by Edward Hugh: Barcelona

The news coming out of Estonia is obviously none too good at the moment. This morning we learnt that both Estonian industrial production and retail sales plunged at the most rapid rate on record in February, giving us very clear evidence that the recession is now deepening. Industrial output (adjusted for working days) fell an annual 30 percent, the biggest drop since 1995, following a 27 percent drop in January, while retail sales, excluding cars and fuel, fell 18 percent, the most since 1994. Month on month, output fell a seasonally adjusted 3.5 percent. And the situation is hardly likely to improve in the short term, since, as Danske Bank point out, all Estonia’s main partners are themselves now in deep recessions, so the possibilities of an uptick in activity – even were the economy competitive – are really pretty restricted.

“Industrial production is in freefall, and we expect a continuation of this trend in 2009,” Danske Bank A/S said in a note ahead of the report. “Only an improved outlook for Estonia’s main trading partners, Finland, Sweden, Germany, could change this trend, but this is hardly feasible before the beginning of 2010.”

In fact, while the crisis is a general one, some countries are obviously faring far worse than others, and Estonia’s industrial production dropped the most in the entire 27-nation European Union in December and January. And even if things do start to pick up again elsewhere in 2010, it is hard to see the Estonian economy benefiting that much, since it will still be grappling with price competitiveness issues (see below).

At the present time, as we can see in the index chart below, output is now down around 30% from the 2007 peak, and it continues to fall. Clearly the rate of decline will reduce at some point, and then we may flatten out at quite a low level, but this flattening out will be very different from a rebound, since there is no reason whatsoever to expect a rebound at this point.

Retail sales also fell sharply in February, by 18% when compared with the same month in the previous year. The latest decline dwarfed the 10% fall we saw last month, and may well signal much worse to come. As the statistics office said “In February, the retail sales decreased to their lowest level so far” (see index chart below).

The decline was attributed to the economic slowdown and to deteriorating consumer confidence. According to the Estonian Institute of Economic Research, consumer confidence dropped to a record low of minus 37 in March from minus 35 in February. Compared to the previous month, retail sales declined 7% at constant prices, and after seasonal and calendar adjustments, fell 2%.

New Finance Ministry Forecast

Estonia’s Finance Ministry announced today (Tuesday) that according to their latest estimates the economy will shrink 10 percent this year, if their “worst-case scenario” is realized. This is only in line with what most experts are now saying (although, truth be told, none of us really know) but as recently as last November, the Ministry were forecasting a 3.5 percent contraction for this year and an expansion of 2.6 percent in 2010. Not surprisingly therefore Finance Minister Ivari Padar is having to do his sums again and is now proposing budget cuts of 3 billion krooni ($260 million), as well as a temporary halt to the transfer of pension contributions from workers and employers into the second-pillar pension fund.

But this is now one “chop” on top of the next, since the Estonian Cabinet agreed only last month to cut the fiscal deficit by about 8 billion krooni, or 8 percent of the total budget, in an attempt to ensure the shortfall doesn’t exceed 3 percent of GDP. According to Padar, without further measures the deficit would reach 2.9 percent of GDP this year under the main scenario and but rise to as much 6.1 percent under the worst-case (but possibly more plausible) scenario. Detailed proposals on how to lower the fiscal deficit are to be presented to the government on April 9.

Naturally analysts like myself are rather sceptical about all this. Forecasts have been consistently behind the curve in Estonia, and there is no risen to imagine that this situation won’t be repeated across 2009, and 2010, especially looking at the macro data we see coming in. The statistics office announced today that Estonia had a budget deficit of exactly 3 percent of GDP last year, when the economy shrank 3.6 percent. The shortfall was thus precisely equal to the threshold allowed by the EU as one of the conditions for euro entry. Also, when we consider that the country moved from a surplus of more than 2% of GDP in 2007, then it is clear that the rate of deficit creation was very high in the last quarter of 2008.

SEB AB’s Ruta Eier makes the point that with the economy quite probably shrinking by as much as 10 percent this year (or more), the risk of breaching the budget deficit goal is significant. “The chances of meeting the deficit criteria this year seem rather small, especially with the economy shrinking at such rates,” she said in her latest report. Indeed she estimates that first-quarter GDP may shrink by over 15 percent, on an annual basis. Violeta Klyviene, senior Baltic analyst with Danske Bank, is more or less in the same line, and suggests that the budget gap may reach 5 percent of GDP this year unless the government cuts spending further.

