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Commodity bubbles, oil derivatives and the price of petrol

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This week several questions in Parliament were about the drop in the price of dairy products and the effect on the New Zealand economy. But the price of wool, beef, timber and logs are not dropping. I began wondering about commodity prices.

On the radio I heard a journalist say that if oil prices are down then economic growth rises. He went on to say how well the economy will do now that the price of oil is falling.

That is a deceptive argument. As Automatic Earth blogger Raul Ilargi Meijer pointed out the oil companies are already mired in debt, and when they receive less for their oil their finances will be in real trouble. He says, “there is no industry like the oil industry and it’s highly doubtful there’s another one with such debt levels”. The drop in crude prices has undercut the profitability of many oil projects and if you are an oil-exporting country you are vulnerable. Russia is being hammered right now and the ruble is in freefall. The share market in Saudia Arabia is falling.

Meijer points out that plummeting oil prices don’t just mirror the state of the real economy they will drag the whole economy down. The oil industry swims in debt not reserves.

Remember in 2012 Petrobras pulled out of New Zealand? They said they hadn’t found enough oil. Rather than giving the credit to Greenpeace for their vigorous opposition to deep sea drilling, the company’s explanation about low profitability is probably nearer the truth. Petrobras is the world’s third biggest oil company with sales of $150 billion a year.

The Telegraph writer Ambrose Evans-Pritchard in an article on oil company indebtedness wrote “Petrobras is committed to spending $102bn on development by 2018. It already has $112bn of debt. Petrobras’s share price has fallen by two-thirds since 2010.

This led me back to the whole commodity issue. I found a good article by bubble analyst Jesse Colombo and will summarise it. https://web.archive.org/web/20120302222518/http://www.thebubblebubble.com/commodities-bubble

He says “China’s economic boom since 2009 is actually a debt-driven bubble, and that its unsustainable, resource-intensive growth has temporarily boosted the prices of commodities.” He has been expecting the bubble to burst for a while now.

China’s consumption of commodities drove real money into a new “asset class”. But production has spiked and the bubble is popping now as real money leaves. We are now at the end of the commodities supercycle.

Three years ago the same Jesse Colombo warned of a commodity bubble. He said “The price of nearly every commodity from wheat to uranium exploded during the past decade as hundreds of billions of dollars of capital entered commodities as the new “hot” investment destination.”

He wrote then “Commodities prices, as measured by the Continuous Commodity Index (CCI), have risen a staggering 275% since the start of their bull market in November 2001”

He said Crude oil (WTI) is up 1,050%, gasoline 1,050%, heating oil 1,000%, gold 528%, silver 1130%, copper 666%, platinum 435%, palladium 443%, wheat 275%, corn 348%, soybeans 250%, oats 300%, sugar 600%, coffee 635%, cocoa 435%, orange juice 245%, cotton 650%and lean hogs 213%. (measured at the peak in mid-2011)

“Like all bubbles, from the Roaring Twenties bubble to the Dot-com bubble, the 2000s commodities bubble started as a legitimate economic trend and devolved into a “hot money”-fueled speculative mania.

“Record-high commodities prices led to ambitious plans such as Quebec, Canada’s $80 billion investment and decision to open its vast northern region to mining development – an area twice the size of France with an abundance of iron, nickel and copper ore deposits.

“High oil prices have incentivized the development of a wide range of technologies that are helping the discovery and production of far more oil than originally estimated and helping to allay Peak Oil fears for the time being. Fracking in US made US the biggest oil producer in the world.

“China and India’s real estate development and infrastructure construction soared in the early 2000s, causing economic growth and the demand for raw materials to hit a powerful upward inflection point.

“While the Chinese government builds scores of excessively extravagant government buildings, entire uninhabited “ghost cities” are cropping up, as can be seen in satellite images.

“When China and India’s economic bubbles pop, the commodities bubble is sure to crash along with them.

We have also seen the rise of commodities as an investment class. The boom has taken place across a wide range of commodities, and, indeed, is unprecedented in scope and size. These commodities include sugar, cotton, soybean oil, soybeans, nickel, lead, copper, zinc, tin, wheat, heating oil.

derivatives-3“The unprecedented aspects of the commodities boom and bubble are due to a relatively recent fundamental change in the commodities market – financialization, or the large-scale transformation of the commodities market into an investment asset class like stocks and bonds.

