Part of the intrinsic basis on which the western world has been predicated over the past few decades has been on the idea that the old order should change, yield place to new; and those previously disadvantaged by the discriminatory idiosyncrasies of the past, should be given full license to catch up on lost gains.
Broadly this philosophy of governance has been termed liberal and it meant just that. One interprets all the old established rules relativistically, rather than in terms of highly confrontational absolutes.
Again, broadly speaking, most fair minded people would seem to have accepted these changes to conventional patterns of behaviour in good if grumblesome spirit, on the premise that society would improve over time, and that all citizens would become better behaved, and set aside their violent, abusive and gratuitously indiscriminate rage, in the interests of a better life.
The result has been change on an unimagined scale, as testified by this reality of the blog world with its empowerment of the writer. Galbraith once described the circumstances leading into the Great Depression years of the thirties as a 'dog chasing its own tail. The same circumstance has been true of the conditions prevailing before every crash with which I have been a familiar since the 60’s. Even by the standards of boom and bust however this week has been a seminal one in the male/yang dominant, competitive, take-no-prisoners world spawned by the Liberal ethos.
Abuse. Quite simply: abuse. revealed and spurned. Although we see 'spin' as an essential ingredient of our modern consumer economy there are limits, undefined but nonetheless there... and when the worm turns, as it were, and economies go into their periodic melt downs, from which there is no guarantee of recovery except,perhaps, over a long time frame, then in our mortification at being duped the market takes its revenge as representative of our collective rage.
In some cases abuse is simply revealed in its most naked form and is yet to be denounced; as with China’s ongoing Colonialist oppression of the Tibetans; described accurately no doubt by the Dalai Llama as cultural genocide. This week has seen the oppressed rise, and like those struggling for freedom in Myan Mar, their vouice is stilled with violence and brutality and suppression of news; as though we don't know... ! And because we don't know we can surmise the worst, knowing that no politician on this planet, least of all a Chinese dictator, nor increasingly, leading business persons, have any credibility at all.
The fact that Tibet was a theocratic dictatorship before China invaded it back in the immediate post-war era [WW2] does not make its colonialist oppression any less genocidal today. The country has brutally suppressed its own people for generations, why should it be nice to people it despises. So it may be that China is faced with a similar reality to that face by Moscow in 1980, especially with an American election in the offing in the deep dark shadow of a pending economic slump. It could prove politically convenient for Mr Mc Cain, for instance to use the suspension of USA participation in the games as an election weapon, should he be denied race or gender as he well may be, with which to lie his way to the Presidency.
Retribution however has come swiftly to others who experienced the heady hubris of unimagined success and abuse of prudence over these past halcyon years: and i am not referring to the Governor of New York and terror of prostitutes and other moral crusadfes: busted this past week and forced to resign, for shagging Prossy #9.
No, I refer to the late Bear-Stearns: this week consigned ignominiously to history’s favourite dustbin and, at home, to the infamous Mr Robert Mc Bride, chief of police for a large urban crime riddled region.
Bear-Stearns helped pioneer some of the riskiest lending procedures a liberalised State could conceive of, backed up by a supportive governmental regulatory environment that encouraged the abandonment of accounting prudence in favour of the casino royale. After all if the president was going to gamble with a war in which a single smart piece of munitions represents the 'fire-sale' price of Bear Stearns to JP Morgan this week, then what value does anything have? They certainly contributed to that amazing truth of our times; that the world of video money, which is our world today, has created a casino economy founded on speculation, and the high speed movement of almost unlimited amounts of capital.
Almost. The corresponding truth is that so much of the era spawned by the disingenuous mindsets of Mssrs Clinton and Blair came to a grinding halt last year; [see my blog: September 07 Bureaucracy,August holidays and the old Achilles heel] when the truth of that famous slogan, emblazoned on the back of ‘Zola Budds’ around the city: “TRUST NO ONE”, became blindingly obvious: and banks simply stopped lending money to each other.
In a world in which lying has become a standard response, the only truth become the market. The market judged Bear Stearns: and tossed it.
Back home Mr Mc Bride’s many detractors constantly accuse him, among other things, of being a consummate liar. This is not strictly speaking seen as a weakness. Resistance politics are founded on lying. James Mahlangu, a “struggle hero” and former premier of one of the country’s fractious provincial administrations famously announced some years ago now, that lying was a normal political activity. [ He left office soon after].
