The End of The Golden Weather?

Received from Calvin Oaten

Are we coming to the end of the ‘Golden Weather’? I say this, not in the meteorological sense, but rather in the sense that perhaps our society and its economic construct might be on the verge of a catastrophic change. Why? Well it seems that many signposts are pointing to an approaching collapse of the present model of the economy as constructed. This requires constant growth in order to sustain an ever increasing social budget. That in turn requires full or near full employment, a buoyant consumer market and a consequent ever increasing supply of energy and raw materials. None of these are finite, neither in New Zealand nor the Planet. The current model has, in order to foster this growth, taken upon itself to ‘jazz up’ consumption by cultivating a culture of instant gratification, fueled by intensive marketing, planned obsolescence, and last but not least, very easy credit.

This easy credit has been promoted heavily by governments, local bodies, banks, retailers and all manner of financial institutions. This has brought about a dynamic shift in society’s attitude to debt. It has encouraged folk to spend beyond their immediate ability, to the point where their indebtedness is assuming dangerous proportions. This is manifested by ‘economic bubbles’ forming, none more so than our own housing market. The people in the industry, real estate companies, banks, financial institutions all rev up the market by convincing people that property is a great investment which will always hold its value. But we only have to look at Ireland, the UK, the USA, and lately Australia to see the lie of this claim. Property can always go down just as it can go up. Take a look at Japan. Its property bubble burst in 1989 and has never recovered. Off by as much as 70-80%.

The result of all this is a hugely indebted developed world, including NZ. What caused this to happen? It seems to date back to around 1971, when then President Nixon was experiencing difficulty in financing the Vietnam war. At that time printing of money was constricted with the dollar being pegged to what is known as the gold standard. This meant that the amount of currency in circulation was limited by how much gold was held by the federal government. By leaving the gold standard the federal treasury was free to set its own parameters and to print accordingly. That resulted in a vast increase in all paper currencies around the world with a burst of inflation throughout the 1970s and 1980s.

Historically, all monies eventually revert to the mean, and this has always been to a standard unit of value, GOLD. Throughout history, even before Roman times this has always prevailed. Trust in paper currencies sooner or later fail and there is a collapse.

We’ve seen it in modern times with Germany (in the 1920-30s), Argentina (several times), Greece, and very recently Iceland. The USA federal government has just breached its self-imposed debt ceiling of $16 trillion. If anyone wonders what $1 trillion represents, look at it as a time equivalent. Let’s say one was to repay $1 trillion at the rate of $1 per second. Working 24/7, 360 days per year it would take “32,000 YEARS”. So multiply that by 16 and it is easy to see that this debt will never be repaid. Worse, it is growing as we speak.

Those with the power are unbalancing the fairness factor.

This reckless attitude has permeated into the human psyche and we see evidence of it here in little old Dunedin. Our society has degenerated into a selfish me world. Those with the power are unbalancing the fairness factor.

Take remuneration for example, fewer and fewer people are taking a greater share of the economic cake, and are quite blatant about it. Wealth is flaunted while many are moving into poverty. Financial rewards are all out of line with production balance.

It is noticeable that many of the highest remunerated are drawing their rewards from the public’s purse, without so much as a blush. Here in Dunedin we have a local MP tabling a bill in Parliament seeking a minimum wage of $15 per hour. This, on a 40-hour week equates to $600 per week. It would be up from $13.50 per hour or $540 per week. This is being vigorously opposed by many. But on the other hand we see public servants and others receiving enormously higher rewards. We have seen several instances in the last few weeks.

The retiring CEO of the Otago Museum with a salary of $310,00 per annum (pa) or $5,961 per week (pw). The DVML CEO receives $250,000 pa or $4,807 pw. The council owned company Delta, where the CEO is paid $380,000 to $390,000 pa or $7,500 pw. 41 additional staff paid over $100,000 pa or $1923 pw. Our own DCC CEO is rewarded with between $340,000 and $360,000 pa or $6,730 pw. The Vice-chancellor of our University of Otago receiving over $500,000 pa or $10,000 pw. Our DCHL group of companies last year paid its 7 directors $725,444 for what would optimistically involve about four weeks equivalent work each. This is repeated up and down the country and if anyone thinks this is sustainable they have to be in “cloud cuckoo land”.

