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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Amy J who wrote (28148)	3/14/2005 4:16:28 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

Australia is simply following normal economics, rather than the "neo-John Law additional debt solves all problems" currently being followed in the US and much of Europe. But they are sailing in turbulent seas created by the prop-wash of irresponsible policy by the Federal Reserve and other central banks carrying out similar policies under the Fed's urging. Australia faces the same problem faced by France in 1931. Australia is trying to run a free market economy in a world distorted by monetarist perversions. In 1931 America and the UK decided to destroy the value of their currencies in a desperate attempt to "increase aggregate demand", a concept Ben Bernanke and Greenspan would agree with today but is essentially a false concept. When this took place, the value of the French Franc rose dramatically just as the Australian Dollar is doing today. This has made imports more affordable which Australians have seen as a short-term opportunity to grab, especially imported electronics, before the window of opportunity closes. A large portion of the Australia's existing current account deficit will be short-lived. France dealt with this problem by emphasizing the export of luxury goods like wine and linen whose demand actually increases, or at least declines minimally, as prices rise or import duties are applied - an effect known as Giffen Goods. This period greatly elevated the status of French luxury goods to the level we are familiar with today. Australia produces minerals, metals, food and oil in great demand. On the import side, France disconnected from international trade with import duties, as did most other nations. Australia removed 100% import duties on imported cars only a few years ago. This sort of market protection is familiar and accepted in Australia to protect Australian jobs. I have no doubt they will reinstate this form of protection to avoid being sucked down the drain if international balances worsen. Though in the short-term, rate hikes and "Buy Australian" talk will stem the worst of the problems. I believe this will entail a change in Prime Ministers as the current PM John Howard, unlike the Australian Reserve Bank, has shown himself to be a Bush lapdog who will find it difficult to display the independence required for this move. I should also mention that one part of the Australian current account deficit is the savings from Australian Superannuation retirement accounts being invested overseas in infrastructure like sewerage facilities in major cities, which is hardly a problem. .

To: Amy J who wrote (28148)	3/14/2005 11:38:41 AM
From: GraceZ	Respond to of 306849

I love what Australia is doing. What type of economic model are they following? Sounds much more prudent than ours. They have substantial economic slowing with structurally embedded wage inflation that isn't being cooled with 3% real rates with a ballooning current account deficit (7.6% of GDP in the 4th Q). This is the prescription for what we had in the 70s, stagflation. Then our Fed was continually behind the curve all the way up to double digit inflation all while real GDP growth was negative to flat. Don't believe the commodity based economy will pull them out of that fix, it has been Chinese demand for commodities that overheats their economy given the inefficiencies embedded in it, especially labor ones. 5.5 fed funds with 2.6% inflation is overtly deflationary, yet they have a rising wage driven inflation. 3% real cost of funds doesn't cool what's structurally embedded. After lifting rates, the RBA expressed worries about rising wage and inflationary pressures while saying it also expected growth to slow. If final demand for commodities slows with 3% real, they're in recession and the CB must lower rates. However, if they do that, they'll open the RE price boom that they've already tried to control with rates. That's how they'll think because they have to protect their bad policy from the past. Their money supply grew even faster than ours did in the last five years but they don't have the downward pressure on wages and prices that we have to contain inflationary pressures. Of course, Elroy will tell you it is all the fault of the US Fed and the Aussies are in fact far more disciplined. Ha! He's had too many vegemite sandwiches.