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Thursday, February 10, 2011

That double dip recession and Welfare cuts (why austerity doesn't work)

Well, well, well, what do we have here...

Double-dip recession 'possible'
It is possible the economy entered a double-dip recession in the December quarter, Finance Minister Bill English said yesterday.

...oh a double dip recession is 'possible' now is it? What a shocking surprise, it's not like anyone has been pointing that out since the massive financial collapse of 2007/2008. As I've posted previously, the great recession IS a crises of capitalism in the exact same way 1929 was and it's impact has only just begun.

This was the Westpac chief economist Brendan O'Donovan on the NZ economy in December...

O'Donovan is far more upbeat: "Personally I think New Zealand could have a ripsnorter of a year and I think we could be on the cusp of a golden decade in terms of economic prosperity.

"I know that is extremely unfashionable. We only seem to be happy when we are miserable."

Ummmmm, what? Are Westpac employees sniffing glue? There seems to be a mentality amongst some (our ridiculously optimistic Prime Minister included) that if we just put on a smile and a cheery disposition, this recession will be over and the lambs will be lying down with the lions and world peace will break out. If O'Donovan had been on the Titanic as it was sinking he'd be explaining how great the ocean views are and that now was the time to buy another ticket. He's as delusional as desperate Real Estate agents screaming there's never been a better time to buy property.

So according to O'Donovan, this is NOT a crises of Capitalism, it is in fact "the cusp of a golden decade in terms of economic prosperity."


Sadly for O'Donovan, I just finished reading 'Crises' by Alan Bollard, and his thoughts on the current recession. Surprisingly the Central Bank Governor doesn't seem to share O'Donovan's optimism.

University of Chicago academic Raghuram Rajan author of 'Has Financial Development Made the World Riskier' 2005 doesn't agree with O'Donovan either and neither does Gillian Tett, author of 'Fool's Gold: How the bold dream of a small tribe at JP Morgan was corrupted by Wall St and unleashed a catastrophe' 2009.

But fuck them, according to O'Donovan, it's cusp time.

Forget that (as Alan points out) that these financial instruments were misused and ended up with derivatives that wrote up a quadrillion dollars! Fuck that right, cause O'Donovan says it's a mere flesh wound.

Alan recalls a late night phone call with the chairman and deputy chairman of a giant international bank who told him this is the worst crises of their careers. But screw that right O'Donovan?

Alan of course himself described the crises as the largest financial shock since the Great Depression - WHAT DOES HE KNOW? O'Donovan says it's a cusp.

All Governments did was take on the debt of the greedy private sector, and kicked the can of the correction down the road a couple of years, but screw that right O'Donovan? This is a mere bump in the road towards prosperity, the way President Hoover would keep crying out during the Great Depression, 'Prosperity is just around the corner".

What we saw from this great recession was the US Fed, the European Central Bank, the Bank of China, the Bank of England, the Swiss and the Swedes all cut their rates by 50 points on Tuesday 7th October 2008, the magnitude of what happened demanded that response, to claim that we are now on a cusp after those types of reactions misses what happened and what's left to come by such a spectacular amount, I feel the need to urge Westpac to piss test O'Donovan.

According to O'Donovan, this isn't a global reshaping of the hegemonic economic super structure of the Washington Consensus, oh no, this is the beginning of the age of Aquarius.

I like Israeli central bank Governor Jacob Frenkel who said "We've spent the last ten years talking about imbalances building around the world. We all agreed those weren't sustainable. What did you expect"? But what does he know eh O'Donovan?

Ben Bernanke in a Time interview in 2009 said, "We came very, very close to a depression. The markets were in anaphylactic shock" - what does he know?

In October 2008 we had a run on $100 notes - YAWN. By the end of that month the equity markets around the world lost half their value, $30 Trillion US - as Alan points out stock prices had dropped deeper, over a longer period BUT publicly listed companies had been a much smaller part of the economy and did not figure in most people's savings, where as nowadays the impact is across society and damages many more.

