Thursday, October 30, 2008

Happy 70th birthday!!!

... to Orson Welle's radio version of War of the Worlds.

Yeah, OK I am a day early. I just wanted to get in first!! :P

A fantastic piece of radio theatre which chills my spine every time I hear it. It also is an impeachable illustration of the power of the broadcast media.

The way bloggers think -

It is interesting - no, make that frustrating - trying to engage some people in a discussion. Dave the Justus is just such a one, as instanced by this question and response...
Comment by probligo

October 28, 2008 @ 9:37 am

“They also perform a valuable service for the economy by providing stability and certitude that wouldn’t otherwise exist, making commodies less volatile.

How so, Dave? “…stability and certitude…” from speculation and market wagers?

How does buying 250,000 tanker load of crude, then having it sail in circles somewhere south of Africa constitute a “stabilisation” of a market?

Why is it neccessary for there to be “profit makers” or “profit takers” sitting between producer and consumer. They add nothing to the value of the product, other than their profit for taking a bet on the price increasing.

Explanation required because that statement is entirely contra-intuitive. It makes no sense. It is water running uphill.

Comment by Dave Justus

October 28, 2008 @ 10:07 am

“How does buying 250,000 tanker load of crude, then having it sail in circles somewhere south of Africa constitute a “stabilisation” of a market?”

I’ve never heard of such a thing. If that is what you think commodoties speculators do, then I can see why the subject confuses you.

I can accept that Dave does not like me using simile to make a point, but it is his outright refusal to answer that point that is the major difficulty.

I challenged his statement that middle traders, future traders, commodity traders "providing stability and certitude that wouldn’t otherwise exist" and his only response was to indulge in petty denigration and avoidance of the question.

Well Dave, I guess that from now onward you are going to have to write your own comments to your pieces. Oh, yeah, forgot there are a couple others who float through from time to time. Some are interesting, others seem somewhat pornographic.

Yeah, it is your blog. You can censor what is said. So, I don't care all that much. Been nice meeting you.

Tis sad really.

Wednesday, October 29, 2008

The Morning News -

To all those who might be interested, the heading links to (what I consider) NZ's premiere news programme (from any medium).

For the next week, one of the presenters (Geoff Robinson) is based in Washington DC and through the technology of Skype, VOIP, and Internet you too will be able to listen to the same news as the probligo gets from 6 a.m. every weekday morning (NZ time).

Very highly recommended.

Take a listen or three... oh, and an occasional report back of reactions would be appreciated.

Wednesday, October 22, 2008

Thoughts on elections...

The election campaign trundles along. There have been some “interesting” bits. There have been a lot of uninteresting bits. Include in the latter the attempts to get together an entertainment programme for tv (whichever channel) with the leaders of each of the represented parties “debating” various issues. RadioNZ has a winner with Kim Hill conducting public debates – at least it might be if you can get past the prepared rhetoric and party buzz-lines.

The interesting bits are led by two.

The first is Auntie Helen’s pamphlet. Watch for this one to get big in the next few days. RadioNZ had Shane Jones (L) and Gerry (Can) Brownlee (N) on Morning Report today. Interesting discussion. It seems that Jim (Iron Man) Anderton had this fantastic idea of putting out a booklet to his electorate “grey brigade”. All manner of helpful tips about how to cross the road, how to lock your door properly, that kind of thing. Someone in PartLy HQ got a hold of it and has a similar one printed for every sitting member of the present government. Labour, that is. From the Parliamentary Services vote. Jones said that his had been distributed “by party helpers and volunteers”. Question, very rightly, is “Is this electioneering material or not?”

Yes, that one is likely to get interesting.

The most interesting is illustrated by yesterday afternoon's(RadioNZ and Checkpoint this time) interview of the JonKey. “My old mate” Morrie (Minor) Williamson has opened his mouth once more and uttered the “T” word. That little faux is not the interesting bit. What is becoming increasingly apparent is that (if the polls are right) our next government is in fact going to be a dictatorship.

“Say what?!!?”

