Meltdown; 2008 or 1931? ©

The Governor of the Bank of England believes we are in the midst of the greatest financial crisis in history. George Soros says the situation reminds him of the USSR collapse. “Collapse’ has also been used at the ECB and the IMF. Robert Shapiro (IMF) seems credible when he warns that unless a solution to the EU’s credit crisis emerges soon, the world economy will face a collapse larger than the one in 2008.
Shapiro may be under-stating the gravity of the situation. If we are talking collapse, why not look at the big one: 1931?
There were many straws in the wind in 1931; the Wall Street collapse of 1929, plunging world trade, ongoing wrangles over war debts and reparations but the one that broke to camel’s back was the collapse of the largest Austrian bank, Creditanstalt. Creditanstalt was insolvent because its assets had depreciated. Investors bailed out and other banks cut its credit lines.
Creditanstalt was founded by the Rothschild’s and its failure came as a shock as it was regarded as impregnable. It had been the most important bank of the vast Austro-Hungarian Empire and also had support from central banks. Its collapse in May 1931 soon took many other banks with it, especially in Germany.
Banks fell like dominoes because the collapse of one make all banks suspect. Inter-bank lending begins to dry up. This is serious as many banks depend on short-term funding. But there is also counter-party risk. A failed bank cannot meet its contractual obligations and this causes almost endless repercussions as happened when Lehman Bros fell in 2008.
The storm in Europe 2010-2011 has expanded beyond the periphery, and is beginning to make inroads into the core. First it was Greece, then the Mediterranean’s and Irish. Last week the crisis struck through the Dexia Bank (NBR 14/10) to the Benelux area, core of the EU. Last week Max Bank of Denmark failed and swag of British banks was downgraded. This week the Erste Bank of Austria admitted to huge losses.
I have good contacts in the Erste Bank and its difficulties brought to mind the Creditanstalt collapse of 1931. The eastern periphery of Europe is presently wracked with huge difficulties of which we hear little. I might cover these in another column as they have all the usual sovereign debt problems plus Hungary’s horrors of having to repay outstanding loans in appreciating Swiss Francs.
1931
The 1931 crisis differed from 2008 because 2008 was largely a banking crisis. In 1931 a banking crisis brought down the credit of nations. When Austrian banking assets froze in 1931, the pressure moved to Germany where foreign investors tried to realise assets. A run began and massive loans were removed from Germany. The Banks of England, France and International Settlements, plus the Federal Reserve extended credit to Germany but not the long term loans which were necessary.
Meanwhile a general shortage of funds led to many realising their most liquid assets, often deposits in London. London funds drained, exacerbating fears about sterling and increased the drain. Reserves melted despite French and American loans. The British Government resigned on August 23. Although the UK’s difficulties were largely temporary, the drain of
funds led it abandon the gold standard on September 21. It also devalued. Others followed in order to remain competitive. This destroyed a pillar of the international system. .
While fiscal and monetary conditions have been very relaxed since 2008, the opposite occurred in 1931. In the UK, for example, the state cut wages, provoking a mutiny in the Royal Navy. Moreover, while the economy has almost recovered to 2008 levels, in 1931 the world economy nose-dived. There is much international cooperation now, but it virtually ceased in 1931: by 1932 Britain passed the Import Duties Act which ended 75 years of free-trade. Most countries hurriedly constructed protective economic devices like tariffs, quota, and currency controls etc. Blocs formed, like the British Empire’s preferential tariffs.
To sum up: The 2008 crisis was a severe shock to the financial system, which was contained by states supporting collapsing institutions (and adding to sovereign debt). While the economy received a severe shock in 2008, the following economic recession was moderate and most states have almost recovered to 2007 levels of GDP. There has been little deleveraging so far. Monetary and fiscal policies have been very liberal.
1931 was a severe crisis which not only damaged financial institutions but wrecked the credit of nations, destroyed the gold standard and international cooperation. Nations began to wage economic warfare. World trade withered with calamitous falls in prices, especially of commodities. The world slid into a grim depression with widespread poverty and massive unemployment.
Can a slide be halted?
A 2008 or 1931 episode is not inevitable. Policy makers are well aware of the horrors of the 1930’s and are determined to prevent a slide into systemic collapse. There is still a huge degree of international cooperation and goodwill. Both the EU and G20 will employ their best efforts in the coming weeks.
Nevertheless, there is some concern that markets may deteriorate before remedies can be put into place. The rating agencies and bond traders are concerned about the quality of many assets and the ability of sovereign states to service their debt or banks (and their counterparties) to maintain solvency.
The current secret EU plan, a very “planny” plan (NBR 14 Oct) will be hard to deliver if it involves, as anticipated, increasing bank capitalisation, the bailout fund, and haircuts on Greek debt. It may not be enough. The market wants Germany to underwrite all EU debt but the Germans are understandably averse to assuming an impossible burden

