The international forecaster

The Mystery of Stagflation

by Alfred Adask for Discount Gold & Silver Trading

The term “stagflation” was coined in A.D. 1965 to describe an economy that was “stagnant” at the same time the monetary system was experiencing inflation.

Wikipedia defines “stagflation” as,

“A situation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high.”

In other words, we see an economy in a state of recession or depression (slow or negative economic growth and high unemployment) that is nevertheless accompanied by a high rate of inflation. The definition isn’t hard to understand, but it’s hard to believe since stagflation contradicts classical economic theory that economic depressions should be characterized by deflation rather than inflation.

According to Wikipedia, the reason(s) for this contradiction are mysterious and largely unknown:

“The concept [of stagflation] is notable because, in the version of Keynesian macroeconomic theory which was dominant between the end of WWII and the late-1970s, inflation and recession were regarded as mutually exclusive.”

The word “notable” implies something that’s “seemingly odd, or mysterious”.

Inflation and recession would be mutually exclusive in a gold-based monetary system. However, with a fiat monetary system, inflation is possible at any time (even in the midst of economic depression) since gov-co can always “spin” fiat currency out of “thin air”.

In a rational world of money with fixed, tangible value, inflation and recession are contradictory and mutually exclusive. In an irrational world of fiat currency, contradictions are possible and commonplace. These contradictions and associated “mysteries” expose the fundamental irrationality of fiat currency. The fact that inflation and recession are no longer “mutually exclusive” is not a modern mystery—it’s evidence that: 1) fiat currency is irrational, illusory and bound to collapse under the weight of its own lies; and 2) inflation is always government-made in a fiat monetary system.

“Stagflation is also notable because it has generally proven to be difficult and, in human terms as well as budget deficits, very costly to eradicate once it starts.”

Once again, we see that stagflation is “notable” and thus “seemingly odd, or mysterious”.

If we want to unravel the mystery of why stagflation was mysteriously “difficult” and “very costly to eradicate,” we might start by asking “difficult” and “very costly” for whom?

It’s presumed that we’re all united in our desire to stimulate and strengthen our economy and therefore the difficult, costly process of eradicating stagflation falls equally on all of our shoulders. Alas, that presumption may be false.

Instead, there are two, opposing forces present whenever we see stagflation.

First, there’s the free market—an almost natural process that periodically acts excessively (resulting in an economic boom based on lies, overconfidence and too much debt) and then realizes its mistakes and reacts by causing a recession or depression to flush the lies, overconfidence and excessive debt out of the system. Under the free market, recessions and depressions are as natural and even desirable as urination or defecation. Recession and depression are intended to eject the waste from the system. Once we eliminate all the economic crap, we are freed to once again grow the economy on an honest basis.

Economic booms are characterized by inflation. Inflation tends to serve the best interests of debtors since they can repay their debts with “cheaper dollars” and thereby profit by robbing their creditors.

Economic downturns accompanied by the deflation tend to serve the best interests of creditors since debtors are forced to repay their debts with “more valuable dollars”.

When we have an economic boom, it favors the debtors. When we have a recession/depression, it favors the creditors. So long as we have both booms and busts, there is a balancing effect that, over time, favors both debtors and creditors by forcing us all back to an honest equilibrium from time to time.

Deflation is not merely an attribute of recession/depression. It’s a necessary part of the cleansing process that eliminates lies, overconfidence and excessive debt from our economic “body”.

Secondly, the natural forces of the free market’s boom and bust cycle are opposed by the artificial and unnatural forces of the “un-free” market a/k/a government. Governments have always been prone to economic manipulation (exploitation), but their ability to manipulate was largely constrained so long as they had a gold-based monetary system. With the onset of (near) universal fiat currencies, the world’s governments have acquired a Rapunzel-like power to spin almost unlimited gold (actually fiat currencies) out of straw (paper and electronic digits).

Given their newfound capacity to “spin” fiat currencies out of nothing, modern governments chant, “Debt where is thy sting?” In other words, why should a government worry about going deeper and deeper into debt if the debt can be repaid off with nothing more than the stroke of an inflationary pen?

In America’s case, our national government is the world’s biggest debtor. According to gov-co, our national debt is $16 trillion. According to John Williams at Shadowstats.com, the national debt is actually about $80 trillion. Including unfunded liabilities, the US Treasury and the Congressional Budget Office have placed the national debt at $222 trillion. Our gov-co might be able to repay the $16 trillion in full—but they don’t want to. They can’t repay $80 trillion, and $222 trillion might as well be $222 quadrillion—it’ll never be repaid.

