Sarkozy (who has been posturing alongside Merkel) had the old ‘rabbit in the head-lights’ look when Standard & Poor’s stripped France (as well as Austria) of AAA ratings and further downgraded Italy, Portugal, Spain, Cyprus, Malta, the Slovak Republic and Slovenia.  There have been moves internationally to have the number of letters in the alphabet  increased, but as to whether this is political move; finanical commentators don’t believe so, they said they will wait to see what happens and then report on it.

As Ms Gillard settled more comfortably into the 1.5 seat (no doubt enjoying not being on the defensive), and her her brittle laugh echoed around the bank loans manager’s outer office, she said there is always a price to be paid by governments that had put off reforms, spent more money than they had and borrowed like there was no tomorrow (well at least not in their electrol term). She warmed up to the task and continued by suggesting that for too many years, European governments have deferred the nation-building, productivity-enhancing reforms which Australia has made the foundation of our dynamic and resilient economy …

In stark contrast to Europe, Australia had strict fiscal rules that would return it to surplus in – at this stage her voice lowered to a mumble but an aide (the minister from NSW who is clearing his name with respect to misappropiated funds) stated “she said 2012-13″.   Ms Gillard stated she was available – along with world’s second greatest treasurer (Wayne Swan) – to advise them how to (mumble but it sounded like) ‘cook the books’, but it would cost and she would bring along some pay sheets to validate her (and Wayne’s) hourly rate … (but they would bring their own gutting knives and other ‘tools of their trade’). She said European leaders should swiftly undertake structural reforms to boost their economic potential and lift growth.

When no-one asked AMP economist Shane Oliver, he warned swift action to repair European budgets could cut growth further and is alleged to have said ‘fiscal austerity leads to economic deterioration and budget deficits that blow out; effectively worsening the economic outlook’. Poor little rich kid and sometime shadow treasurer, Joe Hockey – walking out of Jenny Craig – lambasted Ms Gillard for the intervention, saying it was “a little rich” for the Prime Minister to lecture Europe; then he muttered ‘did someone mention lamb, mmm BBQ lamb’.

In August, the world’s most succussful borrowing country ever – the USA – had its credit rating cut from AAA to AA (it would have been lower but the agency had an offer they couldn’t refuse; a drone with coordinates of their homes or $1 billion in any currency they wanted – which the USA would print).  Now the Germans are stoic people and their economy is used to pretty much prop up the Euro with a AAA rating. Another unasked question (till now) is why have Portugal’s and Cyprus’s ratings been cut to junk status and not the USA? Oh yeah, the drone.

France is the Euro fund’s second-biggest guarantor and before the downgrade, the head of the French central bank, Christian Noyer, used diplomatic means (he cried like a girl) to have Standard & Poor’s strip Britain of its top rating before France (little realising that England had threatened to send over soccer hoodlums).  Britain’s Deputy Prime Minister, Nick Clegg, offered to shake his hand (no doubt for the ‘Yorkshire hand shake’ – a rapid knock of his forehead on the bridge of the Frog’s nose) and said (in his best Prince Charles accent) ‘the suggestion was unacceptable, do please calm the rhetoric’ and logically pointed out that Britain is not part of the euro zone and should be spared a downgrade.

What gets me is why do they need to keep borrowing money? When the man in the street gets a loan, he just pays it back. …

Despite soaring unemployment and the 19 million Americans currently living in “deep poverty”, federal funds for the Temporary Assistance For Needy Families (TANF) program have entirely dried up for the first time since 1996, leaving states with an average of 15 percent less federal funding for the coming year to help an ever-increasing number of needy families.

TANF, the federal program that replaced welfare under the Clinton Administration, provides a lifeline for families and workers who have exhausted all of their unemployment benefits. According to a new report by the Center for Budget and Policy Priorities, “more homeless families will go without shelter, fewer low-wage workers will receive help with child care expenses, and fewer families involved with the child welfare system will receive preventive services” now that Congress has passed legislation that will end funding for the TANF Contingency Fund in 2011.

Congress also failed to reauthorize an emergency fund for a subsidized job program on September 30 that would have allowed states to provide emergency help to needy families and place low-income people in subsidized jobs.

In fiscal year 2011, every state except Wyoming will experience up to a 20 percent reduction in recession relief funds. The CBPP reports that many states have already drastically reduced their subsidized job programs after being cut off from federal funding, costing tens of thousands of people their jobs. Some states are also considering substantial cuts to programs for low-income families with children, including child care subsidies for working parents and programs that address substance abuse, caring for a disabled child, and other challenges.

“This is not what Congress intended when it reformed the welfare system in 1996,” said Liz Schott, Senior Fellow at CBPP. “Helping welfare recipients find work in this economy requires more help from the federal government, not less.”

However, Australia has the highest household debt to disposable income ratio in the world; even higher than America; we have big homes, bigger waistlines and the biggest debts; Australia is in the middle of its own credit boom, complete with all the social consequences and financial repercussions.

