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The View From Afar

Michael Janda writing at The Drum on the ABC site looks at the US economy: Stimulated but unemployed in the USA

According to figures compiled by Morgan Stanley’s global strategist Gerard Minack in one of his notes to clients, US domestic profits increased by $US420 billion in 2009, while income to everyone else in the United States fell by $US377 billion.

He says this was part of the ‘Great Swap’, where the US government stepped in not only to take bad debts off the balance sheets of many US financial institutions, but also provided stimulus payments that propped up household income and consumer demand despite continued falls in employment and working hours.

Business received all of this money, but didn’t invest it in the economy, they hoarded it. The government stimulus kept them alive, and they used the time to reduce their workforce even further, boosting short-term profits while courting a double-dip recession.

Business doesn’t care. They are all about the current quarter and their individual compensation, not the long-term survival of the US economy. Deflation helps their personal bottom line, so why would they care about anything else?


1 Kryten42 { 10.15.10 at 8:29 am }

Sadly, yes. Now it looks like the Aussie $ will achieve parity with the US $ (currently, 1 AUD = 0.993435 USD), and may even exceed the US $ shortly. The Aussie $ has never achieved parity with the US $ since it was freed to float on the currency markets by the Hawke government December of 1983. The good news is… Many Aussies are using their sudden wealth to head to the USA to spend their dollars where they can pick up stuff for peanuts. 🙂 (I think there was a time before it was freed where our $ was below US$0.80, sometime in the 70’s from memory.)

I just did an exercise out of curiosity, where I designed a fairly well-spec’d (no peripherals, case + internal components only) PC and compared prices between the large Aussie PC company where I have a wholesale account, and the US NewEgg online retail prices. To buy here now, even at wholesale, the system would cost me AU$2,137.30, to buy at NewEgg, the exact same system would cost AU$1,315.93! The price difference would more than cover the cost of shipping. 😀 I think I may go US shopping (online) in the new year. I expect the price difference to be even greater then (though, I wouldn’t buy the Case/PSU from the USA. The price difference may not cover the cost of shipping those heavy components). 😉 Curiously, one of the bigger differences was the Motherboard, which we both get from Taiwan (ASUS Crosshair IV Formula). US: $209 vs AU: $335.50 (wholesale)! Methinks the importer here is padding the bill a tad! 😉

From our point of view… it’s not all bad. However, that fact doesn’t actually make me very happy.

2 Kryten42 { 10.15.10 at 8:59 am }

One other point is the some Global analysts are concerned there will be a *GFC 2*, which will be far worse then last year. The US Gov has exhausted it’s ability for any more bailouts. Some are even quietly wondering if the USA might default on it’s loans, which might cause China (and other lenders) to divest itself of almost worthless US$ & junk treasury bonds as fast as possible. Part of the reason Aus weathered the first GFC storm, was because Rudd organized to sell valuable land and assets to China (and others on a smaller scale) on long term payment plans. One thing we have a lot of here, is land. Much of it with some form of mineral wealth. I’m not talking a few acres being sold off either, huge tracts have been sold. Apparently, the deal is that some time in the future, we would actually pay China rent for some of the land (and resources) they have bought. I’m not so sure it was a great idea… but *shrug* Time will tell I guess.

3 Kryten42 { 10.15.10 at 9:31 am }

Well… That was quick! *Houston, we have parity!* 😉

Kim Christian From: AAP October 16, 2010 12:10AM

THE Australian dollar has reached parity with the US dollar for the first time since the currency was floated in December 1983.

The local currency rose to $US1.00 at about 11.18pm (AEDT) in overseas trading.

It was the first time since 28 July 1982 that the Australia dollar has traded about one US dollar.

Australian dollar reaches parity with US dollar

“The Australian dollar has been the outperformer in 2010 largely due to its very strong local fundamentals, as well as its strong trade links to emerging Asia,” Barclays said.

The Australian dollar has shot up 66 per cent since hitting a low of 60.07 US cents in October 2008 during the peak of the global financial crisis.

A solid domestic economy buoyed by strong Chinese and Indian demand for commodities, relatively high interest rates that could climb further, a weak US dollar and rising commodity prices have all helped the Aussie to be the strongest of major currencies since the crisis.

But Barclays argued the currency was still over-bought at present levels, even after accounting for expectations a record trade boom on surging commodity exports could buoy Australia’s economy for years.

“Indeed, the Australian dollar’s fundamental value has shifted higher, it has not shifted to parity,” Barclays said.

Some investors seemed to agree. Traders said there were stop-loss sell orders lined up above $US1.00 as some thought it would be a good time to sell and take profits once it hits parity.