Mr Mc Bride is accused of driving whilst intoxicated, a charge he denies. This week, in his court appearance, during the testimony of prosecution witnesses, we have been exposed to an alleged disturbing pattern of behaviour presided over apparently by Mr Mc Bride, in his role as police chief, which, if found true, will go a long way to support the political opposition’s claims that corruption in our society has become systemic.
Mr Mc Bride has always presented himself as a victim of colonialist oppression and has been pardoned regularly by his supporters for his idiosyncratic behaviour. While Mr Mc Bride has demonstrated over and over again that he is not a man to be counted out, it is beginning to look as though “the market” of opinion may yet count reach an unintended tipping point against him.
Like the sins of the electricity company, Eskom, whose machinations in support of higher tariffs [ in SA] border on human rights violations, those who lie to gain preferment are revealed starkly when economies turn.
Hubris: the sin of pride. The sin of our times..
Thursday, March 20, 2008
Saturday, March 1, 2008
The inflation credibility gap
Weblog 1 March 2008
St David’s Day if you’re Welsh
I have been pondering a complex monetary topic and so my musing is likely to be complex for which I apologise in advance, with the caveat that there is no easy way to break difficult news.
The thing that puzzles me most presently is this.
Why are our inflation rates running at nearly ten percent while that of most of our core trading partners and allies is running at about three? [And they’re squealing].
I’ve been listening to all the arguments over the past few months from the many economic spokesperson called upon to pronounce on why inflation is rising. They all sing the same chorus: the ‘F’ words, fuel and food.
So. Did we used to get a preferential rate on petrol and food that we are now playing catch-up? I don’t recollect anyone telling us that. Surely $100 a barrel is a $100 a barrel?
We're all paying the same increase.
Food is definitely a problem. Wheat prices are up nearly 250%, according to a recent report on CNBC. China, which has a rate of inflation almost as bad as ours and worsening rapidly, attributes their problem to growing food shortages. Countries that rely on food aid for survival had better start planning for the last days, because if China is running out of food then they are going to have to buy all the world’s surpluses in a world that has few. China has the world’s biggest cash surpluses by an astronomical amount so they can pay top dollar for all surpluses.
Still China is not our biggest trading partner in inflation importing terms, not just yet anyway, and our inflation rate runs far higher than the Euro zone where it’s 2,9%, The European union itself where it’s 2,6%, or the USA where it’s 2,1%. Japan doesn’t have any inflation at all; they have a different problem of constant deflation. The Japanese official interest rate is half a percent and due to fall.
So if we all pay the market rate for fuel and food there have to be some other factors that account for this huge difference, which if it continues in this almost unrestrained way will effectively wipe out the competitive advantage we enjoyed, for instance, when we bid for the 2010 world cup. After all when one penetrates the mathematics of the differences then it seems our prices are rising at least two hundred percent faster than those of our main trading partners.
Then there is a second thing that I find puzzling.
Our beloved reserve bank governor, TM, has been raising the interest rates [in SA] with frenetic energy over the past eighteen months or so. When he did this back in about 2000 the brakes came on in the country so fast that it was almost as if we hit a wall. Now nearly two years into the rates up-cycle we are only seeing the beginnings of pain and slowdown but nothing yet to shake the mood of spend like there is no tomorrow, its as if there is a tap running and his efforts to slow the flow are missing it.
It seems that we are awash with cash [or near cash]… and judging by the yawning gap in our balance of payments regime we are spending masses of it on consumer imports, that we no longer produce ourselves. Are we doing this because we are not productive enough to produce them profitably? As a result prices are rising faster than they have since the Apartheid days. I got an unsolicited fax this week from a company that stated "Due to the volatile pricing structures of our suppliers it is very difficult to give fixed prices on equipment...." It is a long time since i had one of those.
In exploring the idea of a country so awash with spending money that a near fifty percent increase in the cost of holding the stuff has barely scratched the surface of its new born power I have to ask… Where is there a tap left running.
There are only two places I can think of where there is such a flow as to almost paralyse monetary policy. Both are still very much in the area of random circumstance and seem fairly unmined as far as researching unintended outcomes are concerned. These are firstly BBBEE. [For offshore readers {OR} BBBEE stands for Broad Based Black Economic Advancement. The core strategy of BBBEE, in its legislative form, is the requirement that every business in the country of any substance must grant ownership rights to some or other favoured group of so-called "Black" citizens. This refers to all those drawn from the ranks deemed “formerly Dispossessed” under the old racist rule of the former Apartheid era regime.] and secondly the rise of private ex- banking capital which represents a considerable area of ‘uncontrollable’ money expansion. In other words the kind of credit card facility you get from Woolworth's or Pick n Pay which effectively bypasses the banking sector.