Yep, I will hang my hat on this one. Listening to the JonKey dealing with the fallout from Morrie (Minor) Williamson’s banana-skin tongue on my way home through the (un-tolled) traffic last night, he came up with the statement that “nothing will happen without my signature on the bottom of it.” He repeated it in the form “Nothing will come out from Cabinet until I am satisfied with it, and sign off on it.” I don’t know that anyone else has picked up on this as yet, but if it is true then he is going to be a mightily busy man over the next three years. After all, there will (on the strength of that statement) be no individual ministerial responsibility. Nothing is going to happen unless signed off by “the man”.

Think for a moment about how this election has progressed to date. The only voice heard with surety is the JonKey. Even Honest Bill English is given a list of catches to pop to the media, probably even the sequence. You can hear the echo of the JonKey’s voice. But that is a small and (becoming endearing) exception. Nothing, but nothing, leaves the Nats without the man, the JonKey’s, approval. He is the only man permitted to say anything.

Mind you, add the likes of Dr Lockwood Mastermind Smith to the mix and he does have a real problem to deal with.

Hello Dictatorship!!!

"Sideswipe" is a back page commentary of little bits and pieces...
The JonKey on the left... On the right?

Friday, October 10, 2008

Thoughts on economics...

Y’know, I just can not help wondering whether the current banking/financial meltdown/crisis and the attempts to rectify the problem are in fact treating symptoms to a far more serious disease.

I am now beginning to have considerable concern about the quantity of money various governments have been releasing to the existing structures in an attempt to “keep the Titanic, errr ooopps sorry, global economy afloat”. If I can keep the Titanic here for a moment it would be a little like loading icebergs onto the decks because they are lighter than water and hence should keep the boat afloat for a bit longer.

The second concern is that at some point someone is going to point to the Breton Woods accords and say that they need to be reversed; that we should return to a global gold standard. That, I fear would be akin to using cyanide as a chemotherapy to cure psoriasis.

The point here is that the real underlying cause of the current “crisis” has been the increasing availability and use of credit funding of consumption.

This is one of these “cycle” processes and I have to break into the ring at some (arbitrary) point..

Step 1 - As the global economy has grown (I have to take a global viewpoint as it is in fact a global problem) that has increased the amount of money in circulation (I use Samuelson’s models which is going to upset the Friedmanites in particular).

Step 2 – The increased money supply is split between investment and consumption. The increase in consumption drives the need for increased investment.

Step 3 – The increased funds now held within the banking system reduce interest rates; a factor that encourages borrowing to fund further productive investment (a good thing) and further consumption (also a good thing).

That completes the first cycle as the productive investment increases the activity and wealth of the global economy.

Step 4 - The marginal return of investment in production reduces as the process continues. Demand becomes inelastic – falling prices do not increase demand but reduce returns.

Step 5 - The decrease in marginal investment return from productive investment encourages an increase in “non-productive” investment. Those non-productive investments produce the “bubbles” such as the dot-com market, real estate, and “financial instruments”.

Step 6 – The profits gained from the speculative activities of these markets feed back into the initial cycle at Step 2.

That completes the second cycle. We now have a system that looks like a figure 8 (in one sense) but I prefer to think of it as a Mobius Strip. The two cycles are related, rather like taking a Mobius Strip and cutting it in half along its circumference.

There are several other smaller cycles involved in those two primaries – the impact of taxation and government spending for example. Those smaller cycles (when viewed on a global scale) generally have little influence on the primary money wheel.

The two critical elements of these cycles are –
 The feedback loop of consumption into the demand for credit to fund higher consumption.
 The process by which the available money supply has been increased in order to make further credit available.

The second of these two used to be known as “The Multiplier Effect” – may well still be.

The cycles that I have outlined apply as much to nations within the global economy as they do to your household and mine. Follow the Mobius Strip around your own actions as a consumer, your own attitudes and actions as an investor and you should see what I mean. In fact it might even help to write “consumption” on the edge of your Mobius Strip, turn it over and write “attitude” on the other.

