Public Opinion

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October 31, 2008

Canberra gaze

Looking back we can see that Treasury and the Reserve Bank of Australia were very slow to pick the financial crisis and the global economic downturn. They downplayed it and its effects on Australia in favour of fighting inflation, and they continued to do so until they could not avoid maintaining their upbeat narrative in the face of what was happening in the global financial system and economy.

Leunig

Despite these institutions getting their diagnosis wrong Wayne Swan, the Treasurer, and Kevin Rudd, the Prime Minister, insist that now is not the time to be questioning Treasury or the Reserve Bank. The job is to maintain public confidence, and criticism undermines that, apparently. So much for Rudd Labor's commitment to accountability and transparent public administration in liberal democracy.

Update
It is not often that I agree with John Roskam from the Institute of Public Affairs. But I do in his response to Rudd's Essence of Confidence speech to the Australia Unlimited Roundtable. There Rudd said:

A fundamental role of leadership in the midst of a global crisis of the type we are experiencing is to underpin confidence. Confidence in our financial institutions.Confidence in our markets.Confidence in our economy. Because confidence in the current environment is a fragile commodity; whatever the strength of the fundamentals.We all saw the huge blow to confidence from the US Congress's initial failure to pass the recent bailout package. It is incumbent upon all of us in political leadership to be very careful about what we say. Now is not the time to be questioning the head of the Commonwealth Treasury. Now is not the time to be attacking the head of the Reserve Bank.

Roskam responds thus:

If Rudd is serious, and as yet there's no evidence he was joking, the consequences of his statement are breathtaking. The Prime Minister is in effect demanding a gag ob public debate of his government's economic policies. yes, the condition of the world economy is serous. But is it so serious to justify the suspension of the practices of liberal democracy?

As Roskam says it is fine for the Reserve Bank to be independent but to whom it is accountable? And when is it a good time to question the views and policies of Treasury and the Reserve Bank?

Posted by Gary Sauer-Thompson at 7:56 AM | Comments (1) | TrackBack

October 30, 2008

greening Canberra?

It is more than likely that the ACT will see Stanhope Labor forming some sort of Coalition with The Greens, after the latter won 4 seats in the last election. The final make-up of the Territory's 17-member Assembly is 7 Labor, 6 Liberals and 4 Greens. Nine seats are needed to form a majority.

Already we have the anti-development argument being run by business. The Greens are anti-development. An op-ed in the Canberra Times gives expression to this:

The Greens' impressive election results at this month's election were due to many factors. Some voters wished to register a protest against the Stanhope Government: others were won over by the Greens' commitment to push for a more open, transparent and consultative style of government. No one, however, voted Green because they wanted a third political force capable of undermining the territory's economic base. The still unfolding global financial crisis (which could yet trigger a recession in Australia) should be reason enough for the Greens to reconsider their opposition to a data centre at Macarthur. If not, then perhaps TRE's warning will give them pause for thought. The ACT is well endowed with the attributes (security and access to plentiful power) needed to become a data centre hub but, without unqualified support from its politicians, developers will quickly take their proposals elsewhere.

"Unqualified support" implies either/ development or anti-development mentality with the Greens being seen to undermine the ACT's economic base. It's the politics of fear where a harsh economic reality is being used as a weapon by business to resist reform.

The Greens, as the op-ed acknowledges, are in favour of developing an IT industry/hub in the ACT, and they had reservations about the Stanhope Government's failure to consult adequately about site selection for the data centre before the election. It is not going to be business-as-usual in the ACT.

Jack Waterford writes constantly about the Greens lack of economic responsibility, their lack of understanding of the rationality of economics, and their naivety in the business of making hard choices about competing policy options. Waterford does seem to be overly concerned about making Canberra more sustainable by reducing the ecological footprint, or growing green industries to deal with climate change.

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rushing to the shops

In The Australian George Megalogenis highlights a key problem with the Rudd Government's economic stimulus package that helps first homeowners into the housing market. He says that the boost to the first-home owner grant has been sold by the Prime Minister as the bargain of a lifetime. For a new house or apartment valued at $400,000, $21,000 would make up a 5 per cent deposit. Megalogenis then adds:

Assuming you planned to buy a year or two from now, when things have calmed down and unemployment had peaked, that $21,000 is meant to change your way of thinking. Why wait two years when your $400,000 dream property may be worth $410,000 when the first-home owner grant returns to $7000 next July? If only it were that simple. Bidding now, in a property market in which prices are at best flat and your job may not be all that secure, is not the smartest thing to do. You can hear the prospective buyer's mind tick over. "Do I risk a capital loss in the short term to get into the market? Or do I wait until I know for sure whether there will be a recession or not?"

A rational investor would hold off buying, especially in Sydney when property prices have been falling for five years. because of the risk that if prices continue to fall, buyers could end up with negative equity - where their mortgage is larger than the value of their home. Or do you take the government's money and the hit on the capital loss and hope that you can afford the repayments? Take the risk of becoming unemployed and overleveraged.

It is a little indication that people won't be spending bigtime in the near future to realize the Australian dream of property or home ownership. Most people who feel out of control of their finances will endeavour to regain control by reining in their spending. Any expense that doesn't directly relate to food, shelter, utilities, debt and education for your children will be eliminated no matter what the advertisements from Harvey Norman and the car industry say about wild and conspicuous consumption. These already look outdated.

Nor will the Reserve Bank's cut in interest rates encourage indebted households to rush to the shops. Nor will the free market economic talk that it's just a blip restore consumer confidence to spend up big at Harvey Norman. The defaults on credit card payments are increasing, credit limits will eventually be reduced for those living in areas of falling house prices or working in troubled industries, and consumers already in debt will be shunned as risky borrowers.

Rudd Labor gives no indication of the debt built around home ownership other than needing to make it more affordable. We rarely hear about household debt that is due to finance capital making finance available to consumers on a mass scale.

Posted by Gary Sauer-Thompson at 7:45 AM | Comments (8) | TrackBack

October 29, 2008

Republican death throes?

Over at Salon.com Gary Kamiya says that we can expect more smears, concealed race-baiting, overwrought accusations of "radicalism" and crude ad hominem attacks from the Republican Party. Nor should we be surprised by this tactic, since the modern US conservative movement came to power by playing on white racial fears. He adds that:

The founding success of the modern conservative movement was that it convinced large numbers of Americans to reject "liberalism" and "big government," even if they themselves benefited from both, because they were associated with social programs aimed at helping poor blacks. In one of the climactic political showdowns in American history, McCain and Palin are now using the GOP's time-tested tactics -- against a black man. The tactics always worked before, and one might think they would be foolproof now, with a black target.

He adds that the Republican Party under Nixon and Reagan succeeded because it was able to convince enough white Democrats and swing voters that it was the party of the "average American," oppressed by federal bureaucrats and do-gooder programs like busing and affirmative action. It was able to conceal the fact that it was the party of the rich---wealthy, elite interests---beneath a populist, race-tinged appeal to white resentment. No longer under Palin and McCain.

In a latter article in Salon.com Kamiya argues that the Republican Party has gone from arrogant triumphalism to its death throes, that the modern conservative movement is dying in front of our eyes, and its death throes aren't pretty. He says of the GOP that:

the luxury liner hit an iceberg known as reality. The biggest damage was done by the Wall Street crisis, which happened just in time to tilt a close race toward Obama. But the economic meltdown was only one of the disasters for which the GOP is largely responsible. The war that was going to establish American hegemony forever turned out to be one of the worst foreign-policy blunders in our nation's history. The GOP's free-market idolatry led to the gravest financial crisis since the Depression. Its ideological insistence on cutting taxes for the richest Americans ran up a record deficit. Its embrace of torture and denial of due process assaulted the Constitution and eroded America's moral standing. Its doctrine of the "unitary executive" concentrated unprecedented power in the hands of the executive branch. Its anti-scientific denial of global warming endangered the entire planet.

It's a historic shipwreck, and the American people are diving off the foundering GOP hulk in droves.The hulk is in the hands of the "movement conservatives" who have dominated the GOP for decades: the demagogues of reaction and resentment, the Christian rightists, the "values" voters, the anti-tax, anti-government zealots, the nativists, anti-rationalists and anti-secularists.

What these movement conservative's refuse to do is move the GOP to the center, accept that progressive taxation is not just necessary to run a country but that it is a legitimate part of the social contract, accept that markets need some regulation, and try to reach out to all Americans, not just their base. As a result the 'straight talk express' is rapidly becoming the mealy-mouthed train wreck.

Posted by Gary Sauer-Thompson at 8:34 AM | Comments (14) | TrackBack

avoiding recession?

Will Australia avoid recession? It has the characteristic of a developed economy and the characteristics of a commodity economy dependent on overseas exports. In The Age Ross Gittens judges that what will happen this time is:

a recession that lasts a year or two, with the unemployment rate rising to double figures. What could produce such a result would be the severe recession in the other developed countries, combined with a "negative wealth effect" as many Australian households cut their consumer spending and increase their saving as they attempt to pay down their mortgage debt or rebuild the value of their retirement savings.

This is the scenario that the Reserve Bank, Treasury and Government will endeavour to avoid. They seem to have allowed the environmental crisis of global warming to retreat to the background of the policy agenda even though it is the more significant crisis.

Moir

Jeff Angel's observation in the Sydney Morning Herald is that the two crises have become intertwined.

Big companies are pressing to delay action, giving them the maximum amount of time to continue business as usual - that is, to continue polluting - and they want to be paid to do it, with free permits or big cash handouts. They are using the financial crisis as another reason to delay emissions trading, or they lobby for soft targets and maximum handouts.

