July 29, 2014

Why is Financial Stability Essential for Key Currencies in the International Monetary System?

Could the dollar lose its status as the key international currency for international trade and international financial transactions, and if so, what would be the principal contributing factors? Speculation about this issue has long been abundant, and views diverse. After the introduction of the euro, there was much public debate about the euro displacing the dollar (Frankel 2008). The monitoring and analysis included in the ECB’s reports on “The International Role of the Euro” (e.g. ECB 2013) show that the international use of the euro mainly progressed in the years prior to 2004, and that it has largely stalled since then. More recently, the euro has been displaced by the renminbi as the debate’s main contender for reducing the international role of the dollar (Frankel 2011).

This debate has mainly argued in terms of ‘traditional’ determinants of international currency status, such as country size, economic stability, openness to trade and capital flows, and the depth and liquidity of financial markets (Portes and Rey 1998). Considerations regarding the strength of country institutions have more recently been added to the list. All of these factors influence the ability of currencies to function as stores of value, to support liquidity, and to be accepted for international payments. Inertia also plays a role (e.g. Krugman 1984, Goldberg 2010), raising the bar for currencies that might uproot the status quo.

We argue here – building on discussions we began during the World Economic Forum Summit on the Global Agenda 2013 – that the rise in global financial-market integration implies an even broader set of drivers of the future roles of international currencies. In particular, we maintain that the set of drivers should include the institutional and regulatory frameworks for financial stability. The emphasis on financial stability is linked with the expanded awareness of governments and international investors of the importance of safety and liquidity of related reserve assets. For a currency to have international reserve status, the related assets must be useable with minimal transaction-price impact, and have relatively stable values in times of stress. If the risk of banking stress or failures is substantial, and the potential fiscal consequences are sizeable, the safety of sovereign assets is compromised exactly at times of financial stress, through the contingent fiscal liabilities related to systemic banking crises. Monies with reserve-currency status therefore need to be ones with low probabilities of twin sovereign and financial crises. Financial stability reforms can – alongside fiscal prudence – help protect the safety and liquidity of sovereign assets, and can hence play a crucial role for reserve-currency status.

The broader emphasis on financial stability also derives indirectly from the expanded awareness in the international community of the occasionally disruptive international spillovers of centre-country funding shocks (Rey 2013). We argue that regulatory reforms can play a role in influencing these spillovers. Resilience-enhancing financial regulation of global banks can help reduce the volatility of capital flows that are intermediated through such banks.

On financial stability and reserve-currency status

International reserve assets tend to be provided by sovereigns, notably due to the fiscal capacity of the state and the credibility of the lender of last resort function of the central bank during liquidity crises (see also De Grauwe 2011 and Gourinchas and Jeanne 2012). Systemic financial events can be accompanied by pressures on the government budget, however. While provision of a fiscal backstop to the banking sector is not the best ex ante approach to policy, fiscal support will tend to be forthcoming if the risk and estimated welfare costs of a systemic fallout are otherwise deemed too high. Yet, banking sector risks – and inadequate capacity within the banking sector to absorb these risks – can end up exceeding a government’s ability to provide a credible fiscal backstop without adversely affecting the safety of its sovereign assets. The fiscal consequences of bailouts may result in increased sovereign risk and the loss of safe-asset status, with implications for the status of the currency in question in the international monetary system.

To increase the likelihood that sovereign assets remain safe during systemic events, the sovereign can undertake financial and fiscal reforms that decouple the fiscal state of the sovereign from banking crises. Such reforms should achieve, in part, a reduction in the likelihood of and need for bailouts through increased resilience and loss absorption capacity of the financial system, and by ensuring sufficient fiscal space for credible financial-sector support (see also Obstfeld 2013).

Reform initiatives

A number of current reform initiatives already take steps in this direction. These include:
  • Reforms to bank capital and liquidity regulation, which reduce the likelihood that financial institutions, and notably systemically important ones (SIFIs), become distressed;
  • Initiatives that seek to counteract the procyclicality of leverage, and to strengthen oversight; and
  • Recovery and resolution regimes for distressed systemically important financial institutions (SIFIs) are being improved.
Importantly, initiatives are underway to improve recovery and resolution in the international context. While a global agreement on cross-border bank resolution is currently not in place, bilateral agreements among some pairs of countries are being forged ex ante to facilitate lower-cost resolution ex post.
  • Further, the resilience of the system as a whole is being strengthened, to better contain the systemic externalities of funding shocks. Examples include:The strengthening of the resilience of central counterparties and other financial market infrastructures; and
  • The foreign-currency swap arrangements among central banks to provide access to foreign-currency funding liquidity at times when market prices of such liquidity are punishingly high.
Nevertheless, the financial system contains vulnerabilities – globally, as well as in individual currency areas. The negative sovereign-banking feedback loop may be weakened in many countries, but has not been fully severed. Moreover, reforms are not necessarily evenly implemented across countries. Fiscal capacities to provide credible backstops of the financial sector during stress vary widely. The consequences of recent reforms for the future of key international currencies are therefore open. Scope remains for countries vying for reserve-currency status to use the tool of financial stability reform to protect the safety and liquidity of their sovereign assets from the contingent liabilities of financial systemic risk.

Financial stability reforms matter for spillovers and capital flows

International capital flows yield many advantages to home and host countries alike. Yet the international monetary system still faces potential challenges stemming from unanticipated volatility in flows, as well as occasionally disruptive spillovers of shocks in centre-country funding conditions to the periphery. With the events around the collapse of Lehman Brothers, disruption in dollar-denominated wholesale funding markets led to retrenchment of international lending activities. Capital flows to some emerging-market economies then recovered with a vengeance as investors searched for yield outside the countries central to the international monetary system, where interest rates were maintained at the zero lower bound. After emerging markets were buoyed by the influx of funds, outflows and repositioning occurred when markets viewed some of the expansionary policies in the US as more likely to be unwound.

While macroprudential measures – and in extreme cases, capital controls – are some of the policy options available for addressing the currently intrinsic vulnerabilities of some capital-flow recipient periphery countries (IMF 2012), we point out that these vulnerabilities can also be addressed in part by financial stability reforms in centre countries. Consider, for example, the consequences of the regulatory reforms pertaining to international banks that are currently being proposed or implemented. Improvements in the underlying financial strength and loss-absorbing capacity of global banks could have the beneficial side-effect of reducing some of the negative spillovers associated with unanticipated volatility in international banking flows – especially those to emerging and developing economies. Empirical research suggests that better-capitalised financial institutions, and institutions with more stable funding sources and stronger liquidity management, adjust their balance sheets to a lesser degree when funding conditions tighten (Gambacorta and Mistrulli 2004, Kaplan and Minoiu 2013). The result extends to cross-border bank lending (Cetorelli and Goldberg 2011, Bruno and Shin 2013).