Now take a pair of scissors and cut that Mobius Strip in half around its circumference. Look at the result (no go do it for yourself!!!) because that is where we go next.

We now need to think about the psychology of the market. I know very little about this so I am winging it (I am honest about that). No doubt there will be someone out there who can shoot my argument down, but I like it…

Step 1 – As individuals increase their “wealth” (the consequence of the growing global economy) the production investment needs to encourage the spending of that continuing increase in available income in order to maintain both profit growth and market share.

Step 2 –Individuals are encouraged to change behaviour toward consumption in preference to saving and investment. Encouraging others to spend rather than invest directly is also a protective device as it limits the development of competition. Those who save rather than consume are feeding the first cycle at step 3.

Step 3 – The enjoyment of increased consumption encourages increased spending in the continuing pursuit of “the good things in life”.

Step 4 – The feedback of enjoyment and encouragement to increasing spending requires the use of credit. This is no more than the spending of future income for current consumption.

Step 5 – The easy availability of credit is used to further fund the investment in non-productive investments. Think of 100% mortgages, the 3x3x3 HP agreements, “free credit”, multiple credit cards…

Step 6 – The market adds to its litany of “increase consumption”, the need for “maintaining confidence” in the market. That “confidence” requires further enjoyment of even higher levels of consumption.

Now the critical thing here is Step 4. Please remember when I am talking of “nations” here, I am NOT talking of government, government spending or taxes. “Nation” and “National” is the agglomeration of individuals, their actions, their intentions.

I have quoted Mr Micawber several times in relation to where this is all heading –
"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

As individuals and as nations we have all, to greater and lesser extent, been spending “twenty pounds ought and six”. The extent of that overspend? Well, Germany believes that a total bailout of their banking system (in the form of the government liability for guaranteed savings) is equivalent to eight years of the current GDP. The country (unlike NZ) probably owes very little abroad. NZ faces a double whammy as a very large proportion of that credit has been spent on enjoyable consumption imported from outside. That being the case, and taking the German lead at 8 years GDP, NZ could owe that amount to the ROW. It is not that we are insolvent, you understand. It is just that we have spent the readies, sold the silver service (several times now), put the car on Ebay (Trade-me in NZ) and mortgaged the kids earnings for the next 20 years if you believe the Good Doctor.

Remember that Mobius strip that we cut in half? Pick it up, and with a pair of scissors cut around the circumference.

That is what an economic system looks like…

To quote Mr Micawber again, only not I suspect in relation to the economy but his own circumstances –
Welcome poverty!..Welcome misery, welcome houselessness, welcome hunger, rags, tempest, and beggary! Mutual confidence will sustain us to the end!

Very a propos to the economy at large.

I had to laugh

David Farrar fills the odd idle minute - I don't usually enjoy his "right-wing mouthpiece" speak.

But this one (linked in the header) is just too good!

Thanks David, for a small light among the gloom.

Tuesday, October 07, 2008

"If you don't have it, then you can't lose it..."

at least that is how I read Benedict XVI.
The global financial crisis is proof that the pursuit of money and success is pointless, Pope Benedict XVI has told a meeting of bishops in Rome.

The head of the Roman Catholic Church said that the disappearance of money as banks collapsed showed that wealth meant "nothing".

The Pope said that people should instead base their lives on God's word.

Those who think that "concrete things we can touch are the surest reality" are deceiving themselves, he said.

Now I can not agree with his alternative. You are not going to find the ol progligo going that far.

But this is interesting -
When he opened the Synod on Sunday, the Pope attacked modern culture, saying that "nations once rich in faith and vocations are losing their own identity under the harmful and destructive influence of a certain modern culture".

I wonder who that refers to?

Sunday, October 05, 2008

History repeats -

I admit that the parallel of the current financial crisis with the 1929 crash was too strong for me to ignore.

Thanks (once again) to my friends at ALD, this has turned out . Scott Reynolds Nelson concludes -
In the end, the Panic of 1873 demonstrated that the center of gravity for the world's credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India.

An idea that I suggested to Dave the Just Us a whiles back.