But at the same time, traders noted there were also some stop-loss buy orders above $US1.00, placed by investors who thought the breach of the milestone level meant the buying momentum was still strong.

Charts do suggest more gains could be had. The next target level was $US1.0236, the 161.8 per cent Fibonacci projection level of the currency’s fall between November 2009 and May 2010.

Australian bond futures were soft, with 10-year futures down 0.025 points at 94.95.

Traders said the broader trend still pointed to further US dollar weakness, with markets heavily shorting the US currency.

“The momentum is still there … but when everyone is singing the same song, you can get an event that can lead to a sharp correction,” HSBC Senior Manager Treasury Daniel Brdanovic said.

According to Evans and Partners strategist, Michael Hawkins:
”The first rule of equity investment is, sell the market with the strong currency – that is, the one with fading competitiveness – and buy the market with the weak currency. At US95¢-plus the message is simple – get out of Australia, both from a holiday perspective and an investment perspective.”

4 Badtux { 10.15.10 at 8:56 pm }

The notion of the U.S. government defaulting on its debts is ludicrous and nobody who has a lick of sense or a smidgen of honesty would ever make such a case, so if you have someone who is making such a case, he’s either an idiot or a crook — don’t listen to him. See, the U.S. government debt is all denominated in DOLLARS. And the Federal Reserve has, in its basement, this brand-spankin’ new machine (invented only 600 years ago!) called the PRINTING PRESS, into which you feed zeros and ones in one end, and out the other end comes… uh… DOLLARS!

Of course, this would result in inflation. At which point, I say “BRING IT ON!” Because inflation would mean that companies were LOSING money on their cash hoards and would have an incentive to go out and spend it, which would create economic activity and thus jobs. Whereas deflation means that they’re EARNING money on their cash hoards (because the dollars are becoming more valuable as prices and wages decline), thus have no incentive to go out and spend it.

Remember: Inflation is the working man’s best friend, because inflation gives people an incentive to spend rather than hoard. And spending means work. Deflation is good for nobody except hoarders and looters who don’t work for a living (and remember, I don’t consider sitting in an office spewing bullshit to be work, that’s just sucking off the wealth created by working men).

– Badtux the Workman Penguin

5 Bryan { 10.15.10 at 10:08 pm }

As Badtux says, the important thing for a sovereign nation is to have all debts denominated in their own currency. The European nations using the Euro are screwed and smaller nations that have their debt listed in someone else’s currency are screwed, but when you are rolling your own, you can always pay it off.

These days all it takes is a computer, and an electronic transfer account, you don’t actually have to print the currency. It’s a matter of changing the numbers in two accounts.

Stuff should get really cheap for you as China is still tying its currency [despite all of the protesting of unfair trade practices] to the dollar, so the weak dollar makes Chinese stuff cheaper too.

The Canadian Loonie is at or close to parity, so Canadians could buy US again. If the Bushwhackoes hadn’t made it so difficult for Canadians to visit, there would be a spending spree along the border.

There has to be something weird going on, because it should be as cheap, or cheaper to get Taiwanese goods in Australia as the US. They only way it would make sense would be if the Australians are using partial containers, not full, or are shipping by air instead of ship. It has to be transportation costs or a captive market.

6 Kryten42 { 10.15.10 at 10:51 pm }

Oh… I never said I thought it would happen. But there is a whisper among some analysts (according to a friend who is a major market player). From what he says, it’s kinda along the lines of “What would happen if…” scenario. I (and he) can’t see it, but he was curious that it’s being considered at all. I suspect it has more to do with the loss of faith in the US (especially it’s leadership) than anything else. *shrug* Also, he said China has warned the Fed a couple times since 2009 about them *printing money* (to directly buy treasury bonds to prevent the bonds price from collapsing).

Federal Reserve Chairman Ben Bernanke sent yet another signal that the world’s most powerful central bank is on course to launch a second round of “quantitative easing,” probably as soon as Nov. 3. “Quantitative easing,” though it doesn’t involve literally “printing” money, has the same effect: It’s a way to increase the money supply. And that means the US dollar is headed lower.

QE2 will happen because there are no other realistic options to address a sputtering US recovery. Any sensible fiscal solution would wither in a sclerotic legislative system. And the Fed has already exhausted traditional tools to stimulate demand through monetary policy.

Quantitative Easing: Bring on the Printing Presses

7 Kryten42 { 10.15.10 at 11:18 pm }

Oh, Matt Taibbi had this to say @ Rolling Stone:

The Fed’s Magic Money-Printing Machine, Act 2

Beyond that, QE is a highly dubious idea in general, and probably an indication that the economy is worse off than it seems by far. When the Fed stops being able to stimulate the economy by the traditional method of slashing interest rates, and has to resort to printing money by the trillions, that is a sure indication that things in the economy are seriously FUBAR. If this is what it takes to prop up home values and keep the government liquid and the stock market from collapsing, we’re all in a lot of trouble.

