Extravagant share prices on the world 's major stock exchanges are propped up by the debt system, i.e., by the extension of credit to the individual people and the corporations gambling without having the ready cash.
   A January 1999 headline is "Good times unlikely to keep rolling." Such prophecies have been made for some years now, and some observers are puzzled by the continual increase in the stock exchange prices, without any proper economic reason.
   Even allowing for the fact that the Top End of Town must feel it has nearly all the politicians, editors, and the "quotable" economists fooled, why has this dangerous game been allowed to go on so long?
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   An example of the lack of logic in the 1990s share boom is Amazon Books, which started as an innovation on the internet which is very successful -- many people buy books through  But the company has made huge losses every year, while its share price on the stock exchange is very high. Someone, somewhere, has a reason for keeping up this fictitious "bull" price.
     But first, what evidence is there that Big Business is using the banking system (which it owns -- read the names of the directors) to extend credit for sharebuying?
     Visitors to sharebrokers have known this fact for years.  "Margin" lending to stock and share investors was a feature of the 1920s, but then the credit began to be called in.  A depression started in the United Kingdom about 1926 (remember the General Strike from 4 May), and the world Great Depression started after the Wall Street stockmarket crash of 29 October 1929.

   You have to learn the jargon or you miss the main story.  Heading*: "CBA offers lower-entry margin loans"  Well, what does it mean?  The Commonwealth Bank is trying to get more business from small investors by lowering the interest it will charge on "margin" lending.  In other words, if you gamble, er, risk losing, 40 to 70 per cent of the shares you want to buy, the CBA will give you a loan at 7.65 per cent, provided you borrow at least $2,000 and take out a $20,000 line of credit.  That's cheaper than your 12 and 13.75 per cent Credit Card!!
   And, remember, many shares are at least double the price they would be if people calculated what profits could be earned by the companies.  How do these prices stay up?
   Well, our Level Playing Field experts will tell you that prices will stay up if there is "competition" in the "market."  So, if there is no REAL competition based on common sense and hardnosed business, what better way of convincing the middle class that the economy is booming, than by having people to provide the "competition" by buying shares with someone else's money?  And keep up the pretence, so that many of them will make profits and be able to live well without working hard.
   And, for every purchase, there is a sale, so the stockbrokers keep the lovely commissions rolling in from both directions.
   And, could our politicians assist?  Yes, they could, and they have done so by allowing these "investors" of fictitious credit to charge up their interest payments as a business expense -- in other words, to negatively-gear their share portfolios, and so make it easier to "invest" because the profits won't be taxed.
   (* The heading is from The West Australian, January 22 1999, p 39, article by Mark Pownall)

   In the early days of 1999 Ron Bennetts, the Perth manager of stockbroking firm J.B.Were & Son, tried to warn the public.  The West Australian, January 8 1999, p 29 had a longish article "Punters ignore warnings, push index to record," by Ingrid Mansell and Brett Lane.
   The all-ordinaries index had soared to 2902.9, breaking the previous record.  And around the world Asian markets also finished strongly (in spite of the hunger and near-revolutions brought on by political and financial trickery in those countries).
   Mr Bennetts of Were's commented, "Any market that is liquidity-driven, as this one appears to be, is a concern."  Don't you just love that word "liquidity."  Liquidity is supposed to mean cash, but we all know that in this case it means a lot is based on credit -- and that means, based on debt!
   Another broker said "... there was fantastic value to be had in the out-of-favour resources sector  -- provided investors took a long-term view."
   Note that word "investors."  I'll bet the high school students and others who haven't passed that mental age think that "investors" are prudent people who live clean economical lives, save their cash, and invest, or were lucky enough to be born into well-off families.
   But the heading had it right -- they are "punters," just like the people betting on horses -- and many do it on credit!
   How many?  Well, the Mark Pownall newsitem reports that the Commonwealth Bank has 290,000 retail broking clients.  Australia at present has the Big Four banks, so does that mean about 1,000,000 people and/or firms are gambling, er, investing on the stock exchanges here and overseas?
   And note the "long-term view" recommended for buyers of resource stocks.  The "Establishment" is making sure that no-one can tell what will happen next, what with privatisation, mergers (that's newspeak for building monopolies), accessibility rights (yes, an iron-ore company in northern Western Australia might be forced to let a competing company use part of the railway that the original company built!), and the fraudulent "Competition Policy."
   Raw materials were at a low price now, but who can tell if the international "privateers" corner the market in some product or other, and force prices up.  For investing, the "long-term view" would certainly be my recommendation!