So spending cuts are looming, but these will add to unemployment and reduce total domestic demand, so, in effect they will lead to a further contraction in economic activity, which will lead to a higher deficit, which will mean more cuts, and yet more contraction, and so on. This is all a very difficult situation really, which is why I think another approach is needed.

In part bank lending will be another important detail, but bank lending will depend on loan defaults, and these will depend on unemployment, and since even the Finance Ministry are forecasting unemployment at 12.2 percent this year and 15.6 percent in 2010, then defaults are surely set to rise, and with them distress in the banking sector. Indeed, while the Estonian economy at the present time is producing few sellable exports, one thing it is producing are loan defaults: indeed we might say at the present time that the present government strategy is turning Estonia’s economy into one huge loan-default assembly line, rocketing backwards as it is with neither steering wheel, nor brakes.

Threat to Euro Membership?

In any event, whatever the eventual size of the deficit, it will need financing, and Estonia’s Finance Ministry is at this very moment seeking a loan for these very purposes, on top of funds already approved by the European Investment Bank.

Of course, one of the reasons that these deficit numbers are so important is that they impinge on Estonia’s strategy of seeking Euro membership, and we also learnt today that Estonia’s government has set Jan. 1, 2011, as its new official target. This is an effective abandonment of Prime Minister Andrus Ansip’s earlier plan to try to join the euro area on July 1, 2010, although the official position is that this option is still being kept open, despite the fact that European Monetary Affairs Commissioner Joaquin Almunia politely made it clear on March 19 that the plan to join in July 2010 was too ambitious, at least under current criteria.

My feeling is still that Estonia’s representatives should be actively working with other East European countries to get these criteria changed, since if we don’t achieve that position, the spiraling cycle of contraction, deficit, and economic and political instability may well see eventual euro membership put off into a far distant future.

Are We On The Right Road?

Basically, I feel the whole process of addressing the economic issues presented by the boom-bust cycle are being inadequately – almost incompetently – handled. My own view is that the country urgently needs a devaluation of the kroon, but this is evidently a minority, rather than a majority view. So be it. But then if we are going to go down the internal deflation road, then at least lets do it seriously.

For example, I was horrified to read in the Estonian press that Prime Minister Ansip, is saying that the intended benefits of the new Labour Contract Act may be at risk of being postponed because theSupervisory Board of the Unemployment Insurance Fund did not reach agreement with the Government to raise the unemployment insurance payment rates from January 1.

My impression, as an outsider I know, was that the Labour Contract Act was one of the cornerstones of the labour fexibility process which is so vital to the internal deflation strategy, so how can agreement not have been reached on a key clause in the Act?

“The most important provisions of the Labour Contract Act were agreed between employers and employees. The Government accepted them and asked whether all these benefits fit the unemployment insurance tax rate of 1.5% and the unambiguous response was that they will indeed,” said Ansip. He added that the social partners promised back then already that if the benefits would not be covered by the existing payment rates, the benefits would have to be cut.

According to Postimees Online, Ansip stated in a radio interview that the crisis surrounding the Labour Contract Act is the fault of both employers and employees. Sorry, but isn’t the job of government to see that these kind of logjams don’t arise, and especially in delicate moments like these. My point, however, would not be to discover who exactly is responsible for the mess, but to ask a more fundamental question: how can it be that people are still bickering about this kind of thing in the face of a national emergency, when the survival of your economy and banking system is at stake?

Gentlemen, this cannot be taken seriously.

“We certainly cannot allow to fail to fulfil the Maastricht criteria due o the eficit of the Unemployment Insurance Board that would exceed the planned levels,” emphasised the Prime Minister.

Well quite, but the fact that this is even being discussed like this suggests that the hope of clawing through to the daylight is much slimmer than might have been hoped.