This is despite leaks indicating that the forthcoming Treasury modeling for carbon trading that economy-wide cost of carbon trading would be modest even though some emissions-intensive industries would be hit.

The two crises are also intertwined in that Australian industry is now maneuvering to grab most of the infrastructure fund to upgrade the ports that service the export hubs for coal in NSW and Queensland and minerals in the Pilbara in WA, rather than making Australia's economy more sustainable. The new line from the Minerals Council is that Australia desperately needs export dollars to insulate it from the impact of the global financial crisis.That kind of subsidy is the response by miners faced with falling commodity prices and shrinking Chinese demand.

Posted by Gary Sauer-Thompson at 7:51 AM | Comments (9) | TrackBack

October 28, 2008

remembering the past: Pax Americana

In June 2002 President Bush in an address at the US Military Academy at West Point laid out a vision of how the US was to operate globally, facing "a threat with no precedent" -----which he identified as al-Qaeda-style terrorism in a world of weapons of mass destruction. At a time when the Afghan war was being hailed as a triumph and the invasion of Iraq was just beginning to loom on the horizon, Bush outlined the basis for the pursuit of American interests:

We cannot put our faith in the word of tyrants, who solemnly sign non-proliferation treaties, and then systemically break them. If we wait for threats to fully materialize, we will have waited too long ... [T]he war on terror will not be won on the defensive. We must take the battle to the enemy, disrupt his plans, and confront the worst threats before they emerge. In the world we have entered, the only path to safety is the path of action. And this nation will act ... Our security will require transforming the military you will lead - a military that must be ready to strike at a moment's notice in any dark corner of the world.

Vice President Dick Cheney interpreted this in terms of even a 1% chance of an attack on the US, especially involving weapons of mass destruction, must be dealt with militarily as if it were a certainty.

I've interpreted this policy of "war on terror" as a means to impose a new Pax Americana, endless war in the name of the Global War on Terror, and a future of small wars, expected to be frequent, protracted, perhaps perpetual on the edges of the US empire.

Today Afghanistan and Pakistan are a dark corner of the world as framed by U.S. hegemony where the US is entangled in a war without end in Afghanistan against an army of Afghan insurgents supported by foreign jihadist volunteers. Though the Bush administration launches strikes into Pakistan, thereby destabilizing a crucial ally, Afghanistan does highlight the limits of Pax Americana.

The US is committed to an escalation of the war in Afghanistan through a reliance upon air power and sending 8,000 more US troops to Afghanistan next year. soaring civilian deaths. NATO increasingly looks to be an unpopular occupation force faced by a insurgent Taliban that has established a shadow government across much of the south. The Taliban are too deeply rooted to be defeated militarily (the Taliban represent the interests of a segment of Afghanistan’s largest ethnic minority group, the Pashtun) and many peasants in southeastern Afghanistan prefer the neo-Talibans to the Karzai Government. So the solution is a political one.

There was a Salon on Terrorism at Steve Clemon's Washington Note which explores the "'war on terror" in Afghanistan. In it Greg Djerejian observes:

scratch a mid-level European NATO planner, I suspect, and they probably can't help wondering how an alliance meant to defend Western Europe from the predatory inclinations of the Soviet Union has transmogrified into an alliance requesting that young Germans and Danes and Spaniards engage in nation-building efforts half-a-world away from the post-historical pleasures of a good meal in Brussels.

Well, the British want an exit strategy as they can see the flaws in NATO winning hearts and minds in remote hamlets bordering Pakistan. They can see--as can Hugh White --that the West will most probably fail in Afghanistan.

Like Djerejian I don't understand the long terms objectives of NATO--plus Australia remember --in Afghanistan. I know the words used ---counterinsurgency and nation-building----but what is the purpose or objective of these strategies? Is it defeating al-Qaeda? Fighting a civil war to defend the Karzai Government against the Taliban? Nation building to transform Afghanistan into a free market democracy? Winning hearts and minds? Securing the population from terrorists? If the latter, then who are the terrorists. The insurgent Taliban? They don't threaten the US. Ensuring the Afghan Government is capable of providing stability on its own. Why?

And Australia? Why are we fighting in Afghanistan as part of NATO since a new Taliban regime in Kabul would not impact Australia's national interests. I concur with Hugh White when he says to please the Americans by investing in political capital to placate the Americans for Labor's withdrawing troops from Iraq.

Posted by Gary Sauer-Thompson at 7:18 AM | Comments (4) | TrackBack

October 27, 2008

favouring the banks, whilst .....

The financial crisis is not over is it? It is developing a trajectory of its own that is swirling through the global economy even affecting whole countries.

In Australia things look okay on the surface. The banks have been protected through a blanket government deposit guarantee, but not the mortgage trust funds. The exclusion of the shadow banking system does mean that we have a flight to the guarantee and frozen redemptions in the managed fund industry.

Another hiccup is that the credit unions or building societies have to pay more than the banks for government guarantees over $1million. The reason is that credit unions or building societies are not rated by external rating agencies, even though they account for 12% of household deposits. However, the Australian Prudential and Regulatory Authority monitors all deposit-taking institutions to the same requirements of capital, liquidity and governance. So why exclude credit unions?

Petty

This favouring of the banking sector enables them to increase their competitive advantage vis-a-vis the non-bank financial institutions. It looks as if the stability of the banks overrides every other concern including that of competition.The banks would really love to see the demise of their non-bank competitors.

Maybe the fees charged by the government are so expensive ( 0.7% for AA-rated large banks to 1.5% for BBB-rated small banks and credit unions) that they will not be used. Still there will be financial flows in the sub-$1million segment from the no cover to the covered zone. So things look as if they are under control.

On the global economic front things looks darker. There is a growing growing realization that Asia's heavy reliance on exports, which has driven Asia's powerful growth, is now turning into a problem. The decline in consumer spending in the U.S. and Europe is starting to hit deeply at Asian manufacturing companies that depend on sales to the rest of the world, and they are now rapidly scaling down their capital spending. Exports as an economic engine has its limitations, and these limits impact on Australia whose economic growth has been funded by a commodity boom caused by rising demand in the capitalist world.

On the global currency front things look stormy, as a currency crisis seems to be looming in the form of an uncontrolled depreciation of emerging-market currencies, including the Australian dollar. The Economist says:

The emerging markets which...enter the crisis from very different positions, are vulnerable to the financial crisis in at least three ways. Their exports of goods and services will suffer as the world economy slows. Their net imports of capital will also falter, forcing countries that live beyond their means to cut spending. And even some countries that live roughly within their means have gross liabilities to the rest of the world that are difficult to roll over. In this third group, the banks are short of dollars even if the country as a whole is not.

The risk here in is a surge in capital flight from those developing countries that rely on foreign funding to cover huge current account deficits, back to their home base in the US or Europe. The fall in the Brazilian and Australian currencies, plus Argentina' problems, does indicate a panicked capital flight.

So we have the formation of a deep recession in the advanced countries that is coupled with a currency crisis. that does not look good. China could help by investing some of its serves in the Australia dollar---as Brad Sester suggests. Probably not according to Will Hutton:

Authoritarian Asian capitalism is not about to triumph over the Western liberal variant. China needs to change profoundly if it is to join the first rank of nations as their equal. Meanwhile, don't look to it - or the rest of Asia - to soften recession. The West made this mess. It must clear it up itself.

Posted by Gary Sauer-Thompson at 8:27 AM | TrackBack

October 26, 2008

Republican futures

The long election process in the US is drawing to a close, and even though, as the media says, it ain't over til it's over, Republicans and conservatives are preparing themselves for defeat. The economic upheaval with its rising unemployment and disappearing manufacturing jobs has queered the Republican's pitch of xenophobia and anti-cosmopolitanism, hatred of intellectuals, disdain for cities and the people who inhabit them, and the other forms of divisive populism and "anti-elitism".

Paul Harris in The Guardian argues that a potentially devastating Republican loss (on current polling trends) means that the party may be reduced to its core support in the solid red heartland that runs through Texas, Oklahoma, Alabama, Georgia and other southern and western states. He says that:

following a possible November defeat, the Republican party itself could still remain firmly in the hands of its conservative evangelical wing. Even as America drifts away from causes that right-wing evangelicals care about, the Republican base remains fixated on them .... In a process reminiscent of the Labour party in the 1980s and the Conservatives in the late 1990s, the Republicans could end up as an extremist rump, reduced to a few stronghold states and obsessed with causes [eg.,gay marriage, the teaching of evolution in schools and abortion] that seem not to matter to the general public.

If the polls turn out to be true, then Republicans would probably survive only in their heartland, thus thrusting the party further right at a time when the country has shifted left. That would, he says, mark a profound change similar to Ronald Reagan's win in 1980 which seemed to usher in a conservative-dominated era.

Palin's rhetoric appears to appeal to her followers desire to recapture something they have lost in America. Most of Palin's support come from rural Americans--- the "anti-intellectual" brand of Republican--- who see their way of life (as represented by a Norman Rockwell Saturday Evening Post cover) slipping away. Their paranoid style of politics, with its envy and resentment, is projected as contempt, hostility, and fear of the other onto (Muslims). This style of politics blames the "liberals, by which they roughly mean the "evil people with no moral values who hate and want to destroy America", for the loss.

