Sunday, October 19
Revelling in Religious Reminiscences
As part of our 50th year parish celebrations we staged a light hearted evening of catholic bingo and refreshments followed by a floor show. After the Bingo and suitably refreshed we all changed into appropriate colorful garb to sing all of the old hymns up to the present day interspersed with some jokes and lively banter.
An overhead power point presentation provided the words for most of the hyms so that the audience could join in.
One segment involved singing in Latin and during this segment I sang Panis Angelicas with my wife. The recording is rough, taken on the night from a digital camera and we both look rather comic in our overweight costumes but it does give you a flavor to the evening. Imagine 5 other singers in the same attire.
I’m afraid we are both getting too old to reliably remember all of it in Latin, so we had our music on hand for just this number.
You might think singing all of the old hymns and few modern extracts from religious musicals might be a tad boring but from all accounts everyone thoroughly enjoyed themselves.
Wednesday, October 15
Banking on the community
One thing is certain; things will never be the same. The model of Wall Street investment banking is no longer viable. None of the previous top 5 Investment Banks now exist, except Goldman Sachs which is now operates as a traditional bank within regulatory constraints. Whilst excessive compensation has not been eliminated its means has been curtailed since borrowing capacity has been reduced by 67% as average leverages reduce from 30 to 10, a principal driver in credit markets turmoil.
Future banking is now more of the old garden variety of taking deposits and lending them back at higher rate of interest, augmented by banking services.
Hence the successful model of the mutualised local bank, where local communities own the bank and lend locally can flourish in a similar way to the big banks whose global services will continue to service the larger populated areas. I see no reason why the mutualistion process for banks will not accelerate and particularly in the developing world such as China. Maybe as the Chinese economy is pausing for breath, due to the tightening of the government’s monetary policy, it might be well advised to consider alternative models available.
A good example in Australia of a viable alternative is the Bandito Bank which operates 350 branches, with over 220+ Community Bank branches, the latter 100% owned by each local community. These community banks pay modest fees for their infrastructure and systems support but take full responsibility for loan approvals and the integrity of all of the banking services.
How does it work?
Let’s say I am part of a community which is not serviced by one of the big banks and I have to drive to the nearest regional centre for banking requirements. After a meeting you find there are many people willing to invest the minimum of $1,000 each for a shareholding and a few willing to outlay say $10,000 which soon adds up to the requirement to raise say at least $ 300,000 for it to become a viable local bank.
The next step is to incorporate the Company, set up the facilities, recruits staff and soon you’re open for business.
The bank can undertake all of the traditional banking services using existing banking infrastructure but the owners (the community) take responsibility for its integrity and services.
It’s banking on the community.
The same principals apply to just about every activity where a service is required, the incorporated mutual venture can set up a secretariat or administarion and leverage from the infrastructure already created by the larger entities. It means like minded folk of modest means can prosper through local co operatives where they are not represented or poorly serviced by the larger institutions.
Future banking is now more of the old garden variety of taking deposits and lending them back at higher rate of interest, augmented by banking services.
Hence the successful model of the mutualised local bank, where local communities own the bank and lend locally can flourish in a similar way to the big banks whose global services will continue to service the larger populated areas. I see no reason why the mutualistion process for banks will not accelerate and particularly in the developing world such as China. Maybe as the Chinese economy is pausing for breath, due to the tightening of the government’s monetary policy, it might be well advised to consider alternative models available.
A good example in Australia of a viable alternative is the Bandito Bank which operates 350 branches, with over 220+ Community Bank branches, the latter 100% owned by each local community. These community banks pay modest fees for their infrastructure and systems support but take full responsibility for loan approvals and the integrity of all of the banking services.
How does it work?
Let’s say I am part of a community which is not serviced by one of the big banks and I have to drive to the nearest regional centre for banking requirements. After a meeting you find there are many people willing to invest the minimum of $1,000 each for a shareholding and a few willing to outlay say $10,000 which soon adds up to the requirement to raise say at least $ 300,000 for it to become a viable local bank.
The next step is to incorporate the Company, set up the facilities, recruits staff and soon you’re open for business.
The bank can undertake all of the traditional banking services using existing banking infrastructure but the owners (the community) take responsibility for its integrity and services.
It’s banking on the community.
