No need to panic, says RBA

Reserve Bank governor Glenn Stevens says No need to panic.

My ignorant opinion is that we are heading for a depression.

The article says:

While Australia was weathering the turmoil in financial markets since August 2007, local investors and borrowers had not escaped completely unscathed.

'Firms whose business models relied on short term debt funding have been tested - a couple have, for practical purposes, left the scene,' he noted.

'Yet these events have been absorbed thus far with little disruption in the broader economy.

'The availability of credit to sound borrowers has not been impaired.'

Mr Stevens said the direct financial effects of the global turmoil on Australia were likely to be confined mainly to the impact on borrowing costs, which have risen in recent months.

'Taking into account the strength of demand, this increase in borrowing costs does not seem likely to pose a particular problem for the economy as a whole,' he said.

'There is no evidence, moreover, of a 'credit crunch' in the domestic financial sector.'"

Emphasis Mine

There are several structural problems in the Australian economy:

• Inflated housing prices;
• High consumer debt;
• High corporate profits;
• Low infrastructure investment

This indicates to me that the individual would have a high exposure to a collapse in the perception of their own wealth. In other words, falling house prices and rising interest rates will lead people to consider themselves much poorer. Without an increase in real wages, debt servicing will become problematic.

People will see others lose their jobs, then their houses, and, possibly, even their lives through suicide. This would lead to an overcorrection in people's spending patterns (they would save far more than is healthy for the economy). In other words, consumers would withdraw cash from the economy thereby impairing its operation.

This panic would then lead to a depression.

This global depression may lead to a decoupling of the US economy from the world economy. The USA would no longer be the economic powership of the world economy. This loss of status would make the USA very dangerous indeed.

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Use of airstrikes boosted in Iraq

The Use of airstrikes boosted in Iraq as a means of counter-insurgency. Of course, the US military is perfext and there are no mistakes. These magic bombs only kill insurgents. If they are dead, then they were insurgents.

Gen. Petraeus has violated his own counter-insurgency strategy by increasing the use of air-strikes. When will the US military ever learn that they have lost in Iraq?

'The core reason why we see the increase in strikes is the offensive strategy taken by General [David H.] Petraeus,' said Air Force Col. Gary Crowder, commander of the 609th Combined Air Operations Center in Southwest Asia. Because the United States has sent more troops into areas rife with insurgent activity, he said, 'we integrated more airstrikes into those operations.'

The greater reliance on air power has raised concerns from human rights groups, which say that 500-pound and 2,000-pound munitions threaten civilians, especially when dropped in residential neighborhoods where insurgents mix with the population. The military assures that the precision attacks are designed to minimize civilian casualties -- particularly as Petraeus's counterinsurgency strategy emphasizes moving more troops into local communities and winning over the Iraqi population -- but rights groups say bombings carry an especially high risk.

'The Iraqi population remains at risk of harm during these operations,' said Eliane Nabaa, a spokeswoman for the U.N. Assistance Mission for Iraq. 'The presence of individual combatants among a great number of civilians does not alter the civilian character of an area.'

Emphasis Mine

POTUS should just declare victory and get the troops home. They are going to be needed to keep order when the US economy collapses in a depression.

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The Black Swan: The Impact of the Highly Improbable

The Black Swan: The Impact of the Highly Improbable is a very interesting book. Although I disagreed with some of the author's contentions, I found the book quite worthwhile to read.

The author makes a very convincing case for considering the silence of the graveyard in which the reasons for failure cannot be known because the participents had died in the attempt. This is particularly revelant for revolutions as the key players on the losing side are usually killed. And, as such, no comparison to successful revolutions can be made.

The author also stressed the importance of recognizing the limits of models. In Communist theory, the Bolshevik revolution of 1917 is held up as a model of success. But, we should also recognize the historical context because that revolution eventually failed whereas the revolutions continue in Vietnam, Laos, and Cuba. China has reverted to Capitalism, and North Korea is just waiting to unify with the South.

I think the author failed to distinguish sufficiently between human and natural systems. I got the impression that he treated them the same.

The author made no reference to Kuhn's work The Structure of Scientific Revolutions which covered similar ground. This I found intriguing.

The author quite correctly points out that the skewed distribution of wealth leads to extreme events. But I do not think he goes far enough to attribute the increasing instability of the Capitalist system to the increasing concentration of wealth and decision-making in the hands of fewer and fewer people. Witness the similarity of outlook of the WEF at Davos. Among such a small group of people, a really bad decision can go unchallenged, whereas a larger group may have enough dissendents to challenge it.

I am at odds with his ludic fallacy because I am convinced that we can understand the rules of human interactions in politics and economics. And I bristle at the idea that anyone would appear to surrender to unreason. Capitalism is built upon reason not unreason. It is arrogant enough to think that the universe is understandable and therefore can be controlled. This is one of the driving forces of Capitalism. Take that away and you are left with a cargo cult.

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Beyond Microsoft Millionaires and Rich Googlers: Workers as Owners

Harvard Business Online's Bill Taylor discusses an example of a worker-oned company which is one of the top small workplaces in the US.

Business has been good. The company has annual sales of $100 million, up substantially over the last few years, with major facilities in Connecticut and Rochester, New York, as well as 14 locations outside the United States. How has Reflexite held its own against giant rivals such as 3M, with deep pockets and a vast global reach? By encouraging employees at all levels to be personally invested in the success of the company—literally.

Reflexite, it turns out, is owned in large part by the people who work there—500 employees who attend Town Hall meetings to discuss strategic issues, get monthly updates on finances and operating results, and are steeped in the company’s strategy and practices. Over the years, based on the performance of their business unit or location, workers received shares in the Employee Stock Ownership Plan (ESOP) worth 6 to 18 percent of their salary— including 60 workers in a factory in the former East Germany, and, starting this year, 110 workers in China.

...

Cecil Ursprung, the company’s long-time CEO, who now serves as a director, thinks deeply about the impact of a company whose people think like owners. “People are at their best when they’re in a constant state of mild dissatisfaction, when they’re always looking to make things a little better,” Mr. Ursprung said. “That’s what ownership does. It’s remarkable what gets unleashed when people share in the wealth they help create.”

Emphasis Mine

Here we have an example of how a worker controlled enterprise is superior to other forms. Ownership overcomes the alienation of labour.

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Look out Below!

The Big Picture says Look out Below! and growls at those summer capitalists:

My opinion: those people who only believe in free market so long as they are going higher aren't capitalists, they are socialists.

The real reason is that most people want to privatise profits and socialise losses.

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