Jacob's Soap Box

12 February, 2009.

When I wrote the original Thank God There Is A Global Economic Crisis about two and a half months ago, I did not expect my cynicism to materialise, or at leat not so soon.

It was a mere two weeks after another self-proclaimed fiscal conservative Barack Obama joined the host of fiscal conservatives world leaders, including our own hollow man, Prime Minister Kevin Rudd.

Fiscal policy is about government active involvement (or not) in the economy through government revenues (taxes) and expenditures (services such as the law and order, security, social security etc.), fiscal conservativism is keeping the government books balanced.

The collapse of the American Sub-Prime market had little direct affect on Australia, thank to the pervious conservative government who had paid off all of its successive Labor governments debts and left office with nice cushion of budget surpluses, shovel ready for new socialist government to put to waste.

Despite its love affair with globalism, The Howard government ensured that Australian banks were regulated sufficiently to shield them from the effect of the collapse sub-prime market as act of prudence, long before the ugly sub-prime raised its head.

This is not to say that we have not been affected by the economic downturn that followed the financial meltdown on Wall Street, but to spell out that our state of affairs is a lot different from that of the US and Europe by a country mile.

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However, being in a better situation does not suit our illustrious hollow man Kevin 747 who wants to be like the big boys on world stage so he can play with them. He wants to appear doing something BIG, anything, thus stimulus out of all proportion to our size is the way to go.

We are going to get it, whether we need it or not, just because Kevin 747 wants to grand stand on world stage as if he is a decisive statesman.

The new buzz word is stimulus. It is a code word that describe how YOUR MONEY and mine is wasted by our governments without any accountability on social agendas, supposedly to create economic activity.

The idea is that a dollar that is spent by our government on building a bridge, as an example, may circulate a number of times and create economic momentum through what economists call the multiplier.

Say, the government build a bridge. They hire workers, buy cement, steel and other components and put it together. To have cement, there must be a cement factories that convert mined limestone, soda ash and other chemical and energy into cement.

To have still, we must have steel mills that need iron ore, coal, scrap and other trace metals and energy to make steel and they also all need ships trains and trucks to move raw materials and bridge components.

The workers on the bridge, the cement factories, the still mills, the ships, trains and trucks get paid and buy food, clothing, cars and plasma TV which in turn need more factories, shops and transport.

In other words, a dollar spent on, say, building a bridge, is spent a number of times through the economy depending on the multiplier of building bridges. This is the theory anyway.

This theory was developed by an English mathematician, turned economist and INVESTOR, John Maynard Keynes and what later became known as Keynesian Economics. Keynes believed that government should make the most of its economic powers and use it to achieve socio-economic goals.

On the other side of the scale is Milton Friedman was an economists who believes in the exact opposites, in free market with minimal government interference in the economy, also known as Friedmanism.

Whilst there is no decisive evidence that Keynes himself was communist or a communist sympathiser, nevertheless, Keynes is the darling of communism, socialism, liberalism and all other social engineering isms. Keynes has given them the left side of politics “scientific” all the excuses to interfere with the economy they need and, as we see, they use.

Here we have two diametrically opposing theories that beg the question “which is the correct one?” The simple answer is: none!. There are many conceptual contradictions and “cherry picking” of “facts” in both theories.

Economics is not a science, it is a set of theories based on empirical studies using (selective) quantitative and non-quantitative observations. Unlike science, economic theories are not results of proven hypotheses, they are just that, theories!

Some say that economics is the science that explains why its last prediction did not maderised.

Some goes as far as describing the economy as a power station and the people in charge of it as engineers who open and close valves, turn dials, switch pumps on and off, whereas the valves, dials and pumps are interest rates, taxation rates, government spending, surplus or deficit and so on – absolute crap!!!

In many case one cannot predict with certainty the outcome of a particular economic measure. Increase in official interest rate may be inflationary or deflationary, there are recent historical example to both. The same goes for other deliberate measures.

Just before Christmas Kevin747 use a stimulus of $ 14 billons and paid Australian age and disable pensioners a one off bonus. The idea was that because government pensioners are one of the poorest people in the land their propensity to spend is high thus most that money will be spent.

Wrong, whilst I had no objection to the bonus as such, stimulus it was not.

As it turned out , although there was improvement is Christmas retail sales, it was a oncer. Much of the money that was spent on Christmas presents ended up in China where it was only a drop in the ocean in tern of stimulating anything but Kevin’s standing in the opinion polls.

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I cannot recall so much identical rhetorical hard sell of policies in so many countries, although the circumstances in each vary dramatically. Do you really believe that there is the one, and only the one, medicine that cures all economic ailments? Come-on!

Stimulus will “kick-start” your country’s economy, create employment, unfreeze credit, eliminate toxic assets, get rid of inflation, improve your country’s terms of trades, balance of payments etc. etc. etc. If you believe in it, I have bridge across Sydney Harbour and a fancy looking opera house to sell you.

Although Keynesian economics was dead and buried for many years in many countries, its flame kept burning in the corridors of the International Monetary Fund (IMF), after all John Keynes was one of its founding father. Together with global socialism, which is now in control the governments of most developed nations, they all got this dead theory out of its grave, polished it, resuscitated it so it can be reused and push the socialist agenda once more.

