Big Banking

Big Banks Have Become Mafia-Style Criminal Enterprises

 WashingtonsBlog,

29 June, 2012

Banks Conspire to Fleece the Public

Two stories this week prove once again that the big banks are literally criminal enterprises.

Initially, all of the big banks have engaged in Mafia-style “bid-rigging” of municipal bonds, to bilk money from every city in the nation … to the collective tune of tens billions of dollars.

And Barclays and other large banks – including Citigroup, HSBC, J.P. Morgan Chase, Lloyds, Bank of America, UBS, Royal Bank of Scotland – manipulated the world’s primary interest rate (Libor) which virtually every adjustable-rate investment globally is pegged to.

And see this. That means they manipulated a good chunk of the world economy.

Other recent stories also show criminal fraud as well. For example, the big banks have been cheating homeowners … especially veterans.

And as Max Keiser explains, banking giants Mellon and State Street shaved money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide:

(Details here, here, here, here, here, here, here, here, here, here, here.)

Indeed, the entire business model of the big banks is fraud. See this, this, this, this, this and this.

Fraud caused the 1930s Depression and the current financial crisis.

Regulators Have Become “Cops On the Take”

There’s no recovery because the government made it official policy not to prosecute fraud (and see this,this, this, and this).

Unfortunately, the cop is on the take … and the government’s only actions are to cover up the fraud and to leave the people holding the bag.

Guy McPherson in New Zealand

Economic collapse `might save us'

An American academic brought a roadmap for the future to Kerikeri on Monday.

Stuff,

28 June, 2012

Guy McPherson takes climate change issues very seriously: a rise in global temperatures is happening and its results could very well be catastrophic.

For the University of Arizona professor emeritus and writer the results are already in. The industrial economy is driving to extinction 200 species a day every day, he says.

The self-described "life-loving economic doomer" is not making predictions for the future but his best-case scenario coincides with what many would view as a worst-case economic scenario.

"We can't see the future but we can make the future."

He's urging a lifestyle switch.

"Anarchy means taking responsibility for yourself and for your neighbours," Mr McPherson says. He says there is no politically viable solution to climate change driven by our fossil fuel driven economy. And he openly hopes for a quick, complete economic collapse.

"If you actually love life, you have to be in favour of the industrial economy reaching its overdue end," he says.

It's the only way to mitigate the current trend towards a mass extinction by 2035, he says.

"I have no doubt whatsoever that there is no gain to be had politically from `durable living'," he says.

But that's exactly what he said on Monday: raising goats, chickens and ducks; growing fruit and vegetables and keeping bees; collecting water; and living in a low-tech, energy-efficient home.

"In New Zealand it would be almost too easy to make this happen," he says of community level self-sufficiency.

Mitigating the effects of an economic collapse requires water security, food security, maintaining body temperature and community, Mr McPherson says,

The signs that he pointed to as indicators of a coming dramatic global rise in temperatures are the Amazon drought, once a carbon sink the area is now a major carbon emitter; ocean methane emissions; Siberian methane vents, which grew in diameter from 30cm in 2010 to 1km in 2011; and arctic defrosting, which occurs when warm Atlantic waters enter the Arctic.

Mr McPherson gave two talks in Kerikeri hosted by Deep Green Productions.

Monday's talk was co-sponsored by Transition Towns BOI.

World 'bleeding to death'

"Global climate change is on track to cause human extinction,".

Taranaki Daily News,

29 June, 2012

Retired professor Guy McPherson's view of the living world is fairly blunt.

The planet has a spurting wound and governments are pumping on its chest to try and make it stand up again, he says.

"Central banks and corporations of the world are selling blood for transfusions and the environmentalists are running around cleaning up the blood on the sidewalk."

The former University of Arizona professor of natural resources, ecology and evolutionary biology is in New Plymouth this week to talk about how to make living more "durable". His talk will focus on what he calls the twin sides of the fossil fuel coin: energy decline and global climate change.

"Global climate change is on track to cause human extinction," he said.

Dependence on fossil fuels contributed to environmental decay, water and air pollution.