Given that the national debt can’t ever be repaid in full, and given that our government is the world’s biggest debtor, our government will serve its own interests by causing inflation, inflation, inflation. If that means impoverishing creditors in general and the American people in particular, so be it.

This isn’t news.

Jim Puplava (Puplava Financial Services) was recently interviewed by Casey Research and argued that, “under a fiat currency system, there's never been a deflationary depression." I.e., so long as the government can spin fiat currency out of thin air, it will never allow deflation and will persistently cause inflation—even in the midst of economic depressions.

Mr. Puplava supported his argument by saying ,

“In the middle of the 2007-2009 crisis,  the Fed either guaranteed, expanded, or backstopped somewhere around $8 to $9 trillion. That can only be done in a fiat money system—something you can't do with a gold-backed system.”

That’s simply evidence that, given a fiat currency, the gov-co will inflate, no matter what.

More evidence:

“Even in the gold standard we had during the '20s and '30s, we had inflation. President Roosevelt devalued the dollar by 60% in March of 1933, and when he repriced gold from $20 to $35, he stopped deflation dead in its tracks. By the end of the month we were experiencing inflation.”

Yes, FDR caused inflation by devaluing the dollar from $20/ounce of gold to $35/ounce. FDR stopped deflation (an essential attribute of depression) in just one month. But, while FDR stopped deflation, he didn’t stop the Great Depression which lasted at least another seven years.

I believe deflation is a natural and necessary part of the business cycle and the “depression cleansing process”. If we won’t take our deflationary “medicine” like good little boys and girls, our economic depression may drag on indefinitely.

In the Great Depression, FDR devalued the dollar in A.D. 1933 and the Great Depression dragged on until about A.D. 1941. With inflation, the Great Depression was actually an episode of “stagflation”.

We might suppose that with inflation, the Great Depression “naturally” ended after about ten years. We might therefore theorize that, with deflation, the Great Depression might’ve ended in just five years.

Given that possibility, we’re faced with a subjective choice: Would you rather have a short, severe depression accompanied by deflation—or would you prefer a moderate drawn-out depression that’s accompanied by inflation?

But some argue that the Great Depression (which was nearly global in nature) didn’t actually end until the onset of World War II. If so, the Great Depression accompanied by inflation (stagflation) did not end “naturally” after ten years but instead ended only by a World War. In theory, without WWII, stagflation might’ve dragged on for another five or even twenty years.

Which brings us back to the original observations by Wikipedia that, “Stagflation is . . . difficult and . . . very costly to eradicate.”

If the stagflation of the Great Depression was ended by WWII, is it possible that the least difficult and least costly means of “eradicating stagflation” may be to start another World War?

If so, we may need to understand stagflation very clearly and think seriously about avoiding stagflation at any cost.

Why is stagflation so hard for the free market (a/k/a We the People) to eradicate? Because “flation” is the engine of stagflation. That “flation” (actually, inflation) is intentionally caused by the very government that claims to be working for the best interests of We the People by “stimulating” the economy by inflating the currency supply and devaluing the dollar.

The free market is trying to cleanse itself by causing an economic recession which is ordinarily accompanied by deflation while the unfree market (government) is causing inflation to reduce its own debts. The free market is struggling to restore balance and truth to the economy. The government is struggling to cause inflation so as to secretly rob its creditors.

The “contradiction” between inflation and recession is based on the government’s claim to be working for the benefit of the People (ending recession) when it’s actually working to rob the people by means of inflation. That’s the source of the contradiction seen in simultaneous “inflation” and “recession”. Government is always out to rob its creditors, serve its own interests, and only occasionally out to serve the People’s interests.

Government does not serve creditors. Don’t think so? What’s the current interest rate paid to creditors? Does it even come close to matching the inflation rate? How can creditors prosper in a low- or no- interest environment? Thus, even today’s low interest rate is evidence of government’s war against creditors.

So long as we have a fiat currency and our government can inflate at will, our economy is something like a commercial aircraft. We have a pilot and copilot in the cockpit who are creditors and a planeload of passenger-debtors (including government) in the rear. The creditors may be greedy but they’re the only people who have sufficient knowledge and discipline to fly the plane (economy). The debtors are generally as rowdy as a bunch of drunken, English soccer fans mixed in with some American politicians on a junket.

