Australia has run out of Luck (Gerard Minak, December, 2014)
We can no more hope to end drug abuse by eliminating heroin than we could alter the suicide rate by outlawing high buildings or the sale of rope. (The Global Fix, 1987)
Global Finance. From Financial Big Bang to Global Black Hole.
Seldom is one lucky enough to hear a lucid description of global financial matters, Nicole Foss on ABC1. Big Ideas provided this information. Foss, formerly with the Oxford Institute of Energy Studies and now a Systems Analyst, provided an insight into the global financial system teetering on the edge of a Black Hole.
The term ‘limits to growth’ and sustainability are commonly heard, the phrase now applies to global finance. Since the end of the Second World War there has been a relentless rise in industrialisation, economic activity and growth of the money supply. Inflation has increased as the money supply increased . Signs of financial insatiability are visible in the bursting of the property bubble in Japan, China and the United States. As bubbles increase in size so too does inflation.
The financial system will be the first to fail as civilisation moves further into an unsustainable future. With the growth of the halcyon fifty years after the Second World War expanding markets witnessed the growth of the money supply which ultimately morphed into paperless money and ultimately into almost incomprehensible credit instruments. Money has become almost an intangible commodity. There are now signs of an approaching financial crisis with the fall in the money supply and the quantitative easing employed by the United States, Japan and now the European Union to stimulate their flagging economies. Central Banks have reduced interest rates to close to zero in order to stimulate productive investment. Globally the financial system is on the verge of a bust phase. Australians should take no comfort from the Reserve Bank decision to cut interest rates.
The 1980’s was the Big Bang when Great Britain and the United States deregulated the money markets, money freely moved round the world and the WTO and other trade/financial organisations precipitated an enormous growth in the money supply. Cash decreased as credit hyperinflation exploded and inflation increased. The stage has now been reached where 99% of the money supply is under collateralisation. This situation has promoted a deadly game of ‘musical chairs’ where only a few bankers, commercial organisations or traders holding debt are safe.
The world is on the verge of global deflation. Europe has entered that phase and the situation will become worse should Greece and Russia default on loans. In Greece creditors will buy assets and Greeks will become tenants in their own country. The situation will precipitate a flight of capital to safe havens like Switzerland and the United States, this will knee jerk other nations to impose capital controls and so world trade will slow down.
The above situation will precipitate a savage revaluation of the housing markets. Price will no longer be the driver it will be affordability. Owners with large mortgages will see their equity plummet.
With deflation gaining momentum (as in Europe), unemployment will rise, wages and benefits will fall and taxes will rise as governments face a Black Hole. Behind this situation is the world of virtual money, creditors will force debtors to terminate their lines of credit, this may become impossible since there is no money supply. It was Iceland and Ireland that imploded few years ago owing debt.
In this new era of globalisation the money supply dried up and trade became dependent on letters of credit. In an environment of of virtual money and economic expansion there had to be increasing trust. With inflation falling and quantitative easing increasing there is decreasing trust as debt increases. For many there is a Black Hole hardship ahead.
Carbon Crash – Solar Dawn
Following on from January a study on world energy, heard on ABC Big Ideas, shows the global energy industry to be in a parlous state.In the early days of coal and oil energy the industrial output was 1:100, in recent years the efficiency has fallen to 1:15 but in the near future the efficiency is slated to fall to 1:5 thus there is a desperate need for a low cost energy source. This declining efficiency may be in part due to the provision of ‘social’ energy to large population centres which use power for daily living where as in the early days of power it was used principally for industrial purposes. The early energy was used for productive enterprise and a productive workforce that contributed directly to GDP, now energy is supplied to vast and scattered population centres that do not have high positive economic impact.
In the January blog Gilding stated the “the future is upon us”, final comment by Foss mirrors this statement when she opined the world is a very different place to that of early industrial energy and cheap credit. New financial and energy systems are also upon us.
Australia from Commodity Boom to Liquidity Crunch.
The Australian Industry Group made cooing noises on the strength of the NSW economy for 2013 as mainly derived from construction in the housing industry. This is in part a ‘ false dawn’ as this industry tends to churn the domestic money supply rather than producing export income unless overseas investors are encouraged to purchase housing, unfortunately this will tend to inflate house prices and adversely affect Australian property buyers. This is a nice problem for Government.