The politics of trading through to a new normal

Relax. If it is going to hit, it won't hit till after the election. Or, at least, it won't hit hard before then. The "it" is damage to our economy from the north Atlantic turmoil. There will be some damage. What no one knows is how much damage and in what form. What isn't happening in the so-called rich countries is a "normal" "recovery". That is because what used to be normal is not normal now and the world hasn't yet settled into a new normal. We have been in transition for a decade or more and we are not through. Politicians, commentators, economists and even philosophers argue over what poultices to apply. What should have worked under the old rules hasn't.

Red Zone becomes much redder

Libertarianz leader Richard McGrath condemns Phil Goff's ill-thought-out and hastily concocted bribe to sway Christchurch voters to vote for his party in November. In a move that Robert Mugabe would applaud, Labour seems intent on confiscating land for a price it would fix, so it can then ration and allocate this land to people hand-picked by the Labour Party. Presumably being a friend of Labour will put you at the top of the list.

Today the Chch group of BizPro (at least a small number of us) had an informal meeting with Raf Manji.

Raf runs the online Sustento Institute and is a former market trader turned sustainable economics thinker – and a very good one (thinker, not trader).

Last night he held a public film evening (‘The Economics of Happiness’) which was attended by 115, and at the end of which I spoke and a discussion followed.

It was a good evening. He is prepared to do something similar in Wellington and I recommend that James discuss this with Raf.

We’re now planning to invite Raf to a lunch for the broader Chch BizPro group on Monday, October 3.

He will address the question: ‘How to survive the global financial and ecological crises (crisis): Tips for political parties’.

I’m inclined to think we should have this at the Green Office (finger food lunch), rather than at a café or restaurant – less expensive and noisy. That will be confirmed.

I encourage all Chch members of BizPro to come to this – he’s a thoughtful and articulate analyst, and it is an important topic.

Budget Debate 2011: Dr Kennedy Graham: A Green Vision of an (Sustainable) Economy

This year's Budget is essentially more of the same: a traditional neoclassical Budget in a time of national austerity. Let me critique it from a Green perspective, and offer an alternative, ecological Budget in a time of global crisis.

The 49th Parliament has passed 224 Acts in 30 months. These Acts reflect the Government's world view to make New Zealand a better place as it sees it. What stands apart in importance for every Government and every Parliament is the annual Budget, which sets the course for a country's macroeconomic policy.

Effect of Proposed Lignite Mining Projects on Green House Gas Emissions - Dr Kennedy Graham

Dr KENNEDY GRAHAM to the Minister of Energy and Resources: By how many tonnes would Solid Energy's proposed lignite projects in Southland increase New Zealand's gross greenhouse gas emissions in 2020?

Hon GERRY BROWNLEE (Minister of Energy and Resources) : I understand that this morning Solid Energy informed the Commerce Committee that depending on the scale of technology used, gross emissions could be 10 million to 20 million tonnes per annum. I also understand that Solid Energy has said on many occasions that taking full responsibility for greenhouse gas emissions is a key consideration in its lignite developments and it expects its lignite-based plants to achieve full carbon compliance.

Solid Energy defends its lignite proposals by Claire Browning

In which Solid Energy defends its lignite proposals before a Parliamentary select committee, defines sustainability loosely, and fails to define some other things at all, except the megabucks

I sat in on Parliament's financial review of Solid Energy yesterday, and heard CEO Dr Don Elder tell the committee that his company — whoops, our company — meets New Zealand’s, and the world’s, sustainability expectations.

That’s sustainability as redefined by Solid Energy.

Southland has, said Elder, world-scale quantity and quality of lignite. On today’s prices, let alone projected future prices, it would earn trillions and squillions of dollars, with which might be bought: hip operations, teachers, rural broadband rollouts galore. A pony from Santa for every child for Christmas. That kind of thing.

I didn’t write the dollar-numbers down. I tried, but the CEO had the bit between his teeth, and he was galloping.

The Treasury and big Green hopes

Colin James's column for the Otago Daily Times for 31 May 2011

The Greens last week celebrated the Treasury's venture into wider measures of wellbeing. Come November 26, will they be celebrating their own broader support?