Another question revolves around the issue of what kind of adjustment process Estonia is actually committed to. Certainly we are a little short of precise numbers of the kind the IMF spell out in the Latvian case. And the public statements of leading members of the administration do little to reassure us they know what they are about here. Andres Lipstok, the Governor of the Estonian Central Bank, has, for example (see interview extract below) suggested that Estonia’s average salary cannot be lowered sharply. Does this man understand what he is talking about at all, I ask myself when I read a statement like this. I fully accept his right to believe that devaluation would contribute nothing to the Estonian economy, but surely, he must understand that substantial internal price deflation is the only half-way viable alternative, that this will be hard, and that this will mean substantial reductions in wages and prices. Basically he doesn’t seem to have grasped that Estonia has a competitiveness problem at all, and that all these arguments about not wanting to be a low wage economy (and hence turning the nose up at lower skilled activities) and Estonian wages being lower than the EU average are how we got in the mess in the first place. With an economy imploding at a 10% per annum rate, you can’t afford to be that choosy, you know. All I can say is, what’s the weather like on his planet?

“One must emphasize that wages in Estonia are still low compared to EU’s verage. Those entrepreneurs and analysts, who think that Estonia should lower alaries remarkably to remain competitive, are wrong. He added that Estonia can’t and won’t be a country with very low wage level. “Estonia’s wage level keeps rising ogether with economy, after necessary correction,” Lipstok said. Inflation is also lowing down. In past 6 months the prices have not grown, after price adaption that ollowed after Estonia joined EU in 2004. The inflation will likely be negative in 009.

For the competitiveness of the economy are no less important to the slowdown in wage rowth. The fast increase in wages in previous years was in part a response to apidly increasing profits. However, at the beginning of last year, the wage level, hich clearly threatened the competitiveness of Estonia. Approximately 15 per cent short of the increase is clearly too much at a time when output per worker is educed. In its first few months, however, wage growth actually stagnated compared o the previous year.

At the same time, it must be stressed that the wages in Estonia, the European Union verage is still low. Analysts and traders are wrong who think that maintaining the ompetitiveness of the Estonian average wages significantly lower. After the ecessary correction will result in the climb to the wage level in Estonia, together ith the overall development of the economy.

At the same time, wage growth has been delayed to stop the inflation of prices.. After the accession to the European Union, followed by adjustment to the price is not for the general price level increased over the last half of the year. 2009 inflation is likely to be negative.

The Price and Wage Correction Is Too Slow

In order to understand why I am being so critical of the Estonian administration in this post, and to see what is wrong with the path on which Estonia is set at the moment we need to keep permanently in mind the objectives that the country has set itself for the coming months and years, which is to carry out a substantial reduction in wages and prices over the next two years (as an alternative to a one off devaluation). Exact estimates are hard to come by here, but we must surely be talking in terms of a very sharp downward adjustment in prices and wages, something of the order of 20% during 2009 and 2010. And my beef is that we see little evidence of that kind of correction taking place. In fact this view is only reinforced on reading the economic policy formulations from the central bank. In its February 2009 statement Eesti Pank had the following to say:

Inflation has fallen rapidly and will not exceed 2% in 2009. The price level is not projected to rise in 2010, either. Many companies have changed their operating strategies and have brought prices and wages into line with the new market situation. This is also proved by rapid changes in the labour market: employment has started to drop, flexible working contracts are becoming more widespread, and nominal wages have started to decline in some sectors.

Let me be blunt: this is thoroughly unsatisfactory as a policy objective, and completely unrealistic (head in the clouds) about the severity of Estonia’s adjustment problems.

The pace of deflation at this point is just far too slow to be convincing. According to Statistics Estonia, the percentage change in the consumer price index in February 2009 compared to January was -0.3%, while compared to February of the previous year it was still a positive 3.4%. However, ss reported by the German Federal Statistical Office, the consumer price index for Germany is expected to rise by only 0.5% in March 2009 over March 2008 (down from February’s +1.0% – according to initial results available from six Länder). This is the lowest inflation rate registered in Germany since July 1999. Compared with February, prices are expected to drop by 0.1%.

And if we look at the EU harmonised consumer price index for Germany, the downward trend is even clearer, since year on year prices are only expected to increase by 0.4% from March 2008 to March 2009 (February: +1.0%), while compared with February, the index will be down 0.2%.

And the point about looking at German inflation (or rather deflation) is that Estonia is not carrying out this correction in a vacuum. What is important here is relative prices, and if all your neighbouring countries are aither devaluing their currencies, or having internal price deflation (due to thelarge contractions they are experiencing, Commerzbank estimate the German economy itself may contract by 7% in 2009) then you have to do more, and go that bit further, not do less. Otherwise when the recovery does, finally, come, you will simply be left behind, since you will still be uncompetitive.

