Thursday, 31 May 2012

NZ Music Month: ‘Closing Time’

For those who’ve been looking forward to it … it’s closing time.

Music by Brazier, photography by various esp. Murray Cammick, video by Clouso

More from Graham Brazier and friends:

Last one in my one-post-a-day music post for NZ Music Month, closing with the 1979 Hello Sailor playing ‘Blue Lady’ with The Doors’ Ray Manzarek. Just because I can.

Mind you, I’m not promising I’ve finished…

Class size

In the latest debate on government management of classrooms, I’m struck once by the number of teachers making the argument that they—the teachers--know better than the government how to manage a classroom; that teachers know about the efficacy of class size better than the Ministers of Finance and Education.

So why do those same teachers so strongly resist any suggestion government should be removed altogether from the job of classroom management by a firm separation of school and state?

If you don’t like the way governments manage schools, get governments out of schools.

Stimulunacy cost $4.1 million per job


All that stimulus money pouring out of the Federal Reserve, all that extra spending by the US Government over and above what they take in revenues, all that phony rhetoric from Paul Krugman and his dozy Krugman-lite acolytes about the necessity for “stimulus” … and you know what the result of it all has been?

According to the Congressional Budget Office (not exactly a hot-bed think tank of sound money and smaller govt) the American stimulus may have cost $4.1 million per job.*

Wow!  That’s $4.1 million per job with no sign of genuine recovery in sight.

To make that cost plain: realise first that any govt spending has to be paid for either through taxes, by borrowing or by inflation. In other words, it is paid for in real resources produced by private business.

So just imagine how many real jobs could have been created if the 1.9 million make-work jobs hadn’t been stimulated into existence at the cost of $4.1 million per job. And how much real recovery might have happened if nearly a trillion dollars worth of deficits had been put to real, productive use instead of pissed up against the wall in a gigantic political golden shower.


* * * * *

* Steve Kates: “Depending on how you do the calculation, the fall in unemployment may have been as low as 0.1 percentage point and the cost per job as high as $4.1 million. If, on the other hand, you take the best outcome, the fall in unemployment was 0.8 percentage points at a cost of $540,000 per job. And if you’d like to split the difference, it’s about $2.5 million for a fall in the unemployment rate of 0.4 percentage points.”

QUOTE OF THE DAY: Gillard edition

“We don’t cut spending, or shrink the real size of Government, in a lunchtime libertarian seminar.
We do it in long days of expenditure review
              - Australian Prime Minister Julia Gillard,
                 in her speech to a parliamentary dinner in Canberra yesterday.

Observes Sinclair Davidson, “nice to know we’re getting under her skin.”

The US Dollar – The “Strongest of the Weak”

_Kris_SayceGuest Post by KRIS SAYCE

The idea of risk is a very personal thing.

What we see as risky, you may not.

And what you see as risky, we may see as completely safe.

One trick to successful investing isn’t to just figure out what you see as risky, but to also figure out whether other investors see it as risky too.

If you can pull off that trick it can help you stay one step ahead of the crowd. More below…

The following headline from Bloomberg News caught your editor’s eye this morning, ‘Dollar Scarce As Top-Quality Assets Shrink 42%’.

‘Dollar Scarce’?

It doesn’t seem possible.

After all, you’ve no doubt seen this chart from the Federal Reserve Bank of St. Louis:

Federal Reserve Bank of St. LouisSource: Federal Reserve Bank of St Louis

It shows the explosion of US dollars on issue since 2008.

How can US dollars be scarce when the monetary base has increased from USD$800 billion in 2008 to USD$2.7 trillion today?

The answer is risk.

The Bloomberg News story explains more:

‘International investors and financial institutions that are required to own only the highest quality assets to meet investment guidelines or new regulations are finding fewer options beyond dollar-denominated assets. The US is one of only five major economies with credit-default swaps on their debt trading at less than 100 basis points, meaning they are viewed as almost risk free. A year ago, eight Group-of-10 nations fit that category…’

For the past four years, most of the talk has focused on the US. And most of that talk has centred on the US budget deficit, government debt and the devaluation of the greenback due to money-printing.

To some degree the US dollar has taken a back seat as markets and commentators focus on the euro…and its inevitable demise.

Just as it looks like the euro crisis is over, another spanner gets jammed in the works. The latest problem is with Spanish bank, Bankia S.A.

The Weakest of the Weak

This week, the European Central Bank (ECB) rejected the Spanish government’s proposal to prop up Bankia. We’re not surprised. It was nothing more than an indirect way of Spain tapping the ECB for a bailout.

The Spanish government had proposed issuing a bunch of debt to Bankia, which it could then use as collateral with the ECB. The ECB saw through this snide plan and so it looks like the Spanish government will have to bailout Bankia directly…undoubtedly causing the Spanish government to go further into debt, with Spanish bond yields going higher.

As the chart below shows, Spanish government bond yields are now near the highs of last November:

Spanish government bond yields
Source: Bloomberg

So, why are Spanish bond yields going up? Because big investors see Spain as too risky. Only last week savers withdrew 10% of deposits at Bankia on fears it would collapse.

As Slipstream Trader Murray Dawes told us this morning, ‘Why would you believe what the other banks say? You’d sell now and ask questions later.’

But with European nations holding a single currency, grouping together basket-cases like Spain with non-basket-cases like Germany, it’s not just a case of selling Spain and buying Germany.

However, many investors are doing that, which is why German 10-year bond yields are at a record low of 1.36% (During the market crash of 2008, the 10-year bond yield barely dipped below 3%).

But when push comes to shove, investors are going where they’ve gone during every previous crisis – the US dollar and US bonds.

The Strongest of the Weak

At the end of March, foreign holdings of US government bonds totalled USD$5.1 trillion. That’s a 14% increase from the same time last year. 10-year U.S. government bonds are trading at 1.7% – a higher yield than German bonds.

As risky as the US dollar seems, investors are still willing to buy it.

So, what’s the takeaway from this?

Simply this: as expected you’re seeing investors migrate from the weakest of the weak and towards the strongest of the weak.

You could say it was the next logical step towards the end of paper currencies. If you’re worried about your Spanish savings, you sell them and buy German savings. You hold those until you’re worried about the safety of your German savings.

After that, it’s into the lap of the world’s reserve currency, the US dollar.

How can you tell when that’s started to happen? We can’t say for sure. But a likely sign is in the following chart:

Spanish government bond yields
Source: Bloomberg

The orange line is the US government bond yield. The green line is the German bond yield. German bond yields have fallen as investors seek the safety of German assets over other European assets, to the extent that yields are lower in Germany than in the US.

The signal that investors are genuinely fearful over the future of the euro (rather than just Greece leaving the euro) will be when the green line starts ticking up and perhaps even rises above US bonds.

That should tell you that one more paper currency is about to fail as money flows into the strongest of the weak – the US dollar.

This is a key chart to watch over the coming months.

Reposted by permission from  Money Morning Australia

Wednesday, 30 May 2012

NZ Music Month: Hammond Gamble - Leaving The Country (live in 1984)

Happily, NZ’s premier bluesman Hammond Gamble is still playing.

Sadly however, his first big song is still topical.