While financial stability reforms may reduce the externalities of centre-country funding conditions, they retain the features of international banking that promote efficient allocation of capital, risk sharing, and effective financial intermediation. By enhancing the stability of global institutions and reducing some of the amplitude of the volatility of international capital flows, they may address some of the objections to the destabilising features of the current system.

Cross-border capital flows that take place outside of the global banking system have recently increased relative to banking flows (Shin 2013). Regulation of global banks does very little to address such flows, and may even push more flows toward the unregulated sector. At the same time, however, regulators are considering non-bank and non-insurer financial institutions as potential global systemically important financial institutions (Financial Stability Board 2014).

Conclusions

We have argued that the policy and institutional frameworks for financial stability are important new determinants of the relative roles of currencies in the international monetary system. Financial stability reform enhances the safety of reserve assets, and may contribute indirectly to the stability of international capital flows. Of course, the ‘old’ drivers of reserve currencies continue to be influential. China’s progress in liberalising its capital account, and structural reforms to generate medium-term growth in the Eurozone – as examples of determinants of the future international roles of the renminbi and the euro relative to the US dollar – will continue to influence their international currency status. Our point is that such reforms will not be enough. The progress achieved on financial stability reforms in major currency areas will also greatly influence the future roles of their currencies.

July 28, 2014

John Hussman: "Make No Mistake - This Is An Equity Bubble, And A Highly Advanced One"

In case someone needs a beyond idiotic op-ed on the state of the market, we urge them to read the following stunner from USA Today (which is simply a syndicated piece from the Motley Fool, complete with Batman style graphics). Beyond idiotic because in addition to quoting the perpetually amusing Stony Brook assistant professor, Noah Smith, who has never held a job outside of academia and is thus a credible source on all things markety (to wit: "The value of a financial asset is the discounted present value of its future payoffs, and when the discount rate -- of which the Fed interest rate is a component -- goes down, the true fundamental value of risky assets goes up mechanically and automatically. That's rational price appreciation, not a bubble." And by that logic under NIRP the value of an asset is... what? +??) it says this: "Stock prices correct all the time. But what's important to remember is that a correction isn't a bubble." Yes, a correction is not a bubble: it is the result of one, and usually transforms into something far worse once the bubble pops.

Entertaining propaganda aside, for some actually astute observations on the state of the market bubble we go to John Hussman, someone whose opinion on such issues does matter.

Selected excerpts from: Yes, This Is An Equity Bubble

Make no mistake – this is an equity bubble, and a highly advanced one. On the most historically reliable measures, it is easily beyond 1972 and 1987, beyond 1929 and 2007, and is now within about 15% of the 2000 extreme. The main difference between the current episode and that of 2000 is that the 2000 bubble was strikingly obvious in technology, whereas the present one is diffused across all sectors in a way that makes valuations for most stocks actually worse than in 2000. The median price/revenue ratio of S&P 500 components is already far above the 2000 level, and the average across S&P 500 components is nearly the same as in 2000. The extent of this bubble is also partially obscured by record high profit margins that make P/E ratios on single-year measures seem less extreme (though the forward operating P/E of the S&P 500 is already beyond its 2007 peak even without accounting for margins).


Recall also that the ratio of nonfinancial market capitalization to GDP is presently about 1.35, versus a pre-bubble historical norm of about 0.55 and an extreme at the 2000 peak of 1.54. This measure is better correlated with actual subsequent market returns than nearly any alternative, as Warren Buffett also observed in a 2001 Fortune interview. So if one wishes to use the 2000 bubble peak as an objective, we suggest that it would take another 15% market advance to match that highest valuation extreme in history – a point that was predictably followed by a decade of negative returns for the S&P 500, averaging a nominal total return, including dividends, of just 3.7% annually in the more than 14 years since that peak, and even then only because valuations have again approached those previous bubble extremes. The blue line on the chart below shows market cap / GDP on an inverted left (log) scale, the red line shows the actual subsequent 10-year annual nominal total return of the S&P 500. 



All of that said, the simple fact is that the primary driver of the market here is not valuation, or even fundamentals, but perception. The perception is that somehow the Federal Reserve has the power to keep the stock market in suspended and even diagonally advancing animation, and that zero interest rates offer “no choice” but to hold equities. Be careful here. What’s actually true is that the Fed has now created $4 trillion of idle currency and bank reserves that must be held by someone, and because investors perceive risky assets as having no risk, they have

been willing to hold them in search of any near-term return greater than zero. What is actually true is that even an additional year of zero interest rates beyond present expectations would only be worth a roughly 4% bump to market valuations. Given the current perceptions of investors, the Federal Reserve can certainly postpone the collapse of this bubble, but only by making the eventual outcome that much worse. 

Remember how these things unwound after 1929 (even before the add-on policy mistakes that created the Depression), 1972, 1987, 2000 and 2007 – all market peaks that uniquely shared the same extreme overvalued, overbought, overbullish syndromes that have been sustained even longer in the present half-cycle. These speculative episodes don’t unwind slowly once risk perceptions change. The shift in risk perceptions is often accompanied by deteriorating market internals and widening credit spreads slightly before the major indices are in full retreat, but not always. Sometimes the shift comes in response to an unexpected shock, and other times for no apparent reason at all. Ultimately though, investors treat risky assets as risky assets. At that point, investors become increasingly eager to hold truly risk-free securities regardless of their yield. That’s when the music stops. At that point, there is suddenly no bidder left for risky and overvalued securities anywhere near prevailing levels. 

History suggests that when that moment comes, the first losses come quickly. Many trend-followers who promised themselves to sell on the “break” suddenly can’t imagine selling the market 10-20% below its high, especially after a long bull market where every dip was a buying opportunity. This is why many investors who think they can get out actually don’t get out. Still, some do sell, and when those trend-following sell signals occur at widely-followed threshholds (as they did in 1987), the follow-through can be swift. 


July 25, 2014

Obama: Pro-Business or Corporatist?