The same principals apply to just about every activity where a service is required, the incorporated mutual venture can set up a secretariat or administarion and leverage from the infrastructure already created by the larger entities. It means like minded folk of modest means can prosper through local co operatives where they are not represented or poorly serviced by the larger institutions.
Friday, October 10
Monday, October 6
Where to next
Following on from my previous post, and, after noting approval of the $700 billion rescue package, the question arises ‘where to next?’ The Rescue package itself will not materially have any effect for several months and in the meantime gloomy economic news will dominate commentaries.
So we witness the NY stock exchange emulate a series of ‘dead cat bounces’ which are quickly soured by woeful economic news such as 159,000 jobs lost last month, capping off 9 consecutive monthly reductions.
The Government has also admitted the economy in the USA is in recession, evidenced by 760,000 jobs lost so far this year. Its contagion spreads to overseas markets captive to this continued gloomy sentiment and building in expectations of a severe downturn.
In fact in a sample of the 88 largest economies the USA is ranked 22nd in terms of market indices, ahead of countries like Australia whose economies remain resilient and well regulated according to the International Monetary Fund. But markets are driven by sentiment not logic and panic sellers build in future reserves of anticipated gloom and doom, to cause minor apoplexy over here since most retirement schemes for all workers are generally heavily market linked.
We continue to see markets and consumers rattled and worried about a run on the banks simultaneously in many different countries. I notice Germanys Finance Minister Peer Steinbrueck has announced an unlimited guarantee for all personal savings and checking accounts. It was designed to win back confidence as the global financial crisis spreads and equates to about $1 trillion. A moral hazard? bear in mind that perhaps in that country it was too much of a reminder of those similiar events of the great depression; run on the banks and unrest that enabled the Nazis to come to power.
Hopefully all of this interventionist’s actions should help avoid past mistakes such as what happened to Japan in the 1990’s. Japan's reckless lending during the eighties led to the Asian crises but its Ministry of Finance failed to intervene. Many thought its banking system was insolvent, but the Banks refused to acknowledge their portfolio of non performing loans and write off the bad debts. What followed was an unnecessarily long period of vicious stagflation, which saw a 3 fold increase in unemployment and misery with property prices reduced by 70%, until it finally recovered a few years ago.
What can be done?
There is no short term fix but I think sensible measures could see a gradual improvement to avoid a fully blown deep recession. The curent crisis provides a catalyst for a systemic change to a better regulated and transparent financial services section, rejected by either political party over prior decades.
What is currently plaguing the system is the scarcity of credit as world wide deleveraging unhinges the ability to continue to trade on the diminished capital base. Overnight facilities, which are the only facilities available to many, are rolled over each day to have a destabilizing effect combined with severe illiquidity as others hoard previouly available cash in the climate of fear.
The $ 700 billion rescue package will help alleviate this unstable situation gradually and help secure more long term facilities underwritten by the improved Balance sheets once the toxic debt is removed. The amount of debt removed should 3/4 times the original value, since the securities to be disposed of through the reverse auction system will be at a fraction of their original value. Bear in mind the same amount has already been written off
So in total in round figures you are eliminating about 6 trillion in value. No small beer!! although this still only represents a fraction of world liabilities. However we should not include derivatives which have a zero sum outcome, (a buyer and seller of an outcome attaching to a security which cancel out to zero if they were simultaneously collapsed) in assessing the extent of these liabilities.
What does remain however is a diminished capital base to undertake the herculean task ahead and hence more help will be required from Central banks and from holders of cash and government securities to invest.
Although Central Banks throughout the world have given the impression they are improving liquidity by increasing the total money supply, official figures indicate this is clearly not the case. The reason they have not acted is out of fear such action will ignite inflation, particularly with loose worldwide monetary policy represented by average inflation of 5.5% versus official interest rates average at 4.5%.
However with weaker demand and a recent hefty fall in commodity prices including oil I think there is ample scope for further easing and injection of much needed liquidity, to coincide with reduced world wide inflation. The easing will mainly be at the behest of those economies outside the USA, to additionally include accelerated technological transfers of expertise to improve employment prospects.
What I also think needs to be done is a further reduction in interest costs to ease the burden with taxpayers on mortgages and on commercial loans. This will be appreciably easier as the inflationary outlook becomes more benign. The spreads that currently exist between the borrowing cost of Freddie and Fannie (Government treasuries and mortgage rates) give ample scope for reduction in interest rates.