More Hammond here.

Degas to Dali to elsewhere

imageYou now have only two-and-a-half weeks to see Auckland Art Gallery’s“Degas to Dali exhibition before it heads off elsewhere—and you must! As an exhibition of mostly minor works by major artists it is interesting, but as a survey of art from nineteenth century to late-twentieth it is virtually complete, and highly revealing.

The resuls of putting together in three rooms two centuries worth of artists who transformed the field is obvious even to the unlearned eye—and even to eyes who have learned to ignore the obvious, such as those of Listener art critic Edward Hanfling who confesses to having the scales fall from his:

The tradition we call “art” has steadily declined since the late 19th century. Did I really just write that? And why have I been studying and writing about modern and contemporary art all these years? But the proof of my assertion can be found at Auckland Art Gallery in Degas to Dalí...

And he’s right, you know.

Head along to Auckland Art Gallery and find out for yourself. And (something I never thought I’d say) listen to Hanfling:

Take my advice and spend as much time in the 19th century as you can.

Tuesday, 29 May 2012

NZ Music Month: “My Poetry,” by Shane Hollands & Freaky Meat

“My poetry would like to kick your poetry’s assonance…”

Freaky Meat, filmed, not too well, at the Titirangi Toolroom.

(Another one-NZ-music-post-per-day for NZ Music Month.)

Death sentence for a song and dance

H.L Mencken famously observed that a puritan is someone afflicted with the haunting fear that someone, somewhere might be having fun.

I doubt however that even Mencken, an unvarnished cynic, would ever have contemplated the type of puritan produced by Islam, wherein the “crime” of having fun can earn you a death sentence:

Sentenced to death for singing and dancing at wedding – AFP
Four women and two men have been sentenced to death in northern Pakistan for singing and dancing at a wedding, police say.
Clerics issued a decree after a mobile phone video emerged of the six enjoying themselves…

Argentina is the next to fall

Little has been or is being reported about this in what passes for our local news media, but it looks like the next economic domino to fall is Argentina, which government borrowing and printing has helped transform from emerging giant to incipient basket case.

In reaction to money fleeing the economic destruction of her government, President Cristina Kirchner has imposed controls against the movement of money that would have morons like Bernard Hickey dribbling with delight, freezing bank accounts, setting dogs loose at borders to sniff out and arrest any travellers foolish enough to try to take their own money across the border, and prohibiting the sale of the peso for US dollars at any price other than the government’s officially declared rate of 4.48 to the dollar—three-quarters of the black market rate of 6.05 to the dollar, which is the rate  at which people actually value the ever-diminishing peso today.

As the black-market value continues to reach new heights (reality refusing to be faked), the leader of the local libertarian party headed to Buenos Ares’ biggest public square, megaphone in hand, to protest the controls, offering dollars to the public at 5 pesos. [The report from La Nacion has been translated from Spanish]:

imageGonzalo Blousson, presidente del Partido Liberal Libertario, told La Nacion that the protest is against "corralito verde" [“corralito was the term for the 2001 bank freeze.] "This is a new corralito. We are doing what none of the opposition is saying. This government is not letting people make use of the fruits of their labor," said the leader, who sold one dollar per person, 5 pesos each, well above the official rate, although far from the 5.92 that was the so-called "blue" or parallel.
"What is happening is illegal and immoral. For 20 years it was not legal to get divorced and in the nineteenth century slavery was legal. We must rebel against the immorality of the law," said President of the Liberal Party Libertarian, while he called out to bystanders "dollars at 5 pesos."
Blousson began selling about $300 at 1pm and, after the first half hour, had handed over more than 150.
Before starting the sale, he said, "If Cristina is concerned that we save in dollars, she should stop printing colored paper or sell theirs."
When asked by La Nacion about the illegality of his action, he replied: "Never mind if it is legal because if the laws are immoral, you have to rebel."
Moments before the commencement of protest, the
Argentine Treasury began a strong control operation of the selling of dollars on the parallel market, which has grown since the heavy restrictions on the official market. But when attracted by the action of the Liberal Party Libertarian and the presence of television cameras, the officers retreated.
A few people tried to take advantage of the dollar at 5 pesos, but Blousson did not allow the sale of more than one or two dollars per person, as a symbolic stance.
The reaction of passersby was immediate: many expressed support while others described it as a "payadsada" (bunch a clowns). Meanwhile, a citizen called to Blousson as "traitors" and accused him of wanting to "go back to 2001."

A conclusive experiment with a crucial lesson for Christchurch [updated]

Occasionally a situation will appear in the sphere of the social sciences that has all the features of a laboratory experiment. One such “experiment” with direct relevance to Christchurch has just appeared—two American cities torn apart a year ago by tornadoes, one rebuilt by the pursuit of “selfish” profit and the other by planning experts who know what’s best for everyone.

The “experiment” and its results are described by Jerry Kirkpatrick with the help of the Wall Street Journal:

[The first] of these two cities is Tuscaloosa, a “showpiece,” as the city’s recovery plan states, of  “state-of-the-art urban planning,” with “unique neighborhoods that are healthy, safe, accessible, connected, and sustainable,” anchored by “village centers”… The Tuscaloosa plan however (as the WSJ notes) “never mentions protecting property rights.” It’s the monument that counts, the “state-of-the-art” plan.

Sounding familiar? This is exactly what we’ve been hearing from the “experts” in Christchurch, isn’t it—the monuments, the “state-of-the-art” plans, the telling of property owners to go to hell.

[The city of] Joplin, on the other hand, took the free market route by suspending licensing and zoning regulations and allowing home and business owners to make their own decisions as to when and how they were going to rebuild. No monuments were built in Joplin.

This too should be familiar---it’s the Enterprise Zone some of us have been crying out for in Christchurch ever since the first quake.

RESULTS: So with the experiment set up, how did it proceed?

Joplin is thriving, largely revived and rebuilt. Tuscaloosa, on the other hand, still has un-demolished ruins, vacant lots, and businesses awaiting permit approvals to rebuild.

CONCLUSION: The conclusion is dramatic, and is confirmed by the blundering dunderheadedness in Christchurch (which hasn’t even progressed as far as Tuscaloosa—handing a city over to self-declared experts is the best way to kill it. Whereas taking a city off welfare and making it an enterprise zone  allows it to rebuild. And fast.

This is an old story, of course: West vs. East Germany, South vs. North Korea, the US vs. the USSSR. So why is the lesson never learned that capitalism works and socialism—central planning of any kind, including urban planning—does not?

 Kirkpatrick has the answer here too.

UPDATE:  Daniel J. Smith, economics professor at Troy University, studied the rebuilding of Joplin, Missouri in the months following the tornado. Watch as Professor Smith discusses how economic freedom can help areas recover from natural disasters.
"I think one of the key factors in the recovery process in Joplin, from the tornado, is that the government officials allowed the community to start rebuilding itself." -- Daniel J. Smith

[Thanks to reader R.C. for the link]

Monday, 28 May 2012

NZ Music Month: The Adults - Nothing To Lose

Jon Toogood, Shayne Carter, Ladi6 et al making music for adults.  Which is no comment whatsoever on their day jobs.