Two of the aircraft’s engines die and the plane (“economy”) begins to descend into a “depression”. The debtors, in their infinite wisdom, vote to lighten the plane’s load by tossing the pilots (creditors) out the door.

The debtors have taken over the asylum (aircraft; economy—am I mixing too many metaphors?) and dumped the creditors.

But the creditors are no dummies. They have parachutes. They have gold or some sort of investments squirreled away that will help them survive. They’ll be inconvenienced by the depression, but they’ll survive. The debtors, on the other hand, will find it hard to land the aircraft without any pilot-creditors and may suffer a crash.

My point is that by causing inflation, the government is robbing creditors. If we don’t see some deflation, once the creditors are stripped of their savings, where will we find the capital needed to rebuild the economy and escape the Greater Depression?

I like Wikipedia. I respect its articles. But Wikipedia’s “analyses of the global stagflation of the 1970s” strikes me as comical: “It began with a huge rise in oil prices.”

Bunk. Stagflation was blamed on the “huge rise in oil prices” in order to shift blame to OPEC. But didn’t we actually have a “huge rise in oil prices” in the 1970s because President Nixon stopped redeeming foreign-held dollars for gold in A.D. 1971? Didn’t the resulting inflation (devaluation of the dollar) cause the price of oil to jump? Thus, it wasn’t “evil” OPEC that plunged the US into stagflation in the 1970s. It was our own government by making the dollar a pure fiat currency.

Why did gov-co make the dollar a pure fiat currency? Because they didn’t want to actually pay our international debts with gold. So, in order to rob their creditors, the gov-co devalued the dollar. This is just another evidence that government is, fundamentally, a criminal enterprise dedicated to defrauding its creditors.

Wikipedia further explains that stagflation of the 1970s “continued as central banks used excessively stimulative monetary policy to counteract the resulting recession, causing a runaway wage-price spiral.”

The “runaway wage-price spiral” sounds like an economic process that’s so mysterious as to be beyond man’s understanding and control. The “runaway wage-price spiral” would seem to implicitly blame private businesses and unions (rather than government) for the resulting inflation and recession. But I see “runaway wage-price spiral” as a symptom of high inflation caused by gov-co, rather than as a cause for recession and stagflation. It’s true that private businesses and unions did demand higher prices and wages. But those demands were intended to compensate for the inflation that had been caused by government.

Point: government caused the inflation of the 1970s and therefore caused the stagflation

More, the reason that stagflation is so damning is that high inflation (as per Lenin, Keynes and Greenspan) is a means for government to secretly “confiscate” the people’s wealth (savings). Without savings, the people can’t start new businesses and work themselves out of their recession.

Inflation, in the midst of a recession is adding insult to injury. It’s like kicking a man when he’s down. When gov-co initiated QE3, it wasn’t “kicking the can” down the road, it was kicking the American people down the road to poverty. In the midst of stagflation, many of the middle class won’t have jobs due to the recession—and they won’t have savings due to inflation. They won’t be able work their way out of the recession, and they won’t be able to invest as a means to escape or survive the recession. They’ll be almost hopeless. No jobs, no way to start a business, no way out. Hence, as Wikipedia warned, once started stagflation is difficult and very costly to “eradicate”.

In the end, stagflation is no mystery. It’s the result of two antagonistic forces.

The “stag” in “stagflation” is caused by the natural forces of the free market attempting to cleanse itself from the excesses of the most recent economic boom and restore wealth to creditors.

The “flation” part of “stagflation” is caused by government attempting to reduce its debt by intentionally inflating the currency. This “flation” seeks to rob creditors

Government wants you to believe that its efforts to cause inflation (when we should naturally experience deflation) are only intended to “stimulate” the economy and thereby serve the people. But the truth is that the inflation is intended to serve the government by robbing the people and the government’s creditors.

We are already in an economic recession. Maybe a depression. Government is inflating the currency (QE3). We are in stagflation now.

Want to get out?

Make government stop inflating. If you succeed, we’ll almost certainly fall quickly into a painful economic depression that’ll last for several years before we can get on with our lives.

On the other hand, if you don’t want to suffer the severe economic depression that we so richly deserve, encourage government to keep inflating the currency. The resulting stagflation may continue indefinitely—unless “eradicated” by another World War.

Stagflation is evidence that we may be caught between the “rock” (the truth embodied in the free market’s push for another depression) and the “hard place” (our government’s determination to lie and defraud creditors).

We shall see.

