Thank God for Bailouts


Considering the Labor Government’s record when it comes to government construction programs, we would like to issue the following warning: Do not go bush walking. You may be run over by a tractor laying fibre optic cable for the NBN trials. Even if you hike out past Mt Isa you’re not safe.

Gold reaches record highs over and over again

December gold futures reached $1298. Need we say more? We’ll let our favourite investment bank do the talking: “The Fed will announce at its next meeting that it intends to buy at least $1 trillion of Treasuries, Goldman Sachs economists led by Jan Hatzius in New York wrote after the central bank’s statement was released.

Funny money isn’t a funny matter in a rich man’s world, so they look to gold for safety. Regardless of whether you think gold may have run its course as the trade of the decade, Stock Doc Alex Cowie reckons he has found the next big commodity to make a break for stardom. Check out his report here.

The GFC Saved Pascoe

So Pascoe at Business Day reckons the GFC saved Australia. From what? Inflation.

Apparently things were going far too well in 2007 in terms of unemployment and this raised the horrible spectre of inflation for Australia. So a slowdown was exactly what we needed. And instead of a blunt central bank infused slowdown, we got a soft GFC slowdown.

Seems relatively logical, if you accept that low unemployment leads to inflation. This idea is referred to as the Phillips curve. As more people are employed, they spend more and drive up prices. That’s inflation. Except the concept is a load of rubbish. Prices may rise, but this is just supply and demand.

The best cure for higher prices are higher prices, as this spurs an increase in supply, which brings prices back down. Demand driven inflation is self correcting. That’s why true “inflation is everywhere and always a monetary phenomenon“. By saying this, Milton Friedman meant that inflation is a central bank created problem, not one which a central bank stops. Without more money in the system, inflation can’t happen. Prices can rise, but only until competition for profits pull them down again. (If the government makes it difficult for new companies to enter a market then the prices can stay high for longer, which is what is happening in the US healthcare system.)

Even central bankers acknowledge that the Phillips curve is dead. Where was Pascoe when economists figured this out?

Simply Balder-dashing

Escaping Double Dip to Growth Recession Means No Job Relief” WOE! (What on earth?)

It’s quite a title that the editors at Bloomberg have come up with. The message they are trying to get across, as we interpret it, is that the Federales have engineered a positive GDP growth figure (which they calculate themselves), but have not managed to fudge the employment figures to the point of being positive as well.

This is despite the public sector’s best efforts: “Barofsky, the TARP Special Inspector General, said his office staff, now numbering around 140, is expected to reach a previously stated goal of 160 in coming months and may go beyond that.”

Yes, in the public sector, their goal is to hire people. Never mind doing the investigations (which are of the public sector’s spending habits).

The result, as the ever enthusiastic Mogambo Guru points out, is not a pleasant one. His latest complaint concerned “the announcement by Americans for Tax Reform that “the average American worked 231 days just to support government, which consumes 63.41 percent of national income.” Yow! The government consumes two-thirds of income! We’re freaking doomed!

The Mogambo Guru also points to various US publications reporting that “federal pay and benefits per employee now average more than twice that of private workers: $123,049 compared to $61,051.” So while main street does it tough, government does it plush.

Only now the tea partiers are out and about. And yes, they have made it to your back yard. Welcome the Australian Tea Party. (Turn on your speakers when you visit the site.) And if you look down the side of that web page, you will see links to the tea parties of other countries around the world.

What got the movement started? A comment calling for a second Boston Tea Party. Where did it come from? Commodities trading celebrity Rick Santelli:

People ask me if I’m the father of the Tea Party movement…I was the spark …that started it. If being the lightning rod that started the Tea Party is what’s written on my tombstone, I’ll be very happy.

And the event which sparked Santelli’s rant on CNBC was the bailouts. But not everyone in America was as angry as Rick about having to pay for their neighbour’s mortgage greed.

You should thank God” for bank bailouts, investment legend Charlie Munger apparently said. A brave man indeed. But he didn’t stop there.

Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.” So are we to take it that bankers have no culture? Maybe Charlie has a strange definition of culture. He also told University of Michigan students that people in economic distress should “suck it in and cope.”

They aren’t sucking or coping very well though.

In a sign of political backlash that is spreading around the world, the Swedes have hung their parliament too. Instead of the political left making inroads off people’s misery, it seems the right has managed to gain support all around the world. But left or right, government intervention is still the way to go. Will they ever learn?

Lehman’s New Trader

If you think Lehman Brother’s trading desks are empty these days, you’re wrong. The details are sketchy, but this is what we gathered from this article:

[Lehman Brothers’ administrator] is not only pouring cash into distressed assets he inherited. He spent US$1.4 billion to buy loans from bankrupt Frankfurt affiliate Lehman Brothers Bankhaus on a bet he can sell at a profit.

