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Happy New Year to you Alan and all at Eureka and Business Spectator.
What a great article to start the New Year with (Stumped for global growth, January 8). It is one of problematic evaluations that is hard to argue with. I also agree with you comment on Bill Gross's article "Paranormal Economical Activity" (January 6) – I think it is spot on.
Isn't it about time that the government and RBA stopped following the rest of the world in chasing interest rates down – when the cost of living is going up to increasing interest rates – so that investment can lead the recovery, rather than the "not available disposable income"? If we can set the pace for carbon tax in the world why not in investment-led recovery? It's production first then consumerism next in line.
Clearly the RBA is going to take us down the same route as other central banks with their unwarranted interest rate cuts. (Stumped for global growth, January 9)
I will be hoping that RBA will continue to lower interest rates (Stumped for global growth, January 9)
Most of 2011 was spent with interest rates too high, and this saw consumers pull back – with consequent effects on small business.
The constant negative stream is wearing down the entrepreneurs and they are losing interest in business development.
We need to stimulate confidence in Australia, and reducing interest rates will help this process.
Disclosure: I work in the small business sector.
I trust retirees who want to earn big money sitting on their butts, will make similair disclosures.
Alan completly ignores the mathematical flaw in a money system that creates debt at a faster rate than it creates the means to repay the debt. I'd argue the real economy is healthy (Stumped for global growth, January 9).
I think the money economy is a ponzi racket that steals from most of society for the benefit of a few.
Any Government about the world could fix the problem by reclaiming the control of credit [debt] {money} away from the financial mafia that has created this insanity of war and hunger in a world of abundance.
Debt-free money can be created and spent into circulation by a sovereign parliamant allowing the bank debt to be liquidated so the economy can return to releasing the abundance of nature for all to enjoy in just proportions to contribution.
It goes without saying, almost, that this society must have regulated control over it's economic boundaries on terms and conditions that benefit its own best interest.
As long as flawed "free trade" and "globalisation" dogmas dominate the world is stuck with the present madness.
I think the world has become seduced by a money crisis that is no more real than suggesting the world is short of "millimetres" or "numbers" to measure the pages of a book. The world is under a spell that must be cast asunder.
I am surprised you missed the basic flaw in Gross's article (Stumped for global growth, January 9). If financial institutions cannot lend at low interest rates it is because of lack of demand not lack of supply.
This is deleveraging in action. Governments may need to roll over existing debt but this does not increase total outstanding debt.
Alan - your analysis in regards to Australian share performance vs other countries would be of interest. Last year we went down 15 per cent while other countries did better. If Australia is in such better shape in terms of economic growth, level of debt, and size of deficit, one might think that Australia might do better than others.
What forces are at work here?
* Maybe our rates were too high trying to clamp down on mining industry investment when the miners get the funds from overseas anyway.
* Maybe it is a result of an increasing shift towards socialism where governments take more of a bite out of company profits.
* Maybe over a few years there has been anticipation of a winding back of commodity prices - as these booms don't last forever.
What is your take in regards to Australian share levels and PEs vs the rest of the world?
Happy New Year Alan! (Stumped for global growth, January 9)
Now you have me dividing $7.6 trillion debt [to be refinanced] by 7 billion approx world population and that works out to approximately $1000 per man, woman and child?
Or in reality approximately $5000/mwc in the indebted countries? Is this sustainable?
It is all about money (Stumped for global growth, January 9); money is flapping about as though it matters.
I say that growth is not dependant on money, it is dependant only on energy. If there is no growth in energy, there is no growth and no increase in GDP.
Very few economists have woken up to this fundamental fact.
Until they do I believe we are stuck in a no growth world, with everyone running to meetings thinking they can do something about it.
Without wishing to bury the financial sector, national goverments nor individual companys and persons in red tape it strikes me that pretty much everywhere and everyone has been living beyond their means (Stumped for global growth, January 9). This is fundamental to the overall picture. Getting back to a healthy system will require a degree of self control (or regulation) to ensure that the aforementioned sectors and persons live within their means. It will need both a carrot and a stick approach, rewards for those that do and penalties for those that don't. It will also require a fairer distribution of income, as it is patently clear that those who are able to set their own incomes and take advantage of tax loopholes will do so.
That said I also agree that there is something fundamentally wrong with near zero interest rates as it de-values money, it hasn't worked in Japan in 10 or 15 years and I can't see it working anywhere else. Yes - interest rates need to vary but if they need to move out of a relatively small band then they are clearly the wrong tool for the job. I would suggest interest rates should lie in the range of 4 to 8 per cent at times and that other tools be used when approaching the bounds doesn't work. We must remember that each 25 point change in the rate when near zero has a much greater impact than if the rate is around 5 per cent.
Most investors are torn between the debt crisis in the financial markets and the long term outlook for Australia to continue to trade its way to prosperity in the Asian region. The question is: can Asia continue to grow if Europe and the US sink further into a recession or even a depression? (Stumped for global growth, January 9.)
Welcome back, Alan. The cricket was amazing, who would have thought, that Australia could convincingly beat, the number one team in the world?
It's a bit like the economy, is it not. That is, Australia, leading the world in economic growth. We have been fortunate in that we have not had to recycle our debt (Stumped for global growth, January 9).