“Pension funds have become one of the largest sources of capital parked in long-term commodity investments ever since Congress essentially forced them to diversify into commodities by law. The tsunami of new investment capital flowing into the commodities market has been a major contributor to the boom in prices. In addition, the financialization of commodities paralleled the financialization of, and bubbles in, the US housing and mortgage markets.

But it is not just the commodities themselves. There is now a staggering range of commodities derivatives products. They call it “financial innovation”. Here is Jesse Colombo again in 2011 “The market value of agriculture commodities derivatives grew from three quarters of a trillion in 2002 to more than $7.5 trillion in 2007, while the percentage of speculators among agriculture commodities traders grew from 15 to 60 percent. The total number of commodities derivatives traded globally increased more than five-fold between2002 and 2008. The commodities market has become increasingly dominated by big banks, hedge funds and other speculative participants.

According to Wikileaks cables, speculators, not supply and demand, were the main cause of the 2008 oil bubble when oil hit $147/barrel.

One of the main catalysts for the second phase of the commodities bubble (2009-to-Present) was the launch of the Federal Reserve’s quantitative easing (QE) programs.”

Further to the topic of derivatives. If you want something scary to read then try reading about how big banks hold a great many oil derivatives and are at the losing end of the bet as oil drops in price. http://www.activistpost.com/2014/12/plummeting-oil-prices-could-destroy.html

And here is an article from earlier this year. The author is one Harry Dent and the website http://economyandmarkets.com/markets/foreign-markets/2014-the-year-china-bubble-burst/ and I quote it in full.

“For two years now, I’ve been warning in our Boom & Bust newsletter that China is going to be the ultimate and largest trigger for the next global financial crisis… a crisis that will be deeper and last longer than the first one that governments quickly combatted with unprecedented quantitative easing and bailouts.

And the cracks in the greatest bubble in modern history are finally starting to show. China bubble burst? Yes. And 2014 is the year that happens. When it does, it will trigger a market crash around the world.

George Soros warned late last year that China’s subprime lending was starting to look like the U.S. just before its crisis.

Now Leland Miller, President of China Beige Book International, is warning that 2014 will be the year of defaults for China.

Defaults will occur in trust products… wealth-management products… corporate bonds… and even some government bonds.

China’s subprime lending has mushroomed to more than $2 trillion in the last five years.
Its corporate bond market now totals $4.2 trillion.

Its total credit has surged from $9 trillion to $23 trillion since late 2008, or 250% of GDP.
Once again, additional borrowing and spending adds very little to GDP…

Just like it was, right before our subprime crisis, right now every dollar of debt China incurs adds only 15 cents to its GDP. At the height of our crisis in 2009, each additional dollar of debt created 85 cents of GDP.

China is currently getting very little bang for its borrowed buck.
As I always say: Debt is like a drug. It takes more and more to create less and less effect until the system fails.

Now, China’s system is starting to fail… and the bubble is starting to blow up and the fallout will affect us all.

As Miller warns, this is a different China than that of the past two decades. The government understands that it has to slow growth after massively overbuilding and inflating bubbles.

This, he warns, will impact China’s neighbors — places like South Korea, Japan, and Australia (where I recently issued strong warnings about the China burst) — more than most people assume.

Societe Generale’s analyst, Albert Edwards, warns: “Australia is a leveraged time bomb waiting to blow up. It is not a CDO (meaning collateralized debt obligation), it is a CDO squared. All we have in Australia is, at its simplest, a credit bubble (consumer debt) built upon a commodity boom, dependent for its sustenance on an even greater credit bubble in China.”

Exactly!

Already, an agricultural financial co-op has closed its doors, and depositors couldn’t withdraw their money. And a China Credit Trust wealth-management product of $496 million blew up.
The Chinese government bailed them out.

Then, on March 7, China saw its first corporate bond default, when Shanghai Chaori Solar defaulted on its bond payments. It’s unlikely the government will bail it out.”

PPP Infrastructure Finance – A Case of Public Pain for Private Profit..?

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The following is an article written by kiwi Joel Benjamin who is in the country for three months. Formerly from Hawkes Bay, he is currently a researcher for Goldsmith University in London and was formerly a campaigner for public finance.

oblique-view-img4It’s time for a serious public debate on infrastructure future.