"As a consequence, the set of living arrangements that society has become accustomed to will be gone, and sooner than we think," he said.

Prof McPherson left his role as a professor some years ago as his moral viewpoint began to trump the way he lived.

He moved off-grid to New Mexico, USA, where he now lives within a community-based alternative lifestyle.

"It's a very sparsely inhabited area, with very few humans by design. We're living outside government influence because governments are not our friends," he said.

The majority of people in his community are committed to things such as growing their own food, which Prof McPherson said was one thing people could do to become more durable. "There are many things we can do as individuals and communities to prepare for a different future than what we've seen in the past.

"We can secure clean water. We can secure healthy food. We can secure the means to maintain our body temperature at a safe level, and we can develop and maintain a decent human community.

"Those four things are all we need to thrive, not merely survive, but thrive."

He said New Zealanders had an incredible chance to take advantage of sustainable living.

"The entire southern hemisphere is much better suited to deal with climate change.

"You have this maritime climate, and all of this rainfall, and things that are amazing in terms of the natural world here in New Zealand and New Plymouth."

Prof McPherson said his goal is to start a conversation, so people will take responsibility for themselves and their neighbours.

"And if we don't have a complete collapse – which is impossible to imagine in my mind – then we will have just made a better world regardless. And that's not such a horrible thing."

Russian economy

Russia is, like it always has been, a mess. However,  for the time being it has oil and gas to hide the reality.

Russia’s Creaking Infrastructure

Russia Profile,

22 June, 2012

The Russian government should invite private investors to finance the country’s rickety infrastructure, which is currently holding down economic development after enduring years of neglect, the country’s top transportation officials said on Friday.

ST. PETERSBURG, Russia/“When and if a decision is made to use private sector financial instruments, like infrastructure bonds, they must be issued and backed by the government to avoid the temptation of downgrading on behalf of rating agencies,” Russian Railways President Vladimir Yakunin said at the International Economic Forum in St. Petersburg.

Russia’s infrastructure development has continued to lag behind that of other emerging nations due to a lack of adequate investment from the private sector, according to the roundtable participants, which included Transportation Minister Maxim Sokolov, Yakunin and Aeroflot CEO Vitaly Savelyev.

While the United States and many European countries invest close to six percent of their GDP in infrastructure, Russia invests just around 2.5 percent, Yakunin added.

Russia, like most former Soviet states, inherited the bulk of its infrastructure facilities from the Soviet Union, but harsh climatic conditions, insufficient state investment and widespread corruption have pushed most into a state of disrepair or near-collapse.

Russia trails all developed countries in the sheer scale of infrastructure investment, and also has the second lowest score among 14 countries for the uneven distribution of its physical infrastructure, according to KPMG’s Competitive Alternatives 2012 report released in May.

The government said, however, that it is well aware of the problems and plans to invest heavily in infrastructure in line with its infrastructure development program till 2030.

Over the past ten years, the federal government has spent 1.9 trillion rubles ($57 billion), or about 45 percent of its federal target program funds, to improve the state of the country's infrastructure, said Maxim Sokolov, Russia's minister of transport.

But in order to maintain the various infrastructural projects in a decent state, the government needs to spend an additional 1.5 trillion rubles ($45 billion) that it does not currently have.

"The government needs to attract outside sources of financing because there’s simply not enough money in the state coffers to fulfill the various infrastructural projects," Sokolov said. "It is crucial to attract private sector investment and foreign expertise in infrastructural management, too.”

Sokolov believes that inviting private investors should not be an uphill battle, since each of the country's infrastructure sub-sectors – including roads, railways and aviation – is capable of generating between 200 billion rubles ($6 billion) and 300 billion rubles ($9 billion) in revenues annually.

Russia still loses from seven to nine percent of its GDP due to poor roads, the Ministry of Transport said in a separate report. Commercial goods can only travel an average of 180 miles per day in Russia, compared to 900 miles in Europe, the report said.

In light of the huge problems facing the sector, Sokolov backed suggestions by other industry executives that Russia may need to transfer some of its infrastructural assets to private investment funds for long-term exploitation and efficient management.