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October 25, 2008

global economic governance

Jeffrey Sachs argues that the international financial system is broken; an integrated set of reforms will be needed to achieve sustained economic growth and shared prosperity; and that the G8 leaders must go well beyond the issues of financial regulation. A true Bretton Woods II summit would set a financial framework to achieve urgent global goals in macroeconomic stability, economic development, environmental sustainability and trade for development. Who is going to push for this?

Martin Rowson

There will be no lasting settlement that is centred the global economy on the United States system as was Bretton Woods as we are witnessing the end of American economic dominance.

There needs to be something more modest. On Lateline Joseph Stiglitz said that there was a need for a financial product safety commission, a financial system stability commission and getting the economy going in the short run in a way that's consistent with long run needs of the US. The former, a financial product safety commission, would:

look at the individual products, like these credit default swaps, and make a judgment; are they appropriate for these, as I say, commercial banks that are taking care of other people's money.They might be appropriate for particular uses; for instance, if you are exposed to a foreign exchange risk you can insure against that foreign exchange risk, but not to gamble. So, one would look at the specific products and make a decision about what uses are they appropriate for, are they transparent, can we see what will happen?

The latter, a financial system stability commission, would:

look at the system as a whole, the financial market stability for the whole system, because what we've discovered is that AIG, an insurance company, was insuring Goldman Sachs, an investment bank, that the interrelations of the various institutions are so complex that each of them has become too big to fail. And if they're too big to fail, that means, and they know it. That means they have an incentive to take too big risks; and we've seen that.

Stigletiz argues for a broad role for governments in getting economies out of the crisis, particularly in America. His big picture solutions include calls for big public investments in infrastructure, education, and technology, but also energy.

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October 24, 2008

water

A few days ago Paul Walter commented

On another issue, sad this deafening silence throughout media and blog universe in the wake of this week's "4 Corners" of the ongoing water pork-barrel debacle.

True. It seemed to slip under the radar, or the bridge, or down the plughole, or whatever.

The programme raised a lot of issues that have been discussed at some length in the blogosphere which media doesn't do all that well, bringing together a range of perspectives. It's not too far fetched to say that the blogosphere had a better idea of what the consequences of buy backs might be than the government did.

Today tigtog over at LP mentioned it in the context of Senate Estimates Committees, pointing out that the beneficiaries are irrigators at the expense of towns which rely on local farming communities. Some of those communities have the option of applying local pressure for more sustainable practices, but that doesn't seem to be a topic of much interest. This is Australia, after all.

It was also raised by some of the blogocrats on an open thread

TB Queensland:

…did you watch 4 Corners last night - Penny Wong buying up riverside properties - a $24 million property sight unseen…

…killing towns along the river with no support after their farming communities sell water rights back to the government - need a bit more thought into infrastructure before the buying begins IMO…

Sight unseen is right, some interviewees suggested that the volumes of water so purchased were ridiculously overstated. In theory the promised volumes should materialise next time the flood plains do a bit of water catching, but in reality there's so much being diverted by anyone with a decent shovel that capacity on gigantic properties has more to do with wishful thinking than anything else.

Human dividend responded:

I saw it. Seemed to me that some of the biggest complainants were the ones who’d borrowed/invested $100,000,000 on h2o licences; personally I can’t sympathise. The most alarming thing, for me, was the gigantic artificial storages in your state TB & the fact that new developments were being approved! Who the hell was that Qld minister for (?) with the jowls & the arrogance, a contemptable creature who wasn’t convincing to say the least??? I thought Wong made a good point when pressed by the interviewer about why such money was being given as compensation to those who’d caused the problem to begin with..she said “so what’s the alternative?”…or something to that effect.

The 'ones who'd borrowed/invested' refers to one bloke who claimed to be saving the viability of the town, but it's also one hell of a business opportunity.

New developments are still being approved in Qld, and the arrogant, jowly fellow thought that was justified on grounds along the lines of Why should Queenslanders miss out on the action everyone else is getting?

Adrienofnowra:

Yeah even their Labor State colleagues are screwing the Labor Feds. The Queensland State government sold lots of additional water rights to farmers they knew were on the Federal government’s hit list for buy outs.

So much for a new era of cooperation between federal and state governments.

Other stand outs were the number of people who pointed out that it won't benefit the river system because for every buy back there are thousands downstream with channels, pumps and buckets at the ready. And these guys should know - a lot of them have been doing it themselves for years. It's something of a standing joke. Sure it's naughty, but what are they going to do? Arrest us all? Take away our shovels?

But the eye popper at my house was how little Ms Wong seemed to know about what was going on around the Qld/NSW border region. Maybe she knows a little more now, assuming she watched Four Corners.

Posted by Lyn Calcutt at 4:01 PM | Comments (16) | TrackBack

Costa, urban planning

The op-eds in The Australian by Michael Costa, the former Treasurer of NSW, give us an insight into the mentality of the Right of the NSW Labor Party - (currently headed by Obeid, Tripodi, Rozendaal) that now run the clapped out administration called the NSW Government.

Costa's latest on public infrastructure adopts the stance, and frame of, neo-liberal economics to have a go at those who advocate a shift to a more sustainable economy in our public culture. Costa says:

The growth of the "sustainability industry" is closely correlated with the emergence of green politics, particularly the anthropomorphic global warming religion of which Carr is attempting to become Australia's high priest...There is a tendency among the more extreme public transport ideologues to adopt a "Field of Dreams" approach to public infrastructure projects: build it and they will come. It is also true that many of these people are urban planners. The availability of appropriate public transport in dense urban environments is a logistical necessity.

These urban planners aim to to shape the urban environment around their personal green worldview that is ideologically based.

Spooner

Costa rightly says that the real debate is about what type of public transport, where it should be provided and at what price. Who could disagree other than add that the investment ought to foster the shift to a more sustainable mode of urban life.

Then he says that;

most urban planners have an elitist disdain for market-based land use outcomes. They are particularly hostile to the lifestyle preferences of Rudd's "working families", witness their hostility to the McMansion.

Maybe the urban planners are critical of McMansion style suburbia because that urban mode of life is not sustainable in terms of energy and transport in the context of climate change?

That is not good enough for Costa. Such an approach to urban planning and public transport provision for him is ideologically based as the urban planners views on global warming influence their urban planning approach. He illustrates this with reference to Peter Newman, a former NSW Carr government-appointed sustainability commissioner, and present board member of Infrastructure Australia. It is the scepticism about climate change ("the science is not in") that underpins Costa's antagonism to sustainability, public transport, urban planning, and urban planning elites advocating so-called urban villages.

Costa, no doubt, would see this negative stance as continuing his campaign to challenge Labor shibboleths after another begun with removal of tariffs, the deregulation of the economy, ditching centralised wage fixing and the embrace international competitiveness. He has little time for environmental concerns, talks in terms of the environmental McCarthyism of the Greens and public transport ideologues, and made his last stand as Treasurer on energy deregulation.

Costa, apparently is not an ideologue, despite his neo-liberalism and his view that it is not only 'elitists' that are pushing for more public transport.

Posted by Gary Sauer-Thompson at 4:47 AM | Comments (13) | TrackBack

October 23, 2008

Canberra Gaze

It's hard to make sense of the Coalition's attack on Ken Henry, The Treasury Secretary, in the Senate estimates yesterday. From the bits of the video that I've seen, the questioning came across as bitter and spiteful in the context of monetary policy necessarily being made on the run to deal with a financial crisis.

What is to be gained from Senator Abetz accusing Henry of lying, when Henry said that the Reserve Bank and Treasury worked as team in developing the advice to the Rudd Government to guarantee bank deposits? Why this approach?

The Coalition has avoided being being sidelined in the financial crisis debate, and it has been successful in establishing a voice on economic issues by highlighting how the Rudd Government overplayed inflation and underplayed the impact of the global recession on Australia. There is an important role for the Coalition to hold the Rudd Government to account by asking probing questions.

Legitimate questions do need to be asked: should the Reserve Bank Governor have been at the weekend crisis meeting when the issue was a monetary policy one?; how should we deal with the consequences of government guaranteed investments creating serious dislocation in the financial system?; should there be a cap or threshold on the guarantee?

The Coalition have been asking good informed question under Turnbull. They look professional in doing so. They were effective. Their questions revealed Wayne Swan to be narrowly political and partisan in his answers (eg., it is economically irresponsible to ask probing questions!), in spite of the Government's rhetoric of bipartisanship.

Accountability is what should have happened when Treasury secretary underwent an eight-hour grilling yesterday at Senate estimates over the bank deposit scheme, the economic stimulus package and his discussions with Reserve Bank governor Glenn Stevens.

Why call for Henry to be sacked as Turnbull did? Why call him a liar as Abetz did? Why say, as Liberal senator Mitch Fifield did, that "The witness is defying the committee"? What is the point of this political tactic? What were they trying to achieve by that?

You can see the resentment of the Coalition Senators---they are out of power and they do not like it. Their old habits of bullying to impose their will on the mandarins and to break them no longer works now they are in opposition. They looked a rabble wanting blood.

So why did they drop the professional mask that exposed the underlying nastiness by attacking the Treasury mandarin, rather than addressing the issues to understand the options that could be used to respond to the effects of the financial crisis on Australia? Losing it the way they did s not holding the Rudd Government to account through the powers of the Senate's committee system. Maybe they would have learned something beyond their talking points in the conservative echo chamber.

Update
That event in the Senate estimates was an abuse of accountability done to try and score cheap political points. The political strategy was one of breaking Ken Henry so that the Coalition could find the info they needed to attack Rudd and Swan. What the Coalition Senators saw was lies, subterfuge and cover up---the game they had practised for a decade---when Henry was telling the truth. The Coalition Senators came away with nothing.