The chart doesn’t have the most recent data and it appears to show a gentle decline in the household debt-to-disposable income ratio, but since then – due to higher debts and income growth that’s not quite kept up – the ratio has turned up again. It’s around 156% today, largely thanks to the mini-boom in mortgage lending spawned by the diabolical first home owner’s grants. The Fitch Ratings chimed in with a gloomy forecast for Australians overnight; it said that rising interest rates in 2010 would trigger more home loan and commercial mortgage defaults, leading to some “deterioration” in the quality of assets that underpin mortgage-backed bonds.

Does that sound familiar to the Americans …..?

In the graph below, you can see how world markets ‘fared’; however, as Dave Kimble has pointed out below, all currencies have gone down in value, based on the current buy cost of gold. While gold holdings was the standard on which all countries currencies are guaranteed, with the USA leading the charge (not guaranteeing their $ and printing it like it’s going out of fashion), fiat currencies are now the norm.

So what is the correct and relative strength of currencies with the obvious standard of gold?

Over the last 12 months the major hard currencies have all devalued against gold:

US -21.3%
EU -28.0%
UK -23.4%
JP -13.6%
CA -19.2%
CH -14.7%
AU -12.3%

If China was in the above and wasn’t – by choice – pegging its currency to the US$, it would surely have gone up against gold; so the share markets are just reflecting the loss of purchasing power of fiat currency.

Therefore, there is no ‘share market recovery’.

Those marching in the streets of Dublin over the weekend, as well as more than a few economists, reckon the whole thing is a travesty, with bankers being bailed out at the expense of the living standards of innocent, ordinary people. Nobel Prize-winning economist Paul Krugman had a column in the New York Times last week headed ‘Eating the Irish’, in which he concluded: “You have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.”

Economist Dean Baker, writing in the Guardian, says Ireland should default on its debt like Argentina did in 2001. “…it was politically impossible for the Argentine government to agree to more (IMF) austerity. The immediate effect was to make the economy worse, but by the second half of 2002, the economy was again growing. This was the start of five and a half years of solid growth.”

The Cowen government’s four-year ‘National Recovery Plan’ issued over the weekend makes it clear that the problem with Ireland is not so much that bankers plundered the country, which they did, but that the government itself is underwater. Corporate tax in Ireland was reduced to 12.5 per cent in the mid-90s, which led to a wonderful boom in IT manufacturing – the creation of the so-called ‘Celtic Tiger’.

After 2002, when Ireland joined European Monetary Union and adopted the euro, the two things combined to create a massive property boom and, in essence, the government was able to replace corporate taxes with much more revenue from property taxes. Between 2000 and 2008, the state pension doubled, average public service salaries increased 59 %, the standard income tax rate fell from 26% to 20% and the top rate from 48 to 41%.

Despite this, Ireland, like Australia, entered the global financial crisis with low public debt. But its prosperity was built on the quicksand of a property bubble. In 2007, stamp duty and capital taxes yielded €6.7 billion; this year that will fall to €1.6 billion. As a result, the budget deficit has ballooned to 11.7 % of GDP, even after big spending cuts in the past two years, and gross public debt is suddenly at 95% of GDP, with the real chance it will pass 102% in 2013.

It’s true that this is partly due to the nationalisation of the Anglo Irish Bank, which seems to have been Ireland’s version of Enron, but this country’s economic problems are not simply due to rogue banks getting out of control during the property boom. The bigger problem was Charlie McCreevy who, as finance minister in two stints during the 90s and then again 1997, disastrously cut taxes and increased government spending. Specifically, in 1997 he cut the capital gains tax rate from 40 % to 20 % and extended property tax concessions, which directly led to the explosion in property speculation, which in turn led to the collapse of the Irish banking system.

When the boom ended, government spending went from 28 % to an unsustainable 44% of GDP. Ireland thought the property boom would last forever and lived it up. Yes, the boom was created by out-of-control bankers and rich speculators, and the politicians took the government along for the ride, but in the end that doesn’t matter. Government spending now has to be cut even if bank bondholders are forced to lose their shirts.

The Australian government should learn from Ireland’s mistakes. The amount of mining investment in the pipeline suggests that the next five to ten years will see a massive boost to national income and therefore government revenue, which should be used for infrastructure, or saved, not for doing the Irish – financial give-away – fling.

The latest U.S. Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing the data current through the end of 2009.

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The Greens released the policy at the launch of their Tasmanian federal election campaign in Hobart and have said that businesses willing to develop large-scale renewable energy projects would be eligible to apply for 100 % loan guarantees, similar to a scheme in the United States.

Greens Senator Christine Milne says ‘the scheme would create jobs and give banks the confidence to lend money to renewable ventures in the future; of course it is some risk for government to take on with loan guarantees but the benefits are so much greater because it means we will see the rollout of renewables as quickly as possible across Australia; people trying to seek finance for large-scale renewable energy investments are having difficulties and this is for solar thermal with storage, for geothermal, for wave power; in the United States – having recognised that – they moved to loan guarantees and that has been the basis on which they have managed to get the investment and the shift to renewables’.

DB: Whilst I have no problems with this policy, geothermal is a waste of time and money and the EROEI (energy return on energy invested) of wave energy will most likely remain in the negative.