So far this year there have been over 2 million foreclosures so it makes sense for these service providers on behalf if their security owners to be more flexible and proactive. Significant progress over and above the 400 000 targeted for help should be possible.
The rebuilding of the USA capital base will require infusion from overseas. This will not happen until Investors are convinced of a more transparent and improved regulatory system. Nether party has announced what it will involve, other than talk about the need for an improved single regulatory authority. Once this happens overseas investors I think will be persuaded to part with their equally hard earn money to invest in the USA.
It should be welcomed as it will add stability and diversity.
Finally from a political point of view there is a need to harmonize respective economic policies between countries, an urgent requirement for the incoming incumbent to the white house.
We are one global village; one that is currently devastated by a tidal wave of worries but can refloated with agreed sensible policies and to avoid the mastakes of the past.
The USA as the world largest economy, with 25 % of worlds trade needs to work with its partners to regulatory reforms and improved economic ties as priority for its hard working citizens and those who are equally affected overseas if we are to avoid a deep recession.
So we witness the NY stock exchange emulate a series of ‘dead cat bounces’ which are quickly soured by woeful economic news such as 159,000 jobs lost last month, capping off 9 consecutive monthly reductions.
The Government has also admitted the economy in the USA is in recession, evidenced by 760,000 jobs lost so far this year. Its contagion spreads to overseas markets captive to this continued gloomy sentiment and building in expectations of a severe downturn.
In fact in a sample of the 88 largest economies the USA is ranked 22nd in terms of market indices, ahead of countries like Australia whose economies remain resilient and well regulated according to the International Monetary Fund. But markets are driven by sentiment not logic and panic sellers build in future reserves of anticipated gloom and doom, to cause minor apoplexy over here since most retirement schemes for all workers are generally heavily market linked.
We continue to see markets and consumers rattled and worried about a run on the banks simultaneously in many different countries. I notice Germanys Finance Minister Peer Steinbrueck has announced an unlimited guarantee for all personal savings and checking accounts. It was designed to win back confidence as the global financial crisis spreads and equates to about $1 trillion. A moral hazard? bear in mind that perhaps in that country it was too much of a reminder of those similiar events of the great depression; run on the banks and unrest that enabled the Nazis to come to power.
Hopefully all of this interventionist’s actions should help avoid past mistakes such as what happened to Japan in the 1990’s. Japan's reckless lending during the eighties led to the Asian crises but its Ministry of Finance failed to intervene. Many thought its banking system was insolvent, but the Banks refused to acknowledge their portfolio of non performing loans and write off the bad debts. What followed was an unnecessarily long period of vicious stagflation, which saw a 3 fold increase in unemployment and misery with property prices reduced by 70%, until it finally recovered a few years ago.
What can be done?
There is no short term fix but I think sensible measures could see a gradual improvement to avoid a fully blown deep recession. The curent crisis provides a catalyst for a systemic change to a better regulated and transparent financial services section, rejected by either political party over prior decades.
What is currently plaguing the system is the scarcity of credit as world wide deleveraging unhinges the ability to continue to trade on the diminished capital base. Overnight facilities, which are the only facilities available to many, are rolled over each day to have a destabilizing effect combined with severe illiquidity as others hoard previouly available cash in the climate of fear.
The $ 700 billion rescue package will help alleviate this unstable situation gradually and help secure more long term facilities underwritten by the improved Balance sheets once the toxic debt is removed. The amount of debt removed should 3/4 times the original value, since the securities to be disposed of through the reverse auction system will be at a fraction of their original value. Bear in mind the same amount has already been written off
So in total in round figures you are eliminating about 6 trillion in value. No small beer!! although this still only represents a fraction of world liabilities. However we should not include derivatives which have a zero sum outcome, (a buyer and seller of an outcome attaching to a security which cancel out to zero if they were simultaneously collapsed) in assessing the extent of these liabilities.
What does remain however is a diminished capital base to undertake the herculean task ahead and hence more help will be required from Central banks and from holders of cash and government securities to invest.
Although Central Banks throughout the world have given the impression they are improving liquidity by increasing the total money supply, official figures indicate this is clearly not the case. The reason they have not acted is out of fear such action will ignite inflation, particularly with loose worldwide monetary policy represented by average inflation of 5.5% versus official interest rates average at 4.5%.