(Another one-NZ-music-post-per-day for NZ Music Month.)

DOWN TO THE DOCTOR'S: Freedom gets a shake on state radio!

_McGrath001This week, Dr Richard McGrath is listening to state radio!

I'm recommending readers find fifty minutes to listen to this MP3 podcast from National Socialist Radio, a.k.a. Red Radio, broadcast yesterday on Chris Laidlaw's programme. It features interviews with two self-styled 'libertarians,' Colin Cross, a former candidate from Libertarianz and Sam Buchanan, an anarchist from Paekakariki.

This is followed there is an explanation a discussion of libertarianism between Laidlaw and Victoria University politics lecturer Javier Marquez, including the role that Marquez thinks luminaries such as Milton Friedman, Murray Rothbard, Friederich von Hayek and Ayn Rand played in the evolution of libertarian politics.

The discussion is not always accurate, but it reveals the way the mainstream sees libertarianism in NZ today.

Naturally, my own sympathies here are with the position of Colin Cross. Colin is a longstanding member of the Libertarianz Party and former electorate and list candidate. His musings comprise the first seventeen minutes of the audio programme, in which he acquitted himself well.  Most of that time was spent dealing with the usual questions and the host of straw men that are thrown up whenever someone suggests paring back the State  so people can have more of a say in their own lives, and the lives of their families, whanau, friends and communities. Questions such as:

  • What about the roads? (If we had a dollar for every time that question comes up…)
  • What would happen if the state welfare system was dismantled?
  • What guarantee is there that people in a libertarian society would act in a rational self-interested manner?
  • Has there ever been a libertarian society?
  • Is property theft, as Proudhon claimed—and Sam Buchanan still believes?

Colin answers these questions in such a calm and engaging manner he readily convinced me.

But then, I was already convinced.

Next interviewee Sam Buchanan was introduced as a left-wing or "socialist" libertarian. Frankly, juxtaposing the words "socialist" and "libertarian" is akin to mixing water and oil. The term is oxymoronic, because coercion lies at the very root of socialism. To his credit, Sam is cynical about the motives of the State and its capacity to violate the freedom of its citizens. But he also believes that private individuals, industrialists and corporations can pose as much a threat as an overbearing uncontrolled State. In particular he believes that an economic imbalance between individuals, such as often exists in the context of an employer/employee relationship, impinges on the freedom of the less economically able—which blurs or ignores the critical distinction between economic freedom and political freedom, which is the difference between the dollar and the gun.

To overcome these perceived problems, Sam proposes a “syndicalist” form of industrial ownership, which means “workers” basically seize and own the factories, ports and “commanding heights” of the economy. (If you want an image of what this would look like across whole economy, think of a country in the grip of a General Strike. That pretty much gives the picture.)

Pushed to answer this critique, and the challenge that only the already rich can succeed in the present system, Colin provides the example of TradeMe’s Sam Morgan, who did not come from old wealth but created immense riches for himself and his backers through his ideas and his entrepreneurial endeavours. The important thing to realise is that he and other similar entrepreneurial heroes (Graham Hart, Bob Jones, Peter Leitch) were not constrained in their success by their initial financial modesty.

On the other hand, anyone these days who wants to advance themselves and others does face immense hurdles put in their way by the state, which essentially does tend to calcify things in the form of the status quo. (Just imagine the many hurdles, for example, for an engineering entrepreneur wanting to harness the power of nature for the betterment of human life and profit by building a hydro-electric dam on his own property—the biggest hurdle being the Resource Management Act, an act of brute political force that stops a landowner being able to exercise his property rights. )

Buchanan likens the criminal actions of gangs to authoritarian government, which in many examples is sadly true. The IRD, for example, who hound people to death and impose arbitrary penalties for failure to pay one's tribute to them by the designated due date, frequently behave like a criminal gang.

Colin was more definite as to the role of the state: it should not protect against competition, but must be chained up to do its proper job of protecting  individual rights. This is the only legitimate function of the state. Sam Buchanan on the other hand seems a little less certain about the function of government, and appeared at one point to endorse an anarchistic system of non-government such as exists in parts of Somalia. He also doesn't believe people should be able to rent out houses they own. He is clearly anti-capitalist, and that's where he loses me. He seems to be mired in the misguided beliefs in the power of robber barons, Ebenezer Scrooge and the evil inherent in the profit motive, forgetting the profit motive and selfishness inherent in anyone that gets up in the morning and goes to work.

The question to ask a "left-libertarian" is whether they would allow an enclave of free-market capitalism in their state. A free-market libertarian would certainly allow a socialist enclave within a state run under their principles, as long as no force was initiated and entry and exit from such an enclave were permitted. (As Colin pointed out early in his discussion, a feature of libertarianism is tolerance for the (peaceful) views of others.) A socialist system on the other hand could not tolerate a free-market enclave within its walls. Socialism, unfortunately, by its very nature involves an intolerance of private property and promotes its redistribution into "social" ownership. And that, I'm afraid, is not very libertarian at all.

All in all, this radio show was chock full of ideas, a lot of them good. It even dug below the surface into the philosophies from which the political expression of freedom--laissez-faire capitalism—arose. Although it blurred the distinction between libertarianism and Objectivism, and libertarianism and anarchy, although it promulgated the oxymoron of "right" and "left" wing libertarianism, it was still a genuine effort to articulate some of the principles of libertarianism, and for that I salute Chris Laidlaw and his team.

Give the show a listen.

Top marks though must go to Colin Cross, who I now formally appoint as the go-to man for libertarian radio interviews and Sunday morning TV political shows. Bravo, Colin!

See you next week! 
Doc McGrath

ECONOMICS FOR REAL PEOPLE: Money–hero or villain?


Here’s the update on tonight’s programme with our friends at the Auckland Uni Economics Group:

Hi All,

What is money?
What are all these bits of paper we carry in our pockets, or (if we’re lucky) we find digitally in our bank accounts?
Why is the pursuit of money so universal, and when did it start?
How is money created?
And is the pursuit of money really the root of all evil? Or of good?
To answer these questions and many more like them, we need to examine how money developed historically,  how it has evolved since—and why it emerged in the first place.

Understanding the nature of money is crucial for every serious student of economics, especially since money forms one half of every transaction, appears in every price, and is implicated in every crash. And because money it is so widely misunderstood.
This week we discuss money, sound and unsound—and ask: money, hero or villain?

        Time: 6:00pm
        Date: Tonight, May 28, 2012
        Location: Case Room 4, Level 0, University of Auckland Business School

Look forward to seeing you there.
Riko Stevens
UoA Economics Groups-
Check us out on the web on
Facebook & at our blog.

Sunday, 27 May 2012

Should drugs be legal?

First, Yaron Brook answers:

Next, Penny Mackay on Radio New Zealand asks “Is it time to reform cannabis laws?” [28 min. AUDIO]

NZ Music Month–Rodger Fox

Musicians aplenty have come through R0dger Fox’s jazz bands over the years, but there’s bugger all evidence about on YouTube. Still, here’s Rodger Kox’s Wellington Jazz Orchestra swinging Bill Cunliffe’s tune ‘All’s Well in Wellington’ on what looks like a Telethon.