Nor is Germany an isolated case, inflation in Italy, the euro region’s third-biggest economy, also slowed to a record low in March, with inflation dropping to an annual 1 percent from a year earlier, compared with 1.5 percent in February. And, of course, over the last three months prices ahve actually fallen. And Spanish consumer prices declined for the first time ever (on an annual basis)in March, highlighting concerns that deflationary pressure will emerge right across the European economy. Consumer prices fell 0.1 percent from a year ago using the European Union’s calculation method after a 0.7 percent increase in February.

Indeed inflation rates across Europe are now falling near to zero, and fell to the lowest on record in March according to the initial estimates, adding to concerns that deflationary pressures are emerging throughout the whole region. Inflation in the euro area slowed to an annual 0.6 percent in March from 1.2 percent in February, the lowest rate since the data were first compiled in 1996

And most of Europe’s economies are facing contractions in the 5 percent per annum region, so Estonia has a tough benchmark to work against, one which is even tougher when those who make policy are totally unrealistic about the magnitude of the task facing them. I would remind Estonian policy makers: it is a fairly easy thing to say that those economists who don’t agree with you don’t know what they are talking about, and quite another thing to establish that you, yourselves, do.

Now, as I say, basically the problem here is to restore competitiveness and, although not everyone will be prepared to agree with me, I would argue that the only solution for Estonia is to export its way out of trouble. Given the problems the banking system is having and is about to have, it would be sheer fantasy-land (and very foolish) to imagine we are going to see a return at any point in the forseeable future to consumer credit driven growth (we are talking everywhere about more, not less, regulation), so as Estonians work hard (once they finally get a job again) to pay off their debts and try to save for their increasingly uncertain old age, the only really valid way to try to go for growth is by exporting. Saying that this is not possible, well… this is simply defeatism before you start, and I don’t imagine the Estonian character that way somehow, not after so many years of fighting to gain a hard won independence.

So if you want to export, you have one benchmark to work againt – Germany. And if we look at the chart below, we will see the extent of the competitveness gap which has opened up since 1999. Now Reel Effective Exchange Rates (REERs) are a nice measure of competitiveness, since REERs attempt to assess a country’s price or cost competitiveness relative to its principal competitors in international markets. Since changes in cost and price competitiveness depend not only on exchange rate movements but also on cost and price trends the specific REERs used by Eurostat for its Sustainable Development Indicators have been deflated by nominal unit labour costs (total economy) against a panel of 36 countries (= EU27 + 9 other industrial countries: Australia, Canada, United States, Japan, Norway, New Zealand, Mexico, Switzerland, and Turkey). Double export weights are used to calculate REERs, reflecting not only competition in the home markets of the various competitors, but also competition in export markets elsewhere. A rise in the index means a loss of competitiveness, and as we can see Estonia’s index has risen sharply against Germany’s in recent years.

Well, just in case anyone thinks that the comparison with Germany is not an appropriate one in Estonia’s case, here (see below) is the equivalent chart for Finland, which shows an equally strong loss, and let us remember that the worst year in this sense (2008) is still not included, since Eurostat have not processed the data yet.

And of course, I am only looking at eurozone comparisons here, we won’t enter at this point into the embarassing fact that Sweden and the UK have both devalued sharply in rcent months, as have Eastern EU rivals, Romania, Poland, Hungary and the Czech Republic, as well as non EU rivals like Ukraine and Russia. Really hanging on to the peg blindly in these circumstances is not only foolish, it is ridiculous, and I hardly see how following a ridiculous policy (which for sure is not working at this point) is going to enhance your credibility, which is what the decision not to devalue was all about in the first place. Even worse, it won’t even shield the Nordic banks from the slew of incoming defaults as people lose their jobs and the biggest slice of their income. Estonia needs a viable strategy, and it needs it now!

Read more….