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EUROPE

Greece needs two-year extension on fiscal pledges

Greece needs a two-year extension from its international creditors to meet fiscal pledges, and a liquidity boost from the European Central Bank, said Prime Minister Antonis Samaras.

http://www.france24.com/en/20120915-greece-needs-two-year-extension-fiscal-pledges
Greek protests enter menacing phase

As Greece's government wrestles with the prospect of more austerity, anger and fear are darkening the streets For the first time in living memory, military personnel took to the streets alongside police officers, fire brigade officials, teachers and doctors as Greeks vowed to resist further pay and pension cuts that have already led to plummeting living standards.

http://www.guardian.co.uk/business/2012/sep/16/greek-protests-menacing-new-phase?CMP=twt_fd
Spain must seek help before ECB buys bonds: Nowotny

Spain would have to apply for a rescue package before qualifying for inclusion in the European Central Bank's plan to buy debt of struggling euro zone members, ECB policymaker Ewald Nowotny said.

http://www.reuters.com/article/2012/09/16/us-ecb-europe-nowotny-idUSBRE88F09I20120916
Portuguese and Spanish march as anger over tax hikes grows

Over 150,000 Portuguese marched on Saturday against planned tax hikes that have shattered the consensus behind austerity imposed by an EU/IMF bailout, and tens of thousands more marched in Spain, seen as the next country needing to be bailed out.

http://www.reuters.com/article/2012/09/15/us-portugal-protests-idUSBRE88E0GZ20120915

Spain Is Reluctant To Make More Cuts

Spain's government is facing an autumn of angry street protests by a recession-weary public, even after telling its European partners that its next steps to overhaul the economy would avoid further cuts in public spending…"We cannot and will not accept more cuts," said Angel Arriero, a 39-year-old information engineer at a government ministry…

"Spain's existing [budget] measures are significant and ambitious enough," he [Spain finance minister] said, to ensure that Spain meets a European Union-mandated budget-deficit target of 3% of its gross domestic product by 2014. Last year's deficit was 9% of GDP.

http://online.wsj.com/article/SB10000872396390443995604578000133963726770.html
Greek judges stop work to protest austerity

Greek judges went on strike on Monday, kicking of a series of walkouts by state employees ranging from doctors to tax officials in protest at wage cuts and labor reforms demanded by international lenders in exchange for more aid.

http://www.reuters.com/article/2012/09/17/us-greece-judges-idUSBRE88G10D20120917


French Magazine Charlie Hebdo Prints Cartoon of Mohammed Naked

http://plancksconstant.org/blog1/iamges/sub13/French-Magazines-Naked-Mohammed-Cartoons.jpg

MIDDLE EAST

Armada of British naval power massing in the Gulf as Israel prepares an Iran strike

Western leaders are convinced that Iran will retaliate to any attack by attempting to mine or blockade the shipping lane through which passes around 18 million barrels of oil every day. A blockade would have a catastrophic effect on the fragile economies of Britain, Europe the United States and Japan…

http://www.telegraph.co.uk/news/worldnews/middleeast/iran/9545597/Armada-of-British-naval-power-massing-in-the-Gulfas-Israel-prepares-an-Iran-strike.html
Netanyahu: Iran “in the last 20 yards “of having a nuclear bond.

Israeli Prime Minister Benjamin Netanyahu took his case on Iran directly to U.S. voters Sunday, telling the American public in televised interviews that the White House must be willing to draw a "red line" on Tehran's nuclear program, comparing Tehran's nuclear program to Oklahoma City bomber Timothy McVeigh and reminding Americans of the devastating repercussions of failed intelligence.

His remarks were an impassioned election-season plea from a world leader who insists he doesn't want to insert himself into U.S. politics and hasn't endorsed either candidate. But visibly frustrated by U.S. policy under President Barack Obama, the hawkish Israeli leader took advantage of the week's focus on unrest across the Muslim world and America's time-honored tradition of the Sunday television talk shows to appeal to Americans headed to the polls in less than two months.

http://www.npr.org/templates/story/story.php?storyId=161231423
Libyan president: 'No doubt' attack 'preplanned'

Libya President Mohamed Yousef El-Magariaf said Sunday that 50 arrests have been made in connection with last week's "preplanned" attack on the U.S. consulate in Benghazi that left U.S. Ambassador Chris Stevens and three other Americans dead.

http://www.politico.com/blogs/politico-live/2012/09/libyan-president-no-doubt-consulate-attack-preplanned-135664.html
Ambassador Susan Rice: Libya Attack Not Premeditated

U.S. Ambassador to the United Nations Susan Rice said the attack on the American consulate in Benghazi was not premeditated, directly contradicting top Libyan officials who say the attack was planned in advance.

http://abcnews.go.com/blogs/politics/2012/09/ambassador-susan-rice-libya-attack-not-premeditated/
Israeli Foreign Ministry officials say U.S. ignored Arab wrath

Foreign Ministry official on signs of ‘radicalization’ in Arab world: ‘We knew what was happening, but the Americans preferred to find excuses.’