However with weaker demand and a recent hefty fall in commodity prices including oil I think there is ample scope for further easing and injection of much needed liquidity, to coincide with reduced world wide inflation. The easing will mainly be at the behest of those economies outside the USA, to additionally include accelerated technological transfers of expertise to improve employment prospects.
What I also think needs to be done is a further reduction in interest costs to ease the burden with taxpayers on mortgages and on commercial loans. This will be appreciably easier as the inflationary outlook becomes more benign. The spreads that currently exist between the borrowing cost of Freddie and Fannie (Government treasuries and mortgage rates) give ample scope for reduction in interest rates.
So far this year there have been over 2 million foreclosures so it makes sense for these service providers on behalf if their security owners to be more flexible and proactive. Significant progress over and above the 400 000 targeted for help should be possible.
The rebuilding of the USA capital base will require infusion from overseas. This will not happen until Investors are convinced of a more transparent and improved regulatory system. Nether party has announced what it will involve, other than talk about the need for an improved single regulatory authority. Once this happens overseas investors I think will be persuaded to part with their equally hard earn money to invest in the USA.
It should be welcomed as it will add stability and diversity.
Finally from a political point of view there is a need to harmonize respective economic policies between countries, an urgent requirement for the incoming incumbent to the white house.
We are one global village; one that is currently devastated by a tidal wave of worries but can refloated with agreed sensible policies and to avoid the mastakes of the past.
The USA as the world largest economy, with 25 % of worlds trade needs to work with its partners to regulatory reforms and improved economic ties as priority for its hard working citizens and those who are equally affected overseas if we are to avoid a deep recession.
Thursday, October 2
Restoring confidence
The $US300 billion government sponsored program has just kicked off in the USA; swapping current housing loans for more affordable ones.
Lenders have an option to take a loss on the initial loan and accept a new insured loan as effective payment in full for previous indebtedness.
E.g 1. Authorizes FHA to insure up to $300 billion of fixed 30 year refinanced loans up to a max of 90% of current assessed value for those borrowers in arrears from October 1 up to September 2011.
2. Existing mortgage holders take the proceeds of the insured loan in payment in full of all pre-existing indebtedness.
This 3 year legislated program seeks to assist 400,000 households who have negative equity; whose indebtedness exceeds house valuation.
It makes sense but is it too little too late?
This fiasco has created a different structure. In the past the traditional lender and householder would have worked together to avoid foreclosure to renegotiate a compromise or accommodating reset.
But the bundled mortgages transferring ownership to unrelated parties left loan servicing arrangements with trustee companies. So far these service providers appear to be lagging in their efforts and in the early days adopted the role as disinterested reactive foreclosure processors.
Here are some extracts from the State Foreclosure Prevention Working Group (a group of state attorneys general and state banking regulators working to prevent home foreclosures) recent 3rd report in relation to this aspect.
“Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer, a reality that is growing worse rather than better, as the number of delinquent loans, prime and subprime, increases.”
“While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing.”
“Servicers appear to have reached the ‘low-hanging fruit’ of subprime loans facing interest rate resets, while not developing effective approaches to address the bulk of subprime loans which are in default before interest rate resets,” the report said.
“Based on the rising number of delinquent prime loans and projected numbers of payment option ARM loans facing reset over the next two years, we fear that continued reactive approaches will lead to another wave of unnecessary and preventable foreclosures.”
Are they now preventable?
The Securities of parcels of some of those bundled mortgages are being sold for as little as 5 to 25 cents in the dollar. It’s a lot cheaper to offer another loan at an affordable rate to the householder currently in arrears and write off the current indebtedness and illusionary higher future interest rates. You also avoid the subsequent costs of foreclosure and dislocation.
Apart from that a proactive approach is essential to help contain its consequences and engender confidence. Bite the bullet and employ more people to get a better handle on it!
I think the government owned Freddie and Fanny also need to reduce interest rates on mortgages (very small reductions have already happened) to stimulate demand which will also help get a hold on the plummeting house prices.
Lenders have an option to take a loss on the initial loan and accept a new insured loan as effective payment in full for previous indebtedness.
E.g 1. Authorizes FHA to insure up to $300 billion of fixed 30 year refinanced loans up to a max of 90% of current assessed value for those borrowers in arrears from October 1 up to September 2011.
2. Existing mortgage holders take the proceeds of the insured loan in payment in full of all pre-existing indebtedness.
This 3 year legislated program seeks to assist 400,000 households who have negative equity; whose indebtedness exceeds house valuation.