The macroeconomic data coming out of Estonia in recent weeks are truly shocking, even in the context of the ten percent annual drop in GDP for 2009 that most observers are now forecasting. Perhaps the most evocative number of all is not the 27% year on year drop in industrial output registered in January, but the announcement this week that Estonia’s registered unemployment rate rose to a record 7.4 percent during the first week in March, with a total of 47,774 job-seekers registering with the unemployment offices, up 3,019 in a week. Of course, for many outsiders these are not large numbers, but then Estonia is not a large country. Still this was the highest number since the Labor Market Board started disemminating data in 1993 (although not as measured by Eurostat, which uses a different methodology). The level was up from 7.1 percent at the end of February and 6 percent in January, although the important thing is not the volume of unemployment, but the rate of its increase.

Read more….

Whoa. Did the whole global train just come to a screeching halt or is it just us? The Wall Street Journal reports that South Korean exports fell by 32.8% in January from the same time last year. That followed a 19% fall in November and a 17.9% fall in December. What gives?

Far East Asian economies built to export consumer goods to America and Europe are just now feeling the brunt of the consumer strike unfolding in the developed world. Savings rates are up. Credit card use is down. Exporters have too many goods and too few buyers.

“Adding to the country’s [South Korea's] difficulties,” the Journal reports, “is that exports to China have fallen more quickly than the overall rate in recent months. A sizable portion of South Korea’s exports to China are partly completed televisions, cell phones and cars, which are finished in Chinese factories and exported to other countries.”

There is trouble in Singapore, too. The Times of London reports that, “Singapore – the world’s busiest port by tonnage handled and the home of some of the world’s largest shipping companies – is already feeling the pain of an alarming slump in global trade.” The port is becoming a giant parking lot for empty freighters with no commerce to conduct.

Rob Parenteau, who’s taken over the Richebacher Letter in the States, says that Asia is in danger of becoming the next Detroit. Or if we were to put in the form of a question, what if an entire region’s economy ramped up to produce goods for people who couldn’t afford to buy them any longer? You’d probably get a harbour full of ships waiting off shore, as the image from Google Maps shows below.

All those tiny dots are ships waiting to load goods and take them to a retail outlet near you. They could be waiting awhile. According to the Times, “With the credit crunch still affecting trade finance and the demand for Asian manufactured goods in acute decline, hundreds of container and dry-bulk ships now sit unneeded and at anchor outside Singapore. The stagnation, say brokers, is matched onshore.

By the looks of the picture below-admittedly we don’t know how recently it was taken-things are looking pretty crowded on shore. Too many goods, too few buyers.

There is no shortage of productive capacity, that’s for sure. But that could be problem, especially for China. All those goods with no place to call home came from factories. Many of those factories were (and still are) in China. And the Chinese working in those factories-many of whom moved off the farm and into the city-are not especially happy with the current state of affairs.

And we are not talking a small number of people here. We are talking an entire Australia of workers who migrated to find urban factory work. Many have now returned from the Chinese New Year Holiday, only to find out they don’t have a job.

There is this from today’s Asian Wall Street Journal: Chen Xiwen, who heads the Chinese Communist Party’s office on rural policy, said Monday that about 20 million migrant workers — nearly a sixth of the total — lost their jobs in recent months. That number, the first official estimate, underscores the government’s challenge in maintaining employment and avoiding unrest.

“For those migrant workers who have lost their jobs, what are they going to do for income when they return to their village? How are they going to manage? This is a new factor affecting social stability this year,” Mr. Chen said at a news conference in Beijing.

You can say that again. The Far Eastern Economic Review calls it, “The Coming Crack Up of the China Model.” More on the origins of that phrase “Crack Up” in a moment. But what is the China model? It’s the model that keeps the Chinese currency artificially cheep against the U.S. dollar in order to give Chinese manufacturers-already armed with a distinct advantage in low-cost labour-a global competitive edge.

It worked, at least in the sense that Chinese manufacturing boomed in the last ten years. But the model also failed to produce substantial real wage growth for Chinese workers. This wage growth, and the expansion of consumer credit, would allow domestic demand to generate more economic growth in China that exports alone.

What’s more, if and when China ever allowed its currency to appreciate against the U.S. dollar, it would instantly increase domestic purchasing power. It would also instantly wipe out a good deal of the value of China’s massive U.S. Treasury bonds and dollar-denominated reserves. This is what’s known as a “pickle.”

Take a huge contraction in global trade. Add one part corruption. And two parts growing income inequality. Mix together vigorously and what do you get? Political instability.