'Obama hates business' is an idiotic distraction. Also: It's wrong ... What's gnawing at me is this throwaway line in an editorial from the Economist about the very real problem of slower macroeconomic growth. In reference to an alleged spate of "anticompetitive regulations," the magazine labeled President Obama "...the least business-friendly president for decades." It's a silly, thoughtless thing to write, with little substantiation in the piece beyond red-meat talking points about "the endless sprawl of job-destroying regulations," a line that makes sense at a Tea Party party, not a supposed piece of economic analysis. – Washington Post

Dominant Social Theme: Obama doesn't hate business. He's all about "tough love."

Free-Market Analysis: Our perception has changed. Once this article would have made a kind of sense to us (long ago). But it surely doesn't now.

It's jam-packed with various sorts of financially illiterate assumptions.

Sorry for picking on it; there are hundreds if not thousands of articles published every day that are built on the same foundation. The author is Jared Bernstein, former chief economist for US Vice President Biden and the author of a book called Crunch: Why Do I Feel So Squeezed?

Bernstein provides us with all the popular, mainstream tropes and memes. Here's more:

... Before getting into the metrics, let's be clear: I'm not arguing that businesses do or should love everything Obama has done ... I'm asking the much more direct question: has the Obama presidency been bad for businesses' bottom line? No. Actually, hell no. In fact, with annual data all the way back to 1929, corporate profitability as a share of national income was higher in 2013 than any other year on record.

Think about that for a minute. This meme is out there—the fact that the Economist insouciantly throws it out tells you I'm not making this up, and by this widely accepted measure, businesses just had their best year ever. But that's before tax. Did the mean old president whack them on the tax side? Nope. That same all-time record holds for after-tax profits.

... OK, but what about the stock market? Well, the economic recovery that started under Obama in the second half of 2009 is now five years old. Over that period, adjusting for inflation, the S&P 500 has doubled in value.

... The business sector, writ large (we're talking averages here; these statistics don't describe every business' experience), has not only recovered ahead of the middle-class, but it has also surpassed their pre-recession levels of profitability and its pre-Great-Depression historical levels.

Relatedly, the stock market, 80 percent of which is held by the richest 10 percent of households, has doubled. Real median income, on the other hand, like many workers' paychecks, are still climbing out of the hole. Neither is it incidental that the hole was dug (in part) by a reckless financial sector, a sub-group within the corporate sector that not only got bailed out by government, but is doing particularly well on the metrics posted above.

Did the president say mean things about banks back then? No question. I worked for the White House in those days and I vividly recall how angry the president got when he was told about post-crash, post-bailout bonuses being handed out at AIG. To which I'd say: if you're president and that doesn't piss you off, you're not paying attention.

... Like most people, I don't want a president who harbors deep emotional love or antipathy toward businesses. I couldn't care less if he or she woos them with sweet talk. That's all a distraction. I want a president who understands the role of the business sector in creating growth, American jobs, tax revenues, and of course, profits. And not just profits that slosh about at the top, but incomes that reach the bottom. How do we create that business climate? Now there's the economic policy discussion we need to have.

Bernstein ends with the idea that "we" can create a business climate. Nonsense. Markets and competition "create" a business climate. And, honestly, business doesn't need a climate anyway. It's not a plant. It's human action operating individually and in groups. Business simply needs to be let alone. Increasingly, in the US and the West, business is taxed and regulated in ways that often cause enterprises to fail.

The author believes corporate profitability is a bellwether of business health. But as we have learned, corporations are not part of the market's normal functionality. They are the creatures of judicial decisions. Corporate personhood has allowed elite interests to develop these vast and sprawling entities that have little or no resemblance to what business would look like without the unmitigated force of the state.

Corporations may or may not be doing well, but to use them as a barometer of an overall business climate doesn't make much sense. They are a product of Leviathan not competition.

The author claims that Obama is pro-business because he hasn't attacked corporations with higher taxes. Again, so what? These titanic entities would not exist in a normal – non-political – business environment. Taxes have nothing to do with it.

He makes the point that the stock market has doubled under Obama's watch, even adjusted for inflation. In fact, the marketplace has been stuffed like a Thanksgiving turkey with literally trillions of Federal Reserve notes printed from nothing. We've speculated the whole point of Fed money printing was to elevate the stock market prior to a great crash that will ease the way for a more globalist monetary system.

He does have the grace – or honesty – to admit that employment is not rising aggressively. But in making this observation, he leaves the impression that employment should lift off as the "economy" improves. But there is no market "economy" ... not at this juncture in the life of this republic. It's a controlled economy and any employment expansion must be seen within this frame of reference. Soon enough, this puffed up environment will collapse once more, with a goodly portion of whatever jobs it's been able to "create."

Finally, the author admits that the president said "mean things" about banks – but with provocation. Banks were still handing out big bonuses even as insolvency loomed around them. This entirely misses the point. He is making the case that the real issue involving banks has to do with an abnormal level of greed. This feeds the meme that government regulation must be actively enforced to restrain greed.

The problems that Western economies face regarding banks have nothing to do with greed. Banks are so big because they are not exposed to competition. The Invisible Hand has been suspended when it comes to banks and almost every other part of the US economy – and Western economies generally.

Bernstein's defense of Obama as a pro-business president is flawed. Today, there is precious little left in terms of a genuine marketplace in either the US or the West. Within this context, Obama cannot be seen as a pro-business president, nor can many of his predecessors, either.

Conclusion
Obama is a corporatist president, sympathetic – as are so many others in government – to Leviathan. Unfortunately, our modern sociopolitical and economic rhetoric has become so debased that it is difficult even to express in simple language how much has gone wrong.

Source

July 24, 2014

Goldman Goes Schizo On Gold: Boosts Price Target To $1200 Even As It Is "Selling It With Conviction"

Back in the beginning of 2014, Goldman loudly predicted that 2014 would be the year of normalization: the economy would grow by 3%, the S&P 500 would barely rise to 1900, and gold would tumble to $1066. By now it goes without saying that it has been dead wrong about the first with the economy set for a contraction in the first half of 2014 and the full year assured to have the worst GDP growth since Lehman, wrong about the second with the market now so clearly disconnected from any economic fundamentals nobody even pretends that it is anything but the Fed manipulating a rigged stock market, and has been painfully wrong about the third.

So with less than 6 months to go until the end of the year, with various gold ETFs suddenly seeing the biggest buying in years, and with gold continuing to outperform most asset classes YTD, what is Goldman to do? Why follow the trend of course, and just like David Kostin had no choice but to boost his S&P 500 price target using the idiotic Fed model as a basis, so earlier today Goldman just upgraded its gold price target from $1,066 to $1,200. Probably this means that after accumulating it for the first half of the year, Goldman is finally preparing to sell the precious metal. Not so fast: because while Goldman did just raised its price target, it continues to have a Conviction Sell rating on Gold, which is its second most hated commodity after iron ore. Go figure.

