Philosophical Conversations Public Opinion Junk for code
parliament house.gif
Think Tanks
Oz Blogs
Economic Blogs
Foreign Policy Blogs
International Blogs
Media Blogs
South Australian Weblogs
Economic Resources
Environment Links
Political Resources
South Australian Links
"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

hard times « Previous | |Next »
January 22, 2009

So the global slow down continues. The news from China is all about declining growth, rising unemployment, factory closures, and falling exports. The domestic banks are not lending. The foreign banks are pulling out of Australia. More bailouts of banks are announced, in spite of the them receiving billions of dollars of capital injections from the government. The heartfelt assurances from politicians in the US, UK and Australia that they've "fixed things" ring hollow.


The banks are sources of turmoil and painful contraction in economic activity as the historic consolidation of the banking system continues a pace. Schumpeter's concept of "creative destruction" in which market economy will incessantly revitalise itself from within by scrapping old and failing businesses and then reallocating resources to newer, more productive ones" needs to be tossed out.

This implies that governments need do nothing since the pattern of progress and obsolescence is the normal workings of the business cycles in a market economy. Isn't this account the triumph of ideology over science?

Isn't it time to stop viewing economic reality exclusively through the categories of neoclassical economics? For instance its a priori conception of markets and economies as determinate systems that by the action of individual agents alone tend toward an efficient and market-clearing equilibrium.

A vicious feedback loop now exists between falling asset prices and credit creation. As asset prices fall, banks are forced to hoard more and more cash to offset the potential write-down of more and more bad debts, secured against those falling assets. The intention of all the bail-outs globally has always been to allow the banks and the economy to take advantage of the government's credit quality, in return for a fee or shares, so that lending could be reignited.Yet in the absence of buoyant demand and recession credit is mere bad debt. Banks are "acting rationally by retaining their capital and curtailing lending".

As the American former Labour Secretary, Robert Reich, said it is "socialism for rich bankers and capitalism for everyone else". The banks want their losses paid for. Many lost so much money on toxic subprime mortgage-related derivatives that they have been essentially insolvent for more than a year.

| Posted by Gary Sauer-Thompson at 4:51 AM | | Comments (3)


Frank Partnoy ends his Prepare to bury the fatally wounded big banks in the Financial Times saying:

Government intervention, like modern healthcare, can prolong the inevitable, but only for so long. Soon we will bury more banks. Their children will survive but they will not. The massive government intervention of recent months merely provides a financial hospice, to give us time to say goodbye.

The reference is to Wall Street.

The mood at Davos amongst the global business elite (the global banker and business leader) is sombre. Davos Man has a tattered reputation and lost his authority. His claim that the private sector was better at doing things than governments has been demolished by the financial crisis that originated on Wall Street.

A WEF report on green investment says that outlays of $500bn a year would be needed to prevent a rise of more than 2C in global temperatures by 2030.

The study identified eight emerging, large-scale clean energy sectors that were seen as playing a crucial role in the transition from fossil fuels to a clean energy strategy over the next two decades. These were: onshore wind, offshore wind, solar photovoltaic, solar thermal electricity generation, municipal solar waste-to-energy, sugar-based ethanol, cellulosic and next-generation biofuels, and geothermal power.

Max von Bismarck and Anuradha Gurung from the World Economic Forum, and Chris Greenwood and Michael Liebreich from New Energy Finance, said "enormous investment in energy infrastructure is required to address the twin threats of energy insecurity and climate change. In light of the global financial crisis, it is crucial that every dollar is made to 'multi-task' to create a sustainable low-carbon economy."