Russia should have no problems attracting private investors to finance and manage its infrastructure projects, said Yves-Thibault de Silguy, the vice-chairman of the Board of Directors of VINCI, a major French construction company and a participant of the round table.

Much more serious, however, is the high level of corruption and the absence of a level playing field for contractors in Russia, especially in the regions, he said.

“There’s a world of difference between the way well-connected contractors and private contractors are treated in many regions,” Thibault de Silguy said. “Well connected insiders appear to have monopolized various construction projects, effectively discouraging private investors.”

The perennial problem of corruption in Russia has also prompted other executives to suggest that a lack of investment is not the primary problem infrastructure development in Russia is facing.

“The main issue is horse-and-buggy regulation and the presence of legions of rent-seeking officials in the sector,” said David Fass, the CEO of Macquarie Group Limited in Europe, Middle East and Africa.

Over the past decade, yields on investment in infrastructure projects have tripled, indicating that foreign investors would gladly provide infrastructure equity dollars, Fass said. However, there is an acute need for fair play in awarding contracts as well as creating equal conditions for all contractors, he added.

Industry executives also took issue with the government’s tariff policy, which some described as unpredictable and short-sighted.

“There is no certainty in the way state tariffs are determined,” Yakunin said. “Since the beginning of the year, fuel prices have gone up 18 percent against the official forecast of just 0.5 percent.”

Russian Railways chief also criticized the three-year-long budget policy, introduced last year, saying that it is too tight for long-term infrastructure projects. “What is three years for infrastructure investments that require at least 25 years to break even?” Yakunin asked.

Max Keiser interviews Charles Hugh Smith

Keiser Report: Ground Zero of Financial Terrorism

This week Max Keiser and co-host, Stacy Herbert, talk about Marie Antoinette's last words on a banner at the Chicago Board of Trade, Herman Cain's views on the 'unAmerican' protesters and a proposal for a Seal Team 6 to protect us from terrorist bankers.

In the second half of the show, Max Keiser interviews Charles Hugh Smith, author of An Unconventional Guide to Investing in Troubled Times, about #occupywallstreet, Crash JP Morgan - Buy Silver and other solutions to a dangerous banking system.

The Fukushima crisis

Seismologists warn Japan against nuclear restart

Two prominent seismologists said on Tuesday that Japan is ignoring the safety lessons of last year's Fukushima crisis and warned against restarting two reactors next month.

Reuters,

28 June, 2012

Japan has approved the restart of the two reactors at the Kansai Electric Power Ohi nuclear plant, northwest of Tokyo, despite mass public opposition.

They will be the first to come back on line after all reactors were shut following a massive earthquake and tsunami last March that caused the worst nuclear crisis since Chernobyl at Tokyo Electric Power's Daiichi Fukushima plant.

Seismic modeling by Japan's nuclear regulator did not properly take into account active fault lines near the Ohi plant, Katsuhiko Ishibashi, a seismologist at Kobe University, told reporters.

"The stress tests and new safety guidelines for restarting nuclear power plants both allow for accidents at plants to occur," Ishibashi told reporters. "Instead of making standards more strict, they both represent a severe setback in safety standards."

Experts advising Japan's nuclear industry had underestimated the seismic threat, Mitsuhisa Watanabe, a tectonic geomorphology professor at Toyo University, said at the same news conference.

"The expertise and neutrality of experts advising Japan's Nuclear Industrial Safety Agency are highly questionable," Watanabe said.

After an earthquake in 2007 caused radiation leaks at reactors north of Tokyo, Ishibashi said Japan was at risk of a nuclear disaster following a large earthquake, a warning that proved prescient after Fukushima.

While it is impossible to predict when earthquakes will happen, Ishibashi said on Tuesday the magnitude 9 quake last year made it more likely "devastating" earthquakes would follow.

