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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Jim McMannis who wrote (26032)	3/20/2005 4:28:18 PM
From: Elroy Jetson	Read Replies (3) of 116555

In my prior post, I said there was a possibility Australia "get's it" because they can afford to. What does this mean? Income and wealth distribution is far more equal in Australia than in America, in large part because Australia has maintained a progressive tax structure while Reagan replaced income tax cuts with a larger Monetarist tax - punishing savers through excess debt creation. It should come as no surprise that the savings in America completely vanished in response. Because Australia did not follow this course, Australia has not experienced the dramatic home equity extraction and liquidation we have seen in America. Australians also have savings in the form of a fully funded Social Security and retirement funds. All of these factors combine to create a broader and more stable aggregate demand in Australia which can weather a serious downturn far better than America, which is living on the knife edge of credit and marginal demand. Additionally, in Monetarist terms, Australia has a full armory with an economy whose recent modest weakness, in the face of a 5.75% short-term rate and rising, is still stronger than the US economy. Form a cultural perspective, Australia does not have the mind-set of empire. The Australian Reserve Bank would never gin up their economy with massive new debt creation just to bail the Asian economies out of trouble. Australians are not the sort to buy dinner and a round of drinks for everyone in the restaurant. • • • If there is really a risk of a world-wide depression, Australia is well prepared to weather it better than most. As a consequence the Australian Reserve Bank is prepared to follow normal economic policies and risk the consequences. I think Greenspan's policies are fear based, yet in the end will create the very conditions he is fearful of. .

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