THE DISTILLERY: China syndrome
There is a sizzling hole eating away at the heart of Australian commentary, and its name is China. Here’s a list of names for you: Robert Reich, Niall Ferguson, Ambrose Evans-Pritchard, Paul Krugman, Simon Schama, Noam Scheiber and The Economist. It is fair to say that this is a gaggle of the top global echelon of media-savvy economics and history commentators. Moreover, they represent very different disciplines, including Keynesianism, Austrianism, neo-liberalism, geo-politics and strategic history. All have elected in the last day to write about one topic: US-China economic relations – the trigger being Obama’s visit to Beijing and the wrangle over economic imbalances that is slowly engulfing the two nations. With our economic dependence upon China and strategic marriage to the US, you would be hard pressed to find a country more dependent upon the outcome of this contest than Australia. Yet not one Australian commentator or op-ed has elected to discuss this today. This column can only shake it’s figurative head in wonder and disgust. Where are our editors, think tanks and intellectuals? Well, let’s take a look!
First, the economics commentators. Ross Gittins of The Sydney Morning Herald prefers baby-babble to our larger fate. Gittins identifies a baby boom and concludes there are two possible reasons behind it. “The first theory says couples have been starting their families earlier in recent years because economic conditions have been more conducive.” According to Gittins this includes such policies as the Howard baby bonus. “The second, supplementary theory is that all the public discussion of the plight of women who left it too late to have children may have encouraged more women to get on with it.” Great, but given the gestation period, perhaps he could’ve written about this tomorrow. Nonetheless, it’s marginally better than Michael Stutchbury of The Australian who, despite a constant refrain that Australia was saved from recession by Chinese exports, is simply absent today. Tim Colebatch of The Age is also AWOL.
How about the rest of business commentary? Nup. At Fairfax, old hands remain fixed at yesterday’s pumps. Adele Ferguson offers some false hope with an opening that should terrify every home owner in Australia: “Last week billionaire hedge fund investor, and famous Enron short seller, Jim Chanos emerged from the hedge fund abyss with news that he was shorting the entire Chinese economy.” But that’s the end of China. Instead, it’s on to slash away at Chanos’ brethren, the hedge funds. According to Ferguson, the hedgies are making a comeback because “volatility has increased in the past three months and pension funds are once again allowing their stock to be made available for stock lending purposes, which is predominantly used for short selling.” Ferguson argues that regulators need to force hedgies “to report gross and net short sales positions and the gross and net amount of individual shares out on loan on a daily basis.” This column agrees but can’t help observing that the practice of lending shares for short-selling itself is entirely perverse given the same shareholders doing the lending are effectively shorting themselves. Short selling is a vital component of a healthy market, but regulating it through transparency associated with stock lending does not cut it, in this column’s view. Naked shorts combined with high capital requirements and a ban on regular banks and investment banks starting off-balance-sheet hedge funds would be better.
Malcolm Maiden of The Age offers no hope. He continues the AMP-AXA two-step. The following paragraph sums up the value of his contribution: “Sources say the institutions see the logic of the deal, and understand that AXA shareholders will emerge with 24 per cent of the merged company, and the same share of synergies that are estimated to be about $120 million a year at the gross profit level.”
Elizabeth Knight of The Sydney Morning Herald marvels, not at the grand narrative of history, but the “extraordinary” re-election of Centro director, Paul Cooper. Knight writes that Cooper’s 98 per cent sweeping victory was “based on the fact that he was the Centro whistleblower when he became aware of the $2.6 billion accounting discrepancy. It is said that this is the reason Cooper gained the support of the corporate governance groups for re-election to Centro and to AXA last year.” Bravo and tomorrow this column would care.
The Australian Financial Review’s Chanticleer is happy to cover the ongoing difficulties faced by Adelaide-Bendigo Bank and the looming troubles for the BHP-Rio JV with EU regulators, but again neither is placed in context of the China-US global imbalances imbroglio, the resolution of which will have vital consequences for both.
This column is unable to judge whether it's better or worse at The Australian because so little is on offer. John Durie has a poorly presented mish-mash of five (yes, that’s five) throwaway comments on AMP, bank equity values, EU objections to the BHP/Rio JV, ANZ dumping its custody business and the ATO attack on private equity taxes. Bryan Frith can be let off the hook given it’s not his beat. He looks into the possibility that the Canadian pension funds aimed at Transurban may before too long fall foul of “The Corporations Act [which] stipulates parties are associated if they enter into a 'relevant agreement', or propose to enter into such an agreement, for the purpose of controlling or influencing the composition of a company's board or the conduct of its affairs. The provisions deliberately cast a wide net to make it difficult for parties to avoid having to make disclosure.”
Meanwhile, in the op-ed pages, parochialism rules, with Paul Kelly doing boat people and Stephen Kirchner of the libertarian think tank, Centre for Independent Studies, indulging grotesque schadenfreude at the expense of Steve Keen. Kirchner claims triumph because “Keen made the mistake of assuming he knew something everyone else didn't. The efficient market hypothesis tells us this is unlikely.” Yet at the same time, Kirchner completely fails to grasp that Australian housing has ceased to be a ‘market’ at all. With huge FHB grants, wholesale bank guarantees, $16 billion in RMBS purchases and a government engineered immigration boom, Australian housing looks more like the mother of all asset quangos.
Housing is also on the mind of Alan Mitchell at The Australian Financial Review. Mitchell warns that “withdrawal of fiscal stimulus would mean lower interest rates but it would also mean even stronger growth in house prices.” He reckons that “...the problem is not that we have a speculative house price bubble ... if interest rates are left too low for too long, we might end up with one.” While this column welcomes the discussion, it can only say ‘bollocks’ to the notion we don’t already have a house price bubble. On all reasonable measures, housing remains at very elevated levels compared with historic averages, including preferred calculations such as multiples of income. This point aside, Mitchell’s contention that “we can do better if we are willing to add to the policy mix better micro-economic management of the financial institutions and asset markets, including the residential and commercial property markets” should be taken very seriously. One wonders, though, why the global imbalances between China and the US that were, and continue to be, the cause and symptom of asset price instability, aren’t worth a mention.
This column cannot spare its home publication either. Business Spectator also fails comprehensively to cover this vital topic today.
Failure to develop an expertise that can debate the importance of China-US imbalances, and their resolution, as well as the fallout for the entire Australian economy, is a meltdown at the centre of Australian intellectual life that must rate as one of the dumbest collective decisions in media gatekeeper history.
In the name of accuracy, this column must acknowledge two pieces that address the thorn in its paw. The Age runs a 'don't worry be happy' short editorial arguing Obama's soft stance vis-a-vis China will make it all okay. The AFR runs a similarly optimistic piece by Alan Oxley expressing the hope that the moribund APEC will save the day. The two pieces represent a paltry offering given the gravity of the issue and do nothing to assuage the argument and distress of this columnist this morning.