So without further ado, here is Goldman going full schizo.
Conviction views: Bearish on iron ore, gold and copper, bullish on nickel, zinc, aluminium and palladiumIn gold, we raise our LT price forecasts to $1,200/oz in $2014 terms from $1,066 earlier. Over long time horizons, the gold price has been relatively stable in real terms, keeping pace with inflation. Accordingly we use a flat real gold price forecast assuming gold is an effective inflation hedge and increase in nominal  gold prices should offset the impact from inflation. We believe iron ore (-21%), gold (-20%) and copper (-12%) are the mining commodities with the greatest downside on a 12-month view.

We have updated our long-term real gold price forecast to $1,200/oz in $2014 terms (was $1,066/oz) to make it more in-line with our marginal cost support level, see Exhibit 66. Currently gold is trading at a 9% premium to our LT real (inflation-adjusted) forecast but we believe on a long-term basis the price should revert back to the cost support level in-line with our estimates. 
 Marginal cost support at $1,200/oz level

In our view, the 90th percentile of all-in sustaining costs (defined as total by-product cash cost plus royalty expense, plus sustaining capex, exploration and corporate expenses) provides a good estimate of the floor price for gold, as it is the breakeven level for the marginal producer. At times of extreme declines in demand, it is possible for prices to fall below the marginal cost support level; however we believe such events are generally shortlived. Exhibit 67 shows our latest 2014 gold’s all-in sustaining cost curve.

 Gold price relatively stable over the long term

Over long time horizons, the real gold price has been relatively stable, keeping pace with inflation. Exhibit 68 illustrates that the real price of gold was fairly constant until the early 1970s, after which it became highly volatile. Although the real price has experienced significant volatility post the 1970s, we highlight its tendency to a mean reversion trend. The real gold price fell back to the 1950s level in 2001 after peaking in 1980, and it is currently in decline again after peaking in 2011.

Where things get downright bizarre is the last paragraph where either Goldman had a humongous typo or merely pulled the boilerplate language from a prior report where for some inexplicable reason Goldman says it has a "$1050" price target even as the table above clearly says $1,200. Oh who cares: this whole report is merely for the benefit of Goldman's prop desk, which is clearly ramping up trading, to do the opposite of whatever Goldman's few remaining clients are doing.
We continue to remain bearish on gold in 2014

We expect gold prices to drop to $1,050/oz by the end of 2014, maintaining our previous forecast. Acceleration in the US economic recovery story remains the key driver behind our lower gold price forecast. While weak economic data due to cold weather and the onset of the Crimea crisis led to a sharp rally in gold prices between January and mid-March, sequentially better US activity and easing tensions pushed gold prices lower by early April. Since then, US economic releases have continued to point to acceleration in growth while tensions in Ukraine have escalated, keeping gold prices range bound near $1,300/toz.
Sure, why not.

That said, can Goldman please also advise if its suddenly very active prop group is buying or selling gold. We promise to do whatever they are doing.

July 23, 2014

The Transatlantic Trade and Investment Partnership: Review of Economic Blogs

An early draft of the Transatlantic Trade and Investment Partnership (TTIP) sparked an intensive public debate over possible advantages and disadvantages. This column reviews some arguments in favour of the Partnership and against it. While there is some debate over how large the economic benefit could be in the face of already relatively low trade barriers, critics claim that the deal will lower standards of consumer protection, provision of public services, and environmental protection in the EU.

A study by the Centre for Economic Policy Research (CEPR 2013) for the European Commission models the effects of the Transatlantic Trade and Investment Partnership (TTIP) in a computable general equilibrium model. An ambitious deal, consisting of tariff barriers being lowered to zero, non-tariff barriers lowered by 25%, and public procurement barriers reduced by 50%, would lead to an increase in EU GDP by 0.5% by 2027. Growth effects for the rest of the world will be positive, on average, 0.14% of GDP due to increased demand from the EU and US. Because of different compositions of trade, particularly low income countries will not be negatively affected by the TTIP.

Another, less frequently cited study by the Bertelsmann Foundation (2013) finds larger long-term GDP per capita effects of 5% for the EU and 13.4% for the US as a result of dismantling all tariff and non-tariff barriers. Here, gains would largely come at the expense of third countries. For Canada and Mexico, whose free trade agreements with the US would lose value, TTIP would in the long run imply a 9.5% and 7.2% decrease in GDP per capita over the baseline scenario.

The EU Trade Commissioner Karel de Gucht (2014a), citing the CEPR numbers, writes that TTIP offers significant benefits to the EU and the US over ten years during times of hesitant economic recovery. As shared values will facilitate negotiations, results should be reached in three dimensions: Market access, regulatory cooperation, and trade rules. Improved market access will benefit European companies and consumers alike. Standardisation in regulation would avoid unnecessary costs for global producers.
Dean Baker (2014a) argues that calls to support TTIP for its beneficial impact on jobs and growth are lies: The CEPR model assumes full employment anyway, and a GDP raise of only 0.5% over 13 years will not have a discernible impact on employment. Growth effects may in fact even go in the opposite direction — stronger patent and copyright protections may result in higher prices for goods.
Figure 1. Annual output gains from TTIP by type of liberalisation
transatlantic trade and investment chart on gains from various featuresSource: LSE USAPP
Gabriel Siles-Br├╝gge and Ferdi De Ville (2013) challenge the proclaimed benefits of this much-vaunted deal. Most of the economic benefit outlined in the CEPR study is due to the dismantlement of non-tariff barriers. Yet, the Commission has itself pointed out that only 50% of non-tariff barriers are at all ‘actionable’, i.e. within the reach of policy. Eliminating half of these, as assumed by the CEPR, seems already highly ambitious. Furthermore, due to strong inter-sector linkages, these benefits will only materialise if liberalisation is successful in all sectors.

The Global Significance of Bilateral Agreements

Pascal Lamy (2014) writes that preferential trade agreements (PTAs), such as TTIP, could be very beneficial if they helped to bring down remaining tariff barriers. However, most PTAs focus more on regulatory issues than tariffs. Some non-tariff barriers, such as consumer protection, serve legitimate objectives. And there exists a risk that PTAs may lock various groups into different regulatory approaches, increasing transaction costs. In the end, a functional multilateral trade system through the WTO remains vital to avoid economic fragmentation and set globally sensible rules.