With the end of the mining boom both Australia and Canada will suffer a liquidity squeeze. The Australian Government is already facing an income shortage hence the budget shenanigans. Australia’s weak position is due to
**a highly geared industry driven off shore by high input costs
**there is a high level of credit card debt, $34 bn or $4400 per cardholder (ASIC)
**there is a huge housing bubble, for Sydney, Hong Kong and Vancouver, a significant correction is probable
For over ten years Australia has been to reliant on the resources industry, the Australian dollar has been grossly overvalued which has largely destroyed the manufacturing industry and driven it off shore. Successive Australian governments have not prepared the population for this economic downturn except latterly to intone the budget must be brought back to surplus which can only be accomplished by squeezing health, social service and education.
In April 2014 the Australian Treasurer (RN Breakfast) indicated Government debt was $667 bn and rising while the budget deficit was $123 bn and rising, interest payments are around $23 bn per year and also rising. A comparison with OECD countries (IMF) shows Australia is not in bad shape, but alarm bells are ringing, government debt as a percentage of GDP is:- Australia 14, USA 88, UK 83, Greece 155, Germany 84.
An important source of Australia’s problems is the down turn in China’s economic activity. In recent years China has overbuilt on infrastructure and has accumulated a large natural resource inventory. There are vast multi story housing blocks unsold and unoccupied. The Chinese industrial explosion has involved huge amount of credit, this will have to be repaid and represents a further source of instability in the financial system. Australian woes are due too two numbers, Chinese boom generating growth has fallen from plus 8% to round 3%
Reserve Bank Interest Rate Cut.
On the 3rd February it was concerning to hear Treasurer Hockey enthuse on the interest rate cut to 2.25% claiming this was good for home owners and small business. What the Treasurer omitted to say was that these historic low interest rates are indicative of a sluggish economy, rising unemployment and a tendency for capital flight out of Australia. The European Union has low interest rates, high unemployment and is teetering on deflation. Government advice to Australians should be to tighten their belts and work harder than ever.
In late December 2014 Mr Gerard Minak, formerly Head of Market Strategy, Morgan Stanley, ( ABC Business Program) said that Australia has “run out of luck” following a staggering resources boom. Minak has forecast the serious risk of a recession for Australia in 2015, there will be a lower dollar, lower interest rates, under performing equities and a significant fall in house prices. Why is it our politicians never call it as it is?
Dammed with Feint Praise
The saga has been humiliating for Australian democracy, the protagonists and the thinking public. The prequel to the Liberal spill motion in Canberra was characterised by a journalistic rabble attempting to elicit views and outcomes to leading questions.
The spill motion was dealt with in a few moments, 60-40 in favour of Prime Minister Abbott, this was marginally above a censure motion, indeed it was a result dammed with faint praise.
The sequel, the 7.30 Report, Mr Abbott presented so poorly one could almost sympathise with him, he appeared to be grasping for answers, not directly responding to questions and indulging in pedestrian comment. It was telling that he intended to be more collegial and inclusive with his ‘back bench’ but only in passing did he mention the need to address his approval rating with the electorate.. Many viewers would have been disappointed with his measured and so very carefully chosen words. He was just not speaking as a confident national leader.
The day following the faint endorsement of Mr Abbott the Australian public endured an excruciating interview with the Minister of Defence, Mr Andrews. The Minister was in Adelaide to discuss the $20?-$40?-$50? billion submarine program with the Australian Submarine Corporation. His press conference was marred by ad nauseam repetitions that he was the Minister of Defence, the government approach to the project would be careful, cautious and methodical and contractor selection criteria would be a “competitive evaluation process” The Minister either would not or could not explain this process or how it varied from the normal tender process. Diction was hesitant and wooden as if a rigid script controlled the proceedings, they were totally uninformative. It was dispiriting rendition of Major General Stanley, “I am the very model of a modern Major General”.`
A sequel a few days later was there would be a competitive tender involving Germany, Japan, France and Australia. The decision will be politicised. Having a defence agreement with Japan could bring Australia into international tension with China due to the dispute over the Senkaku (Japan) and Diaoyu (China) islands.There is also the issue of linking Japanese platforms to American armament systems.Both France and Germany (constructed over 100 submarines in recent years) have offered to build the submarines in Australia. The very complex tender process will continue to the end of 2015. Once built the Government has indicated there will be over 500 maintenance jobs created in South Australia.
Towards the Final Hour
My right eye is misbehaving, retinal corrosion according to the computer image. I am now on a crash course of eye drops to right this ocular wrong. The ultimatum from a MacQuarie Street specialist ‘get it fixed or go blind’.