This week at the Auckland transport summit 2014, experts from around New

Zealand will gather in Auckland to discuss transport infrastructure planning

solutions to address Auckland’s growing urban transport problems.

Entirely missing from the debate however, will be an open public discussion of

how such infrastructure will be paid for by all New Zealanders, and paid to

whom?

Having recently returned to New Zealand after several years in financial

campaigning in London, I was interested to see what was being proposed in New

Zealand across the infrastructure planning and finance space. The answer is PPP.

Upon leaving a planning role with Napier City Council in 2006, I spent 3 years in

Melbourne with State transport authority VicRoads, before briefly entering the

consultancy game.

Through the experience of working on projects including the Calder Corridor and

Geelong bypass in Melbourne and Sydney West Metro underground rail, I have

seen the best and worst of what the private and public sector have to say and do

on infrastructure development.

Compared with Melbourne, Sydney is a transport infrastructure basket-case,

suffering from 20 years of State Government decision making paralysis.

While the construction companies hate the constant transport planning u-turns,

for the planning and engineering consultants, it’s a fee earning gold mine, with

taxpayer funded “team-building” gigs sailing on Sydney harbour all the rage.

Ideologically I am not wedded to either public or private sector approach to

infrastructure delivery. I am however extremely concerned about who pays for

infrastructure, and that what is designed and built is fit for purpose and meets

demonstrable public needs.

In the mid 1990’s Australia and the UK embarked on a infrastructure financing

model called the Private Finance Initiative (PFI/PPP) to fund public

infrastructure including schools, roads and hospitals “off balance sheet” using

more expensive bank finance, instead of Government borrowing.

Whilst PFI has proved a gold mine for private financiers and construction firms,

it’s been a disaster for the UK taxpayer.

To pay back £55 billion of PFI/PPP infrastructure will cost UK taxpayers £301

billion over the next 30 years.

Interest charges on PFI bank finance are at least double the cost of Government

borrowing. In the NHS, academic Allyson Pollock has stated PFI has frequently

meant “one hospital for the price of two.”

Our Prime Minister John Key spent his working life in London within a banking

environment where such profits at taxpayers expense were considered not only

desirable, but entirely normal.

With the recent creation of the Auckland “super city” and talk of local

government mergers in Hawkes Bay where I grew up, I see plenty of warning

signs that PFI/PPP super profits are occupying the thinking of politicians here,

and taxpayers have every right to be concerned.

It turns out that the modern infrastructure industry is not especially concerned

with financing development, its objective is developing finance.

The aim is to get as much private bank debt out the door as humanly possible

with unsuspecting taxpayers on the hook to pay for it.

The public utility of any planned infrastructure (if it is even needed) is of

secondary concern to authorities, whose job is to maximise private profits.

Planned Public-Private (PPP) infrastructure projects including the Ruataniwha

Dam in Hawkes Bay, and Transmission Gully in Wellington should be considered

and scrutinised in this light. Coincidentally, both PPP projects which are financed

by BNZ.

The “vertical integration” or alignment of commercial interest between the

infrastructure developers and the bank is so complete that Andrew Pearce, the

Chairman of HBRICL who are developing the Ruataniwha Dam project also sits

on the BNZ board.

There is no accusation of impropriety involved, but taxpayers should certainly

question whose interests are being advanced through development of the

Ruataniwha Dam – local rate payers, or BNZ shareholders? to whom Pearce has a

“fiduciary duty” to maximise BNZ profits.

PPP projects are typically designed to benefit from economies of scale and suck

up thousands of hours of expensive private sector engineering and

environmental consultants time.

However spend a few hours reading through a typical economic business case

used to justify a PPP project and you’ll quickly discover more clouds of doubt

than your average long range mountain forecast.

Economic forecasting is frequently full of grandiose predictions, models and

assumptions. Build it and they will come, as opposed to projects servicing

demonstrable existing needs.

PPP projects are fantastic business for the private sector, as lending to central

government involves zero risk of default. Profits for private sector firms

engaging in UK PFI/PPP projects reach 60-70% returns, as compared with 3%

returns on standard construction projects.

Tangible benefits for taxpayers however are much more elusive to pin down,

with many PPP projects owned, controlled and run via offshore shell companies

paying negligible taxes. PFI/ PPP contracts are deemed “commercially sensitive”

and are not made available for scrutiny in the public realm.