“Violent unrest rocks China as crisis hits,” again reports the Times. “In the southern province of Guangdong, three jobless men detonated a bomb in a business travellers’ hotel in the commercial city of Foshan to extort money from the management. On January 15 there were pitched battles at a textile factory in the nearby city of Dongguan between striking workers and security guards.”

“On January 16, about 100 auxiliary security officers, known in Chinese as Bao An, staged a street protest after they were sacked by a state-owned firm in Shenzhen, a boom town adjoining Hong Kong. About 1,000 teachers confronted police on the streets of Yangjiang on January 5, demanding their wages from the local authorities.”

“In one sample week in late December, 2,000 workers at a Singapore-owned firm in Shanghai held a wage protest and thousands of farmers staged 12 days of mass demonstrations over economic problems outside the city. All along the coast, angry workers besieged labour offices and government buildings after dozens of factories closed their doors without paying wages and their owners went back to Hong Kong, Taiwan or South Korea.”

In the West, a dysfunctional financial system with many major banks insolvent. In the East, a dysfunctional economic model whose breakdown is leading to mass unemployment and social instability. And here in Australia?

Well, yesterday the government said the fall in revenues from the global black swan dive will lead to a $115 billion decline in government tax takings (what the government likes to call revenue). That’s a pretty big hole in the budget. It suggests that we’ve entered an era of regular government budget deficits and, if the RBA holds to form, lower interest rates.

These lower rates, and not just in Australia mind you, represent the coming devaluation of paper money against real goods. We wrote about this in the January issue of Diggers and Drillers. And in today’s essay section, you can read about what the devaluation means for one particular tangible good, namely gold. The Swarm Trader Gabriel Andre shows you the inter-market relationship between the Aussie dollar, the U.S. dollar, and gold. Check the essay section below.

The phrase “crack-up boom” first appears, as far as we can tell, on page 427 of Human Action, by the great Australian economist Ludwig von Mises. Mises was writing about how changing expectations for purchasing power eventually affect people’s real-world economic decisions. Once people see trillions in new money coming down the pipeline, they flee for higher, firmer ground.

“Once public opinion is convinced that the increase in the quantity of money will continue and never come to an end,” he writes, “and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size.”

“For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantage of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the ‘twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse).”

It may seem odd to ring the alarm about an inflationary crack-up boom at just the time when policy makers are publicly fretting about deflation. But deflation as such is not the bogeyman. You can have deflation when you have a constant money supply coupled with increases in productivity. Prices fall.

The deflation in asset markets, on the other hand, is what policy makers are worried about. But as Doug Noland points out in a must read update at PrudentBear.com, the “deflation” in financial assets is itself a result of a system of Wall Street Finance that is now in tatters and failed to produce anything of real economic value.

“The financial sector is a black hole right now,” Doug writes. “With myriad assets Bubbles having burst, there is an enormous amount of debt today insufficiently backed by asset values. At the same time, there is a tremendous amount of debt backed by households, businesses, municipalities and our federal government. In terminology I have used in the past, the Credit Bubble has left both the Financial Sphere and the Economic Sphere grossly inflated. Total system debt has been severely impaired.”

“There is very real risk at this point that policymaking is about to set course for bankrupting the country,” Doug continues. “The pundits are out there suggesting trillion dollar economic stimulus; trillions for the banks; hundreds of billions to support the securitization markets; and hundreds of billions more for households, businesses, and municipalities. There is a current need for ‘Trillions’ and future needs for ‘Trillions’ more. Once the Trillions start to flow there will be no easy way to end them.”

We have on our hands a financial system that has used cheap credit and leverage to erect a systemically destabilising class of financial assets backed by debt. Our policy makers are trying to safe that system through a policy of deliberate inflation. And in the meantime, they are blaming “extreme capitalism,” when the real culprit is perverted capitalism with its theory of unsound fiat money.

But we won’t get into that again today. How about some reader mail? We only have time for one, because it is so long. But as soon as we read it last night, we knew we had to reprint it.

I need to say to you the following about your ideas as expressed in today’s article re Rudd’s opinions about the capitalist system.

Your ideological opinions are not superior or inferior to any other ideologue. They are simply different.

The world needs different opinions and ideas to become a better place. The capitalist ideas have prevailed over a very long time and the result is many minor failures as well as catastrophic failures the likes of those in the 1929/30 and the one we are experiencing today. As well as many positive other outcomes.