(Another one-NZ-music-post-per-day for NZ Music Month.)

Saturday, 26 May 2012

NZ Music Month: Nathan Haines–‘The Poet’s Embrace


NZ reeds man Nathan Haines is already a jazz legend—especially now he’s increasingly playing more jazz and less dance music.  But until recently he still didn’t feel ready to record a “real jazz record,” an “acoustic” album—one recorded live to tape and without digital trickery, just the way the masters of jazz did in the old days.

The result was ‘The Poet’s Embrace,’ for which this clip is a taster.

(Another one-NZ-music-post-per-day for NZ Music Month.)

Friday, 25 May 2012

NZ Music Month - Kiri Te Kanawa: ‘Frühling’

From "The Maestro And The Diva", featuring a rehearsal performance under the great Georg Solti of ‘Frühling’ from Richard Strauss' gorgeous Four Last Songs.

Even at half-power and just in rehearsal she was amazing.

Here she is at full noise.

(Another one-NZ-music-post-per-day for NZ Music Month.)

From Urewera to Mt Eden, via complete farce

It took four-and-a-half years to finally dribble to a close, the final result of Operation 8 and the police’s first and only use of the error-ridden Terrorism Suppression Act  being a thirty-month jail sentence for the two organisers of Tame Iti’s rag-tag band of insurgents.

It was a poor return really for an operation so bungled it has exposed police, lawmakers and now the courts  as embarrassing incompetents prepared to stretch the law they swore to uphold, and it is the final act of farce in long litany of them in this case.

After all the smoke has cleared—after a police operation for which justification has never properly been shown—after the Terrorism Suppression Act on which the police investigation was based was revealed as so poorly written it could never be practically used to bring any case, let alone this one—after delays so long and incompetence so thorough that the number of defendants was reduced by degrees from 20 to 16 to 15 to 14 to just four (justice delayed being justice denied and made a mockery of)—when the case finally limped to its close Iti and his lieutenant Te Rangikaiwhiria Kemara were found guilty only of handling and using unlicensed firearms and molotov cocktails.  That was it. That was what it was all about.

Pathetic. Crikey, I’ve handled and used unlicensed firearms and a molotov cocktail, and I’d wager a few of you reading this have done too. I’d be awfully surprised if that on its own could justify being locked up for thirty months, and I bet you would be too. But it was supposedly for that that the sentence was supposedly handed down.

Of course, that’s not the real reason for the sentence at all. Because the real reason for the longer sentence was stated explicitly by Justice Rodney Hansen. “In effect a private militia was being established,” he said.  

So Iti and Kemara were not being sentenced primarily on the six firearm charges on which the jury found them guilty, but also on the terrorism charges on which the jury found the case unproven. That, right there is the reason Iti and Kemara were locked up in Mt Eden last night. Not because of their facial furniture or the colour of their skin, but because the judge believed what the jury didn’t.

In effect, this was a law court trying to make up for the failure of the lawmakers, because this had been a jury who found the case unproven not because the evidence wasn’t there, but because the poor drafting of the Terrorism Suppression Act couldn’t make legal the way the evidence was gathered. Thus, this was one branch of government trying to make up for the failure of another.

Which is not the way law is supposed to work.

Nonetheless, from start to finish the whole operation has shown that New Zealand law does not work. It doesn’t work  for defendants, who face years before having their day in court; it doesn’t work for the man in the street, who could face armed police  at any time based on who-knows-what evidence cooked up under a buggered piece of legislation; and it doesn’t even work for prosecutors, who are left with very little with which to attempt to prove their case.

And in the final wash-up we finish up never knowing what really went on in those hills, whether twenty or seventeen or four should really have been charged, whether the police were justified in using the force they did in their early-morning raids, nothing—nothing at all beyond the knowledge that “pacifist” peace protestors by day can actually be gun-toting militia joiners harbouring fantasies of armed revolution.

But justice has neither been done, nor has it been seen to be done. And John Minto et al have been handed a cause on a plate with which to further sharpen their axe of grievances.

The law is an ass. Which is where it and those responsible for it deserve to be kicked.

PS: Time to recycle this magazine cover…


All things to no men

A government that swept into power by swallowing dead rats in its first term to deliver something better in its second should now be on notice to deliver. Expect now in the middle of that second term when you’d expect to see their programme emerge, their vision made clear, their reason for seeking power crystallised into a programme of action, we have dropped on us with a resonant thud a Budget showing that of vision, ambition or even a coherent programme there is and will be none.

What we saw yesterday of this government’s “ambition” was a man with a plan to pick our pockets and a hope to “balance the budget”  sometime two or three years hence—a fantasy supported only by Treasury’s fantastic illusions  about economic growth and an event horizon (2104 to 2105) conveniently placed beyond the next election.

It cannot be taken seriously, because there’s no serious intent demonstrated in this budget to make the decisions necessary to achieve it.

This was a budget that didn’t deserve to be listened to delivered by an unambitious man desperate to please everyone and no-one. It is bold only in its mediocrity and fence-sitting.

It steals more from both rich and poor—and the young—while offering nothing as any reward for the theft.

It represents neither “austerity” nor “stimulus”—just a confession that borrow-and-spend and more muddling through is the only real plan Double Dipton can devise.

It encompasses promises to both sell assets and retain them—a hint of vision mixed with a bucketful of blancmange.

It is a budget drawn up by someone not sure what he’s doing, and no ability to do it. A budget best symbolised by the plan to take $250 million from half-selling the state’s assets and give it to one of its biggest liabilities, Kiwi Rail.

It was a Budget trying to be All Things to All Men, with the result that it will be nothing to anybody. Govt will continue to spend and borrow well beyond their means for the foreseeable future and beyond, and we will keep picking up the bill for their lack of vision.

Fuck them.

They deserve to be seriously punished.

Thursday, 24 May 2012

NZ Music Month - The Neighbours: ‘The Only One You Need’

I recall The Neighbours--with Sam Ford, Trudi Green and the legendary Rick Bryant—being a shit-hot live band around Wellington in the mid-eighties. They enlisted film-maker Gaylene Preston to “dramatise” their 1983 EP ‘The Only One You Need.’ You might wonder “why?”

(Another one-NZ-music-post-per-day for NZ Music Month.)

Budget Day …

This is brilliant. (So brilliant, you must go visit Motella to thank him for it.)

BUDGET DAY: The day when the media line-up "average" Kiwi battlers that whinge that the government isn't redistributing enough cash their way...

If an election is an advance auction of stolen goods, then Budget Day is when we hear to whom exactly the stolen goods are being given.

Feel free to post Budget thoughts and updates in the comments as this afternoon’s announcements unwind.

UPDATE:  Yes, as predicted it is an eat-the-rich budget.  A lolly scramble of new spending in health, education and welfare—which means new borrowing on top of existing borrowing—zero budget, my arse!—and a huge $78.5 million increase to the IRD audit goons to attempt to gouge this out of taxpayers.

Things are going to get very nasty indeed in the next few years.g.

