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is regional Australia an economic ghetto? « Previous | |Next »
September 10, 2010

We know The Australian's opposition to the national broadband network is because it sees it as the most politically rewarding pork barrel of all. We also know that News Ltd has commercial interests here, as Foxtel is threatened by the emergence of internet television (IPTV.) Hence their line that the future is mobile wireless and Telstra, which part owns Foxtel.

So what is the Coalition's argument against the national broadband network? Paul Fletcher, the Liberal member for Bradfield and ex-Optus executive, says that Coalition scrutiny will apply forensic scrutiny to the $43 billion national broadband network. Fair enough we need an opposition to keep an eagle eye on government mismanagement and waste for us.


However, the Coalition's opposition goes deeper than that--as it is directed at the national broadband network itself, not the way it is implemented. Fletcher says it is the business case:

The business case was already fragile: Labor's implementation study predicted a paltry 6 per cent to 7 per cent return, and even that requires highly optimistic assumptions about the number of people who take up services on the new network.It is even harder with Gillard's new commitment to build first in rural and remote areas - where building a network costs much more and the number of customers is much lower.

And that is it. The Government's rate of return on its infrastructure investment is too low! The immediate response is why should the rate of return be 15% and not 7%. Fletcher doesn't say. He just assumes that it should be because this is the industry standard.

Kevin Morgan in his Deal turns NBN into shameless pork barrel in The Australian avoids the 'why a commercial investment'? issue. He says that the national broadband network:

is not a visionary nation-building project but little more than a pork barrel the government can dip into whenever it has a problem, in this case the need to cling to power....the fragile economics of building a national fibre-to-the-home network can be prejudiced if it suits the government because in assuring the independents that rural and regional areas will get priority for the fibre rollout the government has turned the business case for the NBN on its head....This commitment to a rural first rollout will mean the government will have to put more equity into the NBN or raise more debt on its behalf in its initial years, meaning the NBN cannot be considered a commercial investment but will have to come on budget.

So why should the National Broadband Network be understood as a commercial investment and not a nation-building infrastructure project? Morgan just assumes it should be; ie., that government should be run as if it were a business delivering a high return for its shareholders. Why should we adopt that business approach to policy making? He doesn't say.

The elephant in the room is neo-liberalism, as we can see from Henry Ergas' argument in Bush subsidies a romantic folly in The Australian that much of the spending by governments on the bush is ineffective:

By and large, people do not have few skills because they live in country areas; rather, they live in those areas because they have fewer skills. Were their skill levels higher, many would not remain where they are; rather, they would move to the main centres. This is because human capital is far more productive in cities....The unpalatable truth is the farther one lives from our large urban centres, the lower are likely to be one's human capital, lifetime earnings and life chances. Poorer prospects translate into riskier behavioural choices, including a significantly higher incidence of smoking, problem drinking and poor diet, and more widespread antisocial behaviour, which reduce life chances ever further.

Isn't this the inequity that the regional Independents raised? So what can be done? Ergas says move to the city because those handouts are a poisoned chalice:
Locking the bush into a culture of welfare dependency, and transforming country towns into economic ghettos without sustainable sources of wealth, will merely ensure large parts of regional and remote Australia die, leaving only pockets of economic and social viability.

But why not raise the skill levels in the regions and provide the necessary infrastructure for regional businesses to do take advantage of their opportunities? Ergas' response is:
Much of this spending is ineffective. To believe, for example, that computer use in country areas is low because networks are unavailable is wrong. As for believing digging optical fibre into the ground will solve the problem, that defies common sense. Moreover, the efficiency cost of the subsidies is high...And protecting the cross-subsidies from competitive entry will require entrenching NBN Co as a monopoly.

The proper solution is to remove the remove unnecessary imposts and distorting subsidies and the onerous regulations on the bush (land use regulation) that are so burdensome.

So why is the argument that computer use in country areas is low because networks are unavailable wrong? It is because those in regional Australia have fewer skills--eg., regional areas are attractive for retirees and people on government benefits---and those with more skills move to the cities because the regions are economic ghettos.

So why not provide the infrastructure that would enable regional Australia to avoid becoming an economic ghetto? Isn't that the reason for government intervention in to the market to build the national broadband network? In arguing that case the regional Independents are tacitly saying that neo-liberalism is deeply flawed with its market only approach to policy making.

| Posted by Gary Sauer-Thompson at 8:56 AM | | Comments (38)


Is regional Oz an economic ghetto?

