In 2009 it was voted the 29th most livable city in the world by The Economist newspaper.
This week it will host the G-20 summit of world leaders.
With all those politicians in town that should help to knock it down a peg or two in the ‘most livable’ stats.
It’s the US city of Pittsburgh in the state of Pennsylvania.
Incidentally your editor has never been to Pittsburgh, and the odds are we never will. Further, we don’t know anyone who’s ever been to Pittsburgh either. Or if they have, they’ve never admitted it.
Pittsburgh is probably one of those places where people are “from” rather than where they’re “going to.”
That certainly seems to be the case over the last sixty years. According to the US census, the population peaked at 676,806 in 1950. By the time of the 2000 census the population had dropped to 334,563.
The US Government estimates the population has dropped further to 312,819 in the last nine years.
Whether it likes it or not, the city of Pittsburgh is a symbol of the industrial decline of the United States.
That symbol is shown perfectly by US Steel, whose home town is Pittsburgh. A company that currently employs less than one-sixth the number of people it did at the end of World War II. In fact, US Steel was once the largest employer in the Pittsburgh area.
Today that honour is held by a different type of company – the University of Pittsburgh Medical Centre (UPMC).
UPMC currently employs 50,000 people.
What a contrast. When the US was the industrial engine room of the world economy, the city of Pittsburgh was twice the size and its leading company employed over 300,000 people.
That was until it was destroyed by government interference and regulation, and union incompetence. Their combined actions made the US steel industry uncompetitive against foreign industry.
Now, the biggest employer is a hospital. A service that is supposed to be of use to the population but instead sucks ever greater amounts of money directly and indirectly from US taxpayers.
You see, as a not-for-profit organization, the UPMC doesn’t have to make a profit. You may think, “Well, that’s good, hospitals should be run for the public good, not so fat cats and shareholders can profit from the misfortune of others.”
It’s a noble thought, and you wouldn’t be alone in thinking it. But it’s exactly the reason why healthcare costs have spiraled, and will continue to spiral out of control.
And if US President Obama manages to shove through his public health reforms, the writing truly will be on the wall for the US economy.
If they thought they had problems with public expenditure on social security and medicare now, wait until they unleash a fully underwritten public health service on their taxpayers.
But remember, the current US health system is not the free-wheeling free-market system everyone believes it to be.
We wrote some time ago about this. Every time health is discussed in Australia the politicians, unions (including the AMA) and other pressure groups rush to tell everyone about the disaster of following the US down the path of a private healthcare system.
What they conveniently forget is that the US healthcare system is no more private than the Australian system.
As we wrote in Money Weekend back in June:
“It’s a little known fact, but government and non-profit hospitals make up over 80% of the hospital system in the United States. Private sector for-profit hospitals only account for about 15% of the market.”
Could the 15% rump of private hospitals really be the reason for healthcare costs being so unaffordable? Of course not. It’s the presence of the government and the distortive presence of ‘compulsory’ employer health insurance which causes the problems.
If Obama gets his way, the health system in the US will become even more expensive and unaffordable than it already is.
We have the same problem here with the Medicare Levy, the Medicare Levy Surcharge and private health care.
If you earn above the threshold then you’re ‘forced’ to buy private health care. If you don’t then you are charged the Medicare Levy Surcharge. Either way you pay. So you may as well go private so you can choose where to go.
The insurance companies know this and therefore there is no incentive for them to reduce their fees below the amount of the surcharge.
In effect it’s a cartel between government and private health insurers that rips hundreds and thousands of dollars from Australians every year. In a truly private system you would not be forced to buy insurance and therefore the insurance companies would have an incentive to be competitive.
This competition would needless to say, lead to lower premiums. Or maybe no premium at all. Perhaps some families would choose not to be insured. After all, if you’re a healthy family, odds are you only have a small chance of needing medical attention.
They may be happy to take the risk of being uninsured, or just pay-as-you-go in the event of being admitted to hospital. Again, in a free market system, competition among hospitals would ensure prices are kept low.
But, for the not-for-profit hospitals in the US, the absence of a profit motive means they just spend virtually every dollar that comes in the door. There is no incentive to keep charges down. That’s a free-kick for the suppliers of medical equipment like General Electric and Siemens, firms that sell millions of dollars worth of technology to hospitals.