It makes sense but is it too little too late?
This fiasco has created a different structure. In the past the traditional lender and householder would have worked together to avoid foreclosure to renegotiate a compromise or accommodating reset.
But the bundled mortgages transferring ownership to unrelated parties left loan servicing arrangements with trustee companies. So far these service providers appear to be lagging in their efforts and in the early days adopted the role as disinterested reactive foreclosure processors.
Here are some extracts from the State Foreclosure Prevention Working Group (a group of state attorneys general and state banking regulators working to prevent home foreclosures) recent 3rd report in relation to this aspect.
“Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer, a reality that is growing worse rather than better, as the number of delinquent loans, prime and subprime, increases.”
“While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing.”
“Servicers appear to have reached the ‘low-hanging fruit’ of subprime loans facing interest rate resets, while not developing effective approaches to address the bulk of subprime loans which are in default before interest rate resets,” the report said.
“Based on the rising number of delinquent prime loans and projected numbers of payment option ARM loans facing reset over the next two years, we fear that continued reactive approaches will lead to another wave of unnecessary and preventable foreclosures.”
Are they now preventable?
The Securities of parcels of some of those bundled mortgages are being sold for as little as 5 to 25 cents in the dollar. It’s a lot cheaper to offer another loan at an affordable rate to the householder currently in arrears and write off the current indebtedness and illusionary higher future interest rates. You also avoid the subsequent costs of foreclosure and dislocation.
Apart from that a proactive approach is essential to help contain its consequences and engender confidence. Bite the bullet and employ more people to get a better handle on it!
I think the government owned Freddie and Fanny also need to reduce interest rates on mortgages (very small reductions have already happened) to stimulate demand which will also help get a hold on the plummeting house prices.
Thursday, September 25
Money go round
Obama has made a plea for bipartisan support for the passing of the current $800 billion package being debated before congress providing it includes 4 key points.
An overseeing independent board.
Taxpayers are to be treated like Investors-(This would be relatively simple by the issues of non voting warrants).
Additional measures to help those facing current foreclosures
Reward packages eliminated for those CEOs previously involved in the failed companies.
I notice Bill Clinton is currently doing the celebrity rounds and I listened to him the other night on the Letterman late show. He is more or less saying the same thing; to support the package and add those bells and whistles.
The question of those outrageous remuneration packages reminds me of the lectures we got from Management Recruiters who told us if we only pay peanuts we will get monkeys. It hasn't worked very well has it !! Still I have to admit those Wall Street guys were very clever to successfully export so much of their misery all over the world; sizable portions of AAA rated contagious toxic debt to so many eager buyers overseas.
But that reminds me of the fact many Americans don’t seem to fully appreciate it’s caused such severe indigestion overseas, to individual investors and provided the fuel for a possible severe world wide recession. This has meant both the Fed and its counterparts represented by central banks in Australia, Denmark, Norway and Sweden have had to set up additional currency exchange funding to provide a buffer to current pressures.
The other point that is not well understood is the likely eventual cost of this bail out. What is it? A trillion. – NO – It is very likely that it won’t cost anything at all since you can buy up most of these packaged impaired assets for a pittance, and eventually you’re likely to make squillins in the next 3- 4 years. This was clearly evident in aspects of the Savings and Loans crisis.
So why can’t the private sector do that ?
.
Fear!! Those who could and are sitting on mountainous piles of money don’t want to risk it. For instance Buffet finds it easier to take a stake in Goldman- this complements and fits in with Berkshire's profile - with assets of around $US278 billion including significant stakes in companies such as Wells Fargo & Co, American Express and the Washington Post Co. Foreigners are also becoming choosey
Don’t forget your overall debt is 375 % of GDP (the highest level ever as percentage) so there are limits (outside of government) with much to spare. !
It always been that markets overshoot on the way down and the reverse on the upside. That’s why you need regulation!! Hand on regulation that can pull the levers when they are needed, hardly a novel approach but one sadly lacking in the past. It’s also hard to spot a better opportunity for permanently changing the current regulatory system for the better and making it more transparent.
An overseeing independent board.
Taxpayers are to be treated like Investors-(This would be relatively simple by the issues of non voting warrants).
Additional measures to help those facing current foreclosures
Reward packages eliminated for those CEOs previously involved in the failed companies.