  The story of book sales on the internet by Amazon Books is summarised in The West Australian, January 8 1999, p 31 under the heading "Billionaires," by Luke Collins.  Amazon was formed four years ago in a basement by Jeff Bezos.
   His idea of taking book orders by internet became hugely popular, and the turnover is huge, but the venture makes loss after loss.  In the September 1998 quarter lost $US45.17 million.  But Mr Bezos on paper is worth $US88,500 million.  Each $US18 share is supposedly worth $US414.
   Another United States internet company, America Online (AOL), which makes profits, is capitalised at a price-earnings ratio of 496.  In plain talk, that means if you bought the shares at today's extravagant prices, it would take 496 years of the current profit rates to get the money back.  THEN your descendants could start to make a profit for themselves!
   Each share in the local company LibertyOne which floated in December at $2 a share is now supposedly worth $4.85! Little wonder that the writer added "... nearly all brokers expect the bubble to burst."

   The heading "Good times unlikely to keep rolling" on Terry McCrann's article says a lot in the Sunday Times  of January 24 1999, p 41.
   If the United States Federal Reserve Bank board led by Alan Greenspan increases interest rates the "good times" would end. If he reduces interest, high-tech and internet stocks would rise [Have you noticed how this meshes in with the original points of this Internet Page?]. This could set up the market for an even greater fall, writes Mr McCrann..
   He writes that the Reserve Bank estimated that the AMP demutualisation provided a much bigger boost to the economy than anticipated when policyholders got $20 billion of free shares.
   "That strong growth into a subdued global economy, excluding America, sent our current account deficit soaring," he adds.
   Let's analyse the part about the AMP policyholders, who become shareholders.  It seems they gave a "boost" to the economy, which I suppose means they spent money -- does that mean that some or many of them sold AMP shares? If so, who bought them? Could it be the global competitors of AMP?
   And, how can a "boost to the economy" still lead to an increase in Australia's current account deficit? In plain language, does that mean that the boost was real, or does it suggest it was a fiction?

   Another perspective of the rising share markets while production falls was reported by Christopher Lingle in The Australian Financial Review, May 5 1999: "Hong Kong's economy experienced a 5 percent contraction in 1998 ... the Hang Seng Index [HK stock exchange] rose by 85 percent over the last three months of 1998.  Thailand's economy shrank by about 11 percent in 1998 ... its stock market gained about 70 percent. ... The interest rate cut by the US Federal Reserve and the European Central Bank ... created the additional liquidity for investors to play the markets ..."
   [This is saying in different words what is in previous parts of this Webpage -- bankers are lending credit to allow people to keep bidding up the prices on the stock exchange. When will the bubble burst?]