On our local public scene we have seen the city’s debt burgeon from $212.486 million as at 30 June 2005 to $602.008 million at 31 December 2011. We now know that this has considerably changed for the worse, since. The stadium is a financial disaster, in serious damage control, the Otago Settlers Museum is over $40 million, the Town Hall/Conference Centre is over $50 million, and we are looking at somewhere near $100 million for the Tahuna upgrade. No-one in office seems to either understand, or simply passes it off as someone else’s problem.

We elect these people to conserve and look after our treasure, and what happens? It just goes from bad to worse, with all manner of rascals leaching off us in different ways. If only someone in office had the intestinal fortitude to stand up and say, “enough, this has got to stop”. But sadly, it gets back to that culture I mentioned. “I’m OK Jack”, never mind anyone else.

Is all this sustainable? Ask yourself. We don’t know when the situation will break, but it is certain that it will. The whole developed world is awash with debt and frantically creating more by the day, in a desperate move to save the situation. But it is pretty simple, how can more debt solve a chronic debt malady? It is pretty much synonymous with supplying a chronic alcoholic with more whisky. We are in for very interesting times.

Posted by Elizabeth Kerr

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27 Comments

Filed under Business, DCC, DCHL, DVML, Economics, Geography, Name, People, Politics, Project management, Property, Stadiums, Urban design

27 responses to “The End of The Golden Weather?

  1. Elizabeth

    Peter McIntyre explains why many businesses in Dunedin welcome the interest of oil and gas company Anadarko.

    ### ODT Online Fri, 28 Sep 2012
    Opinion
    Business aligned over welcoming Anadarko
    By Peter McIntyre
    Earlier this week, a wide range of Dunedin businesses attached their logos to full-page newspaper advertisements as a show of support to welcome international company Anadarko to our city. The Otago Chamber of Commerce co-ordinated the two-page advertisement in the Otago Daily Times and is proud to have done so.
    Read more

    • Peter McIntyre is the president of the Otago Chamber of Commerce.

    *****************************************

    Producing goods for the free market while earning less than a living wage can mean a crushing unfreedom for workers, writes Ian Harris.

    ### ODT Online Fri, 28 Sep 2012
    Opinion
    So-called ‘free market’ thrives on the enslavement of others
    By Ian Harris
    Wouldn’t it be nice if the free market really freed – that is, made people free, not just to buy and sell in an open market, but in rounded human terms? An open-slather market certainly does not deliver that – all too often, it ends up exploiting the vulnerable and leaving them helpless.
    Read more

    • Ian Harris is a journalist and commentator.

    *****************************************

    Louis Chambers offers varying accounts of how the story plays out…

    ### ODT Online Fri, 28 Sep 2012
    Opinion
    Oil industry will destroy any happy ever after
    By Louis Chambers
    Once upon a time, in a small city at the bottom of the South Island, a multinational oil company called Anadarko announced it would like to bring its business to town. “Roll out the red carpet!” cried some community leaders.
    Read more

    • Louis Chambers, a student at the University of Otago, is Generation Zero’s national co-ordinator. He recently returned from an internship in Washington, DC, working on economic and legal aspects of climate change. Generation Zero is a youth organisation which focuses on climate change.

    *****************************************

    “We are paying a high price for our growing and outsize inequality: not only slower growth and lower GDP but even more instability … a weakened democracy, a diminished sense of fairness and justice, and even a questioning of our sense of identity.” -Prof Joseph Stiglitz

    Neville Peat contemplates the problem – and the threat – posed by poverty.

    ### ODT Online Wed, 26 Sep 2012
    Opinion
    Poverty poses danger to future of our society
    By Neville Peat
    In 1963, almost 50 years ago, I attended a United Nations Day speech contest for high school pupils, representing Taieri. A silver-haired guest speaker gave a keynote address that included the adage: “Poverty anywhere is a threat to prosperity everywhere”. It had a ring to it, even in those stridently egalitarian times in New Zealand.
    Read more

    • Neville Peat is a Dunedin author.