Despite the criticisms, let’s be clear about one thing. We need good public

infrastructure. That much is obvious.

Road and rail networks connect trade and commerce, ports connect us to global

markets and modern schools and universities ensure a skilled and innovative

workforce.

We must however question an “infrastructure at any costs” philosophy, designed

to indebt future generations for decisions made today in the interests of private

sector profiteers, not the taxpaying public.

There are other means of funding infrastructure which much be explored before

committing future generations of taxpayers to the folly of PPP.

A 2011 UK Treasury Select Committee Report on PFI/ PPP found the cost of bank

borrowing to be at least twice as expensive as Government finance.

Questions must be asked why direct Government financing of projects like

Transmission Gully, Auckland rail development and Ruataniwha Dam is not on

the table alongside PPP. Where is the alternative?

We also have the option of public banks, like the Bank of North Dakota in the

USA. The Bank of North Dakota has a mandate to support the local economy,

support other local banks and fund rural businesses, infrastructure and

irrigation projects of a type identical to Hawkes Bays Ruataniwha Dam.

The difference however, is that interest payments and profits at public banks

(being State owned) are reinvested in the state, not siphoned off by private

profiteers such as Australian owned BNZ – who finance both Transmission Gully

and Ruataniwha Dam PPP projects.

When a public bank like the Bank of North Dakota makes lending decisions, we

can be reasonably assured both the infrastructure project itself, and the profits

that derive from it are aligned with, and ensure benefits for, local citizens.

When private banks like BNZ are involved in infrastructure planning and finance

on a strictly for-profit basis, we have no such assurances, and should remain

vigilant to the corrupting effects that for-profit private infrastructure finance

can, and demonstrably have had on democracy in the UK.

There is no shortage of bedrooms in Auckland but…

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The Q and A programme on TVOne this week started with a debate on housing. Property investor Olly Newland and Hive News Publisher Bernard Hickey were asked by Susan Wood about how to control the housing bubble in Auckland, since the Reserve Banks had this week decided it was not budging and would leave the Loan To Value (LVR) restrictions in place.

Olly Newland seemed to want no restrictions at all so that rents will come down. Bernard Hickey pointed out that if you have first home buyers with 1% deposit you run the risk that the banks will fail and the Reserve Bank can’t take that risk. Olly replied that the banks can look after themselves, which fails to understand that we need a reliable banking system. He said that LVR restricts first home buyers and that is preventing them from getting on the housing ladder. He even used the term “moral aspect” and said he was the first to encourage home buying for first home buyers.

Bernard pointed out that if rents go up the government has a fiscal problem because it pays accommodation supplements. Bernard says if interest rates go up homeowners are in trouble. He reflected on the fact that RBNZ had been considering various ways of controlling lending to investors, including a different rule for those who have five or more properties.

They disagreed on whether interest rates will rise or go down, Olly opting for the latter and saying we are getting deflation starting round the world. He dismissed the RBNZ’s solution to control investment finance as “political claptrap” and said he wanted people to be able to rent property for a lifetime securely. He believes the market would steadily slow down and people were investing for the long term.

Oh well, interesting to have his views.

Then the panellists came on and included Matthew Horton and Laila Harre. Laila said the government doesn’t know whether
they want more people to live in their own houses
they want to control the rental market. They should get a policy on these.

Laila said there was an obsession with the supply issue and a lack of proper statistics. The housing shortage figures vary between 5000 and 30,000! Property investors owning 5-6 homes are often living in large houses themselves when all their children have gone. There isn’t a shortage of bedrooms in Auckland at all.

Matthew then pointed out the anomalies possible in the RBNZ’s other options e.g. does a property owner with five bedsits have a bigger portfolio than those with three huge student houses? Here we go again. If you don’t ask the right questions you don’t get the right answers and you end up with a complicated messy system full of anomalies.

So they managed to have a whole debate without once raising the issue of land prices and how to keep them down.

You know when I was writing my book Healthy Money Healthy Planet – Developing Sustainability through New Money Systems I was arguing that money be created without interest. Some said interest rates need to go up not down. But the strongest reaction I got from the drafts was from Robert Keall of Resource Rentals for Revenue. He basically said “zero interest loans over my dead body” because he knew land prices go up. He said we want higher interest rates not lower interest rates.