I notice Bill Clinton is currently doing the celebrity rounds and I listened to him the other night on the Letterman late show. He is more or less saying the same thing; to support the package and add those bells and whistles.
The question of those outrageous remuneration packages reminds me of the lectures we got from Management Recruiters who told us if we only pay peanuts we will get monkeys. It hasn't worked very well has it !! Still I have to admit those Wall Street guys were very clever to successfully export so much of their misery all over the world; sizable portions of AAA rated contagious toxic debt to so many eager buyers overseas.
But that reminds me of the fact many Americans don’t seem to fully appreciate it’s caused such severe indigestion overseas, to individual investors and provided the fuel for a possible severe world wide recession. This has meant both the Fed and its counterparts represented by central banks in Australia, Denmark, Norway and Sweden have had to set up additional currency exchange funding to provide a buffer to current pressures.
The other point that is not well understood is the likely eventual cost of this bail out. What is it? A trillion. – NO – It is very likely that it won’t cost anything at all since you can buy up most of these packaged impaired assets for a pittance, and eventually you’re likely to make squillins in the next 3- 4 years. This was clearly evident in aspects of the Savings and Loans crisis.
So why can’t the private sector do that ?
.
Fear!! Those who could and are sitting on mountainous piles of money don’t want to risk it. For instance Buffet finds it easier to take a stake in Goldman- this complements and fits in with Berkshire's profile - with assets of around $US278 billion including significant stakes in companies such as Wells Fargo & Co, American Express and the Washington Post Co. Foreigners are also becoming choosey
Don’t forget your overall debt is 375 % of GDP (the highest level ever as percentage) so there are limits (outside of government) with much to spare. !
It always been that markets overshoot on the way down and the reverse on the upside. That’s why you need regulation!! Hand on regulation that can pull the levers when they are needed, hardly a novel approach but one sadly lacking in the past. It’s also hard to spot a better opportunity for permanently changing the current regulatory system for the better and making it more transparent.
Sunday, September 14
Precious Water
The country landscape is extremely fragile and one of the driest on planet earth; continually plagued by drought whose frequency is accelerating. It is hardly surprising our river systems are all in dire need of more water and at a crisis point due to continual irrigation.
Our pioneers were blissfully unaware of the consequences of their actions; reshaping the landscape in the shadow of ill conceived British farming practices with extensive tree felling and overgrazing of sheep and cattle combined with extensive large scale irrigation in arid areas. Although most Farmers have largely reversed this unsustainable trend to become staunch conservationists under the auspices of the land care groups water use remains a vexing question.
Irrigation has not only deprived our river systems of vital water supply but raised the water table to the extent we now have miles and miles of desolate, salt filled land with pools of salt water rendering land unusable. Similar outcomes are prevalent in parts of the USA, Egypt, Iraq and Pakistan, all effected by salination. The worst effected area is our largest river system, the Murray which flows along the eastern side of South Australia, New South Wales and Victoria borders. Irrigation from the Murray sustains this region which produces over 40% of Australia’s fresh fruit and vegetables, but at a terrible cost to the river and its eco system. Irrigation water drawn from the Murray( which represents over 85% of all irrigation in Australia ) has resulted in so little water remaining in the once mighty river its flow was insufficient to carry any fresh water into the ocean. This environmental position for the river if allowed to continue will have a devastating affect on its biology, eliminating most species who are dependant upon the oceans flushing effect near its mouth.
Australia needs to face the reality we are a more suited to dry farming (reliance on rainfall) which applies to most areas which necessitates a sensible plan of transition with adequate compensation to irrigation farmers such as the acquisition of properties at fair market value. Several large scale acquisitions of properties with water licenses to irrigate are under consideration but much more needs to be done. This will involve ongoing negotiation, goodwill and planning at state and federal levels of government. It will require substantial change to lifestyles and less agricultural output but the alternative are not sustainable and the longer we leave it the more painful will be the later adjustment necessary.
I am also not in favour of the current desalination plants under construction or in the diversion of water previously available for farmers to our cities.
The above photos depict local scenes of the Yarra River and nearby; of river banks resplendent of early wattle blossoms to disguise our rivers desperate need for more water flow.
Friday, August 29
Ntandire Church/Hall takes shape from within
The Ntandire commmunity has made great progress by installing seating and glass in all of the windows. They have also purchased more land and erected outside toilets. In their discussions they have proposed the name of the church to be ‘Our Lady Help of Christians’ which will coincide with the name of our parish.