Posted by Gary Sauer-Thompson at 7:41 AM | Comments (9) | TrackBack

political blogging

I saw Kieran Gilbert from Sky News Australia's Agenda program interview Steve Clemons, a political blogger in the US who runs the Washington Note, yesterday about the US election. It wasn't Clemon's observation on the Presidential race that I found interesting. It was the attitude of Gilbert to political bloggers. He took them seriously.

They were accepted by Gilbert as acknowledgeable and as having something of interest to say--a far cry from the abuse dished out by The Australian's hack commentators and the general put down attitude of many journalists in the mainstream media.

Agenda is very much a Canberra insiders program---an extension of the Canberra Press Gallery---that picks up and explores the political issue arising out of Question Time. It's format usually has an opposition Shadow Minister (occasionally a Minister) informing us of the stance taken that day in Question Time with video footage and then two senior journalists, strategists, commentators interpreting the significance of the political events.

Both its two weekday presenter--- Kieran Gilbert and David Spiers--- are political bloggers--if irregular ones. Agenda, it would seem, does not have much of an online presence.

Sure political blogging is accepted as an integral part of the media landscape in the US, which is not the case in Australia. The dumping of national political commentary by Fairfax's Age and Sydney Morning Herald and their transformation of these newspapers into infotainment and lifestyle; plus the decline of The Australian into conservative thought bubbles creates spaces for political bloggers to explore those aspects of political events that are ignored by the mainstream media through necessity. Quiggin on The Australian's false claim that the Reserve Bank opposed the government’s deposit guarantee is a good example.

The rise of the internet is causing structural changes to the mass media, since the business model that has sustained metropolitan newspapers and underwritten large newsrooms, is under severe strain as advertising, especially classifieds, migrates from print to online. The consequence is that Fairfax and Channel Nine have been shredding staff and programs, whilst The Australian increasingly defines its rationale in terms of a war with the Government, Treasury and RBA. Why make enemies of the latter two?

As the closed insiders media world in Australia, based on the mass media of the 20th century, changes and begins to develop online diversity, bloggers can use the digital platform to develop different perspectives and highlight different issues in a rapidly changing media landscape.

Australians can utilize the capacity of digital technologies to capture and respond to arguments with which they disagree--what Lawrence Lessig calls citizen-generated political speech --- based on media material through fair use doctrine of copyright law.

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October 22, 2008

the debt overhang

Barry Hughes argues the following in the Sydney Morning Herald:

Rudd Government's $10.4 billion package is seriously incomplete. It is a one-off splurge designed to fill in near-term domestic growth potholes over roughly the next six months until global recovery comes. But what if the global rebound runs late? What does the Prime Minister do for an encore? Presumably the answer is another package. Australia is in the fortunate position of having more budget flexibility than most.

Speculation on assets is a potential path to individual riches. But why should households splurge when they are in debt due to big mortgages and maxing the credit cards from participating in irrational exuberance and may be faced with unemployment? Secondly, all the signs are that the global slowdown will last quite some time--we are talking in terms of years not months.

Moir

it is going to take sometime to reduce that debt. Apart from Steven Keen who is dismissed as an alarmist, few commentators in the media seem to be willing to talk about household debt---over-indebted households--at a time of rising unemployment.

We should talk about debt. Under flexible exchange rates the main tool for stabilising the economy is monetary policy not fiscal policy. As Hughes points out, though the monetary policy (fiddling with rates and the like) of the Reserve Bank will be in the form of rate cuts designed to induce more borrowing. However, people will be unwilling to borrow and go into debt.

As Keen says on his blog about the economic crisis in Australia:

the root cause of this crisis is excessive debt that drove house and share prices to unsustainable levels. Times appeared rosy as the house (and stockmarket) bubble continued, but this was only because borrowed money was adding to demand.No-one worried about this when it was easy to flog a house for a higher price. But unfortunately, this game had to come to an end, because debt servicing became prohibitive as house prices rapidly outstripped incomes. The bubble burst first in the USA, and the carnage it has wreaked there should warn us all that asset price bubbles are dangerous.

The newspaper headlines are going to be about repossessions of homes as people fall behind in their mortgages, not about buying new cars or plasma TVs.

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October 21, 2008

political satire: Sarah Palin

From Saturday Night Live. An interview with Governor Palin after the advert which has been sneaked in.

There is a classic moment here in which "Palin" just loses it in explaining how the Republicans will deal with the financial/economic crisis. She tangle herself up in knots and then just gives up. Classic. Another video in the Saturday Night Live's Tina Fey Palin impersonation series is here on junk for code.

It is a common liberal media trope---also found amongst some Republicans --- to see Palin as exemplifying an anti-intellectual strand of American politics, and its ascendancy on the right as the conservatives continuing the Bush war against liberalism in the name of “common sense”. That Republican commons sense holds that Republican America is pro-America and equals real America. Democratic America is alien and impure. It is anti-American.

That opens a window to the political unconscious of the American right. In this unconscious, given expression by Palin, socialism has become another code word like "liberal," for being "anti-American." On the surface socialist stands for Democrats wanting to increase the role of government, raise taxes, increase spending and strangle the free market with overbearing regulation. This would resonate with the Republican base but would fall flat when the government tis intervening to help with the economic challenges facing the country.

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optimism surges

Optimism returns. O happy days. The governments (the G7, the EU and others) have rightly committed to do whatever is necessary to do the right thing for the financial markets. They have done the right thing and a total systemic financial meltdown has been avoided. The stock market has reached the bottom and now surges upwards; interbank markets and credit markets are mending; and the the stomach-churning market gyrations of the last six weeks are now economic history. To be haunted by the past is for sickly weaklings. The future beckons.

Australia can avoid the looming economic crisis. Three cheers for Keynes. There won't be another Great Depression, just a bit of belt tightening. Nothing really serious. The fundamentals are solid. China's growth is slowing.

If the optimists are back in town and busy sending out their Panglossian press releases, then they have forgotten that this financial meltdown is the latest in a succession of financial crises that have struck periodically over the last 30 years; and that this crisis has its roots in the way the global economy has worked in the era of financial deregulation. So the crisis is systematic. That does no look good for the US.

Any developed country that receives a huge and sustained inflow of foreign lending from the surpluses of emerging economies (China, Saudi Arabia etc) runs the risk of a subsequent financial crisis, because external and domestic financial fragility will grow. The consequence of being in this situation is that United States is heavily dependent on China to buy the Treasury bonds needed to finance a bailout of the American financial system. Will China continue to do so? The power is shifting to the East.

The United States is economically vulnerable since spending on America's crumbling infrastructure, its inefficient health care system, and environmental programs will be limited by the Everest-sized public debt that now stands at more than $10 trillion. That debt is not going to go away. Are they going to use debt to pay for a Congress Democrat fiscal stimulus package that would direct government money to consumers to lift a sagging economy?

The bell is tolling quietly on a nihilistic US casino capitalism, and few realize that it is tolling the end of a mode of life based on irrational exuberance. Twilight is falling. The highest values have been devalued.

Will the return of the Panglossian optimism mean that the critical reflection on the way that the standard economic commentary has been dominated by the cheerleaders for the policies which have led to this crisis be forgotten? Will there be critical reflection on the way that while the authorities themselves and the academic profession of economics itself have turned a blind eye to any arguments that questioned the mantra in favour of deregulated finance capital?

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October 20, 2008

a different form of political reasoning

Colin Powell's endorsement of Barack Obama on Meet the Press was based on a form of public political reasoning that addresses issues not personalities, and engages in analysis not demonization. It is also a thoroughgoing critique of McCain's more or less issue-free, fear-mongering campaign, and a rejection of the politics of scapegoating and bullying of ethnic minorities that have defined the Bush years.

He explicitly rejects the Rudi Giuliani and Mitt Romney line that appeals to anti-Muslim bigotry to garner votes for Republicans by saying that while of course Obama isn't a Muslim, there would be nothing wrong if he was.Powell says:

Well, the correct answer is: he is not a Muslim. He's a Christian. He's always been a Christian. But the really right answer is: What if he is? Is there something wrong with being a Muslim in this country? The answer is: No, that's not America. Is there something wrong with some 7-year-old Muslim-American kid believing he or she can be president?"

Powell called Obama "a transformational figure," praised him for his "inclusive" campaign, his "intellectual curiosity" and his leadership.The right wing isn't going to be too happy about Powell's endorsement of Barack Obama.

Is this Powell's redemptive moment for the role he played in selling the Iraq war?

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McCain slides and slides

Things don't look good for the Republicans in the US given the difficult economic situation in the US for many households. It is not obvious that the Republican fear and smear campaign---the "Obama-is-a-Muslim" line of GOP attack --is going to enable McCain to catch the lead Obama has established in the polls, raising money and crowds at rallies. The Democrats look as if they are working to build a majority in Congress .

The trouble is that the talking points that paint Barack Obama as anti-American is all that attack is all they have. McCain's response to the economic crisis has been poor, the Republican brand is shot, and the concern in 2008 is health care plans, regulatory schemes and unemployment benefits. McCain's response to the structural economic crisis is more tax cuts, and these by themselves, are not enough to prevent the Republican wreckage or reflate the American economy.

Tax cuts are not enough since the shift of income shares away from wages and consumption, toward profits, has characterized the pattern of economic growth and development over the last twenty-five years. There has been a widening gap between rich and poor, or rather between capital and labor; decreased productive business investment, rising federal deficit and a skyrocketing current account deficit and declining economic growth.