Ten years later I know what they all meant. Low interest rates mean a land bubble (people call them housing bubbles but it is really the land that rises in value not the building).

So while I am still of the opinion that money should be never be created as interest bearing debt, I am also acutely aware of the connection between land and money and know that in New Zealand new land tenure systems were introduced by British colonists at the same time as private banks and their money creation powers.

The whole point is that because land is naturally occurring, it belongs to everyone. Colonists brought with them a concept completely alien to Maori, and indeed to the thinking of indigenous people worldwide, – private land ownership. The setttlers, who had largely been tenant farmers in England and Scotland, wanted freehold land. Freehold means land ‘free of rent’. Thousands of years of enclosures of land in Britain had meant that freehold was the new ideal. They had forgotten that land belongs to everyone.

It is a sign of how little distance we have come in our understanding of land as a natural resource that a high profile debate like this QandA debate can go hard at it without mentioning land. One tweeter said ‘The elephant in the room is capital gains’, again without mentioning land.

Oh and they had a debate they had about ‘forcing people out of their homes’. When Laila pointed out that there was no shortage of bedrooms in Auckland, Matthew Hooten said you can’t force people out of their homes. Well a tax system can. That is what tax systems do – they alter behaviour. If a Remuera retired couple is living in a huge home and the only cost to hold their land is the rates, they stay there. If however they had to pay an extra 3% land tax they might reconsider buying a smaller property more suited to their needs.

The next day the Dominion Post carried a short piece making Laila look ridiculous for saying this but she was only pointing out a fact.

A recent Melbourne study has found that a great many property owners are not even renting, they are just sitting on their properties waiting for capital gain. In the commercial area it is a higher percentage and in each suburb it differs. 64,386 properties are likely vacancies during Melbourne’s record-long housing supply crisis – See more at: http://www.prosper.org.au/tag/speculative-vacancies/#sthash.cHtfoINb.dpuf

It is time such a study was done for Auckland.

Economics professor Steve Keen in a recent interview said it is only thing stopping unemployment rising to the levels of Europe is the the housing bubble. The housing bubble keeps money supply up. Goodness, that is a critical point and leads us to understand the interconnections between the money supply, unemployment and how the tax system affect where money is invested. Of course Steve Keen must then argue we need more money in the system as well as a tax system that taxes the monopoly use of the commons and not work. And we have to find a money system that is sufficient. Thank goodness for the citizen effort going on at the moment to start a Christchurch currency. Yes getting this new political economy is a huge challenge for the entire world. http://www.switzer.com.au/video/keen13112014/.

Will The US and Japan reach a deal on agriculture and automobiles, and offer virtually nothing to everyone else

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eight_col_tppa_protest_welliLast Saturday was a very successful International Day of Action against the TPPA! Here is something Jane Kelsey wrote about the various scenarios. Here is hoping we don’t get option 3. And watch the timing, as it could all happen when we are busy with Christmas…And here is Jane writing now:

“It is a hell of a lot easier to stop the TPPA being concluded than trying to prevent it coming into force after the deal has been signed. This is the time to ram that message home, not just to the government, but to the opposition parties as well – including the prospective Labour leaders whom I have yet to see stake a position on the TPPA.”

There is a mythology that the TPPA will never happen. That is a reckless assumption. It encourages complacency and inaction. And it is seriously wrong.

The political leaders of the twelve countries know they have to do the deal soon or it will become paralysed.

That won’t happen when the trade ministers meet on 8th November in Beijing on the margins of APEC. But it could happen within a couple of months. No one should doubt how serious they are.

That was obvious at the ministerial meeting ten days ago in Sydney.

The pressure on the negotiators in the handful of remaining sensitive chapters is intense, as if they have instructions to finish their technical work so the ministers can finalise the deal.

What has been saving us all is the continued standoff between the US and Japan over agriculture and automobiles.

That could continue to save us. But don’t bet on it.

There are mixed views about what the Republican victory in Tuesday’s mid-term Congressional elections in the US will mean. It is already being spun to say that Republicans are pro-free trade and will be better for the TPPA, so they may give Obama fast track authority to ease the TPPA through Congress. That would reassure the other governments at the table and encourage them to finalise the deal.

Those who are tracking developments in Congress, such as Lori Wallach from Public Citizen, disagree. There is a real hatred of Obama in some Republican circles, and the price for fast track would be hugely controversial, such as rules on so-called currency manipulation, which some countries couldn’t agree to.