I don't know.
Does anyone?
Are there any clear cut detailed authoritive studies that cover this question?

I know 2 things.
My local area is in deep strife.
Past mismanagement, and present for that matter, has so severely degraded the land that, coupled with the impact of climate change, production values have declined enormously.
Its physically visible as I drive around the mallee country to the east of me.
Deserted farms, dying towns, barren paddocks that are producing less.
The decay is palpable and a lot of the production is on paper only.
I know several farms/blocks that are deliberately being run as tax losses offsetting income from other sources. Its a significant factor in my region.
As one friend of mine remarked when another walked away after telling us of his woes, "Joe has to work hard to make sure his farm runs at a loss".

But thats only one aspect of the economics of regions.
The cartoon above buys into the common belief, assiduously cultivated and loudly proclaimed by media and regional leaders, that the regions subsidise the cities.

But is that true?

I have seen a claim by one eastern region that it provides a larger % of state revenue than it receives on a per capita basis.

Yet I understand that regional councils actually are heavily subsidised by federal and state governments relative to urban local councils.
Is that true?
I mean its fair enough if so because infrastructure costs in the region are, per capita and probably absolutely, more expensive than similar in high density urban areas.
But again if true, it belies the claim that the regions subsidise the cities.

So I dunno.
Its a good question.
Does anyone have an answer?
And not just a farmer or a pastoralist or small town citizen or independent MP saying so, I mean an authoritive comprehensive credible answer.

And if the claim/belief is correct, what do we do about it?

More pork?

That is not a long term solution.

Its a good question.

Ergas distills neoliberalism for us: you are responsible for the income stream of your human capital. If you lack education, health, information, transport and social infrastructure then that is because you have low human capital. You have not invested enough in your portfolio of skills, not been entrepreneurial enough, flexible enough. If you had built up your human capital to the sorts of levels that Ergas has (obviously), then you'd live in a city and have supportive infrastructure. Living in a regional area is akin to rent-seeking. Simple really. How dare regional Australians think they're worth any infrastructure investments--you have low infrastructure because you have low human capital. And you have low human capital because you don't invest in your own life, you aren't an entrepreneur of your life, you don't seek to grow your portfolio of skills.

I've always defended and read The Australian on the basis that some of its writers were worth reading. Not any more. It truly is our Fox News.

The ALP has opened itself up to the commercial return criticism because when Kevin Rudd, Wayne Swan, Lindsay Tanner and Stephen Conroy released the results of their $25 million NBN implementation study in May it was based on the NBN providing a commercial return. And as a commercial investment it did not need to be captured in the budget.

Given that assumption the following criticism by Andrew Harris in Business Spectator is reasonable:

Most business plans would like to see low up-front capital costs coupled with high up-front subscriber take-up to drive revenue in the early years, leading to maximum net present value of the cashflows. But now it’s backwards.
The high capital costs of building out rural and regional areas in the early years coupled with the delay of obtaining the bulk of the network’s subscribers – and revenue – in the later years certainly makes the commercial business case for the new NBN look like a very hard one to close. If the government can show otherwise they should do so.

Since the NBN’s detailed business plan has never been made public for serious review, so many question the validity of the assumptions included in it that promised a commercial return. They suspect that the economics of the NBN have always been questionable.

So did the regional Independents---eg., Tony Windsor.

"By and large, people do not have few skills because they live in country areas; rather, they live in those areas because they have fewer skills."

People aren't stupid because they live in the bush; they live in the bush because they're stupid. Lovely.

Ergas can get away with saying things like that because people in the bush don't have access to the internet and so have less capacity to defend themselves from such rubbish.

News Ltd has a vested interest in shutting down the NBN. Regional areas are still reliant on their newspapers. And News Ltd and the coalition have shared interests. That much is becoming more obvious every day.

here is one answer from a communications company (Sefton and Associates) in Tamworth in the New England electorate from Lateline Business. Robbie Sefton says that the national broadband network:

will give us probably more reach and more access. Our business is based as you said in Tamworth but we've got team members right across Australia, mainly in rural and regional Australia. Our clients are all based in Sydney, Canberra and Melbourne, so they're mainly metro-based, large corporate and government organisations that need to reach rural and regional Australia with their messages, products or services. So our job is to communicate them to our rural audiences. One of the challenges we find is that yes you can get access to the Internet probably in most places in Australia but speed is the most important thing. And so for us, it's actually being able to have faster speed to actually get those products or services - particularly training, that kind of thing, web-based training or even communication tools - out to areas who may have farmers in them or even just rural and regional communities.