"This is one of the best news stories in my living memory," Green MP Kennedy Graham enthused about the Treasury's "higher living standards" paper, which sets up a "framework" for a wider assessment of prosperity encompassing social and environmental factors in addition to economic measures.

"Our singular focus on growing gross domestic product (national production) has concealed the related decline in other measures of our prosperity, like the rapidly declining quality of water in our rivers and lakes or the record growth in inequality. If we change the measure, we're likely to change the outcome," Graham said. "It is a good start."

Signs of Change - Keynote - Kennedy Graham - Part 2

Green Business Network

The Green Business network (GB) is a group for Green Party members who are business people, or supporters of sustainable business practice. All Green Party members who have an active interest in the business sector are welcome to join.
The Green Party has a substantive policy base which we will support by networking and strengthening the links between the business sector and the Green Party. The Group will also inform and educate our Green members about the critical role business plays in our economy, ways to embed better business practice, and other opportunities for positive engagement. The Network will highlight the breadth of business models available and the ways they can address sustainability, including cooperatives, social enterprise, SMEs and larger corporates.
See : Sustainable Business Policy Summary

Key Principles
• Support and educate businesses to adopt sustainability as a core value
• Protect business from outright competition with products and services from countries with poor human and worker rights records and with poor environmental practices
• Encourage public and private investment in sustainable businesses
• Promote public recognition and pride in New Zealand companies
• Support New Zealand's manufacturing base
• Make it easier for businesses to invest in appropriate technology and research
• Make compliance easier, especially for small and medium enterprises

GB will establish an email list, a Facebook page and will meet on occasion (typically at scheduled party events) to plan activities and to network.
David Clendon is the MP responsible for Sustainable Business

Imagining a green manifesto

by Claire Browning

The Greens’ policy platform needs as much rebuilding as any other party’s, to make it strong and sustainable


When I was a child, before I put away childish things, about, well, a year or so ago, I used to think that eventually, if I kept my ears open, the Greens would explain themselves to me; if I kept my eyes open, I would figure them out. They had a communications problem, I thought.
I was wrong. Communication is not the problem. In fact, I think that the Greens present a pretty true picture of themselves, and get reported pretty accurately, on the whole.

Small is beautiful: economy of resources, and the politics of enough by Claire Browning

Economy, by definition, means prudently managing resources, yet in practice growth consumes them, unsustainably. We need a new narrative, say the Greens, that decouples progress from growth: this might be a myth and it is a gamble, but so is growth

Here is a spectre of some straw men. Huddled around a carbon-emitting camp-fire, they scorn even the primitive fun of chewing on a mammoth bone: it’s burlap and lentils for these guys, if they’re lucky.

David Cunliffe: a political vision? by Claire Browning

David Cunliffe offers personal observations from the Greens’ economic conference, on how to do good — “to do good, first we must win” — and possibly, also on how to win

The convenor fires off two cheap shots, one not quite appreciated by his audience (a snipe about burning coal at Huntly, to air-condition the chilly late-afternoon room) and the other hugely enjoyed, including by butt of the joke Nick Smith. “I’m probably the least green person in the room,” he says, “or maybe,” (glancing at Dr Smith sitting beside him) “the second least green person …”.

He starts as he means to go on, in other words: detached, and even-handed about the politics of sustainability.

Political Perceptions of Economic Sustainability

How do the three main political parties understand sustainability? That’s the question for the final panel of the day-long economics conference the Green Party’s organising this Friday, in Parliament.

After a full day exploring the issues of global and national sustainability, neo-classical and ecological economic theories, and how New Zealand can practically pursue sustainability in business, agriculture, trade, energy, and through fiscal and monetary policy, it’ll then be the turn of the MPs.

Up on the panel are Dr Nick Smith, National’s Minister for the Environment, Labour’s finance spokesperson David Cunliffe, and myself. The hope is that each of us can offer our insights into what sustainability means and how it can be achieved through informed economic policy.

It is not totally clear what the present Government makes of sustainability. John Key describes his Government’s policies thus:
The driving goal of the new Government will be to grow the NZ economy in order to deliver greater prosperity, security and opportunities to all New Zealanders. It will be going for growth because it believes in the power of economic growth to deliver higher incomes, better living conditions and ultimately, a stronger society for New Zealanders. My Government views economic growth as the platform upon which a stronger NZ will be built. It views political leadership from this Parliament as essential to achieving that goal.

It will be interesting to learn from Dr Smith what the Government thinks about the relationship between growth and sustainability in 2010.