On the Japan side, it is unclear how the political scandals in the Abe government might affect the shape of a final deal with the US on agriculture and automobiles. Abe also has a controversial tax change to steer through the Diet in the next few months that will use up a lot of his scarce political capital.

Despite these factors, both the US and Japan need an outcome. Soon. They could well do a pragmatic deal that works for them, and let the dominos fall.

I can see four scenarios.

Scenario one: The US and Japan decide to play by the supposed rules of November 2011 and liberalise everything for everyone. And flocks of flying pigs will fill the skies over the twelve countries.

Scenario two: The US and Japan cannot reach agreement on agriculture. Everything remains stalled. After some time – who knows how long – they stop pretending and suspend negotiations.

They know that once they do that, the momentum is almost impossible to regain. The Doha round at the World Trade Organization started in 2001, was suspended in 2007, then restarted but no-one would know! In this scenario, expect the TPPA to drag on with no one willing to pull the plug.

Scenario three: The US and Japan reach a deal on agriculture and automobiles, and offer virtually nothing to everyone else. That is consistent with what Japan reportedly offered to New Zealand on dairy in Sydney. Canada will happily follow suit, hiding behind the US and Japan. Faced with this, Groser can’t bring himself to walk away, swallows the rat, accepts what’s on offer and agrees to trade-off our medicines, internet, investment, SOEs, etc.

Scenario four: Groser does what he has threatened to do, and walks away because there is no meaningful liberalisation on agriculture. More flocks of pigs join their whanau in scenario 1.

The agriculture lobby is terrified because they know the third option is the most likely. That saw them at panic stations last week with a series of statements from Federated Farmers, the dairy lobby, Groser and sympathetic journalists insisting that New Zealand must be prepared to walk away from a lousy deal.

Groser will never walk away. He views the TPPA deal as his brainchild. He will spin whatever is in the final deal as the first step to something that will bring huge long-term benefits to New Zealand. ‘We can’t afford not to be part of the biggest deal between the world’s biggest trading powers … ‘

If he is clever – and he is – Groser could seek to defer implementation of the worst parts of the TPPA so the impacts are delayed. Better still, if Parliament didn’t have to change the law immediately, the US would be unable to hold New Zealand to ransom over compliance (the blackmail process known as ‘certification’).

Then Groser can say, ‘see, the scaremongering about the TPPA was a big beat up.’ By the time the impacts are felt, his role as the minister who negotiated the TPPA (and hopefully the National government) will be history.

This could well happen unless we turn up the heat, on and after Saturday.

Defeatists will say that taking to the streets won’t make any difference. But activists in Australia, Japan, Malaysia and the US will be doing the same. The collective pressure does matter. The other governments are nervous about who can deliver on what they are promising, especially when it is unpopular at home.

It is a hell of a lot easier to stop the TPPA being concluded than trying to prevent it coming into force after the deal has been signed. This is the time to ram that message home, not just to the government, but to the opposition parties as well – including the prospective Labour leaders whom I have yet to see stake a position on the TPPA.

Gatherings on Saturday were in Auckland, Hamilton, Raglan, Tauranga, Rotorua, New Plymouth, Napier, Palmerston North, Levin, Wellington,Nelson, Christchurch, Timaru, Dunedin, Invercargill. Details on itsourfuture.org.nz.”

Land enclosures in England took centuries

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UnknownAndro Linklater’s book Owning the Earth – the Transforming History of Land Ownership is a fascinating chronicle in the history of civilisation.

If you think that land speculation is something modern contemplate this: Thomas Cromwell, Henry VIII’s lord chancellor was big speculator. Here is Andro Linklater on the topic:
“In three frenzied years, from 1537 to 1539, he bought almost twenty properties in the southeast of England at a cost of £38,000, then sold most of them again for a total profit of more than £4000…..

But the profit to be made from the rising price of land was irresistible. When the mighty abbey of Tewksbury lost its lands near the south coast, a wealthy London cloth merchant, Sir Robert Palmer, bought three of its manors in 1540 for £1255, and immediately cleared off the villeins and cottagers. Then he turned on the tenants, harassing them and even breaking into their homes.”