A magic night of Faust at the Sydney Opera House. Goethe wrote the opera when he was 59 years old in 1808, he was already an ageing man who stated that “experiments in life had left him more unsatisfied”. The production illustrated love, lust,incomprehensible faith and mankind’s preoccupation with warfare, it fitted like a glove into the 21st century. One has to be an ageing male to relate to Faust and Goethe, another well fitting glove.
Great progress, it was two days of thinning eucalyptus trees on a steep boulder strewn slope disrupted by disintegrating branches, lethally pointed up turned tree stumps, bull ants lurking in camouflaged mounds and persistent flies that were drawn to facial spasaming orifices. Keeping a hot smoking chain saw on the trees rather than my legs and torso proved a great preoccupation. Such progress was only possible with the help of Sydney friends who toiled and sweated along side me.
I attended the local chapter of the Wild Dog Association AGM in Timor. Trends are not good and baiting is to be expanded. Dogs are becoming larger, they are hunting in bigger packs and they are now attacking and killing horses, as well as tearing apart but partially eating cattle and sheep. Tracking devices have established dogs make their lairs in quiet inaccessible areas from which they travel over twenty kilometres on hunting sorties, this give them an operating area of 1200 sq km. So far Animal Rights groups and the RSPCA have expressed a thunderous silence on this carnage.
Yemen, under the popular radar.
Another flash point for Middle East stability and safe passage for oil supplies has risen, Yemen controls the Bab al Mandab, the narrow strait to the Red Sea through which passes some 8% of global oil. Shi’ite Hoothi Muslims have been fighting the Sunni government for years, supported by Sunni Saudi Arabia. In the past few weeks Hoothi militia have forced the resignation of the President, Prime Minister and closed parliament. Saudi has now terminated support, famine and chaos are now facing Yemen. Western embassies have pulled out, only those of China and Russia remain. Despite American drone attacks Al Qaeda is well established, quixotically Al Qaeda regard the Hoothi as heretics and seek to destroy them. Yemen is now an out of control state controlling one of the world’s oil routes.
The Drug Trade
Official Australian Government policy in recent weeks has been a persistent request that two Australians due for execution in Indonesia be granted clemency. Portions of the Australian public have supported this request.
There are major issues swirling round these frantic pleas for mercy directed towards the Indonesian President. The dispiriting quote from the Global Fix meshes with a recent ABC Health Report program which suggested that drug addiction and death could be reduced if young and middle aged citizens had meaning and purpose to their lives. The Conversation (2013) has indicated that one third of heroin users are over 40 but there is a rising death rate in the 50 to 60 year olds which may be correlated with long term unemployment. The UNSW National Drug and Alcohol Research Centre has indicated there are 74,000 heroin users in Australia mainly in the 20 to 30 year age group due to a combination of unemployment and little possibility of a normal family life. The ABS reported 366 deaths from heroin based drugs in 2005.
What ever the out come of the Commonwealth of Australia plea to the Republic of Indonesia ( it has been a mistake to make the supplication too personal) the Australian Government is now obligated to wage an implacable and sustained war on the drug industry and to institute programs that lift young people and older unemployed out of the ‘slough of despond’ that drives them into drugs. Anything less than a concerted bipartisan political effort could be construed as a reluctance to address the real issues behind two Australians on death row in Bali.
Coins for Australia.
If this initiative gathers momentum like a rolling snowball Australia’s humiliation in SE Asia could be devastating. Prime Minister Abbott in pleading for mercy for two Australians on death row in Bali mentioned the one billion dollars of aid sent to Indonesia after the 2004 tsunami, it is reported this statement has enraged many Indonesians. There is now a grass roots move to collect ‘Coins for Australia’ and return the aid, support is now coming from Singapore, Malaysia and Hong Kong. Let us hope this terrible gaff does not enter the history books along side:
***the Wooden Horse at Troy in 1178 BC
*** the Romans at Masada in 73 BC
*** the fall of Singapore in 1942
*** the Iraq victory claim on the USS Abraham Lincoln in 2003.
The irony of ‘Coins for Australia’ will not be lost on the intelligentsia of SE Asia who realise better than many Australians that the Great South Land has a rising deficit problem, rising unemployment and a moribund manufacturing industry. Australia is in an invidious position.
I am increasingly concerned, I yearn to express some meaningful global good news on mankind’s progress deeper into the Anthropocene, suggestions welcomed. Living between rising carbon dioxide in the aerial ocean and concentrating plastic in the terrestrial ocean I now wonder about the future of all great grand children, recently born who will be 75 in 2090, forty years past the Great Disruption so eloquently forecast by Paul Gilding. Faith will help us to endure, only Churchillian determination will solve the problem.