Helen Clark’s Government addressed sustainability thus:
My government sees its most important task as building the conditions for increasing New Zealand’s long-term sustainable rate of economic growth… the appropriate mix of policies can, over time, return NZ to the top half of the developed world… Economic growth is a means to an end, not the end itself. It is about creating real opportunities for us all – a richer, more inclusive, more diverse and dynamic nation, and about creating the resources to enable governments to provide better social services.

Russel Norman has described the Green view as follows:
We believe that a sustainable society, one which lives within its resource limits and leaves some space for the natural world, is a society best placed to avoid ruthless competition for ever diminishing resources …The next economic wave is the green economic wave and, if New Zealand wants to prosper, we must prioritise research, science, and technology spending in areas such as renewable energy, sustainable agriculture, green tech manufacturing, green design, and energy efficiency.

Clearly there are subtle, and not-so-subtle, differences between the three parties on this question. It’s our hope that Friday’s conference will give us all a chance to dialogue on this critical issue and see how much common ground we can find among us.

A sustainable economy for New Zealand

EXECUTIVE SUMMARY

A sustainable economy for New Zealand can no longer be achieved purely within the confines of national monetary and fiscal policy.  National sustainability for every country today has to take into account the broader context of the global economy.

The impact of human activity on the planet has transformed in the past two centuries.  The global population explosion and increases in per capita production and consumption have generated a sixty-fold increase in the size of the global economy.  Many aspects of the global ecosystem are facing serious strain as a result, and this is being exacerbated now by climate change (and perhaps ‘peak oil’).

Southland coal would be climate disaster

Digging up the reserves of lignite in Southland can only increase global greenhouse gas emissions, said the Green Party today.

Don Elder, CEO of state-owned Solid Energy, told their annual conference yesterday that mining the low grade coal lignite would reduce global emissions.

Green Party spokesperson on energy, Dr Kennedy Graham responded that the claim was simply illogical.

"Burning coal results in greenhouse gas emissions, which contribute to dangerous climate change," said Dr Graham.

Thieving from the kids: Ecological debt and other moral sins

Yesterday was my 18^th wedding anniversary.  It’s been a heart-warming 18 years on the personal front with Marilyn.  I’d marry her again tomorrow – assuming she’d have me.

The day before was less uplifting.  Saturday was Ecological Debt Day.

That is the day humanity has consumed, for the year, all the resources of the planet that it should if the planet is to be sustainable – if we are to pass it on in the same state we inherited it.

Ecan Bill: Committee Stages 3: 'What We Say Goes' Continues

I wish to address Part 3 and, in particular, clause 34, which is titled “Imposition of moratorium. ‘Power to impose moratorium on specified applications.’”
It begins “ECan may,”, and on that point I allude back to a point made earlier by Brendon Burns. I attempted to get the same point across before our debate on Part 1 was cut off.
The reference to “ECan” is very sloppy drafting. Throughout the bill, the text is littered with references to “ECan”. Indeed, it is defined in the interpretation clause, but it is a poor use of legal drafting.
It is almost as bad as clause 9, which states that “Elected members cease to hold office”, and that this provision applies “no matter what the Local Electoral Act 2001 or the Local Government Act 2002 may say.”

The Green Party strongly opposes this Bill – the Environment Canterbury (Temporary Commissioners and Improved Water Management) Bill.

Mr Speaker,

This Bill may come to mark an historic occasion – which may live on in infamy in the annals of this Parliament. 

Last week in General Debate I advanced a critique of the Creech Report and its recommendations.  I do not wish to repeat myself here.  Suffice to say that the report was politically-driven and not politically-informed, and failed basic standards of organisational and managerial professionalism. 

In particular, the statutory arrangements in this country impose five functions on regional councils.  They are: resource management, bio-security control, river management, land transport and civil defence.  The Creech Report focused excessively, almost exclusively, on one part of one f those functions, and condemned the Council to death.

ICC Review Conference & the Crime of Aggression Dr Kennedy Graham

I rise to draw the attention of the House to the quite extraordinary breakthrough that came out of the Review Conference of the International Criminal Court in Kampala last Saturday.

At this Conference, the states parties agreed, against all expectations, to adopt aggression as a justiciable crime in international law. There are many caveats entered into this agreement, and there is a considerable time delay before it becomes justiciable. But the fact that agreement has been reached, on this most critical of all issues of international law, is nothing short of remarkable. I believe it will come to be seen as the most important advance in international peace and security since 1945 when the UN Charter was adopted.