I do not profess any expertise in either of these field beyond noting that both exist and both have as their core purpose extracting value from existing assets and using the value extracted as a lever to generate an ever-escalating debt structure.
The private sector debt expansion process has moved so far beyond simple credit extension into the realm of so called CDO [convertible debt obligations] and other esoteric and ephemeral debt description, that it has recently exploded [offshore] in the developed world. This has given us the so-called “sub-prime” meltdown that is presently pushing formal interest rates down in the United States, to levels that may well make Japan’s deflation look like simple arithmetic. At home the momentum of BBBEE ownership transformation in SA business ownership holdings shows no sign of slackening off and may be about to enter a renewed growth curve.
My understanding of what may be rudimentary economics now, in this grandiose era of all things being equal is that there is a pipeline of money flow generating debt as a by-product. Since debt can be leveraged to buy Porches and mansions, we can expect that the flow of money will require more upward doses of monetary vigour in the form of higher rates. At same time everyone else’s interest rates may well decline. This will bring loads more speculative money into the short-term opportunity presented by the rising gap in interest rates between them and us.
At the same time our growth rate, which was about 5% is likely to slip further back as a result of the collective losses to the economy caused by the [unintended] electricity shortage. So in other words we are entering a stage of ‘real’ no- growth in SA [inflation rate greater than > growth rate equals no growth]
This was called Stagflation during the seventies; but the peculiarity of economics is that cycle changes simply echo past changes without duplicating them… in the seventies we were hardly going through a technology revolution on the current scale.
The heart of the problem is that when value is unlocked, the cash so generated should be used to generate new ‘added’ value. Practically this ‘added value’ should consistently be in excess of the value and cost of the rental being skimmed off the asset being unlocked. It would seem, in the absence of contrary evidence, that this is not happening on a sufficient scale, notwithstanding the occasional “good news” success stories planted routinely in the press by those with a vested interest in the strategy of BBBEE..
In fact when one factors in the compounding effects of ongoing mergers and acquisitions in multiple market places, with the increasing concentrations of oligopolistic market formations; then it is apparent that there is simply too much money chasing too many genuinely commoditised goods. These goods have been elevated to high price, high profit status because of a decline in real competition.
There is no easy or short-term solution to this circumstance and perhaps this is why none of the fashionable economists one hears from routinely in the media choose to mention it… Markets however are brutally harsh it seems in circumstances where political rules overwhelm the core realities founded in the so-called economic problem: i.e.: shifts in relative scarcity. The inevitable outcome however is a form of bubble and unless adroitly managed bubbles inevitable burst.
Are we becoming a bubble and if we are, how far off are we from bursting?
St David’s Day if you’re Welsh
I have been pondering a complex monetary topic and so my musing is likely to be complex for which I apologise in advance, with the caveat that there is no easy way to break difficult news.
The thing that puzzles me most presently is this.
Why are our inflation rates running at nearly ten percent while that of most of our core trading partners and allies is running at about three? [And they’re squealing].
I’ve been listening to all the arguments over the past few months from the many economic spokesperson called upon to pronounce on why inflation is rising. They all sing the same chorus: the ‘F’ words, fuel and food.
So. Did we used to get a preferential rate on petrol and food that we are now playing catch-up? I don’t recollect anyone telling us that. Surely $100 a barrel is a $100 a barrel?
We're all paying the same increase.
Food is definitely a problem. Wheat prices are up nearly 250%, according to a recent report on CNBC. China, which has a rate of inflation almost as bad as ours and worsening rapidly, attributes their problem to growing food shortages. Countries that rely on food aid for survival had better start planning for the last days, because if China is running out of food then they are going to have to buy all the world’s surpluses in a world that has few. China has the world’s biggest cash surpluses by an astronomical amount so they can pay top dollar for all surpluses.
Still China is not our biggest trading partner in inflation importing terms, not just yet anyway, and our inflation rate runs far higher than the Euro zone where it’s 2,9%, The European union itself where it’s 2,6%, or the USA where it’s 2,1%. Japan doesn’t have any inflation at all; they have a different problem of constant deflation. The Japanese official interest rate is half a percent and due to fall.
So if we all pay the market rate for fuel and food there have to be some other factors that account for this huge difference, which if it continues in this almost unrestrained way will effectively wipe out the competitive advantage we enjoyed, for instance, when we bid for the 2010 world cup. After all when one penetrates the mathematics of the differences then it seems our prices are rising at least two hundred percent faster than those of our main trading partners.