Jump two centuries forward and the enclosures are well advanced. He writes “The rising price of land triggered a new surge in enclosure. Much of England’s farmland had continued to be cultivated as ‘open fields’ with some common rights of pasturing livestock, and almost a quarter remained communally owned and used. It was a measure of the landowners’ influence in Parliament that more than four thousand ‘Inclosure acts’ were passed between 1700 and 1830, allowing their promoters to hedge and fence in most of this land as private, exclusive property….. Altogether some seven million acres were transferred into private ownership through the enclosure orders, brutal testimony to the political power now wielded by landowners. In many cases compensation was paid, but the total value of enclosed land represented the transfer of about £175million of assets from communal possession to the lawyers, merchants and wealthy landowners who controlled Parliament.”

Why did landowners want to enclose their property? Because they ran sheep and when the sheep were confined to one area bounded by hedges or ditches or stone walls, they manured the soil. The word ‘manure’ also meant ‘improve’. Their land was then more productive.

So let’s go back to 1485 and follow it through.

1485 Henry V11 first year on the throne
1489 The land revolution was well underway. Henry legislated to stop engrossment
1536 Pilgrimage of Grace opposes enclosures
1549 Robert Kett’s rebellion against enclosures. None statutes and 3 government commissions designed to prevent ploughland being turned into pasture and highways being thronged with homeless who were dispossessed of their land.

1517-1537 fines or imprisonment for those who enclosed land including 264 peers, bishops and knights.
1533 Inheritance issue. Struggle was won by the landowners and Henry V111 found that he was short of taxes.

Review of Naomi Klein’s book This Changes Everything, Capitalism vs Climate

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Book Review by Peter Healy, Marist Priest of Otaki

This Changes Everything, Capitalism vs the Climate by Naomi Klein, 2014, $37

la-ca-jc-fall-preview-naomi-klein-20140914-001
This is a comprehensive and timely book. Klein says in part one, “If there has ever been a moment to advance a plan to heal the planet that also heals our broken economies and our shattered communities, this is it.” In the introduction she says “this is the hardest book I have ever written because climate change puts us on such a tight and unforgiving deadline.”

This book is about our “climate moment” with all its challenges and opportunities. First, Klein says we have to stop looking away. We deny because we fear letting in the full reality of a crisis that changes everything. The need to change everything is not something we readily accept. If we are to curb emissions in the next decade we need a massive mobilisation larger than any in history. She quotes the Bolivian Navarro Llamos who suggests it is time for a “Marshall Plan for Earth”.

The question is posed: What is wrong with us? What is really preventing us from putting out the fire that’s threatening to burn down our collective house? The global economy always takes centre stage. Market fundamentalism has systematically sabotaged our collective responses. Our economic system and our planetary systems are at war. We are faced with a stark choice: “either we allow climate change to disrupt everything about our world or we change pretty much everything about our world to avoid that fate”. We need a radical rethink for these changes to be remotely possible.

Our “climate moment” is accompanied by what she calls a “fossil fuel frenzy”. A wild dig is going on in most nations on the planet. Aotearoa/NZ being no exception. With the “fossil fuel frenzy” Klein says, “We have become a society of grave robbers, we need to become a society of life amplifiers, deriving our energy directly from elements that sustain life. It’s time to let the dead rest.” Our most important task now is to keep carbon in the ground.

To do all this we need to be thinking differently. A new worldview is required, “a project of mutual reinvention” has to be entered into. The door to 2 degrees of warming will close in 2017. We are in the midst of a civilisational wake-up call. This call is coming to us in the language of fires, floods, droughts and extinctions. We are being called to evolve, and the thing about a crisis this big is that it changes everything.

Wealthy nations need to start cutting emissions by 8-10 percent per year. They have to begin this now. We need to consume less and get back to 1970’s levels. Low consumptions activities like gardening and home cooking are good. Changing everything means changing how we think about our economy. Large corporations dodge regulations, and they refuse to change behaviours. No company in the world wants to put itself out of business, their goal is to always expand their market share. Klein talks about addiction rather than innovation when it comes to new methods of extraction. We need to keep all the fossil fuel we can in the ground, at the same time more extreme and innovative methods are being invented to get at whats left. The madness of “extractivism” is a relationship of taking with little care being given to regeneration and the future of life. As Klein says the market economy and the fossil fuel economy emerged at about the same time. “Coal is the blank ink in which the story of modern capitalism is written.”