Borrowing to make things worse

Paul Krugman writes column after column in the New York Times arguing the current worldwide depression is due to an overall general lack of "demand," as opposed to structural imbalances in the economy. Thus, he argues, the way to "cure" the problem is for the government to throw buckets of newly printed money at it and magically things will turn around.

It is thinking like this used to justify Bill English the Greek’s borrowing of one-hundred million dollars a week.

But it’s not only wrong, it’s destructively wrong.

The ‘Eat the Rich’ Budget

Bill English the Greek, the King of Double Dipton, has been heard boasting that his budget today will “target” high-income New Zealanders.

What a knob.

This envy-ridden “eat the rich” attitude is working its way around the world. In America they’re calling it ‘The Buffett Rule’ ever since Warren Buffett reckoned he’d be happy paying more tax.

Cypress Semiconductor’s T.J. Rodgers points out this attitude stinks for everybody, every way up you look at it.  It is bad, it’s wrong, and it’s immoral.

So no wonder Bill English the Greek is boasting about it.

Heads up: Daniel Hannan on in ten minutes … [update 2]

imageYou might like to know that Daniel Hannan will be talking to Leighton Smith on Newstalk ZB from 10am this morning.

Daniel Hannan, if you recall, is the Euro MP who famously called Gordon Brown “the devalued Prime Minister of a devalued government.”

Listen in here.

UPDATE 1: If you like what you heard, you can hear more from Daniel tonight at the Auckland Museum in a debate on the direction of the European Union: "Eurocalypse Now?".  (Me however? I’ll be up the road celebrating the appointment of an Austrian economist to a chair at Auckland University.  Maybe join me after at Galbraith’s to discuss how both events went off?)

UPDATE 2: Fascinating discussion. Listen to the podcast here. For the next seven days, you can now listen to the whole hour online archived at these links:

Wednesday, 23 May 2012

Bill’s Big Budget Blowout

Don’t believe any bullshit about Bill’s Big Budget tomorrow being a “zero budget.”


The not-so-comforting fact pointed out by Auckland-based business writer Yoke Har Lee

is the country is forecast to run its largest ever budget deficit tomorrow, estimated at around eight or nine per cent of gross domestic product of around NZ$16.7 billion (RM39.8 billion) for the year ending June 2012.

Largest. Ever. Budget. Deficit.  In fact, nothing a “zero  budget” at all.

But maybe, compared to other less responsible governments abroad,  it’s still “fiscally prudent? Um, no.

Going by the Organisation for Economic Cooperation and Development's (OECD) yardstick, New Zealand's budget deficit puts it at near the bottom of the class with countries such as Ireland (-12.2 per cent of GDP), United Kingdom (-13.3 per cent) and the United States (-10.7 per cent).

The reason the Auckland-based Lee has to point this out in Malaysia’s New Strait Times instead of our domestic media is because she points out uncomfortable facts and makes a very uncomfortable major point, that

to prevent this slippery slide from a First World country into Third World position is to plug spending in some sectors. The biggest bleeder of the government coffers is social welfare expenditure which has risen to NZ$22 billion as at last year from NZ$16 billion in 2000.
    There are about 320,954 people on benefits of whom 170,000 have made this a lifestyle choice for the last 10 years. Key's government is going to spend over NZ$500 million over the next few years to help break this cycle of multiple generations of a family being unemployed.
    Is this additional expenditure efficient use of funds for a financially stretched government? Key has had the last three years to institute drastic reforms for social welfare. Instead, he has left the hard decisions till now…

John Key is not the only politician in the world in recent decades to put off the hard decisions about social welfare—an avoidance of the bleeding obvious that is now going to sink virtually everyone.

But he is the only one to have told the Wall Street Journal when he first took office he intended use these last few years to “grow the nation out of recession by improving productivity.” “You Can't Spend Your Way Out of the Crisis,” he told the Journal’s Mary Kissell, and he wasn’t going to try.

What a crock.

In 1920 we enjoyed the highest GDP per capita in the world.  Now, we are  a whisker below Slovenia and on our way below below the Czech Republic and Greece.

Contemplate that tomorrow as you consider the big-spending stewardship of John and Bill and Michael and Helen and Jenny and Bill and Jim and Bill and …

NZ Music Month: ‘Stoned Guitar’ by the Human Instinct

In the dictionary under “wig out” it says “see ‘Stoned Guitar’ by the Human Instinct.

This is that song, from 1969. The un-stoned guitarist (yeah right) is Billy TK. He seems to have played before.

(Another one-NZ-music-post-per-day for NZ Music Month.)

It’s the 1 percent who pay your wages, people

The Herald reports:

A campaign has been launched for a "living wage” in New Zealand, inspired by policies in United States cities and London.

In New Zealand, Labour Department research shows that 103,800 workers under 25, and 161,000 aged 25 to 64, earned less than $15 an hour in the year to last June.

The problem is, the campaigners are starting at the wrong end.

They want the effect (higher wages) without the cause (higher productivity).  So instead of wanting to increase productivity and empower business owners so they can pay workers more, they want politicians to throttle business owners and emasculate productivity .

Or to put it another way, instead of making life easier for the “one percent” they want to make it harder. And what they do not realise is that it is the highly productive and provident one percent who provides the standard of living of a largely ignorant and ungrateful ninety-nine percent.

What they also do not realise, as they rant about worker need and employer greed, is the complete and utter irrelevance of worker need and employer greed in determining wages.

(They might also wish to contemplate the connection between this post here about the ability to pay higher wages, and the post below about emasculating our production of energy.)

I say “they” do not realise any of these things, but of course but they do—and by “they” I do not mean the largely ignorant and ungrateful thirty-nine percent* whose futures are being hocked off by those organising this campaign, I mean the campaign’s strategists themselvesI believe they do know what they are doing: they do know that raising labour costs without increasing productivity decreases employment.  They do know that wage levels are not set by either need or greed but by competition among employers to acquire the necessary talents with which to drive their productivity profitably forward—or in other words by the competition of the buyers for the limited supply of  labour offered for sale.:

The rational self-interest of employers, like the rational self-interest of any other buyers, does not lead them to pay the lowest wage (price) they can imagine, but the lowest wage that is simultaneously too high for other potential employers of the same labour who are not able or willing to pay as much and who would otherwise be enabled to employ that labour in their place…
    The payment of higher wages [when they are affordable] is to the self-interest of employers because it is the necessary means of gaining and keeping the labour they want to employ.

The key phrase here being  “when they are affordable.”

I believe the campaign’s strategists are not totally ignorant of these points. It’s not that they don’t know and don't care. They just don’t care about those they claim to represent—or at least they don’t care about those that are thrown out of work or excluded from working because their wages have been forced above what they are able to produce. And they don’t care because as far as they’re cynically concerned this is a “wedge issue” on which they have traction, so for them it’s just full-speed ahead and damn the consequences for those hundreds of thousands of young folk and marginal workers priced out of the market!

Damn them.

Because if they were serious about raising wages they would realise that to raise wages at the margins we have to do more than wish for it or legislate for it. They would realise we actually have to raise productivity right across the board. And if they did realise that they would not be seeking more ways by which to get government onto the backs and into the pockets of the productive, but the opposite.

I look forward to that happening no time soon.