Then there is a second thing that I find puzzling.
Our beloved reserve bank governor, TM, has been raising the interest rates [in SA] with frenetic energy over the past eighteen months or so. When he did this back in about 2000 the brakes came on in the country so fast that it was almost as if we hit a wall. Now nearly two years into the rates up-cycle we are only seeing the beginnings of pain and slowdown but nothing yet to shake the mood of spend like there is no tomorrow, its as if there is a tap running and his efforts to slow the flow are missing it.
It seems that we are awash with cash [or near cash]… and judging by the yawning gap in our balance of payments regime we are spending masses of it on consumer imports, that we no longer produce ourselves. Are we doing this because we are not productive enough to produce them profitably? As a result prices are rising faster than they have since the Apartheid days. I got an unsolicited fax this week from a company that stated "Due to the volatile pricing structures of our suppliers it is very difficult to give fixed prices on equipment...." It is a long time since i had one of those.
In exploring the idea of a country so awash with spending money that a near fifty percent increase in the cost of holding the stuff has barely scratched the surface of its new born power I have to ask… Where is there a tap left running.
There are only two places I can think of where there is such a flow as to almost paralyse monetary policy. Both are still very much in the area of random circumstance and seem fairly unmined as far as researching unintended outcomes are concerned. These are firstly BBBEE. [For offshore readers {OR} BBBEE stands for Broad Based Black Economic Advancement. The core strategy of BBBEE, in its legislative form, is the requirement that every business in the country of any substance must grant ownership rights to some or other favoured group of so-called "Black" citizens. This refers to all those drawn from the ranks deemed “formerly Dispossessed” under the old racist rule of the former Apartheid era regime.] and secondly the rise of private ex- banking capital which represents a considerable area of ‘uncontrollable’ money expansion. In other words the kind of credit card facility you get from Woolworth's or Pick n Pay which effectively bypasses the banking sector.
I do not profess any expertise in either of these field beyond noting that both exist and both have as their core purpose extracting value from existing assets and using the value extracted as a lever to generate an ever-escalating debt structure.
The private sector debt expansion process has moved so far beyond simple credit extension into the realm of so called CDO [convertible debt obligations] and other esoteric and ephemeral debt description, that it has recently exploded [offshore] in the developed world. This has given us the so-called “sub-prime” meltdown that is presently pushing formal interest rates down in the United States, to levels that may well make Japan’s deflation look like simple arithmetic. At home the momentum of BBBEE ownership transformation in SA business ownership holdings shows no sign of slackening off and may be about to enter a renewed growth curve.
My understanding of what may be rudimentary economics now, in this grandiose era of all things being equal is that there is a pipeline of money flow generating debt as a by-product. Since debt can be leveraged to buy Porches and mansions, we can expect that the flow of money will require more upward doses of monetary vigour in the form of higher rates. At same time everyone else’s interest rates may well decline. This will bring loads more speculative money into the short-term opportunity presented by the rising gap in interest rates between them and us.
At the same time our growth rate, which was about 5% is likely to slip further back as a result of the collective losses to the economy caused by the [unintended] electricity shortage. So in other words we are entering a stage of ‘real’ no- growth in SA [inflation rate greater than > growth rate equals no growth]
This was called Stagflation during the seventies; but the peculiarity of economics is that cycle changes simply echo past changes without duplicating them… in the seventies we were hardly going through a technology revolution on the current scale.
The heart of the problem is that when value is unlocked, the cash so generated should be used to generate new ‘added’ value. Practically this ‘added value’ should consistently be in excess of the value and cost of the rental being skimmed off the asset being unlocked. It would seem, in the absence of contrary evidence, that this is not happening on a sufficient scale, notwithstanding the occasional “good news” success stories planted routinely in the press by those with a vested interest in the strategy of BBBEE..
In fact when one factors in the compounding effects of ongoing mergers and acquisitions in multiple market places, with the increasing concentrations of oligopolistic market formations; then it is apparent that there is simply too much money chasing too many genuinely commoditised goods. These goods have been elevated to high price, high profit status because of a decline in real competition.
There is no easy or short-term solution to this circumstance and perhaps this is why none of the fashionable economists one hears from routinely in the media choose to mention it… Markets however are brutally harsh it seems in circumstances where political rules overwhelm the core realities founded in the so-called economic problem: i.e.: shifts in relative scarcity. The inevitable outcome however is a form of bubble and unless adroitly managed bubbles inevitable burst.
Are we becoming a bubble and if we are, how far off are we from bursting?
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