Some form of job creation is needed to counteract the falloff in consumption and so help economic recovery. Barack Obama has released a "rescue plan for the middle class" that would give businesses a $3,000 refundable tax credit for each American job created and finance public works projects that the campaign estimates will create or save one million jobs.

McCain's attacks against Obama have boomeranged. The election is in 17 days, and McCain's "straight talking" express needs something to upset the dynamics as Obama keeps producing stories and events that sustain his momentum and run out the clock. McCain---"I will fight for America"---doesn't understand that a crumbling U.S. economy might change America's global stance by constraining America's freedom of action internationally. He does not sense the growing disparity between the historically hegemonic role of the US on the world stage and its diminishing capacity.

The Republicans are going to have to rebuild after 2010. Maybe they can do so by cultivating ignorance as a political strategy.

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October 19, 2008

granted

We already know that the original first home owners grant increased the 'value' of homes by approximately the amount of the grant. In the current economic climate you'd have to figure that the new, improved grant has as much to do with maintaining high housing values as it does with anything else, politics being what it is.

Ken notes that whatever they're nominally intended to do, in practical terms home buyer and rent assistance schemes don't have much to do with housing the verb, and everything to do with housing the economic indicator.

Still, it was rather disturbing see last night's broadcast of The Fantastic Four punctuated with ads for Devine Homes gushing over the possibilities now on offer. As if the movie wasn't bad enough on its own.

"Up to $32,000 worth of grants available" say the ads and the website. If you organise the first $21,000, we'll take care of the rest and you can be in your new home with your new mortgage before the ink is dry on your local newspaper headline "Artificially inflated property values tumble".

Not so long ago current affairs shows were treating us to the spectacle of mortgage defaulters losing their homes following yet another interest rate rise on mortgages they shouldn't have been able to get in the first place. Amazing how quickly things change, and still manage to stay the same.

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Keynes et el

A quote from John Maynard Keynes, written in March 1933.

We have reached a critical point. We can ... see clearly the gulf to which our present path is leading. If governments did not take action, we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what ultimate outcome we cannot predict.

Keynes, an English liberal, aimed to preserve the market economy by making it work. In The General Theory of Employment, Interest and Money (1936) he argued that economic downturns are not necessarily self-correcting, as held by free market economists. The classical economists held that business cycles were unavoidable and that peaks and troughs (or booms and busts) would pass. They thought in terms of an artificial world of slight deviations from equilibrium.

Keynes contended that in certain circumstances economies could get stuck.

There was a certain stickiness as it were. If individuals and businesses try to save more, they will cut the incomes of other individuals and businesses, which will in turn cut their spending. The result can be a downward spiral that will not turn up again without outside intervention. So the government of a nation-state pumps money back into the economy by some means, such as spending on public works, to persuade individuals and businesses to save less and spend more themselves.

Hayek's response in the Road to Serfdom was that the application of Keynes policies gives too much power to the state and leads to socialism.

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October 18, 2008

the illusions of the economists

The neo-liberals are currently covering up economic reality by highlighting the failure of their core economic orthodox----that financial markets are effective, stable and self-correcting mechanisms. They are doing this by mocking those on the left who are apparently saying that we are living the history of capitalism's failure and end.

Leak

If you peel away the mocking, derisory tone, then we find that the neo-liberal economists are rather quiet about what went wrong with their theories, despite their claim that they stand in the tradition of scientific rationality and its testing of hypothesis through evidence. Their rationality now looks akin to dogma. So we need to go here to learn about the fundamental causes.

What we have is a particular cycle: credit expansion fueling growth and asset price inflation, resulting in undue optimism and receding perception of risk, followed by financial collapse and unpredictable financial interactions and economic consequences. Another serial bubble that has been pricked (a Minsky moment). But why do we have serial bubbles?

The free market economic commentators just change their tune---embrace Keynesianisms--- and hope no one notices. Thus Alan Wood says in The Australian:

These important issues [extending a government guarantee for bank deposits to nonbanks] don't change the conclusion that the tide has turned in credit markets, but along with other pressures do suggest a fundamental reshaping of financial institutions and the financial system. And what about this week's fiscal policy spendathon? A sensible move, but will it save the Australian economy from recession? At this stage all that can be prudently said is that before it was announced the spread of recession from the big economies to Australia looked inevitable, but there is now a reasonable chance we might avoid it.

And so a huge government intervention into the free market is rationalized as "the tide has turned." This covers up the need to address the issue of financial markets being nothing like effective, stable and self-correcting mechanisms; or the fundamental reconstruction of financial architecture that is taking place with partial nationalization of the banks.

Wood, it would seem, does not understand his own economic system or the self-destructive forces (contradictory tendencies in Marxist language) that drive it's movement and requires good old-fashioned Keynesian fiscal policy or stimulus package. Keynes, for the neo-liberals, was not just wrong; he was not even intellectually respectable.

Nouriel Roubini's predictions of how the credit bubble would implode have turned out very accurate. But he says hardly anything about what drove the expansion of the bubble in the first place, beyond mentioning 'reckless financial innovation and securitization'.

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NSW by elections

It would appear that the dysfunctional Rees Government in NSW is going to suffer some body blows from voters wielding baseball bats in the byelections in the safe seats of Cabramatta, Lakemba and Ryde. Huge swings are expected.

And why not.This is an incompetent corrupt state government that does not deserve to be in power. An example. As the Sydney Morning Herald says:

Supplies are so scarce at Dubbo Base Hospital that it is borrowing bandages from the local vet...Just three weeks ago, a doctor had to use $770 of his own money to buy reagent for urgent blood tests because the hospital had run out of credit with the supplier, while endoscopies have had to be rescheduled for lack of sterilisation fluid. There are also routine shortages of such basics as surgical gloves and garbage bags. This would not be acceptable in a clinic in a remote corner of a Third World country, let alone at a 134-bed teaching hospital in a major regional centre of NSW.

The reason for the lack of supplies is that NSW Health does not pay the bills. This is not an isolated case. The Herald says that tens of millions of dollars are currently outstanding to suppliers from half of the state's area health services: Greater Western (covering Dubbo), Northern Sydney/Central Coast, South Eastern Sydney/Illawarra and Greater Southern. Patient safety is compromised by a refusal to pay bills by the NSW Health Department since many suppliers now refuse to grant credit to NSW hospitals.

NSW Health refuses to reveal how much it owes. It's crisis management response is to gag its area health services. Presumably NSW Health has no money or it is incompetent. Either way the NSW Government deserves to be thrown from office.

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October 17, 2008

political rhetoric of Rudd + Co

Dennis Shanahan in The Australian makes a good point about the political rhetoric of the Rudd Government.Shanahan says:

Rudd faces the difficult problem of selling diametrically opposed messages: Australia is better off than the rest of the world and our banks are the safest in the world, but we are in dire need of guaranteeing those banks and blowing the budget surplus.Health Minister Nicola Roxon was caught in this contradiction by suggesting - only a couple of hours after Rudd and Swan had blown $10 billion - that the Coalition's opposition to the Medicare levy in the Senate was endangering the surplus.

The Ministers work in terms of set lines or talking points, always repeating the same message over and over again until the new lines or talking points are devised. The media usually goes along without paying much critical attention to political rhetoric and the way that it is out of kilter with reality.

What we are presented with by the media professionals is an emphasis on particular words, such as "working families"; or an insider's reconstruction by a senior columnist of what happened inside government circles by a senior columnist in response to particular in events.

The gasp between reality and rhetoric has been marked with the global financial crisis. The Rudd Government knew its significance as a global crisis around March 2008 and its the effects on the world economy. Rudd decided to prepare an economic stimulus package for Australia and commissioned a series of papers.

Not a hint in the political rhetoric. Ministers were still rabbiting on about protecting the surplus, fighting inflation and China providing Australia's insurance policy to sustain its economic growth. As Stuart Middleton, Postdoctoral Research Fellow in Business at the University of Queensland, said in Crikey::

The Rudd Government was slow to acknowledge a financial crisis...At this stage [10 October] Rudd Government rhetoric shows no indication of a financial crisis. Emphasis is on world, global, and Australian financial markets, but there is no negative connotation with these, such as "turmoil". A good example is Rudd’s summary of the problems on 10 October in an interview with ABC Radio: "I think, overall, what we face is a broader problem of a lack of a demonstration of global and coordinated political will to deal with some of the deeper regulatory challenges that we now face, and that, I believe is a key part of the confidence equation and that must be addressed as the Finance Ministers meet in Washington this weekend."

Rudd is careful to talk of administrative solutions to what he perceives as a confidence issue. The Government’s talk at this time is therefore of a strong economy. It only definitively and unreservedly discussed a global financial crisis on 14 October, after the notion had appeared in the media over a period of several days. Yet they knew in March.

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October 16, 2008

credit default swaps market

Wasn't it only Monday that global sharemarkets soared like a bird on the wing with commentators on Tuesday saying that we had stepped back from the abyss, the stockmarket had bottomed out, credit was flowing again, the storm clouds had moved on, and sunshine was on the way with Rudd's recession buster?

Now its sliding down again on fears about recession in the US, as its economy now has tremendous downward momentum. What of the unregulated $90 trillion global credit default swaps market? It seems to have been forgotten. Janet Morrissey in Time magazine says:

Credit default swaps are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt and mortgage securities and are sold by banks, hedge funds and others. The buyer of the credit default insurance pays premiums over a period of time in return for peace of mind, knowing that losses will be covered if a default happens. It's supposed to work similarly to someone taking out home insurance to protect against losses from fire and theft.

