Prosper Australia

To read more about Fred, visit his blog

photo credit: Joel Bedford

Mason Gaffney

October 25, 2008
In a follow up to Professor Gaffney’s The Great Crash of 2008, he now delves into how credit can be freed from the current crisis. The Great Reckoning awaits…

1. Introduction

Working capital is the bloodstream of economic life. It is physical capital, the fast turning inventory of goods in process and finished goods that supplies materials to the worker, and feeds and clothes her or his family. Short term commercial loans and trade credit buy it, but the capital is “real” — a fact often forgotten in the paper and virtual worlds of high finance whence come the highest inner circles of government.

The bloodstream metaphor harks back to François Quesnay, an 18th century French physician turned economist. Quesnay drew on William Harvey’s (1578-1657) earlier discovery of how blood circulates. Adam Smith and other classical economists followed Quesnay, distinguishing “circulating capital” from “fixed capital,” the kind that is stuck in the ground or otherwise lasts for many years. Today we call the bloodstream metaphor “macroeconomics”, elaborated but not always improved from Quesnay’s insights.
Now the economic blood is drained down, and what’s left is slushy. We need to restore and thaw it, and get it circulating, right away as well as over time. To understand how, let’s see what drained it away in the first place.
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photo credit: alexkon

Karl Fitzgerald

Project Coordinator and Web Editor
the Saturday Age - Business section, p2, Oct 25th.

FREE market principles are being put to the test like never before. With share prices collapsing, policymakers are scrambling to keep up with the loss of confidence in the market.

Prime Minister Kevin Rudd has stepped into the breach with gusto. A $1.5 billion injection into the property market via the first-home owners grant will keep the banks and property lobby happy. And yes, the ubiquitous financial analyst will support this, too. But what about single people?

The 1% cut in interest rates will save the property investor $200 a month. One can rest assured this will not be passed on to renters. Single renters will also miss out on the $1000 Christmas bonus.

With the market benefiting from this additional buying power, these economic forces will push housing prices even higher, strangling Rudd’s affordable housing credentials.

Pensioners must understand that these same forces will soak up their handout, too.

The planned infrastructure projects will also make prime locations more valuable. Meanwhile, property prices are dropping dramatically in sprawling suburbs.

The monopoly power inherent in land deems economic growth irrelevant. All social developments are captured in higher land prices.

Rising property prices are only good for banks and speculators. The IMF’s Boom-Bust Phases in Asset Prices and Fiscal Policy Behaviour report reveals that economic downturns are more pronounced when following a housing price bubble.
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Thurs Nov 6th, 6.45 pm
featuring Dr Gavin Putland
Download flyer

Which politician will use the ‘recession we could have avoided’ line? Rest assured Paul Keating will be invited.

Dr Putland will discuss why asset price bubbles always end in tears. What trends have made such busts more prominent? What can be done to avoid such train wreck recessions?

Why is economic growth irrelevant for the majority of Australians?

You will be staggered to learn just how much extra we could all be earning with a more efficient way of business.

Level 1, 27 Hardware Lane, Melbourne
Gold coin donation to cover drinks and nibbles.

photo credit: trackrecord

Jeffery Sachs was heard sniggering on local radio this morning at the extent to which Greenspan admitted fault.

Greenspan has shocked the world by admitting his world-view was incorrect.

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

He confirmed yet again that housing prices must be allowed to fall:

Indeed, a necessary condition for this crisis to end is a stabilization of home prices in the U.S. They will stabilize and clarify the level of equity in U.S. homes, the ultimate collateral support for the value of much of the world’s mortgage-backed securities.

However, he still failed to critique the speculative lure that government allows in land. By permitting the economic rent inherent in land price appreciation to be privately captured, the easy profits in land speculation have attracted every man and his dog. This has been the driving force behind asset price bubbles over the last 30 - 100 years, leading to larger and larger debts. Such speculative activity has been encouraged by governments as a supposed incentive to increasing home ownership.

If the speculation was deterred with a holding charge on land then the credit histories of sub-primer’s would no doubt be under less pressure. CDO’s may not have eventuated.

The policy priorities revealed in actions such as Australia’s FHOG and the 1% cutting of interest rates will keep property prices higher. The recession will be longer and deeper because of this. Failure by neo-cons such as Greenspan to incorporate the third dimension in economics, the land rent component in the factors of production, will see a backlash towards over-regulation.

Will Australia’s future generations accept paying 50% of their income on housing? That seems to be the policy objective of leaders worldwide.

Our 2nd exciting Speed Renting event is on tonight.

Starting from 6pm at Horse Bazaar, 397 Little Lonsdale St, room seekers will meet householders for 3 minutes at a time. The relaxed setting helps individuals sort out who they would prefer to live with, in effect filtering out the dorks!

Last time we had over 50 people. Similar numbers will ensue tonight, with all sides of the rental market reveling in an innovative way to meet new people. Anything we can do to encourage the creative use of prime locations is important.

Today Tonight will be in attendance recording, so watch out tomorrow evening!

Renegade Economist Press Conference

Following this excellent clip, you must read why - Boom Bust 2010 (scroll down) and understand how we can avoid this situation in the future.

photo credit: mdumlao98

Prime Minister Rudd’s $10bn ‘economic security strategy’ is another blinkered response. A decade of record economic growth has done little for the aussie battler. Record prices for iron ore have cascaded into the deepest pockets in the nation, where hard working miners pay thousands of dollars in rent, soaking up much of the gains. David Ricardo’s ‘Law of Rent’ will always see economic growth benefit land owners disproportionately to hard working individuals.

The announcement of the First Home Owner Grants pt2 (FHOG) is simply shocking. Yet again the property lobby is being propped up. Just when prospective buyers were hoping land prices would fall, the ALP gives another handout to those who already own a piece of this precious earth.

This will ensure the recession is deeper and longer than feared because the cause of the world financial meltdown, the land price bubble, has been given a helping hand again!

If everyone receives $14,000 then land prices go up $14,000 at least. In 2001, when the scheme was first announced, land and housing prices jumped $32,000.

The result will see a new and enhanced wealth gap. Younger generations will again be left paying record rents, already more than twice what any other generation has paid. Julia Gillard’s ‘War on Poverty’ (announced January 08) has become just that in namesake.

Today we hear of the need for Breakfast Clubs in schools. Now that rents will be maintained at sky high levels, less money will be available for food and other necessities. One wonders whether the credibility of politician’s will reach a record low in the current climate.

photo credit: Celeste33

Anne Schmid

We do not blame the poor for being poor, or suggest that it is because they are lazy or incapable of earning a living. Likewise, is it altogether hard work and enterprise that has made the wealthy rich? Could there be bludgers among the wealthy?

Not many of us have the stamina to look privilege squarely in the face. We have created an economy where we all feel vulnerable. We are familiar with the injustices we personally have to deal with and we feel threatened to even acknowledge the wider picture of disadvantage, let alone do anything about it.

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