Sefton says that under current conditions the large files that we need to share regularly, be they TV files or media that type of thing, are difficult to actually get down the line.

There is no pork involved here. Or welfare dependency. Sefton and Associates requires good fibre-based infrastructure to grow their business. For them broadband in many ways is their key infrastructure tool.

Laura Tingle shouldn't be behind a paywall.

Thanks Gary.
I'll check it out but I'm a convert to the NBN already.
I'm not criticising the NBN in any way at all, I think its one of the few exceptionally bright ideas and programmes that the ALP came up with.
Outstanding concept, policy and program.
A mate of mine runs a multi million dollar business out of a shed outside a town of less than a 100 people.
When I say 'shed' I use that term loosely, small but efficient and complex well equipped modern factory would be more accurate.
His business is mainly centred on building specialized custom made machines which he exports all over the world mainly Europe and the USA.
Its quite incredible what is going on and out of a 'shed' in the mallee.
My mind was boggled when I first saw it.
"You're doing THAT, from HERE?"
I know he will love the NBN if he can get it, he has to transmit complex plans and specification by snail mail at the moment with a turnaround time of weeks and parts come in and go out by regional transport services.
So no problems with the NBN.

I am looking for a comprehensive long term integrated holistic analysis that combines all sorts of factors, social economic environmental even cultural.
If it exists.

I just suspect the discussion in the MSM will degenerate to ill informed repitition of tropes and prejudices, from both sides, and reality, whatever that is, will hardly get a look in.

thanks for the photo of Laura Tingle's article in todays AFR. Rudd must have been naive thinking that the hostility of The Australian had to do with the Rudd Labor not putting The Australian on the drip as it had been during the Howard decade.

They must have seen Fox News and seen that was Murdoch's business model. Being violently anti-Democratic fired up the Conservative base in the Red States and it made Murdoch lots of money.

Lyn + Michael
Laura Tingle in her AFR article today says that:

this time around [post election] Labor believes it is confronted with the prospect of a ferocious and apparently continuing campaign against its legitimacy.

It is more than belief. It's an actuality. As Michael pointed out above The Australian... truly is our Fox News.

Tingle to her credit links News Ltd's hostility to the ALP to its commercial interests:

(1) the ALP's review of the sport anti-siphoning list which determines which sports can be shown on free to air and Pay TV--for which you can read Foxtel.

(2) what happens to the national broadband network has long term implications for Foxtel and internet broadcasting

(3) Government support for ABC's 24-hour News channel--which already has three times as many viewers as Sky News despite its teething troubles -- is another commercial threat which fits into a global campaign News is running against public broadcasters.

Tingle also mentions Bob Brown raising the possibility of a Senate inquiry into News Lt's involvement in the Melbourne Storm football club's breaches of the player salary cap as a legitimate area of public concern.

what Ergas leaves out are the genuine regional businesses-- the ones mentioned by me (Sefton and Associates in Tamworth ) and by fred--- (a modern factory mainly centred on building specialized custom made machines which exports all over the world mainly to Europe and the USA.)

Surprising really, given the neo-liberal emphasis on innovation and entrepreneurship as the drivers of prosperity in an open market economy. You would have thought, that if Ergas took his neo-liberalism seriously, he would be arguing for infrastructure support to nurture these business as they represent a spontaneous order --the market was not designed by anyone but evolved slowly as the result of human actions within a set of rules and customs.

As Hayek says in Law, Legislation and Liberty vol 111:

A market economy is one which in its totality forms a complex order whose details are not known to anybody. This complex order functions effectively because of one singular fact: the market prices obtaining under competition transmit information throughout the whole system. It is this information, transmitted through prices, which enables each part of the system to respond to the rest and to plan its own detailed activities.If such an economy is to function effectively, central government must maintain the conditions required for the decentralised transmission of information. (circa p. 164)

Ergas, instead, uses his neo-liberalism as an ideological weapon against what he sees as socialist planning and public investment--the road to serfdom. He doesn't see that the above kinds of regional business foster a liberal society, which is fundamentally decentralised.

oh... now, wait a minute!