If one considers the economy to be a an airplane in flight that fails every about 60 years or so one would attempt to address such failures and to prevent them at any cost. What Rudd is telling us is exactly that. We need to refine the capitalist system to prevent catastrophic consequences. This will be at some cost and the balance between gains and losses is our challenge. There is no sense in having responsibility without accountability. Accountability is about risk prevention.

The dog eat dog mentality of extreme capitalism is more dangerous and immoral than any Marxist ideal that any one can present. It is a fact that extremism is anti progressive and antihumanistic. Extreme capitalism is no better in any way than extreme socialism, but, a blend of both worlds is the best for humanity.

The gaff you have presented in your article are extreme ideological here say garbage without any relevance to logic or wisdom.

How can an audience take you seriously when such a blatant disregard for sound judgement is presented by you.

So get your act together stay with commentary on financial issues that are moral and within the law. You are not qualified to make commentary on ideological connections that are too far removed from human principles of fairness, social responsibility, the greatest good for the greatest number and meaningful support for diversity of ideas.

I have read the book suggested “Mobs messiahs and the market”. The book presents ideas of a distorted mind which has no basis on the scientific rationality and no sense of balance between human contributions and human failures. One should read about the fundamental mind set of a paranoid person first before reading this book in order to calibrate its worthiness in a world that is moving away from extremism. Extreme capitalism and extreme communism is evil. The world has known this for a long time hence the reason why The US has retained socialist policies to balance extreme capitalist ideals, hence why it is exercising socialist approaches to save capitalism.

Tell a self retiree that Capitalism should not be recalibrated after loosing 30% of their capital due to the behaviour of the bankers and other CEOs. Justify if you can why these financial gurus should not be brought to account for their cavalier style financial activities. If any one created a product that failed catastrophically they would be crucified by the legal system, yet capitalists are immune from accountability for financial disasters that were based on dishonesty.

Greed should never be allowed to dictate terms to humanity.

You may want to take stock of what Aristotle said about the extreme capitalist, I quote; These are the people who are slaves of greed and left unchecked to themselves they will injure themselves and everyone around them. After 2000 years we are witnessing this prediction many times over yet you advocate no need for recalibration of the system. What level of social intelligence is in play her I ask. Only individuals who are at the bottom of the Maslow hierarchy would think in such primitive ways that are far removed from the domain of wisdom.

A discussing article with out any basis in fact and wisdom.

Leo.

Discussing?

Discuss!

The above letter could go in a textbook for how to put the most logical fallacies in the shortest space possible. It really is remarkable, and in its own way, delightful. Appeal to authority…ad hominen attacks…false equivalence…it is a cornucopia of rhetorical devices. Really, our former rhetoric teacher would have been in raptures over what a “teaching moment,” this is. All we can say is that if you really believe most of what you’ve written, you should probably unsubscribe to the DR immediately.

And by the way, we never said people shouldn’t be punished if they’ve broken the law. Feel free to dispute what we’ve written. But at least read what we’ve said and criticize it accurately before ascending to the heights of “logic and wisdom.” We’re not saying we’re automatically right. But of course our ideas are different. And we’d humbly argue they’re better! That’s what brains are for, to make judgements with.

How about one more letter?

Hi,

I know this is not a “write-back show” but i must get a little off my chest. it is hard to sit through your political bias and then be expected to hand over money to such one eyed, money hungry columnists with little fact behind the ranting and raving ( i would rather listen to sam kekovich get paid to talk about lamb). Don’t get me wrong, i would normally consider myself on the right side of middle

I myself are a very tired of the Obama bandwagon but let’s remember his predecessor on the other side of the political fence had little grasp of directing a nation and too in my opinion Mr Rudd’s predecessor comes into this category as a back seat leader with no forsight. If only Mr Costello were the captain of Oz. For you to say that its bad for the ruling government to want to control what our influential young populus watch on TV or to question the merit of owning a car capable of doing 320km/hr, then you should be signing up as a student and reading some university texts on the definition of irresponsible.

Luke M.

For the record, we are biased against all politicians as a matter of principle. Markets work better than governments. But markets are just one institution that makes up a peaceful civil society. But by all means, let us know what university texts you think we ough to be reading.

Dan Denning
for The Daily Reckoning Australia

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