Yes, it appears that the administrator is trading financial assets!

A lesson in Bonds

Now, as you might know, increasing the supply of something will decrease its price. The Irish government and two Bloomberg editors think otherwise: “Ireland Tries to Stem Bond-Market Selloff With Debt Auction.

Yes, they are issuing debt in an attempt to stop people selling it. No wonder bond markets are confused. But apparently it works: “Portuguese government bonds rose after the country sold 750 million euros ($1 billion) of debt.”

On Monday, the European sovereign debt troubles ended. By Tuesday they began again. The head of the German Bundesbank, and ECB President hopeful, Axel Weber summed up the situation nicely: “We are not in year one after the crisis, we are in year four of the crisis.

Labour Farce

Some harsh job stats came out of the US recently. Quite frankly, this says it all, so we will just reprint a section of The Huffington Post article for your “enjoyment”:

Since 2009, a layoff victim has been more likely to give up looking for work and drop out of the labor force than to find a job, according to a new report from the Roosevelt Institute, meaning employment prospects for the jobless are the worst they have been since the government started keeping track of them.

Yes, more likely to give up than find a job. Keep in mind that unemployment stats only count those who are looking for a job. So each time someone gives up, the unemployment figures fall.

The next bit is a bit puzzling:

Even more people would have given up on their job searches had it not been for a dramatic increase in unemployment benefits, which encourage the jobless to keep searching, according to the report’s authors.

How exactly does an increase in unemployment benefits encourage job searching? Oh well. Here is the summary, just to complete the gloom:

“We can see that it has never been more likely than it is now for the unemployed to leave the labor force over finding a job in the labor market,” write the Roosevelt Institute’s Arjun Jayadev and Michael Konczal.

Obama’s comment on all this is that the nation is “moving in the right direction“. Even the IMF has figured out that this can’t be the case. It has warned of “an explosion of social unrest” in the US and UK because of joblessness.

But don’t worry, the government will save us. Only it turns out that even Obama helps the rich instead of the poor with his policies, a report reveals. Oops. You wonder where the money from his latest aid efforts will end up.

Meanwhile the Republicans are following the European lead with austerity measures in their “Pledge to America” for the next congress. Keynesians are howling.

Have you seen the TV ads for California tourism lately? They imply that going to California has something to do with a job. “When can you start?” the ‘Governator’ says at the end. This rather odd marketing style shouldn’t surprise you. With a $19 billion deficit and no budget 85 days after it was due, they need all the help they can get!

Housing after a bubble

The asset that always goes up is having a hard time in the US and UK. With a price decline from June two and a half times the pace expected and a revision four times as bad as the original May to June figures, it seems the US is the outright winner. But then again, UK stats show that house sales remain half of August 2007 levels. Impressive.

The phrase “lowest on record” is used for US housing sales and mortgage rates, a combination you wouldn’t expect.

But the most interesting news concerns just how much better things have gotten in regulatory terms: “Some of the nation’s largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork.” Foreclosures are so high, the poor guy just signed everything blindly.

Relabelling your garden

Now science isn’t our domain here at Markets and Money, and it’s not like economists at large are terribly accurate, but surely this impressive performance will make people wonder just how competent science is?

More than 600,000 plant species have been deleted from the dictionary of life after the most comprehensive assessment carried out by scientists… Later this year, the study team, led by UK and US scientists, will announce that the real number of flowering plant species around the world is closer to 400,000.

Yes, science has decided that only 40% of plants are plants.

Now that the review has taken place, why not go out and discover the runco in meus ortus (weed in my garden) or nemorosus res sicco frons (wooden thing out the front). Nobody will double check on your findings for a few years. Hey, you might even be published in the IPCC! No doubt the “extinction” of 60% of global plant species due to global warming will be.

Meanwhile, a documentary has been released claiming AIDS/HIV might not exist either. But maybe we are too harsh on science. After all, it has managed to figure out how the red sea was parted.

Ooops, we’re off our economics and finance mandate again. Be sure to complain.

Until next week,

Nickolai Hubble
Markets and Money Week in Review

Nick Hubble
Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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“The names cut are duplicate monikers for the same plant: for example, researchers discovered an astounding 800 different names for the tomato (Solanum lycopersicum).”

Hmmm – I was under the impression from a cursory reading of your article that 600,000 species have ceased to exist, been merged or never existed.

You wouldn’t be guilty of of passing on selected facts out of context would you Nick?

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