The current recession is steeper and deeper than the 1973 oil crises, the 2000 tech crash, the recessions of 1980, 1990 and 1981 yet according to our boy O'Donovan at Westpac, the good times are about to roll.

I don't think for one second this recession has even played out to half time yet, and that the best case scenario is un-ending economic pain till 2018...

William Pesek: Years of global slump ahead - Mr Yen12
In an era where forecasts by permabears have got ample attention and vindication, few are as disturbing as this: a world recession until 2018.

It comes from Eisuke Sakakibara, Japan's former top currency official, known as "Mr Yen" for his ability to move markets.

Because Tokyo's revolving-door politics often sends a new face to each Group of 20 meeting, he is one of the few Japanese constants in market circles. Sakakibara was a key player when Japan faced everything from the Asian crisis to Russia's default to the onset of deflation to a banking collapse that saw the demise of Yamaichi Securities.

So, when an economist as well known as Sakakibara says "the world is set for a long-term structural slump reminiscent of the 1870s", when average global annual growth was about 1 per cent, I can't help but listen.

The reason for the slowdown? Governments put fiscal austerity ahead of restoring stable growth.

This Government has done nothing to slow this recession, the so called 'turbo charge' from the GST tax rise to give rich people a tax cut has in fact dampened the economy and caused a $2 billion deficit which Bill English promises he will make up with deep cuts to Welfare.

The poor last election voted for smile and wave John Key based on aspiration politics, they need to understand (now that they represent 14% of the 2008 voting electorate) that John Key in his multi millionaire optimistic bubble world really believes it when he says “If we cancelled welfare to 330,000 people currently on welfare, how many would starve to death? Bugger all.”

National don't have any solutions other than slash the already incredibly low benefits. The benefits let's not forget were set by working out what the base nutritional amounts a human being required dollar wise each week, and then had 20% taken off, the benefits are in fact there to starve the poor into employment.

And how complex is Welfare for recipients? As Susan St John from Child Poverty Action Group points out...

While Work and Income peers into the bedrooms of the poor to see if the sole parent is cohabiting and therefore not entitled to a benefit Inland Revenue wants to know so that she can be denied the work tax credit for her children.

Winz wants to know about every single extra dollar that comes the way of the sole parent, including any helpful payments from the other parent.

However, the IRD closes its eyes to financial flows between parents when it suits it and defines a couple as separated if they are not living in the same house.

To navigate the maze of benefits, supplementary payments, family tax credits, abatements, shared care rules, hours of work requirements, reassessments, demands for payments and penalties, a sole parent needs more than a PhD.

Without understanding how the various tax credits work, a sole parent is supposed to respond by getting a job, any job.

Austerity measures don't work in a recession as massive as this, and the signals from the Government are that the ideologically stacked welfare razor gang will bennie bash. Key may have rejected the rabid garbage they've come up with, but with Winston Peter's about to launch his big 3 policies which will play to the heart of John's reactive rump voting base, Key has to provide enough raw meat to woo that rump back.

In short, it's bash the dirty filthy bennie time.

The ideologically stacked Welfare Razor Gang Paula Bennet concocted to do her dirty work are preparing for their blood letting, while Paula Bennett faces a Human Rights Review Tribunal over her illegal release of information of a solo mother who had the audacity to question the closure of an allowance Bennett herself had benefited from. That case is working it's way to the Human Rights Review Tribunal and should be heard this year, which will be politically damaging to Bennett as she attempts to push her bennie bash agenda through.

Other than Islamaphobic fiction writers who connect intelligence to wealth and advocate corporations run social welfare, who is on this Welfare razor gang?

Surprise, surprise - the former president of ACT, Catherine Isaac. A day after the Welfare Working Group first met on April 30th, Roger Kerr, the Executive Director of the Business Roundtable published an opinion piece in the Dominion Post claiming unemployment is a political choice, as in the poor choose to be poor.