An exciting product to make some quick and easy money during boom times. When the economy is booming, corporate defaults are few and making the swaps a low-risk way to collect premiums and earn extra cash. Initially the swaps focused primarily on municipal bonds and corporate debt in the 1990s, not on structured finance securities. Investors flocked to the swaps in the belief that big corporations would seldom go bust in such flourishing economic times.

The CDS market then expanded into structured finance, such as CDOs, that contained pools of mortgages. It also exploded into the secondary market, where speculative investors, hedge funds and others would buy and sell CDS instruments from the sidelines without having any direct relationship with the underlying investment. They are a form of "derivatives"---complex bank creations in which the basic idea is that you can insure an investment you want to go up by betting it will go down. The simplest form of derivative is a short sale: You can place a bet that some asset you own will go down, so that you are covered whichever way the asset moves.Credit default swaps are the most widely traded form of credit derivative. They are bets between two parties on whether or not a company will default on its bonds.

When the economy soured and the subprime credit crunch began expanding into other credit areas over the past year. Would the parties holding the CDS insurance after multiple trades have the financial wherewithal to pay up in the event of mass defaults? The problem is lack of regulation:

Banks and insurance companies are regulated; the credit swaps market is not. As a result, contracts can be traded — or swapped — from investor to investor without anyone overseeing the trades to ensure the buyer has the resources to cover the losses if the security defaults. The instruments can be bought and sold from both ends — the insured and the insurer.

Trouble looms as the derivatives are often three times the value of the debt they are created against.

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October 15, 2008

Jon Cleese on Sarah Palin

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The Washington Post

I used to read the Washington Post on a daily basis. Though its email pops into my Thunderbrid mailbox daily I rarely read the paper. I gave up because of the poor quality commentary in its opinion pages.

An example is this op ed on the financial crisis by Steven Pearlstein. It defends Hank Paulson's international leadership thus:

Since Lehman's failure, Paulson has moved faster, more aggressively and more deftly than any of his international counterparts in doing whatever was necessary to stabilize the financial system. Yesterday, he and his collaborators at the Fed and FDIC threw everything they had at it -- flooding the banking system with an unlimited supply of dollars, expanding deposit insurance, putting a guarantee on new bank debt, injecting capital into healthy banks, giving the Japanese the assurances they needed to rescue Morgan Stanley, and doing nothing to discourage free-spending Democrats from their plans to offer another big economic stimulus plan.The result: the biggest one-day rally on stock markets in 70 years.

Really? Paulson was simply following the lead of Gordon Brown in the UK, whom Pearlstein never mentions.

Steve Bell

Paulson in the beginning had vehemently rejected Brown's temporary part-nationalization which was a form of “equity injection. Instead he advocated government purchases of toxic mortgage-backed securities.

Europe doesn't count for Pealstein as his attention is directed towards selling Paulson as a great leader and beating up Wall Street. Pearlstein won the 2008 Pulitzer Prize for Commentary!

Posted by Gary Sauer-Thompson at 7:18 PM | TrackBack

how things have changed

The politics of prosperity that framed Labor's rise to power less than a year ago have transformed into the emerging politics of austerity. Austerity is not inflation---it is recession looming. Main Street may go bust, as it were. The world really has changed is the new economic narrative. Inflation is not the central concern. It is possibility of recession and a surge in unemployment that are the central policy problems, and then how to how to soften the slide.

Now it was only last week that Rudd and Co were trumpeting an IMF report that Australia was doing well---- a relative soft landing for Australia, with the economy expanding by 2 per cent-plus through 2009---- and the economic advisers in Treasury and the Reserve Bank were saying that China's growth was Australia's insurance policy. No worries. The world should be looking at us and so on.

My my how things have changed in a matter of days. First, there was the emergency government banking guarantees. Now we have Keynesian pump-priming to help kick-start the slowing economy:

We have a fiscal package that is worth a total of $10.4 billion, of which $9.65 billion will be spent in 2008-09, and which is targeted at pensioners, families, carers, seniors card holders and first-home buyers. They are being told to spent it quick smart. That is nearly half the previous budget surplus of almost $22 billion expended in one substantial hit around Xmas.

It can mean that they--the policy makers and ministers-- fear the risk of a deep recession in the global economy impacting heavily on Australia. The inflation hawks or policy mandarins at the RBA, would not have produced the 1% cut last week if they were concerned about inflation. So what happened to the first fiscal stimulus plan (the big tax cuts for households) announced in the 2008 Budget? Not working as a fiscal stimulus? Spent on shares?

So what was all that upbeat optimistic talk of the past two months about? Spin? Or have they--the policy mandarins at Treasury and the Reserve Bank--- just put the looming recession picture together: ---a global financial crisis, slowing global economic growth led by the teetering US, UK and European economies, falling prices for Australian commodities, the dollar has plunged, unemployment is going up, business and confidence indicators in Australia are dropping, and household debt levels are very high.

Or have the policy makers dumped their modeling since it doesn't work when faced with the extent of the damage that has already done from the fallout of the crash in stock markets and financial markets? Or did the policy makers look up from their modeling, peer into the abyss of a global recession and remember Keynes' advice on using fiscal policy to boost aggregate demand?

It's odd that Rudd Labor----Swan in particular--- are now trying to sell a message that they knew what was happening all the time and they were on top of it. What utter nonsense. They had little idea of what was going to happen. Few did.

This kind of fiscal stimulus does imply that the private sector is not spending and/or cannot spend. Consumer demand is down and business investment is falling. If old fashioned traditional Keynesian spending by the government is now deemed necessary, why isn't it embracing infrastructure, the development of new green technologies that addresses the reality of climate change, rather than shipping more coal and minerals to China.

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October 14, 2008

ACT elections: Labor slides

There is an election on Saturday for the ACT Legislative Assembly and it is widely expected that the Labor Party Government of Jon Stanhope will lose its historic majority. It's just a question of how significant that swing is. Labor sounds and looks complacent.It has become too used to dominating politics in Canberra.

The issues are unclear but they seem to circle around health and education (public schooling) even though the campaign has lacked debate on the future of the ACT, or it has little to do with a contest of ideas on any serious public issue. It is unclear how the major parties see the future of the ACT under climate change. For instance, where is Canberra's water going to come from in a warmer world?

The history is that Canberra voters have elected five minority governments in the past six elections, thereby inserting checks and balances into the unicameral parliamentary system, and they are expected to do so again. The Greens could win up to four seats in the 17-member chamber, thereby capturing the balance of power. And they are happy to work with Labor or Liberal.

The proportional electoral system used for the Legislative Assembly in the ACT gives a boost to minor parties and Independents. Will Labor supporters park their votes with the Greens as an alternative to a Labor Government that has definitely lost its gloss?

The Greens are seeking "an all party pledge" to improve and strengthen the open, community-consultative style of government by:

* to respect the vote of Canberrans at the election, and to agree to work positively in minority government, if elected;
* to not make misleading statements, misrepresent the policies of other parties or place misleading advertising;
* to explore areas of policy agreement after the election in order to formulate an agreed policy programme for the benefit of Canberrans, which recognises the challenges of climate change and financial uncertainty;
* to outline the Government legislative and executive program at the beginning of each year to be submitted for community consultation;
* to support a review of Assembly procedures to ensure adequate scrutiny of Government is occurring and to increase public participation in decision making, including improved oversight of legislation by the community and cross-benches;
* to guarantee that new legislation be publicly released prior to introduction to the Assembly with sufficient time to allow community input.

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October 13, 2008

US decline

The financial crisis is an indication that the US is in decline as a superpower. It is ensnared in Iraq and Afghanistan, is unable to resolve the financial crisis and is in debt. That means a very different geopolitical landscape is forming as the tectonic plates of geopolitics shift.

If we recall the Bush administration's dreams of only five years ago, then, they were convinced that they would create a Pax Americana globally and a Pax Republicana domestically that would last generations. Pax Americana has come unstuck due to unsustainable economic and military policies; an overextending itself and doing so by running up a lot of debt.

Now the US's economic position looks precarious, it does not look as if the US is willing to get at some of the root causes of its problems even though we now have a multipolar world.

Eight years of Republican administration has meant that America is poorer, weaker, and more isolated and vulnerable than it has been in several generations. The Republican base, which has been in a rage for some time, is looking around for someone or something to blame. So the Republican strategists persuade them through smears to hate black people. Will the strategy work as the economy heads into recession?

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October 12, 2008

frightened horses

It can't be a good thing when your support base starts scaring people. Rallies and town hall meetings are supposed to fill our tv screens with cheering, happy, enthusiastic, bunting-bearing, optimistic supporters and elevate our feel-good meters. It's not quite turning out that way for McCain.

Nicholas Gruen is prepared to give McCain the benefit of the doubt, figuring he's probably a decent person in real life:

Anyway for whatever reason, after fanning the flames of hatred towards Obama - “is he one of us?” - McCain seems to have gone to one of his town hall meetings and deliberately tried to hose down the psychosis amongst (a quite sizable group of) those attending his rallies and town hall meetings. Is this because he’s reverted back to the ‘earlier McCain’ who was supposed to be a person of integrity come what may, or is it just the latest knee jerk change of pace when confronted with the failure of his escalating divisiveness.

Maybe he is a decent person, but it's not McCain that some people are finding so alarming. Rather, it's the values, beliefs and behaviour of some of their fellow Americans.