And it’s a free-kick to doctors and surgeons. What incentive do they have to cut their fees when they know the hospital doesn’t have to worry about making a profit? Between government programmes and tax-free employer health insurance, odds are they are going to get plenty of business whatever they charge.
Anyway, we’ve gone off on a sidetrack here. Back to Pittsburgh…
If French President Nikolas Sarkozy has his way then another ‘wonderful’ example of idiotic policy will make it onto the G-20 agenda.
It’s the “Tobin Tax.”
Nope, it’s nothing to do with funerals or death.
Instead, the Tobin Tax is another madcap idea from the followers of Keynesian economics. Although in this case the actual concept can’t be pinned on John Maynard Keynes himself. It’s an idea developed by one of his devotees in the 1970s.
The Tobin Tax is doubtless an idea the assembled politicians will love. The very fact that it has the word ‘Tax’ in the name makes it an almost guaranteed starter.
Their only problem is getting it to work.
So, what’s this deathly sounding tax? Well, your editor didn’t have a clue what it was until we did some searching around. It turns out the Tobin Tax is an idea to tax all foreign exchange transactions.
The idea is that if foreign exchange transactions are taxed it will make currency speculation less attractive to evil speculators.
Of course, like most taxes that are designed to stop something, the real consequence is that it will just shift the effects elsewhere.
One of the best comparisons we can think of is with Contracts for Difference (CFDs). You may have seen the marketing of them advertised in the papers and online.
In a nutshell, a CFD is a financial derivative that gives you big leverage to trade in the financial markets. Depending on the provider you could get a $10,000 exposure to a stock, an index, a commodity or even a foreign exchange position by just stumping up no more than $100.
It’s high octane leverage.
If you get it right then you can lock away a tidy profit. If you get it wrong then you can do your dough plus a lot more besides.
What’s this got to do with the Tobin Tax? Not much, except for how CFDs came about.
You see, all this leverage that the regulators are now panicking about was released on the retail investor due to the UK government imposing stamp duty on share transactions.
In the 1980s UK institutional investors decided they’d had enough of paying this tax to the government and so they created a derivative called an Equity Swap. This allowed institutions to just exchange the difference in the price at the end of each day without transferring ownership of the stock between them and incurring stamp duty.
That worked fine. Then some bright spark realized that retail investors would probably like some of the action as well. And so, CFDs were born.
So, not only did the UK government miss out on stamp duty from institutional investors, but it then started to miss out on stamp duty from retail investors. Plus it had the unintended consequence of unleashing a new super high leverage financial product on the financial markets.
Who knows, if it wasn’t for UK stamp duty, maybe CFDs would never have been created.
What about a tax on foreign exchange transactions? There’s little doubt that imposing a tax on foreign exchange transactions will just push the perceived problem somewhere else.
Institutions especially will do all they can to avoid the tax.
Besides, foreign exchange is already available as a CFD. Would foreign exchange CFD trades also be subject to the Tobin Tax?
But again, it doesn’t matter, some bright spark at some investment bank will just create a product that’s skirts around it. Except then it will probably create bigger problems. Most likely the same kind of problems recently experienced with the CDOs, CDSs, and whatever else it was the boffins at Goldmans, Lehmans and the rest came up with.
Except this time the potential for disaster is that much bigger. The foreign exchange market is the biggest and most liquid market in the world.
If the likes of Lehman Brothers and Citigroup were able to create debt derivatives that were many times greater than the actual amount of debt in existence, imagine what they could do with the foreign exchange market.
If you thought the current fractional reserve banking system was a Ponzi scheme waiting to collapse, the potential for the problem to be magnified through the exploitation of the foreign exchange market is mindboggling.
And that’s the thing. It’s not the speculation of foreign exchange that’s the problem. It’s the actual value and stability of the currencies themselves.
Speculators speculate when they think they can make a few dollars. If they spot a situation where they can make a lot of dollars then they’ll gamble big stakes. Remember what George Soros did to Pound Sterling in the early 1990s?
He merely took advantage of a situation to sell the Pound. It wasn’t his fault the Pound was grossly over-valued. You could argue he merely ‘helped’ to revalue it to a more realistic level.
But yet again the speculators are made the scapegoat of someone else’s wrongs.
If the attendees at the G-20 summit in Pittsburgh really want to do something about the speculation and volatility in foreign exchange markets then it is the actual system of fiat currencies that needs to be addressed.