Europe

Nigel Farage: Van Rompuy, Barroso worst people in EU since 1945

After a tough night of wrangling, EU leaders have agreed to set up a new authority - tasked with keeping sinking banks afloat. And to do that, the new agency will be given access to Europe's mammoth bailout funds - stocked in a large part by taxpayer money. This exact function was previously carried out by governments. But now, the EU can bailout a nation's banks - without adding to the government's debt levels - at least on the books. It's something that Germany strongly opposed, but was forced to relent on due to Spanish and Italian insistence. 


Nigel Farage, a member of the European Parliament and leader of the UK Independence Party, believes that it's Germany who plays the deciding role in these talks...

Zombie markets high on bath salts: 

the Extinction Protocol,29 June, 2012

The benefits of the announcements (lower yields on sovereign bonds and higher share prices in EU banks) will be short-lived.

None of these decisions from the EU summit address the core issues facing the EU banking system: namely, insolvency and excessive leverage.

No one in the EU actually has the money to make these measures work (again, Spain and Italy will provide 30% of the ESM’s funding). Markets will stage a knee jerk reaction to these measures.

That reaction will see bank shares rise and yields fall, temporarily. But this move will be short-lived, just as moves following LTRO1 and LTRO 2 were.

After all, these announcements are just more political measures than anything else.

And Europe needs capital NOT politics at this point. So I would expect this rally and the drop in bonds to be short-lived. EU leaders may have put off the Crisis by a few weeks (or perhaps even a month). But they still haven’t addressed the core issues causing the Crisis: excess leverage courtesy of hundreds of billions of Euros’ worth of garbage debt.

–Zero Hedge – Phoenix Capital

Record temperatures in Kansas; Floods in the UK

-->

Temperatures in Kansas hit 118 F: 32 communities from Colorado to Indiana post highest temperatures ever

That's 47 C!!

the Extinction Protocol,

29 June, 2012

June 30, 2012 – CLIMATE –  

Norton Dam, Kan., hit 118 F. on Thursday, and 32 communities from Colorado to Indiana just posted their highest temperatures ever. 

Forecasters say back-to-back La Niñas are partly to blame. 

These records appear to be falling into step with a longer-term trend in which record highs are being set more often than record lows for each decade since the 1970s – a trend many climate researchers have attributed to global warming. 

As June 2012 draws to a close, it feels more like mid-July or August to people in wide swaths of the country. 

Between June 27 and June 28, 32 communities stretching from Colorado to Indiana posted the highest temperatures on record ever for their locations – with a handful tying or topping records set only a few days before, according to data kept by the National Climatic Data Center in Asheville, N.C. Norton Dam, Kan., for instance, recorded an all-time record of 118 degrees F. on Thursday, two degrees above Death Valley’s July average. 

The 118-degree reading shattered Norton Dam’s previous record of 113 degrees F. – set just three days before.

More than 350 sites across a broad swath of the continent’s interior have posted daily record highs since June 27, with heat advisories on Friday covering all or parts of 23 states from Kansas east to the Carolinas and into the Northeast, and from Wisconsin south to Mississippi and Alabama. 

At the same time, other parts of the country are reporting record lows for this time of year. 

Anyone looking for relief might put the Northwest on their itinerary. Over the same two-day period, 57 locations, largely clustered in Washington state and northeastern Oregon, posted at least one daily high temperature that tied or beat the lowest for the date on which it was measured. 

Waterville, Wash., posted the biggest drop among the group – a high of 51 degrees on Wednesday, nine degrees below the previous record-low high of 60 degrees on June 27, 1946. 

And it’s all coming out of a spring that was the warmest on record in the US, bringing a heat wave to the center of the country in March the likes of which the US hasn’t seen since 1910. Indeed, Spring 2012 in the US was 2 degrees warmer than the previous record-holder, the spring of 1910. 

One reason for the seemingly relentless high temperatures is the presence of a broad ridge of high pressure inching its way across the continent, forecasters say. 

With skies generally clear, sunlight has a clear path to travel on its way to baking what in many places is an already parched surface. As of Tuesday, a broad swath of the US was experiencing either severe or extreme drought, according to the National Drought Mitigation Center, based at the University of Nebraska in Lincoln. 

