of the 55 most financially- developed countries.

The US slipped from first to third place, behind the UK and Australia.

But in stability rankings, the UK and US were 37th and 38th, below Mexico and Panama and only just above Venezuela.

Norway, Switzerland, Hong Kong and Chile led the financial stability rankings, while Argentina, Kazakhstan and Ukraine were at the foot of the table.


The ranking system takes into account 120 variables, including the size and depth of capital markets.

While developed nations still lead the overall rankings, they have performed much worse than emerging countries, according to WEF chief operating officer Kevin Steinberg.

"This year they dropped so much that they don't have a lap of advantage in relation to emerging countries anymore," he said.

Growing financial instability was the main issue for developed countries in the past year, the report said, along with a lack of access to capital markets and banking services.

"Countries with more regulation in financial systems are more stable, but access to credit is much weaker," said RGE Global Monitor's Nouriel Roubini, a co-author of the study. "There is a trade-off."

The UK overtaking the US comes amid reports that several hedge funds are moving from London to New York because of less tough regulation.

(4) Ross Garnaut condemns Australian government's stimulus, defends laissez-faire
{Ross Garnaut, a member of the Trilateral Commission, was the chief economic adviser to Bob Hawke, whose Labor Government privatized and deregulated the Australian economy}}

Garnaut warns Rudd on stimulus: report

9 Oct 2009

Economic advisor Ross Garnaut has slammed the federal government's stimulus, saying the attacks on neo-liberalism risk an expansion of government that could damage the economy and erode Australia's democratic values, The Australian newspaper reported.

Mr Garnaut said that by fuelling excess spending, Kevin Rudd's budget stimulus will have to be followed by lower living standards, the paper said.

Mr Garnaut makes the comments in his new book The Great Crash of 2008, the paper said.

In the book, Mr Garnaut warns that the ideological legacy from the crisis and its rebalancing of markets and regulation could be damaging, the paper said.

(5) Asian Central banks prop up the $

From: Date: 10.10.2009 01:42 PM

Asian banks move to stem U.S. dollar decline

Central banks from several Asian nations were seen intervening Thursday in currency markets to prop up the U.S. dollar on concern that their local currencies were climbing too fast. Among those that confirmed intervention was Thailand's central bank. Its assistant central bank governor said the baht, Asia's fourth best-performing currency, was climbing at an unsustainably fast pace and it took action to slow its rise.
Financial Post

Paul Vieira, Financial Post with files from Reuters Published: Thursday, October 08, 2009


Among those that confirmed intervention was Thailand's central bank.

OTTAWA -- Central banks from several Asian nations were seen intervening Thursday in currency markets to prop up the U.S. dollar on concern that their local currencies were climbing too fast.

Among those that confirmed intervention was Thailand's central bank. Its assistant central bank governor said the baht, Asia's fourth best-performing currency, was climbing at an unsustainably fast pace and it took action to slow its rise.

"Somedays its strength is beyond economic fundamentals," Suchada Kirakul told reporters in Bangkok. "The baht is strong and we are still taking care of it."

The intervention comes as the U.S. dollar fell to a 14-month low against a basket of currencies, as rising equities markets fueled demand for riskier assets at the expense of the safe-haven U.S. currency.

The Canadian dollar was among those on fire, trading at the US94.8¢ range at roughly 2 pm ET, up from US94.13¢ on Wednesday's close and its strongest level in more than a year. The Bank of Canada has continued to warn that persistent strength in the currency represented a risk to the economic outlook, and its senior deputy governor, Paul Jenkins, is scheduled to speak later Thursday afternoon in Vancouver.

Analysts noted reports that Asian central banks were intervening, as well as other players, including Moscow.

"It was reported that earlier this morning that Russia was one of at least six central banks buying dollars," Michael Woolfolk, senior currency strategist at BNY Mellon in New York, told Reuters.

The euro strengthened to a two-week high just below US$1.48 after Jean-Claude Trichet, European Central Bank president, made comments about the U.S. currency which were not as forceful as some investors had expected.

Mr. Trichet, speaking after the ECB held interest rates steady at a record low of 1%, largely repeated his comments of last month, saying U.S. support for a strong dollar policy "is extremely important."

"It was actually what he didn't say that caused the market to buy the euro," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

Before Mr. Trichet's briefing, there was chatter in the market that he may give more forceful comments on having a "strong" dollar. But Mr. Trichet "just gave the standard language so we saw some relief rally for the euro," Mr. Strauss added.

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