   (inserted 10 Dec 1999)
   In late 1999 the warnings about the extremely high prices of shares continued.  "The chairman of the Australian Stock Exchange has added his voice to the chorus of nervous analysts who are concerned about the dangerously high values on Wall Street and the potential for a big correction."  (The West Australian, December 9 1999, p 49.)  
   He is Maurice Newman, who was backed up by the leading broking and banking house Rothschild on Dec 8. Rothschild's warned that Australian equities were historically overvalued.
   Mr Newman was speaking at a lunch held by the Australia-Israel Chamber of Commerce in Adelaide.  He said that the US stockmarket's impressive run this year would soon lose momentum.
   "There is quite clearly rampant speculation, the values are stretched beyond anything we've ever seen and that's reason for caution," he said.  Pointing to the astonishing rally of Internet and technology stocks this year, Mr Newman said a spike of these proportions always led to a big fall -- the question was not "if" but "when".
   Technology One was listed on the Australian Stock Exchange on December 8 at a premium of 200 per cent.
   The US Nasdaq composite index on Tuesday (Dec. 7) night set its 19th closing record since Oct 29, mainly because of the soaring price of Internet search engine company Yahoo.
   In Melbourne, Rothschild's Andrew Brown said that the Australian share market was two standard deviations over prices, topping levels not seen since 1992. The stocks were overvalued by 10 to 15 per cent.
   Another Rothschild's executive, Jonathan Pain, said that the US Federal Reserve Bank chairman Alan Greenspan was in danger of allowing a huge speculative bubble to grow if he did not act soon. Most likely the bank would raise interest rates early next year.
   Looking at Internet stocks, Mr Pain said that investors were paying money for companies that had "zero profit". There were many analysts who now agreed that valuations had become "absurd". -- adapted from an article "Fears mount for big correction," by Eli Greenblat, attributed to The Age, Melbourne, in The West Australian, December 9 1999, p 49.

   (written 05 Apr 2001)
   Well, the huge drop in the NasDaq technology shares has occurred, and the "necessary correction" has begun, with computer programmers and similar professionals being laid off by the hundreds and the thousands.
   And, every now and then a bit more of the truth is published quietly in the newspapers.
   Recently an investment adviser, in his newspaper column, was replying to an enquirer who wished to know if it would be wise to buy shares on "margin", that is, borrow through a stockbroker for the purpose of investing in shares.
   The enquirer mentioned the benefit to him of "negative gearing," that is, the ability to charge up the interest and expenses of borrowing against profits (if any), and so reduce his income tax.
   (The leaders of the major parties still keep on saying that the "Mums and Dads" must be better off than they used to be, because a higher percentage of them have shares. In reality, a dangerously high percentage of ordinary people have taken the negative-gearing bait, and are head over heels in debt. Negative gearing is also heavily used for rental housing and other rental purchases, but the returns could not match the fictitious profits from share dealing before the bubble burst.)
   Anyway, this adviser did the right thing, and while counselling caution, mentioned that buying on "margin" included a condition that, if the shares you bought dropped more than a certain amount, you had to repay the debt within 48 hours!
   Now you know why there were stories of millionaires in 1929 jumping out of New York skyscraper windows! They were going to be forced to sell, at bargain prices, shares in companies worth huge amounts, and their future was going to be like Perth's 1980s junior wizkid Povey.
   These 1920s "investors" (gamblers, really) felt a bit like the farmers of those days who, having produced enough food and fibre to feed and clothe hundreds of people, were being forced to sell their produce below cost.
   One of my pet peeves is the boundless faith by members of the Liberal and National Parties in "private enterprise." These ordinary members have what I call the "small shopkeeper" mentality. (It's OK, my parents were shopkeepers for some years.)
   They blindly believe that "free enterprise" is the way to go -- and I agree. The real problem is, we don't have "free" enterprise -- not when, for example, all the banks can in the past 20 or so years start charging people for using their own money!
   It's not "free" enterprise when most small business people have been sweating over the Goods and Service Tax's BAS (Business Activity Statement), and are worrying about whether the payments will leave them short of cash, but meanwhile Telstra (still with a big government stake) has announced that it will send some of its profits off-shore in order to reduce taxation!
   And, can anyone forget the Liberal Party's "debt caravan" that went around various parts of Australia during the election campaign before they won office? Well, the overseas debt of Australia has gone through the roof since John Howard and Fischer took over the reins. Treasurer Costello might have wiped the smirk off his face since the Coalition's "demolition" in two States, but his team isn't even trying to wipe off the billions of debt that piles up.
   Is there any limit to the stupidity of the large numbers of people (that is, the majority!) who vote for politicians (including the Australian Democrats) who have orchestrated these ridiculous contrasts? The reason for Telstra's move is, I suppose, to reduce the taxation to be paid by the super-rich. The result of that will be that governments will plan to load even more taxation on to the middle class and the poor, and cut fundamental services even harder.
   Perhaps the stupidest aspects are the actions of governments and the "chattering classes" who nearly all fervently support the "National Competition Policy", and applaud Professor Fels when he moves into another field of endeavour -- while all around us company after company is being removed from "competition" by being either swallowed up or smashed by unfair pricing or imports at "dumped" prices!
   And, with the Australian dollar now about 48.5 cents (instead of 70 cents as it was during the unlamented Labor reign), the bargain sell-off of Australia continues. Broken Hill Proprietary (BHP) and Optus are the next victims.
   Yates' Garden Seeds are the latest company to go broke. Prime Minister Howard's brother ran it for the past few years. Another brother ran a textile firm that also became insolvent. If the economy is so good, why can't the Howard boys run profitable companies?
   The Federal Coalition is not abashed by all this, but is now negotiating with the "minority rule" President George W. Bush to have a free trade agreement with the United States. In reality, that means that U.S. businesses will be "free" to ride roughshod over what is left of Australian enterprise, and enforce lower wages just as they do in Mexico and some island countries. -- John Massam