-CSM

UK: Big clean-up begins after storms leave thousands without electricity

Flood alerts remain in force after streets are submerged and 'golf ball' hail stones fall

the Guardian,

29 June, 2012

A vast clean-up operation got under way on Friday after heavy rain and storms left thousands of homes without electricity. Many people were evacuated, with severe disruption on the road and rail networks.

Severe summer storms have caused flash floods that saw streets submerged. More than 111,000 lightning strikes were detected across the country, while hail stones "the size of golf balls'' caused damage in Leicestershire.

In Shropshire, a man who died after being caught in heavy flooding was named on Friday. Mike Ellis, a maths teacher, died after being swept away by floodwater in a stream at Bittlerley, near Ludlow. A 90-year-old man was among people rescued from vehicles by fire crews after flash flooding in the Bridgnorth area.Mr Ellis's wife described him as "a gentle caring man" and the "most wonderful husband".

More rain is forecast but not torrential downpours, though there will be heavy showers – some in flood-hit areas including northern England, the Midlands, Scotland and Northern Ireland. The Environment Agency has flood alerts in place in 10 areas of the UK including East Anglia, the Midlands, the north-eastand the north-west.

Thousands of homes were left without electricity in the north, with 3,000 customers still without power on Friday yesterday, down from 23,000 on Thursday, according to Northern Powergrid. The worst hit areas include Consett, Whitley Bay, Prudhoe, Shiremoor and Stanhope.

Northern Ireland and the Irish republic were also hit by floods, with a loss of power to more than 10,000 homes in the Cork area and 1,000 in Northern Ireland. Hundreds of homes and businesses were damaged by flooding in the Cork suburb of Douglas, while parts of Belfast and County Antrim were also badly affected.

On Thursday heavy rains caused landslides which forced the cancellation of all East Coast trains between Newcastle and Edinburgh, with limited services resumed by Friday afternoon. Some passengers travelling from London to Glasgow endured journeys of up to 15 hours.

A London to Glasgow Virgin Trains service was stranded between two landslides in the Lake District for more than two hours before being evacuated near Lockerbie after a fire broke out in the front coach of the train. In Newcastle, the city's metro was underwater, submerged cars were left abandoned on flooded streets and care home residents with learning disabilities had to be evacuated.

On Friday one of the main railways between Scotland and England was closed for the second time in 24 hours, with trains unable to run between Glasgow and Carlisle on the West Coast mainline because of a problem with overhead wires. The three-day Godiva Festival in Coventry was cancelled on Friday, with 100,000 revellers told not to turn up at the city's War Memorial Park to see acts such as Echo and The Bunnymen and Cast. A statement on the festival website said: "We're really sorry but finally beaten by devastating weather."

The cancellation comes after the Isle of Wight festival was hit by torrential rain last weekend, which saw the site flooded causing traffic jams around the island.

The Midlands was hit by intense downpours, with some parts receiving 22mm of rain in one hour – a third of the average rainfall for the month. "We are not going to see the type of heavy rainfall we have seen in the last couple of days, but unfortunately the weather continues to look quite unsettled," said Sarah Holland from the Met Office. "It will be mainly dry with some heavy showers, with the south-east getting the best of the weather while the worst will hit parts of Wales, the south-west and Yorkshire."

Sunday is expected to be drier but will remain dull. She added: "As people go back to work on Monday it will remain unsettled with more heavy showers expected in Tuesday." Wales has seen the wettest June since records began, while this is the second wettest June on record in England. "It has been a disappointing month on all fronts – with many areas being exceptionally wet, very dull and cooler than average," said Holland.

Climate change in the USA

Wildfires in U.S. West a preview of changed climate: scientists

By Deborah Zabarenko and Laura Zuckerman; Editing by Stacey Joyce

Desdemona Despair,

29 June, 2012

(Reuters) - Scorching heat, high winds and bone-dry conditions are fueling catastrophic wildfires in the U.S. West that offer a preview of the kind of disasters that human-caused climate change could bring, a trio of scientists said on Thursday.