Debt is, like an old piece of rubber – you can only stretch it so many times, before it breaks. Go to any Saudi bank, with your millions of dollars, of oil revenue and the bank manger will charge you a fee, for looking after your money. Back to the real world, of creating value, so that our dollars will have backing. It's always good to put economics in perspective – no, it's not about yield curves (in my opinion that's an economic symptom). It's about creating goods' so our paper has worth (please excuse me Alan, I know that you know all this).
Money has no intrinsic value, so unless we ascribe backing, weather it be gold, oil or food then it is worthless. OK, so what's my point? We are in a position to lead the world out of a crisis. Low cost money could be used to develop (and irrigate crops). Think of the Riverina multiplied by one hundred. Think of desalinated water from the Great Australian Bight, being pumped up to an area of agriculture, the size of Tasmania.
Is my suggestion possible? Absolutely, NSW and Victoria have the intellectual prowess. The Chinese housing bubble has burst, resource values will fall. So let's look at China phase 2: it's all about food and services.
In my opinion there could be another reason and more analysis is warranted with respect to the build up in excess reserves by the banks (Stumped for global growth, January 9).
In the US, the Emergency Economic Stabilization Act of 2008 allowed the Fed to begin paying interest (currently 0.25%) on excess reserve balances. Previously it was only allowed to pay interest on required reserves.
This was in response to the GFC and specifically liquidity concerns and the freezing up of the credit markets.
Accordingly, since 2008 excess reserve balances have increased from around $50-60 billion to over $1,500 billion!
So despite all the TARP and QE monies and near 0% interest rates... monetary policy has actually been tight (not loose) because the banks haven't lent the new (TARP, QEII) money out. Instead they have preferred to keep it on deposit with the Fed where they are paid very low but guaranteed return.
Now, I don't whether the Fed taking the Excess Reserves rate (note not cash rate on required reserves) from 0.25% to 0% is going to encourage the banks to start lending money...
Perhaps the Fed is going to have to start charging the banks for their excess reserves on deposit or do something else to move to a looser monetary policy and get the money out into the real economy.
The slowing of growth could be seen as a blessing in terms of providing a pause in the rapid growth of carbon emissions (Stumped for global growth, January 9). This pause could be used to develop strategies to direct investment towards addressing the challenge of climate change which could prove to be far more damaging to the world economy than our current financial crisis.
Developed economies need to divert their entrepreneurial talents away from the 'Ponzi' of capital gain from asset bubbles and direct it towards real productivity growth and developing superior goods and services such as those that address climate change.
Governments of developed economies could direct entrepreneurial talents towards renewable energy, reducing carbon emissions and increasing carbon sequestration across the globe. That would provide the double whammy of real productivity growth and addressing the global challenges of climate change and food shortages.
The Carbon Farming Initiative with bipartisan support is a bold step towards this objective. Recent funding opportunities from the CFI have resulted in a significant shift in R&D resources towards addressing the challenges of climate change.
Alan, we need a visionary, or someone who understands that, trading makes the world go round. Someone like Francis Lowenstein (Stumped for global growth, January 10).
We don't need more bankers, or financial planners, or guys that know how to lend $1, 20 times. We need farmers.
China phase 2, is all about food and services. Australia did well from China phase 1, but that is rapidly losing steam. Anyone who does not see this eventuating, has probably been holidaying on a desert island for the past 12 months.
Creating money is not the problem, bankers and economists, do that for a hobby. It's about ascribing value to that piece of paper and I think farmers backed by (perhaps super funds), could generate enough "real money", to change the world.
A quick review of global positions reveals the classic signature of trade as the engine for growth (Stumped for global growth, January 9).
If one looks a little closer we observe the current era of 'tail wags dog' syndrome. Brazil and her South Atlantic neighbours, Canada and her North Pacific partners, Australia/Indonesia as stars of the East Indian Ocean.
Dig a little deeper and we see not the fact those regions 'rely' upon China – and just as importantly, Asia – but the fact those Asian industrial power economies dependent upon the quality and underlying commercial value of resources traded to generate such viable industrial growth engines.
Take away those resource in part even and engines of China and Asia will stutter dramatically, just as would have America during her massive growth phases, but for quality and value of her resource base. Choke off that engine and we perceive of 70's oil crisis in rapid time line.
Interestingly, it is Southern Hemisphere that cranks Northern Hemisphere growth engine and more so future for sake vital food and water resources Ken McAlpine so readily identifies (January 9, 6.12pm). Likewise, to observe carbon and climate change, no difference.
Australia will not fall apart were China to hick up to half present growth, but no doubt those squawking mouths of the nests in South East Australia will scream for dwindling money out of their rich cousins of WA and soon NT, Upper SA and Northern Queensland.
Mind you, just as with Scotland, WA could do powerfully well leaving the nest entirely and in outcome 'hopefully' those lazy blighters in SE Australia learn the ways of Switzerland, Japan, Denmark and such like in making a living off their own bat.
From where I sit in the East Indian Ocean to observe a $60 trillion middle income pool growing from Asia, surely those folks in Melbourne and Sydney can find a more respectable way of earning an income than poaching off the rich cousins.
Hopefully in that process to recognise nothing they do at present industrially is commercially viable and WA buys their production out of loyalty alone.