  2. amanda

    The big question Mr McIntyre must ask himself is why should we trust him? His business acumen is suspect, he supported [foisting? -Eds] the fiscal disaster stadium onto the city. The fruits of that for him and others like him are that his insights must now be taken with a big dose of salt, and reflection that if he thinks Big Oil is a solution for Dunedin, he is probably wrong as he was on the stadium delivering anything but debt to the city. There is a kind of accountability for Mr McIntyre and his secret seven friends around the council table; we no longer trust their ‘trust me, I am right’ promise. Him and his fellow stadium bunnies have taught us this, and for that I am very grateful.

  3. wirehunt

    Awesome piece Calvin.
    I really don’t know why we have numbers into hundreds of thousands for getting our rubbish taken away and some roads patched up. Oh, and a bunch of other crap we never asked for.

    On this oil thing and how we got here???…..
    These idiots are dreaming. A few motel nights and some fly time ain’t going to make this town. Remember we have NO infastructure to handle the work, in fact we’re putting flash motels up on that land that oil industry might eventually use.
    Go ask Nelson how much they have made from having a rig just offshore. I can tell you it was nothing! The only oil place in NZ is Naki and this will be where anything serious will be supplied from for ‘running work’. Crewed AND bulk supplied from overseas, like I said, flights and motel rooms plus maybe a bit of grog.

    But somehow this is going to save us all from doom. ‘Insert Tui ad here’

    • Elizabeth

      wirehunt, agree!
      The only thing the great unwashed can possibly agree on with the Chamber talking head is likely getting more value-added jobs into Otago, but this must be balanced with more jobs created for those without high qualifications and specialisations. Otherwise, nothing changes for the better nor is there hope for All. The Chamber should ponder that awhile. Then refer back to the advice of Sir Paul Callaghan for the New Zealand economy.

  4. amanda

    Yes. ‘Foisting’ is better than ‘pushing’. Thanks for that.

    {We were guessing which word you omitted, but weren’t too far away. -Eds}

  5. Cars

    Elizabeth, Calvin’s piece is still germane. Could I ask you to commence a new thread with his piece as the opening statement. All points are totally relevant two years later.

  6. Jeez!? Did I say that? Cars is correct, it is still germane. In fact, in my opinion it is two years worse. The ‘merde’ hasn’t yet reached the fan but it is getting closer. Here on the local scene we still see the leaders in innocent denial, defending their positions vigorously. The most pressing item currently is ‘cycleways’ for the masses. $millions being squandered while the city burns. I even read the Mayor exulting, during the Annual Plan deliberations about how he might have a surplus of around $174,000 to apply to debt reduction. That from ($623 million) makes an enormous impact, “to him!”. Says it all really. But as it turned out that money was grabbed for other purposes anyway, so that, as they say, is that.
    Elizabeth, while you are in the reviewing mood how about bringing up Neville Peat’s ‘opinion piece’ about poverty. Written before he was elected to council. Now, you could ask, why is he so silent around that table on matters which go right to the heart of that poverty? Has he joined the ‘Expediency club’? Sheltering behind the curtain of “sustainability” which the twitchy folk around that table are currently pushing as the flavour of the month It all seems to fall into place once they enter that building.

  7. Elizabeth

    Calvin, Neville’s opinion piece (2012) appears further up this thread. The link has also been added at Comments to today’s new post, ‘DCC pedalling to…… #hell’.

  8. amanda

    Neville Peat uses all the right words, and says ‘trickle down economics’ is a failure but does not seem to be able to bring this insight to bear on local trickle down ‘economics’ such as the FUBAR stadium. Anyone can talk about national level or international level child poverty, when it is in effect just theory, but a bit harder to do when challenging trickle down economics locally; Cr Peat probably knows some of the players in the Stadium Trickle Down Con in this town, not so sure if he is raising his voice in protest at this though.

  9. Rob Hamlin

    History shows us that things like this can go a very long way. By the end of the third century the Roman Empire had become little more than a prison camp run by and for the super rich and garrisoned for them by a largely externally recruited mercenary army.