"What we're seeing is a window into what global warming really looks like," Princeton University'sMichael Oppenheimer said during a telephone press briefing. "It looks like heat, it looks like fires, it looks like this kind of environmental disaster ... This provides vivid images of what we can expect to see more of in the future."

In Colorado, wildfires that have raged for weeks have killed four people, displaced thousands and destroyed hundreds of homes. Because winter snowpack was lighter than usual and melted sooner, fire season started earlier in the U.S. West, with wildfires out of control in Colorado, Montana and Utah.

The high temperatures that are helping drive these fires are consistent with projections by the U.N. Intergovernmental Panel on Climate Change, which said this kind of extreme heat, with little cooling overnight, is one kind of damaging impact of global warming.

Others include more severe storms, floods and droughts, Oppenheimer said.

The stage was set for these fires when winter snowpack was lighter than usual, said Steven Running, a forest ecologist at the University of Montana.

Mountain snows melted an average of two weeks earlier than normal this year, Running said. "That just sets us up for a longer, dryer summer. Then all you need is an ignition source and wind."

Warmer-than-usual winters also allow tree-killing mountain pine beetles to survive the winter and attack Western forests, leaving behind dry wood to fuel wildfires earlier in the season, Running said.

"Now we have a lot of dead trees to burn ... it's not even July yet," he said. Trying to stop such blazes driven by high winds is a bit like to trying to stop a hurricane, Running said: "There is nothing to stop that kind of holocaust."

Fires cost about $1 billion or more a year, and exact a toll on human health, ranging from increased risk of heart, lung and kidney ailments to post-traumatic stress disorder, said Howard Frumkin, a public health expert at the University of Washington.

"Wildfire smoke is like intense air pollution," Frumkin said. "Pollution levels can reach many times higher than a bad day in Mexico City or Beijing."

The elderly, the very young and the ill are most vulnerable to the heat that adds to wildfire risk, he said. The strain of fleeing homes and living in communities in the path of a wildfire can trigger ailments like post-traumatic stress disorder, depression and anxiety.

The briefing was convened by the science organization Climate Communications, with logistical support by Climate Nexus, an advocacy and communications group. An accompanying report on heat waves and climate change was released simultaneously at http://climatecommunication.org/new/articles/heat-waves-and-climate-change/overview/.

The Australian economy

Buckle up, Australia: recession is coming

Think Australia is immune to global downturn, depression and despair? Remy Davison from Monash University says we should think again.

By Remy Davison, Monash University

SBS,

29 June, 2012

Think Australia is immune to global downturn, depression and despair? Think again.

One would be plundering the depths of naïveté to believe that Australia can continue to exist in an oasis of economic tranquility, while the global economy plunges into turmoil.

If you don’t believe me, then perhaps you’ll believe the chief economist of Deutsche Bank Australia? Or JP Morgan research? Maybe the Housing Industry Association?(Admittedly, HIA spruik for their own cause; but you can’t deny the figures.)

Commentators recognise that constant conjecture about recession can become a self-fulfilling prophecy. However, for most analysts, the objective is to examine the economic data dispassionately and base predictions upon a reasonable interpretation of the available evidence.

If certain data point to a Australian recession, potentially, this in itself raises important public policy issues:

1. How well prepared is Canberra for a major downturn in taxation revenues?

2. What budgetary scenarios are being modelled by Treasury in the event of a significant downturn in Australia’s growth?

3. What strategies does the Commonwealth government have in place to deal with the impact of a (worst-case scenario) “GFC II”, or a longer-term global recession followed by a slow, weak recovery? (the likely scenario).

4. How does the federal government plan to deal in the longer term with the emerging “multi-track” economy, characterised by a booming resources sector (WA and Queensland), a white-collar recession (scroll down to Macquarie’s research report on pages 3–4), a declining and hollowed-out manufacturing sector (Victoria and South Australia), and a declining housing market (national).
 

What are the key indicators suggesting Australia is destined for recession? Here’s the case for the prosecution.