Nicholas' favourite lefty, Kathy G, posts a bunch of YouTube videos of McCain supporters being scary, although to be fair, they're being stirred up for the cameras. She says,

I am seriously scared for my country. In my entire life I can't remember when the nation has been gripped by an angrier, uglier mood. And the worst of the financial crisis and accompanying economic meltdown hasn't even begun to hit yet. If this is what it's like now, what will it be like later?

I'm trying not to be a drama queen about this stuff, but honest to God, I am very scared for Barack Obama. Just watch those videos again. Look at the faces of those people. Listen to their voices. I don't know what's scarier: the ranting hysterics, or the ones who, with cool, calm, unembarrassed certainty, aver that, oh yes, of course they know that Barack Obama is a terrorist who hates America.

A terrorist who hates America and organises dead people to vote for him. It's the sort of thing that's worked for the Republicans in the past, but it's just not anymore. It's all rather firewall campaign-wise, but what of the longer term social fallout?

Cam's got a pretty pie cloud which suggests that the Republicans are in a tad more trouble than the temporary kind you get when you make bad candidate choices. He anticipates a Presidential and Congressional blood bath. Appealing to the poor and uneducated while running the country badly turns out not to be a winning combo after all.

Newspoll currently has Obama leading 52-41 a month after they were tied at 46. And he's taking the Electoral College as well.

Not defending nastiness here, but it's hard to imagine how these people who truly hate and fear Obama will cope if he wins. What would it be like to be saddled with a President you honestly believe is a terrorist-loving, military-hating, baby-eating traitor? How much worse would it be if it turns out to be the landslide anticipated? Worse again when it happens in the current financial climate. John 'America First' McCain could do worse for his supporters than thinking on such matters for a while.

Posted by Lyn Calcutt at 10:37 AM | Comments (13) | TrackBack

October 10, 2008

getting things right

Desperate times call for desperate actions, decisive action and strong leadership. What is not acceptable is to allow things to get out of control. Government's have discovered the public good as distinct from self-regulating markets.

Steve Bell

In The Australian Michael Costa observes that:

In this era of globalisation and message-management politics, the key political challenge is to appear to be relevant. Globalisation means the Keynesian-inspired national macro-economic tools of the past are, assuming they ever worked at all over the longer term, largely irrelevant. The political consequence is there is little that the Prime Minister of a relatively small, geographically isolated economy can do to influence global events.

Costa adds that since the effective economic levers under the direct control of national politicians have almost all disappeared, so Rudd ought to try to stop trying to create the perception that he is providing solutions for things substantially outside his control.

Rudd's response to this is that he has in its power to manage the Australian economy so that the growth machine keeps ticking over and the impact of a recession is minimal.

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October 9, 2008

the standard economic narrative

Mike Steketee in The Australian says that Labor governments in Australia are fated to deal with economic crises. He adds, with respect to the current financial crisis and spooked markets, that:

Less than a year in office, the Rudd Government faces the worst episode of global financial instability since the Depression. Its prospects of matching the Scullin government's unenviable record of losing power after one term hang on Australian financial institutions avoiding the collapses suffered by their counterparts overseas and the nation not sliding into recession alongside the rest of the developed world. Whether or not voters blamed the Government directly for a failing economy may be less important than the souring of the political mood that would come with mounting job losses and shrinking personal wealth.

Rudd faces the possibility of being undone by a Depression is the argument. Steketee adds that what the Government can do to influence these events is limited. This is the reality in a world integrated by trade in goods, services and finance and there is no way of insulating Australia against a worldwide recession.

This bleak scenario is then qualified. Australia's cushion is strong growth in China and India, its main banks, are "in first class working order", whilst it has "we have the best regulatory system in the world". It's the standard narrative ---trust our banks---repeated by Steketee without a critical edge.

What of falling house prices? The plunging dollar? The current account deficit? Consumer debt? The focus of this narrative is all on the banks, regulation and easing the liquidity freeze. Have faith in our banks is the sub message and the assumption is that things will return to normal. Yet we have a bursting housing bubble, highly indebted consumers who are facing falling house prices in Sydney and elsewhere, rising unemployment and reductions in household wealth.

What we know is that the long economic expansion in Australia is over. Market prices for coal and iron ore have dropped below the highs established in this year's contract negotiations. That means growth slowing and consumer spending contracting.

What about all the infrastructure spending that is needed to keep Australia growing. Who is going to finance that nation building? The assumption that it will be private public partnerships no longer looks realistic as the private investors flee from risk taking.

Are we looking at a Depression scenario in Australia ? What we can say is that growth slowing, consumer spending is contracting and market prices for coal and iron ore have dropped below the highs established in this year's contract negotiations.

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October 8, 2008

where's the global governance?

The global financial system has been under severe stress for more than a year, and there should have been carefully thought-out contingency plans ready to roll out in case the markets melted down. Obviously, there weren’t, and so the global financial system has been without any form of global governance. As far as I can see any form of rescue of the global financial system is one that will almost surely involve the governments of the nation states taking partial, temporary ownership of that system:

Ingram Pinn

The de facto leadership of the global financial system has been the US Treasury and the Federal Reserve because the US was the hub; but both institutions have shown themselves to be inadequate in terms of their governance. After a long period of denial, they have been simply making it up as they go along, and in doing so they have not shown global leadership.

As the recession in the US is now going global, with industrial economies on the brink, and trade and financial shocks threatening the developing world, it sure does not look as if the IMF can save the world. The International Monetary Fund has been noticeable mainly for its absence and it has been sidelined. Nouriel Roubini advocates a multi-pronged policy approach to the crisis, including:

1) coordinated interest rate cuts by all major world economies; 2) a move by the U.S. Federal Reserve to guarantee that it will provide liquidity in the event of any major bank run; 3) increased Fed action to provide short-term liquidity to non-bank actors that lend to corporations; and, if that doesn't work, 4) a willingness to make short-term loans directly to corporations.

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October 7, 2008

ever downwards into mythology

The credit crisis appears to have shifted from the US to Europe, where governments from Brussels to Copenhagen to Berlin hare rushed to shore up their faltering banks. Britain's Chancellor of the Exchequer, Alistair Darling, is reportedly considering giving banks billions of pounds in return for shares to shore them up in the face of the global credit crunch. Stock markets continue to tumble and the US, Europe and Japan are more or less in recession, thanks to the global credit crunch. The banks are still refusing to lend to each other and healthy companies cannot roll over their debts.

Moir

The global recession is being transmitted to Australia through the seizing-up of global credit markets, the sharp slide in commodity prices and the falling Australian dollar. The boom has busted. Australia looks vulnerable----the current account deficit is our biggest problem. We are borrowing $60 billion a year whilst enjoying the best terms of trade in history.

We can reject the view that the market is a "self-regulating" mechanism which can correct itself as Alan Greenspan maintained. He also maintained that the greatest danger facing the economy was that governments will endeavour to reassert their grip on, and intervene into, economic affairs. The events of the last couple of weeks show that is no "invisible hand" as the neo-liberals maintain, so there is nothing inevitable or "natural" about the way markets work. They are always shaped by political decisions.

Of late, Greenspan has been calling for governments to reassert their grip on the economy in the form of the bail-out.The inference? The neo-liberal talk of the invisible hand and self correcting markets since the 1970s is mythology. Greenspan, once the oracle of the mythology of the financial markets has been praying a lot to shore up his faith in the market as a self-regulating mechanism that is driven by “irrational exuberance”. The prayers aren't working as they should because the bailout hasn't given an immediate lift to restoring confidence in the US financial system. That is what it was designed to do --restore confidence so that the banks would start lending. Instead we have a global panic.

Update 1
Things must be serious in Australia. The Reserve Bank has reduced interested rates by 1%, twice as much as the market economists expected. This is the reasoning:

Economic activity in the major countries is also weakening, and evidence is accumulating of a significant moderation in growth in Australia’s trading partners in Asia. The expansionary effects of the recent surge in Australia’s terms of trade are still coming through, but some decline in the terms of trade now looks likely over the coming year, with many commodity prices having declined from their peaks. This, combined with the likelihood of below-trend growth in the global economy, suggests that global inflation will moderate in 2009.

Thus far, the overall path of economic activity in Australia appears to have been close to what the Board had expected, with the needed moderation in demand occurring. The next CPI is likely to show an increase of around 5 per cent over the four quarters to September, but the Bank remains of the view that inflation will start to decline in 2009.

The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected. Should that occur, inflation would most likely fall faster than earlier forecast.

So the Board judged that a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy. That shift from inflation to slow global growth is some turn around.

Update 2
It looks as if the US financial system - including the system of financing of the corporate sector - is now at risk of a systemic financial meltdown. We're seeing a generalized liquidity run that expresses a situation of generalized panic and lack of trust in financial inst

Posted by Gary Sauer-Thompson at 7:56 AM | Comments (9)

October 6, 2008

McCain paddles on

McCain now faces an uphill task, despite Palin being the bright, shiny object of Republican male desire and family values. America is becoming a different nation: the economy is on the skids , the empire in retreat and Wall Street tanks. Will McCain and Palin play the role of the attractive bully and retain the hope of Republican Main Street and Fox News?

Bromely

The Guardian reports that the economic crisis has led to a haemorrhaging of Republican support over the last two weeks. Polls and reports from Democratic and Republican campaign staff on the ground suggest that a seismic shift is taking place in the electoral map in favour of the Democrats. Obama is making inroads into states once regarded as safe Republican areas, while the number of states in which McCain is competitive is narrowing, mainly because of the Wall Street collapse.

I'm not so sure that it is that cut and dried. McCain can still win narrowly--like Bush did. And even if Obama wins we can expect little more than the restoration of Clintonian neoliberalism behind all that rhetoric of change. Still, that is better than the 4-8 years of the Bush Republicans.