    This concentration of wealth into the hands of a few had been going on continuously since the end of the Second Punic War had ended any serious threat to Roman hegemony some five centuries earlier. Concentration of wealth is the curse of all stable and well ordered societies – as China has shown on repeated occasions throughout its history.

    Back to Rome. The reforms of Gaius Marius in c.100 BC that created the long-service professional Roman Army were as much a response to this concentration of wealth – that even at that early point had already destroyed the middle-income Italian citizen peasantry that had staffed the army that defeated Carthage – as they were to any actual tactical shortcomings in the previous military arrangements.

    The professional legionary that we all identify as the typical roman soldier was around from this point up to about 200 AD. He was typically a landless Italian citizen, who was pensioned off after 20 years with a grant of land in which his service ended. As only the Praetorian Guard was stationed in Italy (about 7% of the legionary total starting in the early first century AD), this meant that the ‘local landless loser’ problem was exported out of Italy and the immediate environment of the Roman super rich and into the provinces. In the early days of this arrangement continuous addition of provinces by the highly efficient military force thus provided a large land bank that was not (yet) owned by the super rich who by that time owned pretty much all of Italy.

    The key term is ‘yet’. By 200 AD the super rich had become super duper rich and had a firm grip on pretty much the entire empire. They were also (as our super rich now are) exempt from tax, which increasingly fell upon the poorer citizenry who ended up having to sell out to the super rich, and so the concentration of wealth progressed. For reasons that are not fully understood, but could well also be related to this process, the steam had gone out of the Roman Army in the early second century, and as the supply of land and money that was not controlled by the super rich ran out in the following century, the professional citizen army collapsed and was replaced by a larger, equally expensive, but less effective mercenary force.

    By 410 AD there was not much in the Roman Empire for the average ‘Joe’. The degree of demoralisation can be seen in Rome’s eventual fall. Alaric (a Christian king) and a force of some 40,000 Goths besieged Rome because they had not been paid for military services rendered to the Roman Empire. The population of the city even at that time was still many multiples of the besieging force. The city contained many of the super rich who were largely pagan, and who refused to pay the bill – which was all that Alaric was asking for in order to go away. After considerable suffering, the gates of the city were opened to the Goths by some unknown citizen who presumably had no personal stake in supporting the position of said super rich via further personal starvation.

    The system then fell to bits – because it was a system that the vast majority of society had no stake in and no motivation to preserve. Rather the opposite in fact. Study of the bodies of ordinary people of this era show a marked improvement in health and nutritional status after the ‘Roman Empire of the Super Rich’ ceased to be a factor in their lives and their governance. By that point Alaric, Oderic, Odoacer and Attila clearly offered a better deal to the average ‘man in the field’.

  10. Excellent parallels Rob, except that the ‘super rich’ Romans were really rich in assets based on gold and silver. Gaius Marius’ wealth started by conquest and capture of incredibly rich gold mines in Spain. From that it became the pursuit of all Roman generals – including Caesar – to gather in the territories with rich mining. They of course took ownership from which they dealt patronage. Today the difference is that today’s rich are not based on real wealth but unlimited credit. That of course is someone else’s debt. It is classic ‘smoke and mirages’, so its lifeline will inevitably be much shorter. In fact it might be near its ‘tipping’ point anytime soon.

    • Mike

      Calvin: ‘gold’ is only worth what it’s worth because of its rarity, not because it has some intrinsic worth that really makes it worth thousands of dollars per ounce. To make it worse if you do use it to hold all the world’s wealth it limits the total wealth there can be in the world – we went off the gold standard 100 years ago because it was cramping our style, stopping growth, and resulting in a higher standard of living for everyone.

      The problem of course is that you can’t just let people make wealth out of thin air – history has shown us that that’s a bad idea too – so we have central banks that regulate things like fractional reserve to stop the unlimited creation of unreal wealth – it’s a careful balancing between give us space in our economy for growth (if there’s a fixed amount of gold the only way to get rich is to take it from someone else) without letting it get out of hand (like the recent GFC).

      If I had my way we’d return (in particular the US would return) to the laws that limited banks/etc that were put in place after the Great Depression to stop things getting totally out of hand – the financial system at that level is a hard area to regulate, largely because it’s the part of our economy where naked greed is encouraged above all – to the people who have lived in that world (and our PM is one) the rules seem to be different – I think the GFC happened because they got their way and the rules that stopped them doing stupid stuff were removed.