Indeed the IMF has been used as a fig leaf for the socialisation of the western democracies . The IMF, the bastion of globalisation, an organisations with no electoral accountability or allegiance to anyone but itself, is cited by our politicians as the economic authority for enslave us, our children and grandchildren in gigantic debt.

Just look at the proposed “stimulus” of your country and you will quickly realise that it is no more then a badge social engineering agenda. Most, if not all, of the proposed expenditures covers IDENTICAL ITEMS of socialist agendas and common budgetary expenditure that belong in a regular budgetary process. Much like it all came from one place, well it has, the IMF.

Repairs to infrastructure, particularly bridges, “investments” in schools, Internet infrastructure, buildings insulation, alternative energy are no doubt familiar to you from debates about the so-called stimulus in your own country. BUT you may not realise that the actual items that make the stimuli in all countries (that have one) are identical.

So is the rhetoric about the “urgency” to adopt the stimulus measures. Our very basis of democracy, the parliament is being portray as obstruction, that may bring a “catastrophe” upon us, only because it wants to do what houses of parliaments do in democracy. Cesar does not like it when the senate asks question.

Incidentally, if you listen carefully, you will quickly notice the similarity between the scare mongering of the stimulus and that of global warming. The connection is self evident, both are spins of a socialist agenda.

Would you buy a car when the salesman pushes you to hurry up and sign on the dotted line, not ask too many question because you would loose this unique, one in hundred years, opportunity?

Remember these are the very people who want you to live in a dark and have cold showers to save the planet from a looming global warming.

By and large the global financial crisis and the subsequent global economic downturn is a direct consequence of globalism. It is the free market that enabled the toxic assets to freely move across borders among countries as contagious disease would spread across an hospital without an isolation ward.

Now that we have nearly all the hospital’s patients and staff infected, the cure, we are told, is to give them all the same medicine BUT NOT isolate them because they must all get well together, or not at all. This is what globalism is all about.

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One of the few idea that made any sense to me in the American stimulus proposal was that stimulus money must be spent on American made goods. After all the idea is that the steel and cement used to construct a bridge should come from home production and generate employment.

The idea that American money (I use America as an example, the same is true to any contry), borrowed by the American people, which the American taxpayer would need to repay back is used to create American Jobs by using it to purchase American goods horrified the globalists who opened a scare campaign about “trade wars”.

Suppose that you may fall on hard times and may consider to severely curtail this year’s Christmas presents for your kids, but the government tells you: “Oh no! don’t even think about as much as symbolic cut in the level of presents you have been giving to your neighbours kids, if you do we’ll call you protectionist or, God forbid, isolationist” – this is in fact what the IMF saying to every country these days. We don’t care what you do to your own people but you must continue and protect other people.

In a recent speech to the governors of the South East Asian Central Banks (SEACEN) the Managing Director of the IMF, Dominique Strauss-Khan said (inter-alia):

Some countries are trying to make government support of banks conditional on their giving priority to domestic borrowers, to the detriment of financing across borders. This will hurt emerging economies, whose growth depends on access to foreign bank financing. It is protectionism in the financial markets, and its consequences could be as damaging and dangerous as the trade protectionism of the 1930s.

Bull dust!

What got America out of the great depression of the 1930’s was not globalism, but the American manufacturing industry production efforts for the war AND the fact that by the end of WWII American industry was the only one standing. Beside, traditionally America always knew how to protect its own interest.

For years American aid was contingent on the fact that the recipients of such aid must use it, as much as practicable, to purchase American goods. For years, at least 50% of American aid MUST be carried on American flags ships, although freight on American flag ships were twice as dear as other flags – those were the rules.

Anyone who tell you that you can stimulate your economy and remain globalist at the same time is a liar, a fool or both. Throughout history you will not find a single instant of economy developing into world class without actively pursuing protection.

Britain of the industrial revolution until 1846 when they repealed the Corn Act, the USA from 1860 to 1914, Germany from 1870 to 1914, Japan, Korea, and India of after WWII and of course China of today all pursue protectionists policies. As a matter of interests all four American presidents carved out in Mount Rushmore, Washington, Jefferson, Lincoln and Theodore Roosevelt were protectionists.

In the face of “cheap” imports from the USA and Continental Europe, even the darling of the stimuluphiles, John Keynes, advocated tariffs barriers in 1930 to protect British industry.

As you see, stimulus is not about kick-starting the economy, it is not about job creation and protection, it is all about IDEOLOGY.

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Yet we the people can only watch in horror how our elected representives allow our governments condemn us and our descendants to generations of economic turmoil of debt, high interest, high taxation and inflation. Is this the planet we suppose to save from global warming?

When all those obscene amounts of money be wasted, nothing much will change except we each have national debt of colossal proportion. The so-called stimulus will not work because it cannot work. If you want to rebuild our economy, rebuild our own productive capacity first.

We cannot have economy without a strong manufacturing, construction and agricultural industries. Serving each others’ drinks and making each others’ bed is not an economy.