Shares

Stock exchanges are not only a real-time measure of market confidence, but they also have a delayed-reaction impact upon the real economy. It’s axiomatic that business investment, private-sector job creation and the profitability of the retail sector, personal investment incomes and superannuation industry dividends are ultimately determined by the relative performance of local and global stock markets.

In early June, $20 billion was rudely wiped off the Australian stock market, on the back of another $35 billion lost in August 2011. The falls continued in September-October, as the ASX200 dipped below 3900 points.

The fall wasn’t as severe in June, but it was still coming off a 2012 high of over 4400. But it was the deepest trough since the market collapse of August 2008 and January 2009 – the apex of the GFC.

The market ebbed and flowed, but recovered for about 18 months from early 2010 until August 2011. Monthly market volumes were reasonably steady, and the market did not dip below 4400 until August 2011, losing 5.5% on August 8.

Reflective of weak global demand, the Tokyo stock exchange hit a 28-year low in early June. This was largely a consequence of slowing Chinese manufacturing output and weak US jobs growth – only 69,000 jobs added – in May.

The China Syndrome

Reality is about to bite Beijing: China sent a fraction under 20% of its exports to the EU and the US in 2009. So approximately 40% of all of China’s exports went to the world’s biggest markets. And that is mainland China alone.

Factor in Taiwanese figures (firms like Foxconn and Hon Hai build your iPhone and iPad in southern Chinese mainland factories, like Huizhou), plus the entrepôt port known as Hong Kong, and the figures rise appreciably. (However, hard statistics are difficult to come by, given the level of intra-Chinese imports and re-exportation.)

But in 2011, Chinese export unit shipment growth slumped by 60% year-on-year in the September quarter of 2011.

The entire model of the PRC’s economic growth and development is premised upon export-oriented industrialisation (EOI). Put simply, this means that the economy is export-geared predominantly to produce value-added consumer durables at low prices in sufficient volume to be sold-on in more affluent markets.

But when those affluent markets deflate rapidly in the wake of unsustainable debt positions, foreign direct investment (FDI) dries up, export orders decline significantly, and Chinese firms are compelled to confront the international politics of surplus capacity.

Surplus capacity is the problem that two of the most eminent political economists, Roger Tooze and Susan Strange, analysed in 1981. This book proved to have such longevity, it was republished in 2010, as the problems it studied from the era of stagflation in the 1970s, remain pertinent, eerily, today.

Meanwhile, China’s central bank has a currency problem. The yuan renminbi (RMB) retains a crawling peg, meaning it tracks US dollar movements within a certain band of adjustment. But US borrowing, particularly since 2008, combined with a “near zero” target range in the US Fed’s funds rate, has seen the yuan appreciate slowly by around 7.5% (or 10%, factoring-in inflation), although the RMB remains vastly undervalued. But every time the US Fed engages in quantitative easing (QE), yuan appreciation costs China – a lot.

Follow the money

The Reserve Bank knows recession is coming. That is why the RBA has cut official rates by 75 basis points in the last two months, in the hope of engineering a soft landing. The legacy of Bernie Fraser’s dithering in 1989-90, while Australia burned to the ground, lingers long in the memory of Martin Place, the RBA’s HQ.

But the blunt instrument of monetary policy is an insufficient and inefficient policy tool to induce adequate demand, investment and consumption growth in the face of tripartite pressures comprising Chinese economic slowdown, European austerity and American deficit reductions.

The US Fed is reportedly considering QE3 – a third round of quantitative easing – as a stimulus to the US economy, which produced weak growth and jobs figures in May, after posting positive results in the first quarter of 2012.

Beijing is watching the Fed carefully, as another stimulus would result in further US dollar depreciation and potentially harm the Chinese economy. The Beijing leadership is also reportedly considering an additional stimulus.

Over in Washington, Obama is in a quandary. Another US stimulus could be damaging politically in an election year, and positive economic outcomes arising from QE may not be clearly evident by November. For example, when George H.W. Bush went to the polls in November 1992, the recessed US economy was already recovering, but the results were not manifest, and Bush lost. Badly.