Michael Boskin (2013) points out that the TTIP may have consequences that extend beyond the US and the EU. After NAFTA was signed, the Uruguay round of trade talks was revived. Similarly, a successful TTIP may be a major impetus for rekindling the moribund Doha Round. It will be of great importance whether compromises can be found in the truly contentious issues between the EU and the US. One of the most difficult is the EU’s limitation of imports of genetically modified foods, which presents a major problem for US agriculture. Another is financial regulation, with US banks preferring EU rules to the more stringent framework emerging at home. This is of interest to countries outside the deal, too; if the EU relaxed its rules on genetically modified food imports and translated this with careful monitoring to imports from Africa, this could be a tremendous boon to African agriculture.

Hans-Werner Sinn (2014) is not surprised that bilateral trade agreements have been lately gaining traction globally, as there is no real progress on multilateral trade negotiations. The Doha round of WTO talks basically was a flop. Currently, fear of negative effects on consumer protection in the EU is distorting the debate. In reality, consumer protection standards in the US are often much higher than in the EU where, following the Cassis de Dijon ruling of the European Court of Justice, the minimum standard applicable to all countries is set by the country with the lowest standards. TTIP could bring significant economic benefits while scrapping some misguided EU regulations, such as the capping of CO2 emissions on cars, which is a covert industrial policy aimed at protecting Italian and French manufacturers of smaller cars.

Non-Tariff Barriers to Trade and the Protection of Intellectual Property in TTIP

Paul Krugman (2014) writes that if the Trans-Pacific Partnership (TPP) agreement of the US with 11 countries throughout the Asia-Pacific region were to fail, it wouldn’t be a major disaster. Real trade barriers – tariffs – already are pretty low. The International Trade Commission in their latest report put the cost of American import restraints at 0.01% of GDP. What these agreements tend to be really about are issues such as intellectual property rights – with far less certain advantages. Intellectual property rights create temporary monopolies. These may be necessary to spur innovation but are not connected to classical arguments in favour of free trade.

Ryan Avent (2014) thinks that Krugman hasn’t done his homework on this issue. Firstly, tariffs are not universally low. Even if the macroeconomic impact may be limited, reducing high tariffs on some goods would be microeconomically desirable. Secondly, one of the ambitions of both TPP and TTIP is the reduction in non-tariff barriers. In most cases, such as agricultural imports, these barriers are much costlier than tariff barriers.

Dean Baker (2014b) is highly sceptical of the usefulness of increased protection of intellectual property: The possibility of silly patents such as one on a peanut butter sandwich in the US only raises prices and impedes competition. The big winner may be the pharmaceutical industry, which may extend the unchecked patent monopolies it enjoys in the US to the EU, resulting in higher drug prices and lower quality healthcare. Other companies see TTIP as a way of promoting their particular interests, for example, by being able to use free trade arguments to circumvent the democratic process on issues such as fracking.

Investment protection – a threat to national sovereignty?

TTIP is not about the interests of the US dominating those of the EU, but of the interests of capital owners prevailing over those of ordinary citizens, writes Jens Jessen (2014). Investor protection clauses in TTIP would be a vast threat to national policies on culture and education — public universities could no longer be supported to be more affordable than private ones. Support to a local film industry would be impossible as big companies would have the same rights to subsidies. Production companies for popular entertainment could sue states to extend to them their support for local operas and symphony orchestras, and public radio stations would be under threat as well.

Karel de Gucht (2014b) sharply retorts that these allegations are unfounded — the EU treaties and the UNESCO convention on cultural diversity require member states to protect cultural diversity and explicitly permit schemes such as support to local film industries, whereas audio-visual services are not at all in the scope of TTIP anyway. Investment protection treaties, of which Germany alone has signed 130, have never included compensation rights for firms in case of profit reductions. And after Poland signed an investment protection treaty with the US in the early 1990s, its right to offer subsidies in the sector of culture or education was never called into question.

The investment chapter in TTIP is less of a threat to EU and US democracy than often alleged, writes Robert Basedow (2014). Critics claim that investor-state dispute settlement clauses will allow investors to sue states before supranational arbitrational tribunals for the annulment of social, health or environmental protection laws. However, due to the existence of a multiplicity of bilateral treaties with financial hubs like Hong Kong or Singapore, investors with holdings in these jurisdictions already have this right today. Indeed, TTIP offers the chance to make such arbitration proceedings more transparent and legitimate.

July 22, 2014

The Manipulated Dialectical Destiny of the BRICS

The dollar's 70-year dominance is coming to an end ... Within a decade, greenback's could be replaced as the world's reserve currency ... The dollar's hegemony continues to be cemented by the operations of the International Monetary Fund and World Bank. Founded at Bretton Woods, they're both Washington based, of course, and controlled by America, despite some Francophone windowdressing. The advantages this system bestows on the US are enormous. "Reserve currency status" generates huge demand for dollars from governments and companies around the world, as they're needed for reserves and trade. This has allowed successive American administrations to spend far more, year-in year-out, than is raised in tax and export revenue. By the early Seventies, US economic dominance was so assured that even after President Nixon reneged on the dollar's previously unshakeable convertibility into gold, amounting to a massive default, dollar demand kept growing. So America doesn't worry about balance of payments crises, as it can pay for imports in dollars the Federal Reserve can just print. – UK Telegraph 

Dominant Social Theme: The dollar is going down. An unavoidable tragedy. 

Free-Market Analysis: This pernicious elite meme amply illustrates what we call directed history. In this case endless articles are appearing to explain why the dollar is in terminal decline as the BRICS (including South Africa) are ascending. 

We last wrote about this issue here: 

Don't Be Fooled by Transcontinental Rivalries 

We made a number of points about the reality of the BRICS emergence and how when one examines the reality of the global economic system a good many questions emerge. Skepticism is advised. 

Here's more: 

Last week, seven decades on from Bretton Woods, the governments of Brazil, Russia, India and China led a conference in the Brazilian city of Fortaleza to mark the establishment of a new development bank that, whatever diplomatic niceties are put on it, is intent on competing with the IMF and World Bank. ... 

The new BRICs Development Bank, modelled on the IMF, will have a $100bn currency reserve available to lend around the world, giving distressed debtor nations an alternative to the "Washington consensus". For a long time, the BRICs have been paying in to the IMF, yet been denied additional influence over what happens to the money. Belgium has more votes than Brazil, Canada more than China. 