Less than a month ago we were being told by BOTH major parties that a few boatloads of scruffy refugees were one of THE biggest problems we faced. They were also tripping over themselves to explain how they'd protect our beleaguered nation.

But now... that doesn't seem to matter any more? How can that possible be?

What's that you say? We have more important things to worry about? Really?

re your comment: "I am looking for a comprehensive long term integrated holistic analysis that combines all sorts of factors, social economic environmental even cultural.
If it exists."

The three regional Independents (Katter, Oakeshott and Windsor) would have done a lot of work in this area in the context of the issues of the present. What you are looking for is in their heads as it drove the way they conducted their negotiations to support a minority government.

Is this on paper? I doubt it, but I'll dig around. You could start with this 2009 House of Representatives Report, The Global Financial Crisis and regional Australia. Oakeshott was on the House Standing Committee on Infrastructure, Transport, Regional Development and Local Government for this report.

The Committee's role is to identify and highlight issues facing regional Australia and this report is broken into two sections:

the first addresses the impact of the crisis on regional Australia to date and the government response. The second section examines current and future regional development policy options targeted at assisting Australia’s regions to grow and withstand future economic challenges.The report is broken into two sections; the first addresses the impact of the crisis on regional Australia to date and the government response. The second section examines current and future regional development policy options targeted at assisting Australia’s regions to grow and withstand future economic challenges.

The report mentions earlier reports, policies, strategies, and submissions on regional development in chapter 5.

Ta Gary.
There is an irony, a Catch 22 in me downloading such a report.
I had a quick look and it was 16 pages but within the document it seems to go past 68 pages.
I'll look in detail later.

Without 'real' broadband I have a 2 gig down/up load monthly limit and Ms fred is a big user. Bigger than me by far.
So without NBN style broadband this rural fella has a severe limit.
Ironic hey?

okay, 2 gig per month limit ain't much. Since I have 30 gig with ADSL 2+ in Adelaide I can scan this stuff quickly. I'll summarize the report for you on

I'm going down to Victor Harbor for the weekend late this afternoon. I have --slower speeds and lower monthly limit there, but I should get something up by Saturday. I'll make a start before I go.

Try this for the theory in 2003 ---Department of Transport and Regional Services Working Paper 55, Government Interventions In Pursuit of Regional Development: Learning From Experiences,

Thank you Gary, I wasn't fishing and I appreciate that.
Lousy broadband is just one of the prices for living here and overall I'm in paradise so I'm well pleased.
Ta again.


A while back in a discussion somewhere on this blog we were discussing what the NBN would offer on top of faster blogging. I recall someone mentioning the ramifications for broadcasting back then. Our current collection of tv, radio and print media must all be a bit nervous, but News Ltd particularly has linked its media to other ventures. Add ABC 24 and we're looking at shrunk political power as well as revenue. Serious stuff.

Yesterday's editorial in the Oz openly declared the campaign against the new govt. Interesting that most attacks up to now have been over pink batts and school halls, but little mention of the NBN other than calling for cost benefit analysis. How would you go about costing the benefit of being free of News Ltd?

yes it is serious for News Ltd. They do not care about better health care and education for regional Australia that will happen with access to high speed broadband, but they sure care about the emerging digital competition to Foxtel.

IPTV is already happening with iiNet and it will start with Internode this month. The cost is around $30 per month with choice (eg., Disney; Roadshow; Lionsgate; MGM and newcasters the BBC, and CNBC.) The monthly cost is way below the cost of subscribing to Foxtel. What will protect Foxtel is sport--it has lots tied up.

Suddenly you can see the importance of the ALP's review of the sport anti-siphoning list which determines which sports can be shown on free to air and Foxtel. Now there is a third player-- Fetch TV, (subscription TV supported by the second tier ISP's). They will also want access to sport to build up their subscriber base. They will be niche players (limited to those with ADSL2+) until the national broadband network is turned on. Then oomph--you can download fils and programs of your choice straight to your big digital TV in the living room.