Their hope is to invite the Bishop to bless the Church next year 2009.
Friday, August 22
Unfinished Superannuation Business
One of the more colorful of Australia’s politicians was Paul Keating; Treasurer for Australia in the 1980’s who went on to become Prime Minister. Keating was quick witted, one not to mince words, irreverent but unusually dedicated. He publically admitted his lack of economics knowledge when first he became Treasurer and in those early days often looked rather bleary eyed and tired, from all night and early morning sessions poring over the latest treasury forecasts.
Personally I always thought he was a very clear thinker and one of the very few politicians whose communications were fluid and smooth; devoid of the usual irritating ums and arrs or awkward pregnant pauses. He was recently interviewed by Kerry O’Brian of the ABC and if you read the transcript I think you will be surprised by that same style. Click here to read the transcript.
Keating instituted many economic reforms; more so than anyone before or after him as he unshackled our labour and banking practices strangled in regulations and allowed the Australian dollar to float. But his most significant reform was to establish a universal superannuation scheme.
Keating’s grand vision was to encourage every citizen to save for retirement, and in the process create a huge pool of investment capital to enrich the nation. At that time superannuation existed for only about 50 % of the workforce and the remainder relied on somewhat meager government payments of the old age pension. Keating’s idea was the aged pension would become increasingly irrelevant as it was quickly superseded by universal superannuation. His vision was that every citizen would have a post retirement income equivalent to preretirement, paid for from a pension out of each persons superannuation account.
It began with the employer paying in a compulsory 4 %( initially Government funded) for all workers and eventually the minimum guaranteed percentage rose to 9%. Many people personally paid in another 5% or even matched the 9% contribution.
It was Keating’s intention to legislate for the 9 % to be increased to 15% but such intentions was denied after he lost the 1996 federal election and subsequently the elected Liberal Coalition showed no interest in increasing the percentage. Actuarially over a working lifetime, assuming just 15% and investing to give real rates of return you will finish up with sufficient funds to accomplish the goal of self funded retirees.
Superannuation remains unfinished business which hopefully will be rectified by the Rudd Government.
Personally I always thought he was a very clear thinker and one of the very few politicians whose communications were fluid and smooth; devoid of the usual irritating ums and arrs or awkward pregnant pauses. He was recently interviewed by Kerry O’Brian of the ABC and if you read the transcript I think you will be surprised by that same style. Click here to read the transcript.
Keating instituted many economic reforms; more so than anyone before or after him as he unshackled our labour and banking practices strangled in regulations and allowed the Australian dollar to float. But his most significant reform was to establish a universal superannuation scheme.
Keating’s grand vision was to encourage every citizen to save for retirement, and in the process create a huge pool of investment capital to enrich the nation. At that time superannuation existed for only about 50 % of the workforce and the remainder relied on somewhat meager government payments of the old age pension. Keating’s idea was the aged pension would become increasingly irrelevant as it was quickly superseded by universal superannuation. His vision was that every citizen would have a post retirement income equivalent to preretirement, paid for from a pension out of each persons superannuation account.
It began with the employer paying in a compulsory 4 %( initially Government funded) for all workers and eventually the minimum guaranteed percentage rose to 9%. Many people personally paid in another 5% or even matched the 9% contribution.
It was Keating’s intention to legislate for the 9 % to be increased to 15% but such intentions was denied after he lost the 1996 federal election and subsequently the elected Liberal Coalition showed no interest in increasing the percentage. Actuarially over a working lifetime, assuming just 15% and investing to give real rates of return you will finish up with sufficient funds to accomplish the goal of self funded retirees.
Superannuation remains unfinished business which hopefully will be rectified by the Rudd Government.
Sunday, August 10
Peak Oil
The rapid increase in the oil price to US $150 a barrel and its decline to around $115 has caused me to ponder the peak oil theory.
Peak oil describes the point in time when oil production declines. Peak oil theory assumes demand will outstrip supply as future deposits become increasingly costly to extract, ensuring price escalation and an end to oil dependant economies with catastrophic results. Nobody can tell reliably when that will happen but a groundswell of current opinion suggests it is either already upon us or it is immanent. It is an undeniable fact that reduced oil use, particularly in agriculture and most types of transport require huge societal shifts to sustainable limited alternatives. Alternative technology is far from encouraging. Man made fuels such as ethanol, derived from plants or diesel from coal only partially cover the gap and are much more expensive. There is no viable alternative other than to drastically curtail our use of oil, with less dependence on transport requiring communities to become more self sufficient.