* * * * *

* Add together young folk and marginal workers already priced out of the market because of the minimum wage to the even greater number who would be further priced out because of this so-called “living wage”—to which you can add those hundreds of thousands on other welfare because of the culture of malaise created—and imagine how many more could be employed if the productivity of this half-million sized cohort were producing rather than sponging, then you are talking about a sizeable number of New Zealanders whose lives would be squandered by this nonsense.

Rape can/can’t be funny

Raybon Kan’s rape jokes at the Comedy Festival offended a few people. It got them upset. It made them write posts like this one at The Hand Mirror:  “Dear comedians... we need to talk about rape.”

There are some basic rules of thumb about what is and isn’t funny, says the post, and rape isn’t on the funny side of those rules.

Trouble is, comedians disagree with her. George Carlin, for instance:

Lots of groups in this country want to tell you how to talk.
Tell you what you can't talk about. Well, sometimes they'll say, well you can talk about something but you can't joke about it.
Say you can't joke about something because it's not funny. Comedians run into that shit all the time.
Like rape. They'll say, "you can't joke about rape. Rape's not funny."
I say, "fuck you, I think it's hilarious. How do you like that?"
I can prove to you that rape is funny…

Definitely no power

When the productive have to ask permission from the unproductive
in order to produce
, then you may know your culture is doomed.
- Ayn Rand

You may have heard about the cancellation of a hydro electric project on the Mokihinui River in the Buller Gorge—what would have been an 85MW station, enough to power several thousand homes or several dozen places of production. (Remember production? It’s that thing that puts food on the table and pays all the bills.)

But like virtually every other large energy project planned in recent years—Project Aqua, Project Hayes, Project Every-Other-One-You-Can-Think-Of—it’s not going ahead. It’s not going ahead because folk who fly into the remote valley in helicopters to walk it objected to it being built, objected to it enough to make Meridian pull in its heels, drawing the now obvious conclusion from energy producers that this now represents

the death knell for large hydro schemes.”

What now then?

Well, if I may continue a well-worn theme of previous posts over several years (No Power; No power, again; Still No Power; 'More power!' says India. 'No power,' says NZ; Power outrage ) and remind you of several famous power outages (such as Auckland 1998, 2006, 2009 … ) this news and that conclusion above simply confirms what should have been obvious years ago: in this country the lifeblood of production, energy, is running out.

Not because New Zealand is short of resources with which to produce energy. But because politicians and earth-first worshippers have declared we are not allowed to use them.

We are essentially enfeebling ourselves.

Hydro is now over in this country. The Resource Management Act and the Conservation Act between them make the building of new hydro dams impossible.

And coal is never going to power another new power station. Nick Smith’s RMA and Emissions Trading Scam have between them put paid to that.

So with coal and hydro out, we’re left with windmills—which need hundreds of thousands of acres of space, a population disinterested in the landscape, and coal and hydro stations as backup when the wind doesn’t blow.

Sound realistic?

In other words, in the same position as Germany after putting its eggs in the oxymoronic basket of “renewable energy”—by definition politicised energy, with the emphasis on the “politics” rather than the energy—and Japan are after shutting down their nuclear power stations—but without any of the good reasons Japan had for cutting their generating capacity.

You can’t say I never warned you.

The Green Dream Team of Kyoto and RMA is winning.

Greens on the Budget: Garbage in. Garbage out. [updated]

Bill English’s buggering around with budget numbers is bad enough—expect from him tomorrow the sort of sleight of hand used by other governments in a similar debt hole—but I hadn’t realised the Greens were ready to join the big budget liars.  But with their commissioning of BERL to lie for them, they’ve made a bid for the big league.

The commissioned report purports to show that the government can somehow magically earn more for itself by not selling half of the assets they propose to—and will no double now be waved by economic illiterates to say (rather as they have with other reports): “Look, even the dismal scientists agree partial-privatisations are piss poor.”

Eric Crampton explains the simple process however by which BERL’s Ganesh Nana throws up exactly the result which the Greens ordered: the magic dust Nana sprays around is all the assumptions he starts with, not one of which holds water.

Garbage in. Propaganda out.

And another large cheque for a consultant happy to lie for a living.

UPDATE:  “Present discounted value, explained slowly.”

Tuesday, 22 May 2012

MZ Music Month: Music by Brilleaux

Music this afternoon by Tauranga’s own Maximum R’n’B outfit Brilleaux!

“Pictures of the Queen,” words and music by Brilleaux

“I Can Tell,” words and music by Ellis McDaniel (aka Bo Diddley)

“Riding on the L&N,” words by Dan Burley, music by Lionel Hampton

(Another one-NZ-music-post-per-day for NZ Music Month.)

Quote of the Day, ‘Economic Breakdown’ Edition

When there’s blood in the streets, a globe choked with debt and the world’s eggs are being broken in a Hellene handbasket it’s time to get to grips with some rational economics. Actually, it was time about sixty years ago when the Keynesian poison first began being mainlined…

There has never been a time since the rise of laissez-faire capitalism* when economic systems were entirely free of turmoil. Bubbles, panics, crashes and depressions have come and gone with the regularity of floods and hurricanes. This is not surprising, because the underlying dynamics of economics, rooted in human nature, are always at work. Yet the new scientific economics promised better. Economists promised that through fine tuning fiscal and monetary policy, rebalancing terms of trade and spreading risk through derivatives, market fluctuations would be smoothed and the arc of growth extended beyond what had been possible in the past. Economists also promised that by casting off the gold standard they could provide money as needed to sustain growth, and that derivatives would put risk in the hands of those best able to bear it. However, the Panic of 2008 revealed that the economic emperors wore no clothes… With few exceptions, the leading macroeconomists, policy makers and risk managers failed to foresee the collapse and were powerless to stop it except with the blunt object of unlimited free money.
James Rickards in his book Currency Wars: The Making of the Next Global Crisis

The twin tragedies are that the emperors of failed economic theory have learned nothing and revised nothing; the politicians they advised to make promises that could not be cashed are retreating into grander promises that will never be cashed; and all those leading macroeconomists, policy makers and risk managers who failed to foresee the collapse and were powerless to stop it are now in charge of the “rescue.” A “rescue” whose cure is proving worse than the disease.

* * * * *

* Which has been expiring by degree due to lack of interest since at least August 1914.

Monday, 21 May 2012

NZ Music Month: ‘Wintersturme’ sung by Simon O’Neill

New Zealander Simon O’Neill is now one of the world’s leading Wagnerian tenors. And I bet most of you didn’t even know that.

Here he is singing “Wintersturme,” from Act I of Richard Wagner’s Die Walkure (part of Wagner’s famous “Ring Cycle”), sung at the 2008 Ravello Festival in Italy. The woman he’s making love to is the amazing Waltraute Meier; conducting him is Daniel Barenboim; and playing for him is the West-Eastern Divan Orchestra—an orchestra made entirely of musicians from both Israel and Palestine.

Not a bad place to be be for a boy from Ashburton.

(Another one-NZ-music-post-per-day for NZ Music Month.)

PS: Here’s Part 1 of a short doco on Simon done when he was understudying Placido Domingo at The Met a few years ago in the role he’s now singing  around the world as lead.  Naturally, it’s called ‘The Understudy.’

