How we just avoided the big D

Paul Sheehan brags How we just avoided the big D (Depression). He concludes:

Last week Evans-Pritchard, ever pungent, wrote in an opinion piece: "Put a clothes peg on your nose. The moral stench of bailouts for the uber-rich will be sickening.

"None of us wants to pay a farthing to rescue the bankers and assorted debt pimps who got us into this financial mess, and in doing so exposed our societies to such harm … Yet we must forbear. It was such sentiments that turned the 1930 recession into [the Depression]."

In other words, the Capitalist system is so fucking weak that strong Socialist measures are required to save it.

After twenty (20) years of financial deregulation (macro-economic reform), we have arrived at the situation of having:

This month the system meltdown that [BIS] had warned about was almost triggered by the collapse of one of the world's leading merchant banks, Bear Stearns. When US federal regulators examined the bank's collapse, they were aghast at what they found. Bear Stearns was enmeshed in financial derivative positions totalling almost $15 trillion, a figure notionally equivalent to a quarter of the world's entire economic output. Underpinning this edifice of speculative excess was about $90 billion of actual financial reserves. These reserves were, in turn, underpinned by about $20 billion in cash reserves. The $20 billion evaporated in 48 hours when the bank was hit by a run. The bank was insolvent.

Emphasis Mine

Bullshit. Bears Stearn was bankrupt and had to be nationalised (via JP Morgan).

Sheehan wants us to believe that the worst is over because the US Federal Reserve acted so decisively. Yet, they are still floundering around in creating liquidity windows.

The outlook for Australia is:

"Smaller, open economies like Australia are vulnerable during times of instability like this," he said. "Like Britain and the US, you've had a housing boom, and a credit boom and a consumption boom. So Australia is looking pretty vulnerable. I would be short on the Aussie dollar …"

"The commodities boom will be affected by the financial crash. It always is. Australia also has an unhealthy 7 per cent current account deficit, which makes it extremely overstretched for a commodity-based economy."

The current Capitalist economy is designed to produce houses as a commodity. Housing production drops, the economy contracts. Almost everything that is produced depends on housing: white-goods, cars, electonics, kitchens, pools, landscaping, etc.

We need to realign the economy from reliance on one commodity.