The institutions governing the global economy have failed to keep pace with reality. Modest reforms giving the large emerging markets more power, agreed with much fanfare in 2007 and again in 2010, have been stalled by Washington lawmakers. The BRICs have now called time, setting up their own, rival institution based in Shanghai. 

The key to the dollar's future is petrocurrency status – whether it's used for trading oil and other leading commodities. Here, too, change is afoot. China's voracious energy appetite and America's increased focus on domestic production mean the days of dollar-priced energy look numbered ...That would undermine the US Treasury market and seriously complicate Washington's ability to finance its vast and still fast-growing $17.5 trillion of dollar-denominated debt. ... 

Although the dollar's reserve status won't end overnight, the global payments system is now moving inexorably towards that outcome. The US currency accounted for just 33pc of all foreign exchange holdings in 2013, on IMF numbers, down from 55pc in 2001. Within a decade or so, a "reserve currency basket" may emerge, with central banks storing wealth in a mix of dollars, yuan, rupee, reals and roubles, as well as precious metals. ... 

The dollar's status is a big question. Judging the outcome is more akin to star-gazing than scientific economics. But the establishment of this BRIC Development bank, timed to coincide with the anniversary of Bretton Woods, is an audacious and significant move. The world's emerging giants now have thumbscrews on the West. 

This is a serious article in a serious paper and the announcement at the end that "the world's emerging giants now have thumbscrews on the West" is a momentous statement. 

Reading the article, the demise of the dollar seems both evident and inexorable. And yet, having lived through the period that has yielded this conclusion, we are in a position to say with some authority that the end of the dollar is a manipulated occurrence, not an inevitable one. It is directed history, in other words. 

You have to begin with the nomenclature itself. The name was coined by a banker at Goldman Sachs over ten years ago and eventually gave rise to a rivalry – created to begin with by the mainstream media – between the BRICS and the West. 

Once the name was applied, it became logical for the four (five really) emergent economic powers to create various economic policies in concert with one another. In reality, there was no reason why Brazil would consult with Russia, or India with Brazil. It only seemed logical because the name predicted the outcome. 

Take a step back, please, and observe the dialectic. That's how globalist elites work, by creating conflicts that move a given argument or sociopolitical strategy forward. Sometimes the dialectic is accomplished via a war. Other times, it is created via supposed economic necessity.

Of course, the necessity in such cases is manufactured; and we would argue that is the case when it comes to this suddenly polarized economic world. Just look at this: ... 

Although the dollar's reserve status won't end overnight, the global payments system is now moving inexorably towards that outcome. The US currency accounted for just 33pc of all foreign exchange holdings in 2013, on IMF numbers, down from 55pc in 2001. Within a decade or so, a "reserve currency basket" may emerge, with central banks storing wealth in a mix of dollars, yuan, rupee, reals and roubles, as well as precious metals. 

This is simply too neat. The alternative media has been predicting this outcome for decades, virtually ever since Keynes suggested his globalist bancor after World War II. But now that this "global payment system" is almost a reality, we're supposed to believe it is merely an "inexorable outcome." 

In the US, the Obama administration is fragmenting the border between the US and Mexico. Waves of immigrants are sweeping into the US as part of what is shaping up to be the seeming deliberate implementation of a North American Union that is eventually supposed to encompass Canada as well. 

The US stock market is being shoved into the stratosphere in order to create what we call a "Wall Street Party" that will create enormous faux-prosperity before a destined crash. But the crash itself will simply add more impetus to monetary globalism. Out of chaos ... order, in this case an international money-regime. 

For a decade, this Internet Era has revealed the plans of internationalist bankers in more and more detail. Every significant monetary or military event points the way toward this ongoing consolidation. That's why articles like this one in the Telegraph are so surprising. We can see clearly that the dollar's destabilization was a manipulated event, one that the Bush regime pursued through several regional wars and a plethora of "security" spending as they secured the fundaments of a massively expensive surveillance state. 

There was nothing natural or inevitable about any of this. The concept of the BRICS was created by Goldman Sachs; its evolution is convenient, even suspicious. The dollar's destabilization was an act of political orchestration as well. And now we are to believe that a "reserve currency basket" is the obvious destination. 

Conclusion If it is destiny, it is a manipulated one. 

Source

July 21, 2014

More Challenges to “More ‘Free Trade’ is Always Better” Orthodoxy

One way to induce a Pavlovian reflex in mainstream economists is to invoke the expression “free trade”. Conventional wisdom holds that more trade is always better; only Luddites and protectionists are against it. That’s one big reason why the toxic TransPacific Partnership and its evil twin, the Transatlantic Trade and Investment Partnership, have gotten virtually no critical scrutiny, save from more free-thinking economists like Dean Baker. They have been sold as “free trade” deals and no Serious Economist wants to besmirch his reputation by appearing to be opposed to more liberalized trade.

“Free trade” boosterism runs two parallel arguments: the “’free trade’ increases wealth and therefore we should all go along” and and the “more open trade is inevitable, you better be on this bus or you will be under the bus.” Too often, these arguments rest on the assumption that coming close to the economists’ fantasy of frictionless ‘free trade’ is better. But that was debunked in 1953, in the Lipsey-Lancaster theorem, which demonstrated that trying to move to closer to an unattainable state was not only not assured to produce better outcomes, it could very well produce worse ones. You actually need to do the work of evaluating various “second best” alternatives, rather than assuming more is better. But even though economists know about Lipsey/Lancaster, they dismiss its inconvenient implications.

Moreover, there are other sound critiques of our “more ‘free trade’ is every and always better” regime. William Greider has long pointed out that we do not operate under a free trade regime, but a managed trade system, and virtually all of our trading partners negotiate them from a mercantilist perspective: that they aim to run trade surpluses and protect their workers. Dani Rodrik has described a trilemma: that you can’t simultaneously have deep integration of markets, national sovereignity, and democracy. At least one of them has to give. And we can see in Europe that it is democracy that is being sacrificed.

But these criticisms have been treated as fringe phenomena. What is noteworthy, however, that it is suddenly acceptable to question the ‘free trade’ orthodoxy, although the critics take great care to distance themselves from any populist or labor-favoring taint.

We took note of one last week, of a hand-wringing piece in that bastion of correct economic thinking, Project Syndicate, in which Ian Goldin lamented that globalization had increased systemic risk on numerous fronts: environmental, financial, political, technological. Goldin wasn’t willing to buck conventional wisdom and use his observation to suggest that “free trade” may have gone past its point of maximum advantage. But the fact that the only solution he could envision was the pipe-dream of better governance was telling.