For months before the most recent attacks on U.S. embassies in North African states, Foreign Ministry and U.S. State Department officials had been arguing over developments in these countries. Senior figures in Jerusalem claimed that Washington was burying its head in the sand and ignoring the increasing radicalization in states such as Tunisia and Egypt.

The Obama administration, which since the beginning of the Arab Spring has aided, directly or indirectly, the forces that brought down the dictatorial regimes in Egypt, Tunisia, Yemen and Lybia, now finds itself in a position of helplessness. http://www.haaretz.com/news/diplomacy-defense/israeliforeign-ministry-officials-say-u-s-ignored-arab-wrath-1.465210

Benghazi Consulate Attack Was Targeted Assault Says Security Guard

A security guard wounded in the attack that killed America's ambassador to Libya has insisted it was a targeted assault by Islamist fighters, and not a protest that got out of hand.

The guard, who works for a British firm, said there was no demonstration over a controversial anti-Islamic film before extremists stormed the compound in the eastern city of Benghazi…

http://www.telegraph.co.uk/news/worldnews/africaandindianocean/libya/9549126/Benghazi-consulate-attack-was-targeted-assault-says-security-guard.html
Libya: We gave US three-day warning of Benghazi attack

American diplomats were warned of possible violent unrest in Benghazi three days before the killings of US Ambassador Christopher Stevens and three members of his team, Libyan security officials say.

The claim came as the country's interim President, Mohammed el-Megarif, said his government had information that the attack on the US consulate had been planned by an Islamist group with links to al-Qa'ida and with foreigners taking part.

http://www.independent.co.uk/news/world/africa/libya-we-gave-us-threeday-warning-of-benghazi-attack-8145242.html

ASIA

Anti-Japan protests erupt in dozens of Chinese cities in disputed islands row

Large scale anti-Japan protests over disputed islands have spread throughout China

http://www.telegraph.co.uk/news/worldnews/asia/china/9545254/Anti-Japan-protests-erupt-in-dozens-of-Chinese-cities-in-disputed-islands-row.html
Japan launches QE8 as 20-year slump drags on

Japan has launched an eighth round of quantitative easing to weaken the yen and cushion a slide back into recession.

http://www.telegraph.co.uk/finance/economics/9554131/Japan-launches-QE8-as-20-year-slump-drags-on.html