So what then for McCain? A turn in tactics? To negative adverts? A smear campaign? To shift the campaign discussion away from substantive issues, such as the economy or health care? McCain needs to try and divert attention from the economy as Obama is riding the electoral wave

There isn't a single 2004 Democratic state in play now -- New Hampshire, Wisconsin, Michigan and Minnesota are all showing double digit leads for Obama. Of the 2004 Red states,Obama leads in Iowa, Florida, Colorado, New Mexico and Virginia are all clear of 5% for Obama as an average across all polls, and second tier gains such as North Carolina and Missouri are showing a tie-2% lead.

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reinventing

News and current affairs discussion continues to redistribute itself around the internet.

Crikey has been adding to what you could now reasonably call a stable of blogs and for the most part, previously un-Crikeyed blogs have taken commenters and their peculiar habits with them. Trevor Cook is about to take up a stall there and John Quiggin is weighing up the pros and cons. Whether you think that's a good or a bad thing seems to have more to do with independence, advertising and page layout than what you think the blogosphere is for, if comments at Quiggin's are any indication. That suggests to me that most commenters think of blogs in author/owner terms rather than seeing them as participatory space.

An interesting development happened when Tim Dunlop retired Blogocracy. Commenters described a real sense of loss, of Tim, Tim's pieces, and the sense of community they shared. There were a lot of "Where will we go now?" comments. What happened after that suggests that Blogocracy regulars had a different conceptualisation of what it's all about than Quiggin regulars.

Blogocracy regulars joni and stuntreb have set up their own blog, Blogocrats, which is how Blogocracy regulars described themselves. They chugged along quietly for a while until someone in comments at George Megalogenis' Meganomics gave them a plug, and now they're in the process of a happy reunion. How the News Ltd people feel about that is anyone's guess, but they've been trimming their own "blog" stable for a while, so it probably doesn't bother them all that much.

Ad astra from the old Possum Box has volunteered to become a contributing blogocrat as well as running his own blog The Political Sword, which is as new as Blogocrats and does some interesting things with the standard media coverage of politics.

But wait, there's more -

Terry Flew has uncovered some rather nasty, if not entirely unpredictable, news for citizen journalism enthusiasts. You can't knock $9 billion off Apple shares with a prank and expect to get away with it.

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October 5, 2008

conservatives + democracy

Niall Lucy and Steve Mickler's The War on Democracy: Conservative Opinion in the Australian Press identifies Australia's conservative movement as seeking to comprehensively replace the notion of 'democracy as social progress' (with inherent safeguards for minority groups) with an understanding of 'democracy' as mere representation of the will of the majority. For Australian conservatives, they argue, democracy is not about protecting all within the social body; it is about protecting a variously defined 'majority'. Thus, a democracy is not government by will of the people, but government by will of the majority.

So conservatives see Prime Minister John Howard as a democratic leader, not because he gives expression to the rights and interests of the least powerful individuals and groups in a society, but rather because he represents the will of the majority.

Protecting a variously defined 'majority' is a "repressive liberalism", particularly in relation to immigrants in Australia. When Australian conservatives seek to justify anti-immigrant policies, they no longer invoke nationally-distinctive myths, identities or narratives, but rather invoke Australian values, and argue that immigrants are a threat to these Australian values.

Current conservative opinion writers argue that Australian politics and culture continues to be infiltrated and dominated by left-wing ideologues, ‘Marxists’ and ‘extremists’ who are at odds with the honest conservatives who see themselves as representing the interests of ‘ordinary’ Australians against 'the left'. The latter are intent on imposing their undemocratic views on the media, schools, universities and other public institutions and cultural practices.

Update: 5 October
My own interest in this is less the media commentariat than the conservative discourse. It is marked by aggressive rage towards their revolving door of enemies coupled to a sense of being the victim because their enemies oppress them, despite the conservatives being in power for a decade or more. Glenn Greenward's comments about the mentality of the American conservatives apply to Australian conservatives:

The objective, as always, is to believe that they are weak and hapless victims being stomped on by some Evil, Unfair Force, and that self-pitying worldview can then explain away every last one of their failings. That is the mentality that lies at the heart of today's right-wing ideologue; more or less, it's all there is..

Not only have the Australian patriotic conservatives played the victim; they’ve used this perceived victimhood to fuel their dominance, as their “everyone’s against us” attitude bolsters their rage in attacking their opponents.

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October 4, 2008

as the credit dries up

In the wake of the US market meltdown it is not just superannuates who are rethinking their situation by considering working longer. The debt ladened American consumer is also burdened with falling house prices, rising unemployment and reduced access to credit because of the tightenness in credit markets. Debt has been the enabler of the American economy and it has been blown on consumption. It will be more difficult for Americans to walk away from their credit debts as easily as they can for their houses.

Tanberg

In Australia credit has become tight, prices are falling at the top end of the housing market as well as western Sydney, and homebuyers and consumers are being squeezed as the flow of cheap and available credit dries up.

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October 3, 2008

wormless

On the wormless ABC1 version of the VP debate, Palin did better than expected, although plenty have been unkind enough to point out that expectations were pretty low. The tiny stumbles and robotic delivery would probably have gone largely unnoticed, and 'nucular' is a perfectly acceptable way of pronouncing nuclear in some circles.

Biden failed to gaffe or attack Palin as widely feared, and otherwise put in the professional performance expected. It was rather nice to hear an American politician acknowledge the country's international reputation could do with some attention, and to come straight out and say global warming is man made so alternative energy sources have to be a priority.

It looked pretty much of a draw, but I'm not an undecided Ohio voter.

Over at the Poll Bludger, Possum contributed running commentary on a worm displaying the responses of an audience of Ohio voters, split between men and women.

If it's true that, after Clinton, women will be the election deciders, Obama should make the best possible use of Biden from here on in. The worm tanked every time Palin did the hockey mom, middle America, us girls, and maverick stuff, which is a bit of a bummer considering that's her brand. Women don't like it. Well, Ohio women anyway.

Men responded more favourably and more evenly, but seemed rather excited when Sarah turned to counter-insurgence. All worms went under when Palin mentioned McCain abandoning his campaign in order to rescue the economy.

On the other hand, Biden only had to open his mouth for the women's worm to start climbing. According to Possum, they were throwing underwear at one point. There could be some ugly domestics in Ohio when the happy couples go home tonight.

Posted by Lyn Calcutt at 3:41 PM | Comments (14) | TrackBack

will it be enough?

It is widely expected that the US House of Representatives will overturn itself and pass a version of the Paulson package. But will this rescue package be enough of itself to restore trust to the banking system and confidence to the fear-driven markets?

Since nobody trusts anybody any more money markets, interbank markets, inter-dealer markets, short-term commercial paper markets are seizing up in U.S. and in Europe. Since the only source of liquidity are central banks, so the non-financial corporates that need to roll over maturing debt have no access to Fed liquidity, nor to short- or long-term credit. So there is a need for Congress to do more than just buy and park bad assets.

Ingram Pinn

The bailout plan doesn’t really go to the problem, which is that banks have a shortfall of capital. It looks as if there is a policy need to triage: to shut down weak banks and decide who to save. Then there is the need to recapitalize the banking system so they’ll extend credit. Everybody needs to reduce debt and the Federal Reserve needs to guarantee all deposits, regardless of amount.

The economic narrative sure has changed in Australia: from tightly squeezing inflation arising from a boom to fast tracking big infrastructure spending to prevent a recession. That is a sure sign that the financial crisis and its consequences for the real economy, in the world and Australia, have become more disturbing over the past few weeks. It is a scenario that has been consistently downplayed by the economic policy makers at Treasury, the Reserve Bank of Australia, and the Rudd Government.

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October 2, 2008

Garnaut

Garnaut has recommended that Australia aim for emissions cuts by 2020 of between 5 and 25 per cent, depending on the scope of the international agreement. The political realism is that there is no such thing as an Australian solution to this problem; that there is no reason why the financial crisis should derail efforts to tackle global warming; and that it will be difficult for the world to agree to cut emissions; to a target of 450pppm concentration (550ppm is more realistic).

However, no developed country or group of countries has indicated a willingness to cut emissions by 2020 to the extent implied by the 450ppm target. So the meeting at Copenhagen next year is crucial.

Bill Leak

The entire thrust of Garnaut's report is for Australian policy to be integrated into global agreement Because strong mitigation is in Australia's interest, Garnaut recommends that the Rudd Government back a global objective of 450 parts per million and show leadership by expressing its willingness to cut its emissions by 25 per cent by 2020 and by 90 per cent by 2050, but only in the context of an international agreement.

The upside is that Garnaut's modelling undermines the claim by those who claim that there will be huge costs in tackling greenhouse emissions. The initial impact of putting a price on carbon in the proposed emissions trading scheme will add about 1% to the consumer price index--the GST added around 4%. The annual increase in prices in subsequent years will be around 0.04% -note enough to bother the RBA.

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October 1, 2008

national sovereignty

Foreign Policy asks: Should a country be allowed to temporarily violate another country’s sovereignty to go after, say, wanted terrorists or war criminals?

It would appear that “hot pursuit” is becoming just another component of the U.S. rules of engagement, which spell out when, where and how force can be applied. Apparently U.S. forces do not need the approval of the Pakistani government “to pursue, either with fires or on the ground, across the border.”

In the face of escalating violence the United States is determined to increase its forces in Afghanistan while it extends the war into the west of Pakistan.

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