A fresh article, again at Project Syndicate, has the former head of the FSA, Adair Turner, making a more direct, but short of head-on, challenge to “free trade” orthodoxy. Turner’s point is that trade is unlikely to do much to drive further growth, and economists and policymakers have much better focuses for their energies. He also points out that to the extent that further liberalization of trade does increase GDP, it is likely to come at a cost.
Key sections of his article (hat tip David L):
[F]or 65 years, rapid trade growth has played a vital role in economic development… 
But there is no reason why trade should grow faster than GDP forever. Indeed, even if there were no trade barriers at all, trade might grow significantly more slowly than GDP in some periods. Several factors make it possible that we are entering such a period. 
For starters, there is the changing pattern of consumption in the advanced economies. Richer people spend an increasing share of their income on services that are either impossible to trade (for example, restaurant meals) or difficult to trade (such as health services)… 
In addition, as the economists Erik Brynjolfsson and Andrew McAfee of MIT have argued in their book The Second Machine Age…the advantages of proximity to customers and lower transport costs outweigh decreasingly important differences in labor costs… 
With industrial tariffs already dramatically reduced most potential benefits of trade liberalization have already been grasped. Estimates of the benefits of further trade liberalization are often surprisingly low – no more than a few percentage points of global GDP.. 
The main reason for slow progress in trade negotiations is not increasing protectionism; it is the fact that further liberalization entails complex trade-offs no longer offset by very large potential benefits. The Doha Round’s failure has been decried as a setback for developing countries. And some liberalization – say, of advanced economies’ cotton imports – would undoubtedly benefit some low-income economies. But full trade liberalization would have a complex impact on the least developed economies, some of which would benefit only if compensated for the loss of the preferential access to advanced-economy markets that they currently enjoy. 
This implies that further progress in trade liberalization will be slow. But slow progress is a far less important challenge to growth prospects than the debt overhang in developed economies, or infrastructure and educational deficiencies in many developing economies. That reality often goes unacknowledged. The importance of past trade liberalization has left the global policy establishment with a bias toward assuming that further liberalization would bring similar benefits.
This is an important argument, which sadly is likely to get little traction: at this stage of economic development, trade deals are largely beside the point. And that reality is perversely acknowledged in the TTP and the TTIP. They are not about “free trade”. They are, in the case of the TTP, to advance US geopolitical aims by isolating China, and in the case of both proposed pacts, to weaken national sovereignity to make the world safer for multinationals. The revolving door payoffs for the members of the US Trade Representative’s office must be really juicy for them to be so eager to engage in treason.

July 18, 2014

Six Years After the Global Financial Crisis, What Have We Learned?

Five years on since the US recession ‘officially’ ended in June 2009, urban land prices are rising, the pattern of history is repeating, and this time, the players on the chessboard have changed.

But our Governments are turning a blind eye.

They have yet to acknowledge why the global financial crisis happened, or put policies in place to prevent it happening again.

Expensive welfare systems, elaborate tax and transfer policies, and the financial ‘cures’ following the previous land induced crash in the early-1990s, did nothing to prevent the swiftest and sharpest synchronised global downturn in human history.

Taxpayers were punished, bankers got a “get out of jail free” card, and the largest real estate investment trusts spent $50 billion purchasing 386,000 foreclosed homes, to rent out to previous owners who believed and acted on the lie that “there is no bubble.”

The IMF, and policy makers are now twisting themselves in economic knots trying to pin down a ‘cure’ for the dangers of excessive house price inflation, which they readily admit lead to most banking crises, with Australia featuring in the top five of each of their highlighted risk assessments:
“……our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises…..” IMF “Era of Benign Neglect of House Price Booms is Over” June 11 2014
The IMF claims the ‘neglect of house price booms is over’, but as the OECD ‘Post Mortem’ of the 2008 crises reveals, these economists can’t see.

They ignore the role that rent (unearned income,) debt and the financial sector play in shaping the economy.

They have a colourful history of recurrent boom-bust land cycles, all replete with rampant speculation and easy credit, spanning in excess of 300 years from which to study … and yet:
“The macroeconomic models available at the time of the crisis typically ignored the banking system…” (OECD Forecasts During And After The Financial Crisis: A Post Mortem – February 2014)
In other words, based on the aesthetic qualities of their equations, the 2006/7 bubble couldn’t exist. A story we hear repeated every year as prices continue to defy gravity and economist try and explain it away with ‘sound fundamentals.’

Neo-liberal policy made matters worst.

Less government interference protecting labour or redistributing wealth through taxing the rich, deregulation of capital markets, lowering trade barriers, reducing state influence though privatization and fiscal austerity – was termed by American scholar Robert Waterman McChesney as “Capitalism with the gloves off.”

It promised to lead to efficient markets and lower unemployment.

But at the onset of the global financial crisis, unemployment in developed nations rose above any previous recession of the past three decades, whilst wages, as a share of GDP plummeted to their lowest point since the Second World War.

“This should be a wake-up call…” concluded the UN in their annual Trade and Development report that revealed the findings:
“There must be something fundamentally wrong with an economic theory, that justifies the rise of inequality mainly in terms of the need to tackle persistent unemployment.” Annual report by the UN Conference on Trade and Development 2012, Ch 11. Section C (analysing the effects of “labour market flexibility.”)
In the UK, the Bank of England has imposed a 4.5 times loan to income cap on 85% of mortgages, along with various ‘stress tests’ to please the regulators.

But the Council of Mortgage lenders show only 19% of recent London mortgages are at or above this ratio, whilst the national figure is a mere 9%.

By volume, London accounts for around a quarter of loans nationally, (Q1) so the 85% cap will do little to nothing, except perhaps eliminate home ownership for low-income groups.

But stemming inflation or deterring speculative activity is not, and never will be, Central Bank policy:
Carney – “These actions should not restrain current market housing activity … these actions will have minimal impact in the future if the housing market evolves in line with the Bank’s central view,” (i.e. up) 
Guardian – “Bank of England will not act on house prices yet” 27 June 2014
In the U.S.A just five megabanks and their holding companies control a derivatives market worth hundreds of trillions of dollars. In Australia, the ‘Big Four’ command 80% of the market and 88% of residential mortgages.

‘These are the men who have the most economic power in the world’ wrote British philosopher, mathematician and historian, Bertrand Russell, one of the 20th century’s leading logicians; “..and they derive it from land, minerals, and credit, in combination.”