AUSTRALIA
AUSSIE NEWS

LEHMAN BROTHERS ORDERED TO PAY COMPENSATION: A group of Australian councils, charities and churches has won a Federal Court case against defunct investment bank Lehman Brothers in a case which could have global ramifications. The judgment is considered a test case as it is the first in the world to look at the conduct of an investment bank, on both legal and ethical grounds, in the lead-up to the global financial crisis and how they behaved in the aftermath. The class action involved 72 councils, churches and charities who sued Lehman Brothers for around $250 million, claiming it breached contracts and engaged in misleading and negligent conduct. Justice Steven Rares has ruled that the parties are entitled to compensation but the amount has yet to be finalised. They had sought compensation for losses incurred on investments they made on advice from Grange Securities, which was bought by Lehman Brothers Australia in 2007. The investments had exposure to the housing market collapse in the United States. Members of the group were advised by Lehman's Australian arm before buying subprime mortgage-related derivatives or collateralised debt obligations (CDOs) branded locally as federation notes. This was prior to 2007 when America's housing sector began to crash, sparking a meltdown on Wall Street. Justice Rares found the investors were not properly advised of the risks involved in highly complex financial products. He said councils were often targeted by Grange Securities because they had ready access to large sums of money for investment, but the the "high risk" nature of the investments made them unsuitable for local councils. "I have found that Grange engaged in misleading and deceptive conduct in breach of [the act] when it promoted the SCDOs to the councils in terms of suitable investments," he said. Because Grange is in liquidation, it cannot be ordered to make any compensation payments at this time. Wingecarribee Shire Council, south-west of Sydney, led the class action seeking to recover $21.4 million in losses. Those involved in the class action appear set to get back about 33 cents in the dollar. John Walker, executive director of IMF which helped fund the litigation, says the ruling paves the way for significant recoveries from the estate of Lehman Australia. "So what this judgment means in divvying up around $230 million in assets in Lehman Australia, is if this finding holds, and it holds for every person in the class (action), then they're looking at around three or four times what was proposed by the liquidators about three years ago," he said. "What we dealt with in these proceedings is to see whether or not we could make it accountable - an investment bank which actually sought to target not-for-profit organisations and make profit from selling derivatives to them in circumstances where they certainly should not have sold these products to those targets." Economics correspondent Stephen Long says the representative action paves the way for compensation to a large class of claimants who invested in the CDOs: There's a separate case being run in Australia which is targeting Standard and Poor's - the ratings agency which rated these products as triple A - and that action will involve investors worldwide. There's a class action, a book being built of investors right now all around the globe. This case was being keenly watched in the United States, in Europe and elsewhere. It's significant on a number of fronts. One, that it opens up the possibility for further litigation; secondly, that it's the first time, as I understand it, that a court anywhere has looked at the substantive issues in this case. There are policy implications from this too. One of the possible policy implications of this is that churches and charities aren't really treated as being like say your ordinary retail investors, your mum and dad. They're treated as being akin to a sophisticated investor where clearly they're not and maybe there's a need for reform of the Corporations Law on that front. Secondly, the judge has made quite critical comments about the legislation. Justice Steven Rares said that there is a mind-boggling complexity in the definition of misleading and deceiving conduct now. We used to have one simple test under the Trades Practices Act. Now there are separate definitions for financial services and financial products, definitions in different acts. He says it should be simplified and all brought together in a very simple and easily administered test; that's something for government to think about. DOUBT OVER