Now: Debt unsustainability in Japan and Europe. Next … ?

Kyle Bass made headlines last year when he talked about making money out of financial crises—especially in Japan and Europe. (As if making money for your clients when there’s blood in the street is a bad thing.). Things haven’t quite hit the skids yet, but he’s positioned when they do.

Japan is the next in line to face a sovereign debt crisis, says Bass, and very soon the markets’ focus will turn on it. He expects monetary deflation that will lead to a correction in equity prices because such economic shock will spread to the world economy .. leading to a stock market correction of 40-50%…. 
He mentions that Japan is next after Europe … and it depends on Japan and Europe, how long time USA has until a debt crisis. In his opinion it is 3-5 years away.

Here are his thoughts (from late last year) on the reason for the crisis: the total unsustainability of government debt in Europe and Japan. Japan, he argues, “is the most complex spring-loaded situation in history.”

ECONOMICS FOR REAL PEOPLE: “The international financial system in the age of complexity”

Exciting news this week from our friends at the Auckland Uni Economics Group, with two events to put in yoru diary—including a public celebration for the very first Austrian economist to be appointed to a chair at Auckland Uni!

Hi everyone,
    This week we have two events. Tonight is our weekly meeting, as per usual. On Thursday night, however, we are attending Antony Endres's Speech: The international financial system in the age of complexity. The details for both events are below. 
    Please note: If you want to come to Professor Endres’s Inaugural Lecture, you must RSVP. This is very easy to do, just click on the link provided in the description below.

Event #1. Econ Group Weekly Meeting: “What’s in a Firm?”

    What really and truly is the nature of a business? An enterprise. A firm?
    And how does the Socialist Economic Calculation Debate help us answer the question?
    Last week we discussed the economic calculation debate—which shows how the price mechanism plays a central role in the success of any economic system, and the chaos that results without it.  It turns out that understanding the signal importance of the price mechanism also gives insight into further questions, including (who knew?) many questions within The Theory of the Firm such as:

  • Why do firms exist?
  • Why do firms not just grow and grow until one day there is just one large firm in the whole world?

    The ideas used to answers these questions shaped many of the economic reforms that we saw during the 1980s and 1990s, especially in New Zealand.
    In tonight's seminar we shall see that the Economic Calculation Problem is fundamental to a proper theory of the firm.
    This seminar will broaden your understanding of an important real-world economics problem.

            Where: Room 321, Level 3, Business School Building
            Date: Tonight, Monday, May 21
            Time: 6pm

Event #2: Professor Anthony Endres’s Inaugural Speech: “The international financial system in the age of complexity”
    The viability of the current financial system is being questioned. We only need to look at Europe today to see this. Is a new blueprint needed?
    This coming Thursday evening the University of Auckland presents a lecture to celebrate the appointment of Anthony Endres to a full professorship. Professor Endres specialises in the history of economic thought and is highly regarded worldwide. This will be a fascinating lecture—not just for students of economics but for anyone seeking to understand events in the world today.
    Don’t miss this opportunity to hear one of the very best academic economists from this part of the world.

Abstract of the lecture:

    International financial manias, panics and crises have raised doubts about the viability of the present international financial system. Is it in fact a "non-system" in urgent need of a new blueprint or at least more extensive regulation?
    Professor Anthony Endres will answer this question in his inaugural lecture by discussing the nature of crises, the problem of financial contagion, international creditworthiness, currency competition, big player effects and the "too big to fail" problem. In this discussion New Zealand will feature as a small player.

            When: Thursday, 24 May at 6pm
            Where: Business School: OGGB 5, Level 0.

To RSVP and for further details, go to:

Look forward to seeing you on tonight and on Thursday,
Riko Stevens
On Behalf of the UoA Economics Group

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The All-Important Question

Guest post by David Galland of Casey Research 

For pretty much everyone, no matter where they are located in the economic strata, few if any questions are more germane to making plans for the future than whether the US and other major global economies are in recovery.

Getting the answer to that question right is of special importance to investors and businesses.

Stating the obvious, if the broader economy really is in recovery, then investors would be well served by investing in the equities of solid companies positioned to take advantage. Similarly, those very same solid companies would be rewarded by increasing their productive capacity through investments in the plants and people necessary to meeting growing demand.

On the same side of the ledger, bond investors would want to begin shorting up their durations or leaving the bubbly bond market altogether, in anticipation that the flood of funds into fixed income would reverse, sending rates higher (and bond prices lower).

Conversely, if the recovery is a head fake, then an entirely different course of action is called for. For instance, one would want to adopt a cautious attitude about common stocks. And because of the nature of the crisis – crushing levels of sovereign debt – one would want to take advantage of pullbacks in precious metals to buy more, along with other so-called "tangibles." That way they would have some measure of protection against the inflation that fiat-currency powers make all but a certainty.

In addition, reducing personal and business spending in order to conserve rainy-day cash would be advised.

And what about US bonds in the no-recovery scenario? A sound case can be made for including them in a portfolio as that puts you in lockstep with the government's desperate need to keep interest rates down – or, better yet, have them fall further still. Given the highly politicized nature of our economy, that seems reasonable – and anyone who has been long bonds over the last few years has done very well, indeed.

While you'll have to make your own call on bonds, my own enthusiasm is curbed by looking at the charts of the upwards-spiking interest rates on the bonds of Spain, Greece, Italy, and so forth. When Mr. Market ultimately becomes disenchanted with the fiscal excesses of the sovereign deadbeats, he can express his ire most energetically. When the current bond bubble here in the US ultimately bursts, as it must, it's going to be a bloodbath.

Of course, there is much, much more at stake to coming to the correct answer on the recovery, or lack thereof, than that.

For instance, poor economies make for poor re-election odds for political incumbents. And when it comes to maintaining a civil society, the lack of jobs inherent in poor economies often leads to a breakdown in civility. On that note, overall unemployment in Spain is now running at depression levels of almost 25%, and youth unemployment at close to 50%. How long do you think it will be before the citizens of this prominent member of the PIIGS will refuse being led to the slaughter and start taking out their anger on the swine (governmental and private) seen as bearing some responsibility for the malaise?

Meanwhile, back in the United States, the commander-in-chief is striding around the deck of the ship of state trying to look like the right man for the job in the upcoming election, despite the gaping hole of unemployment just under the economic water line. His future prospects are very much entangled with this question of recovery.

So, what's it going to be? Recovery… no recovery… or worse, maybe even a crash?

We all have a lot riding on getting the answer right.

The Quest for Confidence

Ultimately, the purpose of searching for the truth about the recovery isn't about either fear or greed. It's about confidence.

If you really knew what's coming, then the right moves to make become obvious. You could then make those moves with the calmness of spirit that comes from certain knowledge and get on with your life. While others struggle or miss an opportunity by betting on the wrong future, you'd have set up your affairs to survive and prosper.

Of course, given that we are talking about a complex system – the economy – total certainty is never completely possible. But for reasons I'll share, the nature of the current crisis paradoxically allows for more certainty than would normally be the case.

And so I want to share my conclusion about how I believe things will unfold from here, followed with some support for that conclusion.