Russell understood only too well, that all productive gains, every improvement in society and the economy, would be capitalised into rising land values, enriching those who owned the assets but more so, those who created the credit and traded on the debt.

Milton Friedman meanwhile tutored that societies are structured on greed.

But greed means taking something from another, grasping for a larger slice of the pie. (see pareto efficiency.)

Greed is not a natural feature of a well functioning community; rather it’s a feature of a dysfunctional economy that allows a country’s wealth to gravitate into an elite nucleus of financially strong hands.

It remains that the economy is fueled by what is termed the FIRE sector – Finance, Insurance, and Real Estate.

The FIRE Economy is dependent on rising asset prices – on you and me buying houses – so it can extract economic rent.

The three sectors work together – they’re intrinsically linked.

The banking sector pumps a colossal amount of credit into the system by way of a home loan. Real estate businesses sell the products – some trading as REITs – insurance companies underwrite the owners debt, property, and income, and as the interest payments compound – doubling and doubling again – the debt is recycled into more lending, more borrowing, higher house prices – making those who trade on the debt in an obscure concentrated market of derivatives, increasingly wealthy.

The Government, many members of which come directly from the industry itself, receive substantial payments from the FIRE sector.

For example, between 1998 and 2008 the banking industry spent $3.4 billion lobbying the US government.

In Australia, the ICAC investigations into illegal donations from developers and “wealthy property tycoons” reveal tens of thousands of dollars have been used to influence decisions by local, state and federal governments.

It should, therefore, be of no surprise that ‘affordable housing policy’ always seems to work in reverse.
Generous subsidies are handed over to investors – all of which are capitalised into land prices.

Restraints on supply are imposed, ‘rich neighbourhoods’ are protected from over development, land on the fringes is no longer dirt cheap, acreages are banked, exempt from State Land Tax until subdivision at the owner’s pleasure.

To survive, the FIRE sector must effectively sell the illusion that the economy can grow on rooftops, that we can all take part in an orgy of economic rent.

“Only the little people pay taxes” (i.e. work for a living) – we can all become wealthy through property investment, dining out and trading on leveraged gains, perhaps donating a little to charity, or taking part in some publicity-generating event to raise funds for homelessness along the way – as our politicians are fond of doing.

Of course, first homebuyers suffering alarm at rapidly escalating costs are necessary oxygen for the system.

So their judgement is manipulated as housing affordability is now reclassified as mortgage serviceability – how far the pay cheque can stretch each month rather than highlighting the upfront cost, while young buyers are encouraged to enter the market as speculators, living off their parents, until they gain a ‘foothold’ from leveraging the equity.

Banks assist with an array of financial products – offset accounts, honeymoon rates, shared equity schemes – mortgages treated like credit card payments, where all that’s required is the interest and should the market collapse with money still outstanding, they’ll collect the house too.

The result is land is now used for greed rather than need, pushing city boundaries outwards, requiring an excessive use of durable capital, which eventually leads to a shortage of loanable funds.

You will never be told the system can fail.

Instead you will hear that house prices can maintain a ‘high plateau’ – stagnate for a while until we all ‘catch up.’

However, the increase in the annual rate of growth is now part of the income that buyers pay for and lenders rely upon.

This is how real estate is sold – investors gravitate to areas that advertise ‘good capital gains,’ calculating the land’s value based on both the rent a tenant will pay plus the projected annual increase (land rent.)

Buyers live in fear of land values collapsing, yet, while prices trend higher, expectations over shoot the mark by no small degree. Landowners treat their unearned increment as income, raising consumption, lowering saving, putting to upward pressure on inflation, which eventually results in interest rates rising.

Never, throughout the course of history, has such a process been economically sustainable.

At some point the productive capacity of the economy can no longer support the boom – and as Australia’s history of land induced financial crises reveal, the end is not always as kind as experienced in 2008 (see Bubble Economics: Australian Land Speculation 1830 – 2013, by Paul D. Egan and Philip Soos).

“House prices don’t always go up” warned the Governor of the RBA, Glenn Stevens at a recent speech in Hobart, just as he did in March – a message he has repeatedly reiterated since appearing on Seven Network’s Sunrise in 2010.

But Australian investors aren’t listening to Glenn – they’re reading the media headlines, covering the latest findings in the BRW Rich 200, which shows property to be the ‘single biggest source of wealth,’ and entrepreneurs “piling into property faster than ever.”

Banks remain disturbingly under-capitalised.

“I’ve had land that has doubled in value in the past 12 months,” said Harry Triguboff … (BRW Rich 200: Fatter profits for property barons – 27th June 2014)

But while Triguboff paid a lot for his land, he did not make his cheque payable to the local school, park, rail network, or the array of public and community services that yield his land a healthy source of locational revenue that grants such windfall gains.

His payment went direct to the previous owner of the land, who pocketed the profit, while the funding needed for maintaining the facilities and attracting workers to the city, come from an elaborate network of taxes, which fall primarily on income and productivity – ‘the little people.’

This is the kind of rent seeking most of us have some experience of, a process that effectively punishes and disheartens the priced-out sectors of the community, whilst encouraging the hoarding of land as the road that leads to riches – thereby ignoring the social and ethical problems that result from the process.

The effect is to turn us into a nation of speculators where moral judgement is subverted by the unearned yields one can receive.

Investigate most societal problems, wages, housing, health, poverty, the loss of jobs to off shore markets, and this will be found at the root.

No one is born into poverty or inequality – these things are not by-products of nature – in a modern society the extremes we experience that lead to protests and riots over cuts in expenditure to welfare (a requirement exacerbated by the process outlined above) are due to policy and political ignorance.

When the Henry Tax Review in 2008 concluded “economic growth would be higher if governments raised more revenue from land and less revenue from other tax bases”, it was onto something important.

Lifting taxes off labour and restructuring our tax and supply policies is a good start, but alone it won’t do. Removing the power embedded in the banking industry to create credit based on their own vested interests is equally important. It would free up the creative capacity of the community and move instead toward a society and culture that is able to provide for all.

However, it remains that every effort in history to effect the changes suggested above have been fought by the establishment. In this respect, change can never come from the top down. It requires a system that can return democracy to the people through a slow process of re-education, and it’s a system we need to advocate if social and economic justice is the goal.

But until such a time, it’s business as usual – and we have a way to go yet, but be well aware, the date for the next global financial crisis has been set.