As we enter our ninth year of the War in Afghanistan with an escalated force, and continue to occupy Iraq indefinitely, and feed an endlessly growing Surveillance State, reports are emerging of the Deficit Commission hard at work planning how to cut Social Security, Medicare, and now even to freeze military pay. But a new New York Times article today illustrates as vividly as anything else what a collapsing empire looks like, as it profiles just a few of the budget cuts which cities around the country are being forced to make. This is a sampling of what one finds:

* Plenty of businesses and governments furloughed workers this year, but Hawaii went further — it furloughed its schoolchildren.
* Public schools across the state closed on 17 Fridays during the past school year to save money, giving students the shortest academic year in the nation.
* Many transit systems have cut service to make ends meet, but Clayton County, Ga., a suburb of Atlanta, decided to cut all the way, and shut down its entire public bus system. Its last buses ran on March 31, stranding 8,400 daily riders.
* Even public safety has not been immune to the budget ax. In Colorado Springs, the downturn will be remembered, quite literally, as a dark age: the city switched off a third of its 24,512 streetlights to save money on electricity, while trimming its police force and auctioning off its police helicopters.

There are some lovely photos accompanying the article, including one showing what a darkened street in Colorado looks like as a result of not being able to afford street lights. Read the article to revel in the details of this widespread misery. Meanwhile, the tiniest sliver of the wealthiest — the ones who caused these problems in the first place — continues to thrive. Let’s recall what former IMF Chief Economist Simon Johnson said last year in The Atlantic about what happens in under-developed and developing countries when an elite-caused financial crises ensues:

‘Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or — here’s a classic Kremlin bailout technique — the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk — at least until the riots grow too large’.

The real question is whether the American public is too apathetic and trained into submission for that to ever happen.

UPDATE: It’s probably also worth noting this Wall St. Journal article from last month — with a subheadline warning: “Back to Stone Age” — which describes how “paved roads, historical emblems of American achievement, are being torn up across rural America and replaced with gravel or other rough surfaces as counties struggle with tight budgets and dwindling state and federal revenue.”

Utah is seriously considering eliminating the 12th grade, or making it optional. And it was announced this week that “Camden [New Jersey] is preparing to permanently shut its library system by the end of the year, potentially leaving residents of the impoverished city among the few in the United States unable to borrow a library book free.”

Does anyone doubt that once a society ceases to be able to afford schools, public transit, paved roads, libraries and street lights – or once it chooses not to be able to afford those things in pursuit of imperial priorities and the maintenance of a vast Surveillance and National Security State – that a very serious problem has arisen, that things have gone seriously awry, that imperial collapse, by definition, is an imminent inevitability?

Anyway, I just wanted to leave everyone with some light and cheerful thoughts as we head into the weekend.

Copyright ©2010 Salon Media Group, Inc.

In spite of prolonged droughts and ensuing water shortages and subsequent billion $ investments in water infrastructure, what remaining arable food growing areas are destined to be sold off in one way or another. The Mary River dam would have done more than damage a fragile eco-system, it would have covered arable land and caused much ecological damage and now, Queensland Labor has planned the sell off of Darling Downs to make a few $’s in royalties and massive profts for major financial contributors.

Around the world in another socialist government also known for previous experiments in agriculture and social experiments, they too are suffering from droughts and if you think it wont affect us here, then think again.

Russia is a major food exporter, but record temperatures this summer are expected to halve exports; there are also fears the government could start an export ban to protect domestic supplies, which will result in a food price inflation. President of the Russian Grain Union, Arkady Zlachevsky says there is hope that Siberian crops will help improve the total output; however, non-political commentators believe a forecast if 11 million tonnes is more accurate than exports of 14 to 15 million tonnes.

Russia had agreed to sell 180 thousand tonnes of wheat to Egypt after shunning a similar offer from the United States. Grain prices last week reached $240 per tonne, up from $180. It doesn’t matter where it is, if the product is more scarce, then demand will push the price up, whatever the commodity.

To the question of should we start worrying the answer is Yes. What happened to the industrial giant that once was the USA and their collapsing housing market values is what will eventually happen here; where the Americans were once major exporters of resources and even oil, they are now major importers just as we are becoming. If the economy in China goes off the boil and the value of currencies we accept in payment from other countries in economic depression like spirals, once we run out or we reach that cross over point like the USA where we spend more on food and other ‘esentials’ then we earn, we too will feel the pain. At what point in time and which political party will have no choice but to tighten the purse strings ?

California Governor Arnold Schwarzenegger has declared a fiscal state of emergency, requiring most state employees to take three days of unpaid leave a month until a new budget is enacted. Arnie said the state is on the verge of a “fiscal meltdown”. Measures so far have included deferring payments to schools and other local governments, but the crisis was deepening with no state budget for the 2010-2011 fiscal year expected soon. This has resulted in sharply reduce funding for services designed to help the state’s poor.

A budget crisis last year pushed California (which would have the world’s eighth largest economy if it were a country) to the brink of bankruptcy, sending the state’s credit-rating plunging and forcing it to start paying bills with IOUs.