   (inserted 10 Dec 1999)
   In a heading that was influenced by the long-term fall in raw commodity prices, but disguised the true long-term profit position, it has been reported that the Australian mining industry only gave a meagre 3.7 per cent profit in the year ended June 30 1999. The figures were given in a report by accountancy firm PricewaterhouseCoopers [yes, 22 letters long], released on Dec 9.
   Although the return on shareholders' funds was up from 1.8 per cent a year ago, the return looked dismal against the industry's 10-year average of 8.65 per cent.
   There was a total operating revenue figure of $30.83 billion [billion being a thousand million], which was nearly steady.  There was $6.7 billion in nett capital expenditure on mining, smelting and refining assets.
   Taxes totalled $4.7 billion, nett profit rose from $567 million in 1997-98 to $1.05 billion from an asset base of $56 billion.
   The firm's mining leader Tim Goldsmith said that investment in new assets had slumped 20 per cent, a reaction to the lower commodity prices.
   What was spent was mainly funded by debt, increasing the industry's gearing ratio to more than 0.5 to one. [Well, well, and who said that the "debt system" was the true name of our economic system? Does anyone still believe that there are people who actually save up to provide the funds for these enormous amounts to industry?]
   "Whilst not at a dangerously high level, the ability to borrow new funds may be restricted and may have an impact on the ability (to fund) cash takeovers," Mr Goldsmith said.  [Don't you believe it -- centralism and monopoly is the real aim of those who control the lending.  They'll use credit to further their policy.]
   (Adapted from an article "Study finds mining fails to deliver," by Barry FitzGerald, in The West Australian, December 9 1999, p 49.)

   Let's look at some more "Newspeak" or "Doublespeak."  In The West Australian, January 8 1999, p 30 Ruth Gallaghah reports that the future of the telephone call centre industry is becoming brighter.
   This is reported to be because State and local governments are anxious to create jobs in their areas.
   But, what IS a call centre?  Isn't it a place somewhere away from the firm or government department that the public wants to contact? And didn't the managers give the phone answering service to this distant place in order to reduce expenditure? And isn't it true that part of the expenditure reduction policy is that, instead of your neighbour's son or daughter getting a job that includes answering the telephone, the employer now doesn't want these youngsters at all?
   So, perhaps the call centres are a partial cause of the 30 per cent or so unemployment of the under-25s. And the shocking under-employment of males from 20 to 35. So, why are State Government authorities trying to tell us that the incentives and tax breaks are being offered in order to "create jobs" in their areas? Aren't they really helping to destroy jobs?
   And a 150-seat CentreLink call centre is based in Bunbury. (CentreLink is the new name of the Department of Social Security which also has a few Job Screens and is trying, with reduced staff, to do some of the functions of the abolished Commonwealth Employment Service, while overseeing private operators in the employment field.)
   And, do you remember hearing of the phone call to 000, which was answered in another State, and the emergency service went to a place of the same name in another State? The "call centres" theorists don't have to bring the person who died back to life, or pay compensation to the family. Probably the theorists will be given an "efficiency incentive," which will be increased if they can reduce services further by pretending to modernise.

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