      • Russell Garbutt

        Everyone should read the Bill Bryson book called “One Summer” in which the whole financial mess is explained superbly. Bill Bryson has a way of making complex issues simple and the way in which the gold standard was changed and the banks took control is illuminating.

      • Mike
        June 9, 2014 at 11:39 am

        Mike said “If I had my way we’d return (in particular the US would return) to the laws that limited banks/etc that were put in place after the Great Depression to stop things getting totally out of hand”.

        Mike – I agree. It all began with the pressure to remove the Glass Steagall Acts in the US. It was all downhill from there on.

        The final repeal of the Glass Steagall Act was made in 1999 The reasons for its existence coming in during the depression are well documented as is its demise that was completed under Bill Clinton in 1999. The US and world economy has been on a slippery slope since then.

        Glass-Steagall Act
        The story of the Glass-Steagall Act is one of the clash of two cultures: a) the culture of risk and reward which was inherent the securities business, and b) a culture of protection of deposits which had long been the mainstay of banking. Here are some of the milestones of its making and repeal.

        http://sciencecorruption.com/ATN171/00815.html

        Worth reading is “The Warning”, a PBS documentary that aired in 2009, about how Brooksley Born, former chairperson of the CFTC, fought against the financial lobby and financial regulators Alan Greenspan (former Fed Chairman), Lawrence Summers (former Treasury Secretary), and Robert Rubin (former Treasury Secretary) to try to regulate OTC derivatives between 1996-1999. They eventually shut her down and got congress to pass the Commodity Futures Modernization Act of 2000, which excluded all OTC derivatives from regulation.

        According to the Bank for International Settlements, the total outstanding notional amount of OTC derivatives stood at $647 trillion at the end of 2011, up from about $80 trillion in 1998. And the total outstanding notional amount of OTC credit default swaps grew from $918 billion in 2001 to $62 trillion in 2007, and then fell to $28 trillion in 2011. Of this amount, the top 25 banks held a notional value of $14 trillion CDS in 2011. This is why we are stuck in too-big-to-fail bank zombie land after all of the banks (less Lehman) got bailed out by the government and Fed. They are too big and interconnected to fail, and can’t adapt with the modern times of transparency. So the game will continue as planned until tech and banking entrepreneurs reinvent the financial system, or a huge crash occurs that knocks down the aging financial infrastructure and clears away the inefficient dark markets filled with fraud.

  11. Mike, what’s so wrong if gold is deemed worth a $1m an ounce if that is what it is. It is after all, only a measure of value. Its beauty is that it comes with no obligations or expectations. It is indifferent to man’s stupidity. The real reason why man left the gold standard is obvious. It allowed the banking fraternity to run rampant with ‘fiat’ money creation. Since 1913 (the year of the commencement of the US Federal Reserve) the US dollar has progressed from parity to today, where it is worth around 5 cents. This is because there is no longer any “promise to pay on demand the equivalent in gold ” printed on the notes. It is in the banking people’s interest to have ongoing inflation. That way they water away their debts by robbing the masses, whose costs increase with inflation. Wage increases mitigate to some extent, but they are always in retrospect. That is why we now see one per cent having ninety per cent of the wealth and the rest have to face decreasing standards of living. Like Rob points out, in Roman times it was controlled theft. Today it’s no different. By the process of “fractional reserve” credit creation the banks can legally commit “fraud” of enormous proportions, and seriously enriching themselves in the process.

    • Mike

      Calvin – that’s not the way gold used to work – the gold standard fixed currencies to the price of gold (hence fort knox – essentially a ‘fractional reserve’ for a US when it was on the gold standard)

      Now that gold floats it’s no different from bitcoin, (both have a fixed amount on the planet, get harder to mine and more expensive over time etc) gold at least has some industrial uses. If gold is $1million/oz where’s the economic value of digging it up? sure you make ‘money’ but you don’t create value in the way is that say someone makes nuts and bolts and sells them for someone else to make other things etc (which also applies to bitcoin too).