But is the peak oil theory creditable? Are we at the end of what was a brief period of time known as the oil age?
In the past we have encountered similar sharp price increases in the 1970’s when OPEC curtailed production, in 1981 when Iraq was at war with Iran, and in 1991 during the gulf war. This time proponents of the peak oil theory say it’s a different scenario because our reserves have been in decline and new fields will be increasingly costly.
We cannot change geology.
Oil and gas will become increasingly expensive to extract from dwindling reserves. It seems creditable enough to believe we have reached this point in the cycle where oil prices can only escalate rapidly.
Although the statistics available are notoriously unreliable there is however a consistent trend in aggregated world reserves to show a small net increase, cementing a continuing trend of the oil industry each year to find more oil then it produces. In other words the net effect of new discoveries of economically feasible oil fields and assessment of the life of existing reserves of what’s left in the ground showed an incremental increase over previous years, in line with a positive continuing trend. The proponents of the peak oil theory argue some countries like Saudi Arabia deliberately lie about their level of reserves, overstating the figures to justify pumping more oil. But their motivation for doing this is at odds with their investment plans, as they implement large scale infrastructure spending. Why spend vast sums of money to increase your capacity if your reserves are running out!!
Herein then lies the confusion, assuming there is a fudging of figures than the theory remains creditable, if not we have limited time to adjust. And if the latter be correct than the price of oil will actually fall back to somewhere at around $100 per barrel, or even below within a year, assuming countries don’t simply turn off the pump and also barring another War or a cataclysmic event.
What of the future? No one knows!
Maybe there is a window of opportunity over the next 30 years to finally make some headway in reducing our reliance on oil, time for consumers to adjust. Already the recent spike has given a boost towards a more sustainable pollutant free lifestyle.
Peak oil describes the point in time when oil production declines. Peak oil theory assumes demand will outstrip supply as future deposits become increasingly costly to extract, ensuring price escalation and an end to oil dependant economies with catastrophic results. Nobody can tell reliably when that will happen but a groundswell of current opinion suggests it is either already upon us or it is immanent. It is an undeniable fact that reduced oil use, particularly in agriculture and most types of transport require huge societal shifts to sustainable limited alternatives. Alternative technology is far from encouraging. Man made fuels such as ethanol, derived from plants or diesel from coal only partially cover the gap and are much more expensive. There is no viable alternative other than to drastically curtail our use of oil, with less dependence on transport requiring communities to become more self sufficient.
But is the peak oil theory creditable? Are we at the end of what was a brief period of time known as the oil age?
In the past we have encountered similar sharp price increases in the 1970’s when OPEC curtailed production, in 1981 when Iraq was at war with Iran, and in 1991 during the gulf war. This time proponents of the peak oil theory say it’s a different scenario because our reserves have been in decline and new fields will be increasingly costly.
We cannot change geology.
Oil and gas will become increasingly expensive to extract from dwindling reserves. It seems creditable enough to believe we have reached this point in the cycle where oil prices can only escalate rapidly.
Although the statistics available are notoriously unreliable there is however a consistent trend in aggregated world reserves to show a small net increase, cementing a continuing trend of the oil industry each year to find more oil then it produces. In other words the net effect of new discoveries of economically feasible oil fields and assessment of the life of existing reserves of what’s left in the ground showed an incremental increase over previous years, in line with a positive continuing trend. The proponents of the peak oil theory argue some countries like Saudi Arabia deliberately lie about their level of reserves, overstating the figures to justify pumping more oil. But their motivation for doing this is at odds with their investment plans, as they implement large scale infrastructure spending. Why spend vast sums of money to increase your capacity if your reserves are running out!!
Herein then lies the confusion, assuming there is a fudging of figures than the theory remains creditable, if not we have limited time to adjust. And if the latter be correct than the price of oil will actually fall back to somewhere at around $100 per barrel, or even below within a year, assuming countries don’t simply turn off the pump and also barring another War or a cataclysmic event.
What of the future? No one knows!
Maybe there is a window of opportunity over the next 30 years to finally make some headway in reducing our reliance on oil, time for consumers to adjust. Already the recent spike has given a boost towards a more sustainable pollutant free lifestyle.
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