While, as readers of any duration are well aware, we at Casey Research foresaw the current crisis years in advance and have remained firm in our conviction that the recovery is a charade… based on my own readings, and after spending the last two weeks in the company of a couple dozen very plugged-in economists, top-performing money managers, and top financial analysts, my conclusion is thus:

The world's largest economies, including the US, Europe, Japan, and China are speeding for the equivalent of a brick wall. In short, I believe that before this crisis is over, we will experience the Greater Depression my dear friend and business partner Doug Casey has long anticipated.

In case that conclusion fails to communicate my current view sufficiently clearly, I will condense it as follows:

The world's largest economies are screwed.

And I will even set my conclusion to music, in the form of the song Somebody That I Used to Know by Gotye, which seems appropriate because the economy that we used to know won't be back again for many years to come.

Trust me, stating an opinion on the direction of the economy in such unequivocal terms troubles me. For starters, I wish my conclusion could be otherwise because no one likes to be a harbinger of doom. Mostly, however, I have long resisted adopting a set-in-cement position on something as wiggly as the future. In my experience, anyone who absolutely, totally buys into a particular future is almost always proven wrong by time.

Yet, as my quest for certainty unfolded, I could come to no other conclusion than that the world as we know it is headed for an economic catastrophe.

Allow me to explain.

The quest started with our Casey Research Recovery Reality Check Summit, April 27-29, in Weston, Florida. We took our mandate of getting to the bottom of this matter of recovery seriously, including faculty members with a variety of perspectives to see if an overarching conclusion about the recovery could be ascertained.

In addition to our own team of Doug Casey, Bud Conrad, Terry Coxon, Louis James, Marin Katusa and Jeff Clark, included in the faculty were: Lacy Hunt, former economist with the Dallas Fed and the world's most successful bond manager; Jim Rickards, money manager and author of Currency Crisis; John Mauldin, best-selling author of Endgame and the just-released The Little Book of Bull's Eye Investing; John Williams of ShadowStats fame; Porter Stansberry, founder of Stansberry Research; Michael Lewitt, editor of The Credit Strategist; Gordon Chang, China analyst; Harry Dent, author of The Great Crash Ahead (who also debated James Rickards on the question of inflation or deflation); Andy Miller on real estate; Greg Weldon of the Weldon Report; John Hathaway of the Tocqueville Funds; resource market guru Rick Rule of Sprott Asset Management; Caesar Bryan, a senior portfolio manager for the Gabelli Fund group; and David Stockman, the head of the Office of Management and Budget during the Reagan administration.

(Plus, on the taking-action front, there was a special panel on international diversification as well as panels where a dozen or so experts on everything from gold stocks to uranium, to rare earths, to graphite, to technology, to energy gave their best picks.)

In other words, a full program.

Then, immediately following the conclusion of our summit, Olivier Garret, Casey Research CEO and partner, and I climbed on a plane for California and John Mauldin's Strategic Investment Conference.

John's event was geared more for hedge fund and very-high-net-worth investors and, as such, included a more mainstream slate of speakers, but what a slate it was.

For the better part of three days, Olivier and I hunkered down to hear presentations and meet with the likes of: David Rosenberg, the star analyst of Gluskin Sheff; H. "Woody" Brock, an economist with some of the deepest credentials in the business (you can Google any of these guys for bio info); economic historian and best-selling author Niall Ferguson; Marc Faber of the Gloom, Doom and Boom Report; David McWilliams, the popular and very erudite Irish economist; David Harding of Winton Capital Management; Jeffrey Gundlach of DoubleLine Capital; Lacy Hunt again… and my favorite for this conference, Mohamed El-Erian of PIMCO fame.

In other words, for the better part of two weeks, I was immersed in presentations and one-on-one discussions with truly some of the smartest, best-studied people in the world today on economics and investment markets – with the primary topic being whether the so-called recovery is real, and the consequences if it falters.

While the speakers used a variety of methodologies to approach the topic, when all was said, the only conclusion that could be reached was that the world is headed for a very challenging period.

That conclusion was for the most part derived from three aspects of the many presentations:

  1. Hard data. Tallying up all the charts and tables I viewed and heard discussed over the last couple of weeks, if such a thing were possible, would produce a number well in excess of 1,000. While there were some that dealt in forward-looking projections, the vast majority dealt with the here and now, as well as the historical context of how we got here.
  2. What wasn't said. For business reasons, many of the big-name money managers couldn't come right out and say that we were heading for a crash, but they all took pains to communicate in not so subtle ways that this was a likely outcome. Tellingly, not a single speaker over the entire two-week period – at either event – came out and said that we could expect a normal business-cycle recovery to continue.
  3. The complete lack of practical discussion about how the world can avoid hitting the wall. While the pessimism was palpable, even among the usually perma-bull Wall Street types, at no point did anyone espouse a politically feasible solution to avoid the coming crash. The few who even attempted to point to a solution, at best, mumbled platitudes about the politicians finding the spine to adopt fiscal-austerity measures. One of the speakers – something of a gas bag, it must be admitted – pronounced in all seriousness that the only solution to the economic malaise was for everyone in America to rush out and read his book.
    As an aside, over the course of lunch with that same gas bag, we had a discussion that went something like this:

[Me] "All of the speakers, you included, point to the current trend of higher debts and deficits and say they are untenable, and so the big economies will hit a wall in the not-too-distant future. Yet hardly anyone actually then defines what hitting the wall will look like."

[Him] "Yes, well, things will likely get a bit messy if the politicians can't pull together to address the structural problems in the economy."

"But wouldn't you agree that, given the nature of our democracy, the odds of the politicians taking action before we hit the wall are almost nil?"

"Not at all. If everyone in this country would read my new book, they would understand the situation and rise up to force their elected representatives to take the right action."

"Seriously? The only way to avoid the next leg down is if everyone in the US reads your book? That's it?"

At which point – I kid you not – he picked up his plate and changed tables. (There's a reason I am only rarely allowed out in public.)

But the fact remains that other than perhaps Doug Casey and a small handful of other presenters at our conference, almost no one even attempted to anticipate just what happens when the crisis swells up to its full height and then comes crashing down.

Or, specifically, what the consequences are likely to be when the world's largest economies all hit the wall at more or less the same time. For the record, I have compiled a list of the ten largest economies in the world, and a reasonable assessment of their current situation follows in descending order by size of GDP:

United States – screwed
China – really screwed
Japan – massively screwed
Germany – pretty screwed, especially in that export economies take a big hit in a crisis
France – le screwed!
Brazil – somewhat screwed
United Kingdom – blimey, screwed too
Italy – properly screwed
Russia – hardly screwed at all (lots of resources and next to no government debt)
Canada – pretty screwed, eh?

As concerning as it is to see how many of the world's largest economies are in trouble, the biggest problem of all is that the central bank reserves of virtually every country in the world are stuffed with US government IOUs masquerading as tangible assets.

So, what happens when the world's reserve currency enters collapse and the dollar turns into a hot potato? Don't know, but I'm pretty sure we'll find out in the not-so-distant future.

David Galland
Managing Director
Casey Research

Reposted by permission from Casey Research.
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