The ground is beginning to shift under the feet of News Ltd. They can feel the tremors. They've decided the Coalition will protect their commercial and political interests better than the ALP. So its war with take no prisoners.

I'm sure that the Coalition will do its bit in the war to bring down the Gillard Government ---they are. Thus:

Coalition leaders are drawing up a savage parliamentary strategy to end special concessions for ministers and put cross-bench MPs on duty for as long as the House of Representatives is sitting.The aim of the "take no prisoners" strategy will be to exhaust the minority government by keeping it on the alert all the time and making it battle for every vote.

The Government will have to ensure the four cross-bench members who have indicated support attend the divisions, or it will risk losing them. Ministers could be refused a pair so they can leave the House to do other work. So its pile the pressure on and try and make them crack under the strain.

no worries. I used to work as a policy wonk in Canberra so this stuff is pretty easy for me. I also used the money earned whilst working in Canberra to set up thoughtfactory properly so that I had the technological capacity to do the research stuff from a home office.

You can help me by showing me the places of destruction along the River Murray for my photographic project on the Murray. It had come to a halt whilst I assembled large format cameras to do this work. These cameras are nearly ready and I'm looking for sites of devastation that are accessible to photograph.

I'm sure that you would know many of them in and around your area. Would you help me out? I need local knowledge for this kind of work.

I've e-mailed you Gary.
Let me know if it doesn't come through.

the Californian political theorist, Wendy Brown reckons that neoliberalism is unlike classical liberalism in that it has a bet each way about what markets are natural and what ones need to be supported. Chicago School liberalism--Neoliberalism-- is practised as though its techniques and institutions have already been achieved at the same time as being that which we need to make happen. Neoliberalism is both achieved AND normative. Ergas thus claims as natural (superior human capital) what many on the left would see as the result of an unequal political economy and state-supported system. At the same time he wants the state to support those social strata and enterprises that have aready had significant advantages.

The neoliberal trick is to simultaneously beat up on government AND those who are already disadvantaged in name of a negative freedom, or freedom from coercion or planning. Positive freedom and collective forms of just social life are threats to spontaneous associations (catallaxies) because they require a degree of planning that reduces (negative) freedom. Concerns about justice are peripheral to Neoliberals for whom the price mechanism will mediate all claims to justice through markets of exchange.

So labor would cut Murdoch free with a pistol at their heads. I hope the indies and Greens hold the barrel in the right direction, steady and ready to pull the trigger when necessary.
But, by god, politicians can be as stubborn as perverse, as Anna Bligh and her wretched treasurer Fraser proved, perservering STILL with their idiot privatisation agenda, despite current events conspiring against the likelihood of even a firesale price.
Quiggin has a post at his blog that goes further with that, but politicians like this only adhere to failed policies because of the bullying of a totalising mass media.
How much longer can the world afford Rupert Murdoch, given his record of meddling over fifty years in big politics?

It would be great for the bush if the NBN uses local labour where it can. I see that BHP has reneged on an undertaking to do so and is going to use 500 fly in fly out workers for its new mine out of Mackay.

Gary, are you familiar with The Loon Pond blog? It is a delight.

It also has a feature of Henry UR-gas.

It would make sense to use local labour for many reasons, not the least being high unemployment in regional areas.

thanks for the link to the Loon Pond. It is excellent. I just love this post on The Australian.

Is regional oz a ghetto? Depends what regions you look at.

Suggestions by some for regional and rural to move to urban centres is ridiculous, whilst it is true there are more jobs there, the metro infrastructure is all ready under considerable strain, median wages are higher in urban centres than rural centres which means moving from the bush to city is not cost effective or affordable. The solution is to get people to move out of the city to the regions giving a demand base for infrastructure to be developed by governments. It's affordable and cost effective. Once this critical mass is there, regions will not cost as much, enterprise will see new businesses spring up etc. Common sense really.

yes, but

(1) the infrastructure --schools, hospitals, tertiary institutions are--minimal. It is not possible to acquire the skills for a digital economy or to get a broad based university education.

(2) the population of Victor Harbor in SA is growing rapidly but it mainly composed of retirees and young families with low incomes.