In that column, Roger rages against the welfare machine by claiming if only we dumped the minimum youth wage and weaken unions, then employers like him would hire and Ayn Rand would come back from the grave with Adam Smith and they will lay the foundations of a pure free market city state (with a weirdly overt militaristic Police force).

The kicker is, Roger Kerr is married to Catherine Isaac, he’s writing hard right send-the-kids-down-the-mine-to-work-social-policy the day after his wife’s first meeting for the Welfare Working Group.

And what about Adrian Roberts and Enid Ratahi Pryor who are current corporate welfare contractors to the Government, what possible advice are they going to give beyond 'more corporate contracts in social welfare'??? It's like having Pig Farmers set the legal welfare conditions for their pigs!

Take the ideologically stacked Welfare Razor gangs views, combine them with English's comments on making the $2billion deficit up from his failed turbo-charged-GST-tax-rise-to-fund-a-tax-cut-for-the-rich in cuts to welfare alongside Key's own comment that no one would starve if he slashed all the benefits and they all add up to growing realization that societies most vulnerable are about to get the bash.

Does making life more difficult for those on welfare actually work? Not according to the people who work with children in poverty...

Cutting welfare to sole parents would not have made any difference in either of these cases. Abuse and neglect of children cuts across income, class and ethnicity. Protecting children means acknowledging this.

New Zealand's high rates of teen pregnancies and child abuse are mirrored across the developed world in societies such as New Zealand that are characterised by high levels of socio-economic inequality.

The causal pathways are unclear but the fact they happen across such a wide variety of countries suggests they are not a sole-parent problem or a Maori problem, or even a problem of easy access to welfare.

In the United States, the states with the highest rates of teen pregnancies are also those with the highest child-poverty rates, the greatest income inequality and most stringent access to public assistance - particularly Mississippi, Louisiana and Florida.

Sadly, inequality and poverty do not lend themselves to simplistic policy responses. Dealing effectively with them takes time and political courage. The domestic purposes benefit was introduced so sole parents could raise their children with a measure of financial security.

In today's labour market, financial security is more elusive than ever.

Abolishing the DPB, or just making it difficult to get, will not prevent a single unwanted pregnancy and it will not stop children suffering at the hands of their caregivers.

Not so many years ago, mothers with no support left their babies on the steps of churches and workhouses.

...and are we being over run by solo mothers all of a sudden? No, no we are not...

beneficiaries dropped from 15 per cent to 10 per cent of the working age group between 2000 and 2008 when jobs were available, and rose again only to 12 per cent in the current recession.

I find it the most disgusting of ethical molestations that the weakest and most vulnerable in society are being asked to do with less because the global economy was crashed by the greedy and corrupt, yet that is exactly what the ideologically stacked Welfare Razor Gang are proposing with their despicable bennie bashing attack on the welfare state.

I don't care how much John Key smiles and waves and I don't care how many of you have been conned by his smiles and his waves, John Key is wrong! He has no plan other than enriching his wealth class and he is damaging this country by wanting to privatize our assets for less than a year in the black to overseas interests while using the Mum and Dad investor smokescreen and debt bogeyman.

John Key is as intellectually bankrupt as he is misleading, but you won't get Tony Veitch challenging him on any of these issues on his weekly MILF report radio show, apparently their next interview will revolve around Tony explaining to Key how one get's blood stains out of one's carpet.


At 10/2/11 11:00 am, Blogger AAMC said...

Nice one Bomber!! Fantastic post.

I was re reading a 2009 article by Krugman over the weekend where he explains those fantasists the 'fresh water' economists from Chicago and their belief that unemployment is the byproduct of people choosing not to work rather than a consequence of a lack of jobs. These people are totally disconnected from the real world and obviously didn't see that of lazy bludgers desperately hoping for a supermarket job in South Auckland last year. And they are the 'experts' that make the decisions which govern all of our lives.

Combine your analysis with Wikileaks revelations about peak oil, and I think we're in for a big shift.


At 10/2/11 11:28 am, Blogger AAMC said...

And Raj Patel on austerity.



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