AUSTRALIA'S FUTURE ECONOMIC STRENGTH: Concern is growing among economists over Australia's economic strength, with some betting the Reserve Bank will cut the cash rate by 100 basis points by mid-next year. Deutsche Bank expects falling commodity prices and demand from China will lead to a 13 per cent fall in the terms of trade, which represents the price of Australia's exports relative to imports. In the past, sharp falls in the terms of trade have led to recessions. The cash rate currently stands at 3.5 per cent. Deutsche Bank economist Phil O'Donaghoe says a sharp fall in terms of trade would mean the cash rate will be down to 2.5 per cent by mid-next year. "We think we are going to get a fall in the terms of trade in Australia of about 13 per cent," he said. "If we look back through history we've seen those sorts of declines in the terms of trade on five different occasions. "On three of those occasions the Australian economy has gone into recession, so I think that leaves the Reserve Bank with some pretty aggressive rate cuttings going to be required." Mr O'Donaghoe predicts the cuts will happen over the next 12 months. "It really means for the economy that we are getting less income and when we see that we see softer consumption, softer investment and we see the ultimate response is that the Reserve Bank will take the cash rate lower, so another 100 basis points of cuts," he said. "We think that will be delivered pretty much over the next 12 months or so." ANZ chief economist Warren Hogan says several things could force the RBA into cutting the cash rate by 100 basis points. "The currency remaining high, the softening in commodity prices, the budget looks like it's under more pressure and fiscal policy might be tighter," he said. He says in a year, interest rates in Australia should be "at least 50, if not 100 points lower". But most economists believe the cash rate will be cut to 3.25 per cent in November and stay there until late next year. Treasurer Wayne Swan says concerns over China are overblown. "It is true that Chinese growth has moderated but this partly reflects a very deliberate move to sustainable growth and of course it does reflect the weakness in Europe and its affect on Chinese exports," he said. "But the point is this Chinese policy makers have got substantial policy flexibility to respond and they've said repeatedly in recent weeks they will." BUSINESS GROUP CALLS FOR GOVERNMENT OVERHALL: The head of one of Australia's leading business groups has called for a radical overhaul of the way governments are run at the top. Jennifer Westacott from the Business Council of Australia says political gatekeepers have eroded the role of the public service. She says a "culture of reticence" has affected the quality of public policy. "The kind of custodianship of the long-term policy agenda, I think, has been eroded by what I'd call short-term thinking," she told PM. "I sense frustration in every part of the public service, from the highest to the lowest level." Ms Westacott says she hears complaints from business about not being able to plan for the long term. "[They're frustrated] that they're at the beck and call of short-term requests from ministers' offices [and] that their advice is second-guessed by political advisors," she said. "They don't feel that they've got the authority and respect and legitimacy that they once would have had to give governments advice on the long-term direction of the country." Her solution is to halve the staff of Government ministers and give the nation's top bureaucrats back their permanent tenure. "The numbers in ministerial offices have grown considerably over the decades. We now have more advisors per minister than many other comparable countries," she said. "The more people there are in ministers' offices, the more likely they are to want to second-guess policy work and redo things from the public service. Ms Westacott has also called for a comprehensive audit to decide how far to cut the public sector. "What we're calling for is an audit on the scope and size of government, and that would include the states as well," she said. "In my view, it has to be a smaller public service as we go forward. "We need to be saying, 'Look, what are the roles that people are playing? What are the things they're doing, are those things adding value? Could we get more productivity, could we do them more efficiently? Could we use technology better?' "Those are the questions. They get you the number." WTO REVISES GROWTH OUTLOOK DOWN: The World Trade Organisation (WTO) has slashed its 2012 global trade outlook, citing the eurozone debt crisis and weak growth in the US and China as key factors. Global trade is now expected to grow 2.5 per cent in 2012 compared with a previous forecast of 3.7 per cent, the WTO said in a statement released in Singapore. It also cut its global trade growth outlook for next year to 4.5 per cent from 5.6 per cent. "The global economy has encountered increasingly strong headwinds since the last WTO Secretariat forecast was issued," the WTO said in a statement. "Output and employment data in the United States have continued to disappoint, while purchasing managers' indices and industrial production figures in China point to slower growth in the world's largest exporter. "More importantly, the European sovereign debt crisis has not abated, making fiscal adjustment in the peripheral euro area economies more painful and stoking volatility." In April the WTO had warned that world trade growth, which slowed to 5.0 per cent in 2011 after a big rebound of 14.0 per cent in 2010, would weaken again this year. Director-general Pascal Lamy called for more to be done to boost global growth, on top of recent measures to buy up government bonds announced by the central banks of the United States, Europe and Japan. POOR DATA WEIGHS LOCAL MARKET DOWN: Global stocks fell overnight after data showed contractions in Chinese and eurozone manufacturing, and the US economy took a backwards step. But optimism that the central bank's stimulus measures will help returned to Wall Street shortly before the close. The Dow Jones ended 0.14 per cent, or 19 points, higher at 13,597. The S&P 500 lost 0.79 points to 1,460. The Nasdaq retreated 0.21 per cent, or 7 points, to 3,176. Overnight, the index of US leading economic indicators fell in August, led by a decline in new orders for manufacturing. The Conference Board's gauge of the economic outlook for the next three to six months decreased 0.1 per cent, after rising in August, and more Americans than expected filed for unemployment benefits. Also weighing on trade was yesterday's key reading on China's manufacturing sector showed it remained in decline for the eleventh straight month in September. The closely watched monthly survey of factory managers by HSBC showed activity rose a modest 0.2 per cent, with a broad steadying across the sector. Output though dipped to its lowest level in ten months. The data shows the decline in China's key growth engine has stabilised, but is showing few signs of a quick turnaround. In company news, the US Senate has criticised Microsoft and Hewlett Packard for using tax havens. The Senate's Permanent Subcommittee on Investigations claimed Microsoft saved around $US4.5 billion in US taxes between 2009 and 2011, but moving money offshore. Across the Atlantic and European markets came under pressure, after a key report showed Euro-area services and manufacturing output fell to a 39-month low in September. The Markit Flash Eurozone Purchasing Managers' Composite Output Index fell to 45.9 in September from 46.3 in August, which is the steepest contraction in three years. Despite this over in Britain, Bank of England governor Mervyn King said economic growth is on its way. He told an audience that the next quarter will probably be up, and that he is beginning to see a few signs now of a slow recovery. The Eurostoxx 50 lost 0.43 per cent to 252. The FTSE 100 lost 0.57 per cent to 5,855. The Australian share market was set for a positive open; at 6.30am AEST the ASX SPI 200 was 8 points higher at 4,413. The Australian dollar was half a cent down on the same time yesterday, buying 104.33 US cents. On the cross rates its worth 64.31 British pence, 80.43 euro cents and 81.65 Japanese yen. In the US West Texas Crude ended trade close to flat at $US92.12 a barrel. In Singapore, Tapis added a dollar during trade to $US112.91 a barrel. The gold price was relatively unchanged at $US1,768.54 an ounce.