Are you referring to Wendy Brown's essays : “Neoliberalism and the End of Liberal Democracy” and “American Nightmare: Neoliberalism, Neoconservatism, and De-democratization” in her 2005 text Edgework: Critical Essays on Knowledge and Politics? Here neo-liberalism is a political rationality, not just a bundle of policies (deregulation, competition, free trade, privatisation, challenging the welfare state) or the economics of Hayek and Friedman etc that foregrounds the market. It is a political rationality that extends market values to social institutions and action.

Isn't Ergas talking about subjectivities- produced by neoliberalism's micropolitical and entrepreneurial dimensions? The calculating subject? Presumably, what he calls skills refers particularly to the simultaneous internalization of economic calculations and criteria and their generalization to aspects of life that had enjoyed relative autonomy from them.

My understanding is that neoliberalism refers to the "hegemony of financial capital" The neoliberal era is one in which the financial sector has finally won its long battle for control over the productive sector and its managers, and this has seen an increase in the amount of unutilized capital floating around the world.

it represents the generalization of risk—the spread of risk-taking to nonfinancial sectors, the financialization of daily life .

In Australia we more or less understand neo-liberalism as its absorption of the entire government, so that a market rationality pervades all decision-making, and citizens come to understand themselves as consumers and lose sight of democracy's less instrumental possibilities. So neo-liberalism---and this is how the regional Independents seem to be understanding it--- imposes a market rationale for decision making in all spheres including that of government.

You can see it in Gillard's reduction of education and knowledge to vocational skills, which became quite explicit in her cabinet reshuffle. Education is now understood in neo-liberal terms.

"Education is now understood in neo-liberal terms"

education is about employment training---providing skilled workers for the mining industry in Western Australia.

Nan, on point 2 that is the main problem, it only growing with retirees - I dare say the young families lived there all their lives. If you get the non-retirees to move that solves the problem. I didn't understand your first point.


re my point (1) the infrastructure --schools, hospitals, tertiary institutions are--minimal It is not possible to acquire the skills for a digital economy or to get a broad based university education.

What I meant was that young people have to leave Parkes or Victor Harbor to go to university to get an education if you want to be a doctor; or a designer. More than likely you will not return from the metropolis.

Will the NBN have a major impact on the relative shares of population growth in regional centres? It will probably be limited to promoting regional growth in industries like health and education

The value of retirees as an engine of regional economic growth is questionable. Their incomes are usually modest, they don’t start businesses and their demands on local health services are high.

This is especially the case for the “surf and sun” coastal cities. As Alan Davis at The Melbourne Urbanist remarks the key driver of growth for the retiree group, cheap housing, no longer applies. Land prices and houses are expensive.


the two Brown essays you point to are the ones where her understanding of Neoliberalism is best set out. Brown's essays were both written before Foucault's Birth of Biopolitics was published in English. So, there are some things that Foucault's work on Neoliberalism covers that Brown doesn't.

I have some trouble keeping the different meanings of Neoliberalism separate: the policies which act to subject the state to market techniques, disciplines and managerialism; and the forms of reasoning, calculation and even semantics (political rationalities) that act on us as subjects in our everyday lives.

What's especially confusing is when these two forms of Neoliberalism come together. For example, I read Ergas as arguing for type 1 Neoliberalism, in that he wants the state to allocate resources on the basis of where it will do the most good. His definition of the good is based on that which maximising productivity, efficiency and economic growth. Ergas also defines this good as maximising human capital.

On the other hand, the subject as enterprise and entrepreneur--type 2 Neoliberalism--is, as you point out, also present in Ergas' essay.

I fully agree that Neoliberalism is hegemony of financial capitalism. The breaking of the Australian Settlement for Paul Kelly is the ascendance of financial capital over labour. Concurrent with the ascendance of the modes of finance capital has been and continues to be the embedding of the self as entrepreneur--the subject as human capital--into everyday life. I don't think one type of Neoliberalism necessarily produces the other, but they are obviously complementary and deeply entwined.

Nan, strictly speaking what you say is not true. They can get an education in those places for the purpose of becoming a doctor but your point is taken.

Why don't they return though? Lack of job opportunity. The other things you list as minimal are there all ready. Create incentives for others. Problem solved.

Bank of England Governor Mervyn King says he's ready to resume quantitative easing if the UK economic recovery falters due to the incoming austerity measures. Wholly inappropriate IMO - you can't address an insolvency problem with liquidity.