From what we can see, imposing a Tobin Tax is like trying to cool a pan of boiling water by tipping ice cubes into it.
It may have a short term impact, but before long the water will boil again. What will they do then? Tip in more ice cubes probably.
Of course, what anyone with a brain would do is turn off the gas. It may take longer for the water to cool down, but it’s the most effective way of managing it.
Unfortunately, there isn’t a politician alive that would be prepared to do anything that addresses the real problems with the financial system.
Instead the manipulation will continue, both by governments who are afraid to make the right decisions, and by speculators who are simply – and correctly – taking advantage of political foolishness.
Other Stuff on the Markets
The S&P/ASX200 climbed 0.46% on Friday, while on Wall Street the Dow Jones Industrial Average added 36 points. In Europe the FTSE100 added 0.17% and the CAC40 slipped 0.19%.
The price of gold in Australian dollars is trading at $1,158.42, while in US Dollars it is trading at $1,004.35. Silver in Australian dollars is $19.45 per ounce, and in US dollars is $16.86 per ounce.
The Aussie dollar eased versus the US dollar and Japanese Yen, trading at USD$0.8667, and JPY79.22.
Crude oil closed at USD$71.85.
For the biggest movers on the market yesterday click here…
{ 65 comments… read them below or add one }
Dear Kris,
Re: the decline of industrialised America quote:
“That was until it (manufacturing) was destroyed by government interference and regulation, and union incompetence. Their combined actions made the US steel industry uncompetitive against foreign industry.”
The fact is, American industry has been decimated by unrestricted free trade and globalisation by outsourcing their manufacturing to developing countries like China. Consider this, an American buys a vacuum cleaner from Wal Mart. That very night, most of the money paid for that product gets magically whizzed off to China to pay the maker because Wal Mart can get it made cheaper there.
Not because of any efficiency advantage China has over America, not because some evil union is fighting to have workers paid anything other than a subsistence wage, only because the labour is dirt cheap. In fact, you can liken Wal Mart to some giant vacuum cleaner, it sucks all the money out of towns like Pittsburgh, squashes small business like a bug and sends all of its takings to places like China and Korea. This is the reason America’s Current Account Deficit is out of control, they don’t make stuff anymore because some poor schmuk in China is prepared to work for 40cents an hour. I suppose you’d call that labour market efficiency?
The minimum wage in America is now about $5.15 an hour. I could leave it at that really because that says it all! Everytime the issue of raising the min. wage comes up here or in the US there is a massive outpouring of horror consequences from right wing business groups. Inflation will go through the roof they say. Well then, why is it that when Pollies and corporate Fat Cats raise their obscene salaries year after year (hello Geoff Dixon?) that this doesn’t add to inflation? Why is it that in America in ’69 when real wages were at their peak, there was 3.5% unemployment? Why is it that every min. wage wage rise since 1950 in America, employment went up?
You also have been asserting this position that the government is trying to get their hands onto our money? Well yes, I don’t like paying taxes and governments are notoriously inefficient, but your taxes pay for the commons including an increasingly less regulated “market” which the government provides. Private corporatisation equals spiralling road tolls and profit-maximisation bottom lines.
Great article by the way. I’m a big fan.
America is THE ONLY industrialised nation in the developed world that DOESN’T have a system of socialised health insurance but, I guess you don’t find anything unusual about that. What next? How about privatised Fire Departments? Maybe a privatised police force only coming to the rescue if you’ve paid your premiums; “Fire department? Quickly my house is on fire! Please send over a truck to put it out!” “Ma’am, may I first have your insurance policy number, I need to check your payment history.” The absurdity.
Health care is part of the commons. The role of Government in the commons is about spreading the risk so that if your house starts burning down, the Fire Engine comes to put it out. What is the difference between this and putting a fire out in your body? You are advocating for a system in America which doesn’t even give the average joe the OPTION of taking out Medicare. Blow out in health costs I hear you say? Kris, projected health spending on healthcare in the US is the proverbial drop in the ocean compared to Military spending. Spending by the way, which blows up stuff, kills people and adds no real value to any economy once spent.
But I guess your position will be to let the free market thrive unregulated and through competition, insurance prices will come down! Where Kris? Give me one example where premiums have come down for health insurance? ONE EXAMPLE. Would you advocate a US style private health insurance system which acts as the MAIN barrier to entreprenurial small businesses like mine starting up because they can’t afford the health insurance premiums to cover their workers?