      I think that the fractional reserve system does provide some utility, liquidity, room for the economy to grow – after all if banks just held your money and never lent it out they couldn’t pay you interest. The problem is not that they are doing it but that they are doing it recklessly, with our money, and expecting the government to back them if they fail – this is why we need more regulation (or the old regulation back).

      • Mike, if the banks had to hold gold to back the deposits thus guaranteeing them, but loaned out those deposits plus ‘actuarial’ risk balances like the old days, why would that not facilitate growth, but on a much lower cash level of value. It would have reduced hugely inflation over the years. OH! but then it would have reduced the profits of the bankers, wouldn’t it? It would even mean that banks could fail! Perish the thought. It is all in the unbonded fractional reserve deregulation where the obscene profits lie. And no banker, money trader (ah la our PM) would advocate returning to that would they?

        • Mike

          that would only work if you required people to deposit actual gold (otherwise there wouldn’t be enough actual gold to back all the possible deposits)

          I don’t disagree with you on the obscene profits and the behaviour of bankers – remember I’m arguing for a return to more regulation of those same banker, just not a return to a gold standard

        • Mike, again I argue that gold is a true unit of value. In itself it is an inert metal which is always relatively scarce to accumulate, 5,000 years ago more or less, to trade it was normal to barter. But as communities became more sophisticated some other unit of value was required. When the candlestickmaker wanted some meat but the butcher didn’t want any candles, a unit of value which represented the price agreed between a willing seller and buyer for the meat was required. Gold, because of its rarity and everlasting quality was the preferred medium. And so it was. When Jesus was born an ounce of gold would buy approximately one year’s supply of bread, at one loaf a day. When the manipulators stay out of it that value has held remarkably well over time. At $3 a loaf today that is $1095. Despite the government’s constant interventions gold was not that long ago around $1200 per ounce. But gold, to retain a stable value needs to be rare and in short supply. When the Spanish conquistidors conquered South America and shipped incredible quantities of gold back to Spain it set off the greatest wave of inflation seen till then. It destroyed the kingdom and spread into France and inside a couple of hundred years destroyed its monarchy as well. At the end of the day money should only increase in volume to match the increase in population and production. That is the true wealth. Money, backed by gold is only the agent of trade. Never meant to be a profit in itself. Tell that to the bloody bankers.

        • Mike

          Yes but there are 7 billion people on the planet. 2000 years ago it was ~150 million – and we have a far higher standard of living – but there’s no more gold been created on the planet – go down to to the bank to take some money out: “I’m sorry sir you can’t have the coin, it’s not our turn, someone is using it in China today.”

          This is the problem that they ran into in the late 1800s – the cause of the big argument about whether to use a silver or a gold standard (The Wizard of Oz is reputed by some to be a parable on this) because not having enough gold with a burgeoning world population was holding back growth.

  12. Rob Hamlin

    New Zealand’s money supply 1998-2008: A five fold increase in M3 (the real figure) over ten years – an effective annual inflation rate over and above real growth of around 30%. Presumably this has been sustained and the figure 1998-2014 will be nearly ten fold – this will have to unwind eventually. ‘Nuff said

  13. Anonymous

    Interesting from the DCC Financial report to 30/4/2014 presented today, the only thing propping up the DCC finances is an unexpectedly good result from the Waipori fund, turning a *budgeted* $4.5M deficit into only a $2.7M one.

  14. Jacob

    Another six jobs lost at SFF plant in Mosgiel. The only growing business in Mosgiel appears to be the undertaker. Was it 10,000 new jobs in ten years. Or 10,000 tears over ten years ?
    What is Mr Feather and his mates on the community board doing about employment opportunities out at Mosgiel ?
    They appear to not be able to get their noses out of the trough long enough to notice.

    {Link added. As we know, housing subdivisions are on the rise at Mosgiel-Taieri due to the usual property speculator suspects/rogues – which isn’t the kind of investment we need for the breadth of the Dunedin economy to prosper long term – it’s just the rich getting richer, such that they might start milling their Brighton forests for McMansions à la Wanaka style. Thank COC and ODT for pushing the area each week… -Eds}

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