There are no messiahs. The green billionaires will not save us, we have to change our lifestyles. Our most intoxicating narrative is that technology will save us, and this is one of our forms of magical thinking. There are some fascinating passages about Klein going to a geo-engineering conference in the UK. She describes the attendees as, “a remarkably small and incestuous world of inventors and scientists and funders.” It is all very risky, untested and dangerous stuff that they are proposing. The solution to global warming is not to fix the world, rather we need to fix ourselves.

The book has inspiring things to say about “Blockadia”. This is a broadbased grassroots resistance movement intent on shaking the fossil fuel industry to the core. Indigenous peoples are key in the Blockadia movement, their rights can be a great gift for the revival and reinvention of the commons we all love. Bolivia and Ecuador have already put “the Rights of Mother Earth” into their national statutes. Blockadia asks the question, “How come that a big distant company can come to my land and put me and my kids at risk and never ask my permission?” The corporations come from far away and go everywhere because the fossil fuel industry is one of extreme rootlessness.

Followers of recent global climate talks are well aware of failure and deadlocks. A Greenhouse Development Framework from the Stockholm Environment Institute is an attempt to deal with disparities within and between countries claiming the rights to develop and pollute.

In chapter 13 of the book Klein talks about her attempts to have a child while researching this book. There are some lovely descriptions of Klein coming to realise that earth is facing fertility challenges of her own. Many species are now against “infertility walls” and finding it hard to reproduce. Fertility is one of the first functions to erode when animals are under stress.

The challenge for the climate movement hinges on pulling off a profound and radical economic transformation. In extraordinary historical moments “the usual category that divides “activists” and “regular people” become meaningless, the activists are quite simply everyone”.

So this book is for you and me and everyone. We are all implicated in everything this book is about, so get hold of it, read it and pass it around. As a slogan at the recent climate march in New York said, “To change everything we need everybody.”

I found myself saying to someone the other day, “If any book will push us through and beyond the Great Transition that we all have to make, then this is it!” Along with the film that Klein’s partner is making on the same subject, we can take some hope. We still have our brief window of time. We are inventive and creative. We can join with the tangata whenua as guardians of Mother Earth.

Obvious solution to housing bubble – put a price on the holding of land

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Dilapidated, no power, no water. But still worth $1million

Dilapidated, no power, no water. But still worth $1million

The debate on Auckland’s out of control housing crisis is missing one critical factor. While some commentators actually realise it is the rising price of land that is the issue, most ignore it. If only there was a price on the holding of land, values wouldn’t rise so fast.

The key is understanding that the Auckland Council was enshrined in legislation mandating that rates are struck on capital value. That financially disincentives building. For most of NZ history council rates were struck on land value only. This may be the reason that Wellington, Napier and Dunedin are relatively compact.

If you strike rates on only land value it
1. Encourages development and building because there is no financial disincentive to improving land.
2. Prevents urban sprawl
3. Prevents leapfrogging where there are holes in the development.
4. Is progressive, favouring the poor. Property ownership is more concentrated than income so rich people end up paying more.
5. Stops land value from rising too fast.
6. Stops rents from rising as rents rise more if the landlord needs to pay extra rates if the house is upgraded.
7. Forces slum landlords to sell or develop.(especially if the price on holding land is high enough)

Section 13 of the Local Government (Auckland Transitional Provisions) Act 2010 requires the general rate to be set on capital values.

In 1998 Pennsylvania changed its laws to allow urban authorities to split their property taxes into land tax rates and building tax rates. The cities that put more tax on land than on building all avoided property bubbles and prevented urban sprawl. Pittsburg survived and thrived after steel.

Unless something is done to reverse the part of the legislation mandating for capital value rating, we will continue to have rising house prices, urban sprawl and inequality.

We also have to get rid of Universal Fixed Annual Charges. The Shand Report of 2007 recommended this as it found them to be regressive. They also recommended getting rid of rating differentials and recommended everyone go on capital value rating. What a shame. Their recommendation to go on capital value rating was wrong, but the other two right recommendations seem to have been completely ignored.

However rating systems, even when imposed on land values do not capture all the capital gain from holding land. It is important that a full rental is placed on land value and the revenue is shared by local and central government. A land based rating system can only go so far to capture the rental and stop it being privately captured.