Economic forces beyond our control

What does all of this mean for Australia? The fact is that Australia’s economic fate will not be decided in Canberra; it will be determined in Washington, Beijing and Berlin. The future of car manufacturing in Victoria and South Australia will be the subject of executive decisions in Tokyo, Dearborn and Detroit, just as the decision to close Mitsubishi’s plant in Tonsley Park in 2008 was made in Stuttgart by Daimler Chrysler.

Mining tax or not, BHP, Rio and other resources firms are likely to scale back their investments and output in the short-to-medium term. Even with major resource projects in the pipeline, there are tonnes of stockpiled iron ore sitting in Chinese granaries, as warehouses bulge. Copper prices are falling, and this is never a good sign: copper always has an inverse price relationship with gold, which is what investors flee to when stockmarkets plummet.

Even China runs up against the brick wall of international surplus capacity. In a global economy characterised by continuous competition and super-saturated markets (how many flat screens can you really buy?), not every country can grow at the same time – plain and simple.

There are high-growth and low or negative-growth economies; there are surplus and deficit economies. At present, China and Australia are in a mutually-complementary growth cycle, while the US, Japan and the EU (except Germany) are deeply in deficit and in low (US) or negative (UK) growth cycles.

Do not believe the snake-oil salespeople (some of whom reside in Treasury and DFAT), who argue that the Australian economy is delinked from the US economy; it is not. As the 2008–current GFC proved beyond reasonable doubt, the global tsunami that emerged from the wreckage of the US sub-prime mortgage crisis created a ripple effect that extended far beyond the North Atlantic. Had China not injected 3 trillion yuan into the PRC economy, Australia would have drowned with the rest of the PIIGS.

There is No Plan B

Now is not the time for Canberra to gloat complacently to the rest of the G20 that its economy is the envy of the world because someone will have to eat crow, eventually. Certainly, the rest of the world envies Australia’s abundance of mineral resources and the efficiency with which it extracts them.

But the rest of the world does not admire the Dutch disease that afflicts Australia’s government and business elites, and leaves them in a state of suspended delusion, transfixed by the belief that the resources boom can never end.

The commodities bubble of the late 1970s and early 1980s ended in 1982, forcing the Hawke government to address the drastic deterioration in Australia’s terms of trade. Australia’s share of world trade halved between 1973 and 1983. Hawke and Keating regarded the Australian dollar float (1983), financial market deregulation (1984), industrial restructuring (from 1987) and East Asian market integration (APEC, 1989) as the only means by which Australia could escape banana republic status.

None of these initiatives prevented the Australian economy from relapsing into recession in 1990. Why? Because the global recession – not the domestically-induced high interest-rate regime – did the damage. Certainly, domestic monetary policy caused the recession to be longer and deeper, but, fundamentally, it did not cause the recession; the complex economic interdependence ingrained in the global financial system caused it.

What strategies would the federal ALP government, or prospectively, a Coalition government, implement in the event of GFC II and a significant fall in Chinese growth and demand? Neither side of politics wants to address this thorny issue, as tax cuts and middle-class welfare dominate a poll-driven agenda and will continue to do so for the next 12 months.

Foreign borrowing aside, to which strategies could a Commonwealth government resort in the event of financial crisis?

Former Prime Minister Paul Keating weighed into this debate recently, arguing that federal governments could utilise Australia’s $AUD1.3 trillion pool of superannuation funds, rather than offshore borrowing.

We don’t have the space here to discuss the lunacy of this proposal: allowing profligate and irresponsible federal governments, irrespective of their political flavour, to get their hands on the superannuation cash register?

Keating clearly isn’t in Kansas anymore. Loading up the banks with hard-earned pension funds truly is the road to serfdom, as super funds have scarcely beensuperior performers of late. Anyone from the tertiary education sector in the Defined Benefit Scheme will understand that only too well. Superannuation funds crises are an accident waiting to happen, but that’s a story for another time.

In the “dismal science” of economics, there is only one joke and one joke only: economists have successfully predicted 13 out of the last 2 recessions.

I, for one, would be perfectly happy to be proved completely wrong on this occasion.