Add to that the nearly infinite possibilities for corruption when one group of private citizens (i.e. big banks) gets concrete info about government stimulus before others, and QE2 has the potential to be a fiasco of oligarchical manipulation, the worst example possible both of government meddling in the market and of corporate cronyism and regulatory capture. It should be a huge political issue for both the left and the right, and yet it is not an issue at all outside of Wall Street, where there are few objections to the impending arrival of this new rush of money – and what few objections there are seem mostly to be intellectual and theoretical.

It’s easy to see why *the impossible* is even being wondered about in whispers in financial circles.

8 Badtux { 10.15.10 at 11:35 pm }

The thing about printing money when you’re at the zero bounds is that it tends to simply circulate once and then get deposited right back in the Federal Reserve as deposits by banks, because banks, in a deflationary environment, get better returns that way than by lending it out at basically 0% interest. So yeah, I have no faith in QE right now. But that’s a different issue from whether the U.S. government will default on their debt or not — the answer to *that* question is, “or not”, where even asking that question is, to economics, roughly the same as asking whether the world really *is* only 6,000 years old.

– Badtux the not-cretinist Penguin

9 Kryten42 { 10.15.10 at 11:49 pm }

I shoulda checked my email’s before! 😉 Just found an email my investor friend sent with a couple links (one was the first link above that he already mentioned to me).

The Empire Strikes Back: China Warns About Currency War, Blames Dollar

The last but the most important point is that in the long run the considerable depreciation of the dollar will help America to transfer its debts to others. If we say the international financial crisis nationalized the private debts, then in the post-crisis era, the United State sees an urgent need to internationalize its debts.

A great amount of bad debts of American financial institutions have been converted to government debt through government aid measures. In 2009, America’s fiscal deficit stood at 1.42 trillion dollars, 3.1 times the 2008 level. The deficit ratio surged from 3.2 percent in 2008 to 10 percent to a new high since World War II. The debt of the federal government increased to 6.7 trillion dollars, representing 47.2 percent of its GDP. In 2010, the fiscal deficit is expected to be around 1.32 trillion dollars. How America retains economic growth while reducing the deficit is a big problem for the country.

Historic experiences show debt-to-GDP ratio is not directly linked with economic growth and inflation (even devaluation) in most countries. But the United States is an exception because the dollar serves as the world currency. For instance, the ratio decreased from 121.2 percent in 1946 to 31.7 percent in 1974. Of that number, inflation accounted 52.6 percentage points, economic growth contributed nearly 56 percentage points and federal surplus contributed negative 21.51 percentage points. Even if the United States denies its motives to transfer their debts, it will unavoidably happen in reality.

Who would have guessed those Chineses know exactly what the Fed is doing…

One source of the uncertainty about the US debt since 2002 is this:
Is the U.S. Economy Teetering On the Brink of Collapse?

If the purpose of the Iraq war was to get cheap oil, it has been an enormous failure.

If the purpose of the Iraq war was to give control of Iraqi oil to American oil companies, this has also failed. In October 2008 Iraq signed a 22 year agreement with China National Petroleum Company involving “$55 billion, or 87% of Iraq’s total revenue”.

“In politics, nothing happens by accident. If it happens, you can bet it was planned that way.”
– Franklin Delano Roosevelt

“Our problem-ridden world has been guided by … hooligans.”
– Maharishi Mahesh Yogi, August 2004.

Who is REALLY responsible for the U.S. National Debt?

1. The American oil companies for many decades have avoided paying income taxes on profits from importing oil. They do this by means of illegal transfer pricing, aided by corrupt officials in the Internal Revenue Service (IRS). This helps explain why about 50% of the world’s wealth is now concentrated in tax havens and low tax jurisdictions.

A clean-up of the IRS followed by a proper accounting of oil profits, plus appropriate penalties for late payment of taxes and fines for tax evasion should yield enough money to balance the national budget and pay off most of the national debt.

2. An objective inquiry into vote fraud and corruption in American politics would reveal that most members of congress and the president represent a wealthy elite, not the American people. Therefore, it can be argued that the national debt is the responsibility of this wealthy elite.

Alan Greenspan was a student of the Great Depression. Therefore, he knew how to prevent a depression and how to cause one. Since the ongoing economic collapse was created on his watch (1987 – 2006), we can only assume that it was done intentionally. The question is “why”? Who are the puppet masters and what are their intentions?