SPY AGENCY BACKS CONTROVERSIAL DATA RETENTION LEGISTLATION: Australia's domestic spy agency has backed controversial legislation which would force telecommunications companies to store phone and internet data for two years. The Australian Security Intelligence Organisation (ASIO) says basic communications data from phones and emails, such as when a call was made or whom an email was sent to, is vital for gathering evidence. ASIO has given an unclassified submission to a parliamentary committee, saying telecommunications companies have traditionally kept the data to bill customers but new technology means there is less need to do so. It says the legislation will not give it access to the content of calls or emails, just the time they were sent or who they were sent to. ASIO says this type of data retention leads to tip-offs about terrorist cells and can confirm intelligence reports. The agency says it would support new penalties to stop the misuse of the powers. The Government has not made a final decision on the laws, while the The Greens say the legislation poses a threat to privacy. Optus says storing the data will be expensive.

US Securities and Exchange Commission suing Senen Pousa and Investment Intelligence Corp for $53 million

An Australian company has fleeced millions of dollars from hundreds of investors in an elaborate, world-wide trading scam, US authorities claim.

The US Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC) are suing NSW man Senen Pousa and his Brisbane-based company Investment Intelligence Corp.

Both organisations filed lawsuits against Pousa, who lives in Byron Bay, and two others in the US Federal Court in Texas on September 18.

http://www.news.com.au/money/money-matters/us-securities-and-exchange-commission-suing-senen-pousa-and-investment-intelligence-corp-for-53-million/story-e6frfmd9-1226478220284

AFRICA

World-first coin ATMs a sign of inflationary times for Nigeria

Nigeria’s central bank is to introduce the world's first cash machines that dispense coins, in a move that many fear is a futile attempt to stem the country's rampant inflation.

The bank will next year also introduce a 5,000 naira ($A30) bank note, worth five times more than the highest denomination note in circulation.

While Sanusi Lamido Sanusi, the bank's Governor, insisted that the plan was designed to make the money more secure, harder to forge and cheaper to manufacture - and to make the notes easier for blind people to identify - many fear that the increased nominal value is a sign of inflationary times.

According to statistics from the World Bank, Nigerian inflation in 2011 - the most recent figures available - reached 10.8 per cent. The World Bank also estimates that more than 54 per cent of the population is living on the poverty line, up from about 34 per cent 20 years ago.

Five new coins worth from 50 kobo (3c) each to N20 (12c) will also be introduced next year.

A previous attempt to introduce new coins to the economy in 2007 failed because most people refused to use them. But bank officials have struggled to debunk fears that changes to the national currency - known as Project Cure - would accelerate inflation.

“Currency review is done by all countries, and the recommended interval is every five to eight years.

“In Nigeria's case, this will be the first comprehensive review in 13 years and it will be used to take advantage of latest technology,” the bank said in a statement to reassure the public.

“It will improve the currency's security features and keep it ahead of counterfeiters.”

Tunde Lemo, the bank's Deputy Governor, said that the new denominations would be phased in gradually from next year, and he insisted that the “coins will circulate side by side with the notes”. “If you don't need it you don't have to touch it,” he said.

Officials said that the coins were more economical because they last longer than paper or polymer notes. The new cashpoints, they added, would resemble existing vending machines that dispense change.

Chidi Umeano, the head of shared services at the Central Bank of Nigeria (CBN), said that simple additions to existing ATMs would allow them to dispense new low-denomination coins due to be introduced next year.

“It is very possible to achieve automated teller machines that will dispense coins,” Mr Umeano said. “This add-on feature can be activated on the ATMs at any time by the CBN.”

Lonmin fallout as strike action spreads

As things get moving once more at the Lonmin mine in Marikana, evidence of the fallout from this week’s wage agreement becomes more prominent.

The costs of the 22% wage increase is expected to take its toll on the company’s stocks and shares with IOL reporting that Cyril Ramaphosa, a prominent Lonmin shareholder, said his investment in the company was now under water. Simon Scott, who is acting chief executive at Lonmin, would not comment on whether the company would have to compensate for the salary increases through employee dismissals. According to a mining analyst at Cadiz Corporate Solutions, Scott has estimated that the 22% wage increase would cost Lonmin R190 million. Yesterday Lonmin’s shares closed 6.31% down, at R82.26 on the JSE.

http://www.gatewaytoafrica.com/news/lonmin-fallout-as-strike-action-spreads.htm

HEALTH - Herbalist, Wendy Wilson