If somebody wanted to weaken the United States, the policies in place starting 1980 have accomplished that goal.

LOL 😉 Ahem. Doncha love conspiracies? 😉

10 Bryan { 10.16.10 at 12:59 am }

At lot of what the Fed is doing is to put pressure on the Chinese to let their currency float, because they are effectively stealing from their trading partners by being tied to the dollar. Their economy is booming, but their currency is staying below market because of the connection. That’s why the Chinese know what the Fed is doing.

If the Fed wanted to get things moving they could start charging banks for leaving their money in the Fed, rather than paying them interest.

The debt looks bad because the GDP is reflecting the recession, and people keep talking about the debt as a percent of GDP. Get the economy moving and the debt will automatically drop.

Let the Bush tax cuts expire and the debt will drop even more.

Push through a decent sized stimulus package to repair the infrastructure and there will be more improvement.

This is all Keynesian, is well known, has proven to work. As long as the powers-that-be continue to worship at the alters of Ayn Rand and Ronald Reagan, we will be stuck in this mess.

I would also like to see every chief executive of a major bank, accompanied by their boards put on a mission to Mars using the Space Shuttle fleet, but then I get vindictive.

11 Kryten42 { 10.16.10 at 1:10 am }

I would also like to see every chief executive of a major bank, accompanied by their boards put on a mission to Mars using the Space Shuttle fleet, but then I get vindictive.

I wouldn’t say that was vindictive at all m8! Sane and rational… yes. Now me… I’d do the same, sans shuttles! I’d stick ’em in a shell and use a big rail gun! They may be of some use in millennia to come seeding mars with their component organic molecules. 😈 That’s vindictive! 😉 😀 I’d also add all the fundi and wingnut loonies, bobble-heads… well, the list would be a long one I’m afraid! 😈 😆

12 Badtux { 10.16.10 at 2:50 am }

Given that the Space Shuttle fleet is all retired museum displays now, Kryten, Bryan’s plan is different from yours only in the shape of the bullets placed upon the rail gun ;).

13 Bryan { 10.16.10 at 4:40 pm }

I certainly don’t expect the government to waste taxpayers’ money by providing anything that might work.

14 Kryten42 { 10.16.10 at 10:40 pm }

LOL Yeah. Still though… With the shuttles, they have a slim chance of survival to Mars at least. Besides… You could probably get the NRA to fund the rail gun project! They looove them some big guns! 😆 Then, it’s members can be sent off after the others! 😈 (Shhhh! Just don’t tell them!) 😉

15 Bryan { 10.16.10 at 11:07 pm }

Kryten, you sound like you think I was talking about putting food and oxygen on those shuttles. Most of them have been mothballed, it would be dangerous to real people to weigh them down more than absolutely necessary with extra stuff, like food and oxygen. The extra weight might affect the slingshot orbit needed to get them to Mars, and they would be caught by the Sun’s gravity well, which would be terrible. 😈

16 Kryten42 { 10.17.10 at 12:51 am }

Noooo! But these creatures make Staphylococcus aureus seem benign! They could probably survive without oxygen or food! But even the worst virus known would have a very hard time surviving a hyper-velocity shot! the G-forces would be enormous, and the heat as the projectile tears through the atmosphere in a couple seconds should be high enough to destroy any malignant microbes, even these creatures! Microbes have been known to survive space, but I’d hope that the combination of extremely high temperatures, and extreme inertial hyper-velocity would do the job designing a projectile that can be magnetically propelled and survive the shot would be tricky, but given the resulting outcome, I’m sure we’d find a way! To be certain though, you’d probably want to aim it at a receding galaxy. Given the speed of our recession away + the speed of the projectiles, it would be the fastest way to get rid of them! Even as molecules, we wouldn’t want them in our neighborhood! They’d eventually figure out a way to be serious PITA again (though, long after we are gone to be sure. Still… we must consider the future! It’s one thing that makes us different to them after all! 😈

As a trained engineer… one of the first rules is: Never take unnecessary risks! 😉

And people say irony is dead! 😆 😆

17 Bryan { 10.17.10 at 1:17 am }

No matter how terrible any proposal sounds, you can always get the votes by telling people you are doing it “for the children” and include a couple of cute photos that, and this is important, have absolutely noting to do with what you are talking about. “For the children” is even better than “for the troops”. especially if it will take away civil rights and/or cost major money.

So our “modest proposals” are certainly designed “for the children”, and they might be “for the troops” if there’s a military band involved in some way.

Yep, we have eliminated smallpox and Rinderpest, so it is time to work on polio and banksters. 😈