You are in part advocating a Private Health Insurance environment that pays their CEO’s like Billion Dollar Bill Mcguire, 1.5Billion dollars for 5 years work, that pays another CEO of United Healthcare, Stephen Hemsley 700 Million dollars in unexercised stock options while punters who have paid their private premiums are dying because the big insurance companies wont cough up because; “Well, you didn’t tell us that you had acne as a 15 year old, so I’m afraid we can’t cover you”. But, I guess it’s all down to profit isn’t it? Hail the efficiency and humanity of the free market!
And guess who are majority shareholders in the Big Health Insurance companies in the States? None other than some of our old friends, banks like Goldman Sachs and Citi. It is a sick system. I don’t know where you get you’re dis-information from but it sounds to me like it’s paid opinion, just like our ‘economist’ friends at home!
You are right, if Obama gets his way, healthcare will be worse in the states than it is now. However, you have also made an assumption that he is coming from the left and is impervious to corporate pressure. As the legislation stands now, Obama is all talk, he wants to keep the status quo. Check to see how the US health insurance company share prices have responded to any of Obama’s speeches on the issue, you’ll find that if anything, they are stronger than ever. Over to you…
Well having lived in the land of the free home of the stupid for a number of years I may as well add my fifty cents worth to this little debatre.
Health care in the US: If your in an accident they will quite literally go for your wallet first. The ambo’s will keep you alive long enough to ascertain that you are actually insured.
As for the level of first class medical care… Well the word Butcher comes immediately to mind. Got a broken leg and not enough insurance to cover it being plated, pinned and the associated physio afterwards. One answer, amputate.
I would have to say what I witnessed over there was in a word disgusting I always made sure I had enough resources ready that if I was hurt friends would get me drugged up and put on the nearest aircraft out of there be it Canada or the UK who-ever had universal health care just as long as one did not have to see a
Sorry Finger trouble.
As long as I never had to see a US Doctor who are as bad if not worse than real-estate agents for being low life scum suckers.
People do not end up bankrupt here because they get cancer or when on the gurney waiting to be injected with some iradiated water have treatment put on hold until you stump up another 10k in fees.
You can read more here: http://www.counterpunch.org/nader05062008.html
Oh and as for leverage well lets see Lehman brothers was at a rate of some 80% most of the other banks, even Bear Sterns was only around 52%.
We can really pin a lot of this on two items.
Repealing the Glass stagle act &
the financial services reform act.
Lets look at some old info to see how it stacks up:
http://www.counterpunch.org/whitney08302006.html
Anyway have a read but don’t get too frightened.
G’day Kris,
The transactions that take place will be the ones associated with real business and not just making money out of moving money around. Of course, a lot of people would be upset about that, but a far greater number would benefit. A politician who went down that route would be really turning off the gas. However, such politicians are like hen’s teeth.
G’day Kris,
Well, the way to stop them doing that is to have a transactions tax on everything, foreign currency or not. Goods and Services Tax works rather well since it’s on nearly everything and rather difficult {but not impossible) to avoid. A transactions tax would not need to be nearly as high as a GST and could be even more difficult to avoid as well as being cheaper and less bureaucratic to collect. (I can’t imagine anyone lugging millions of dollars around in cash to avoid their transactions being detected.)
The transactions that take place will be the ones associated with real business and not just making money out of moving money around. Of course, a lot of people would be upset about that, but a far greater number would benefit. A politician who went down that route would be really turning off the gas. However, such politicians are like hen’s teeth.
“”"”"That symbol is shown perfectly by US Steel, whose home town is Pittsburgh.
A company that currently employs less than one-sixth the number of people it did at the end of World War II.
In fact, US Steel was once the largest employer in the Pittsburgh area.”"”"”"”"”"thanks to a horrific war
this paragraph above annoys me that Pittsburgh is worse cos they havnt got a 2cnd world war scenario ,a savage & bleak war to attend to,to keep theyre un-employed employed ..if youve known or spoken to a veteran of/about WW2 you wouldnt want to go to war
as theyre are no real winners there & its killed & maimed millions
Better the steel stays in the ground & not pulled out for war,
there are 2 sides to the american people ,
1)the real american people are not in control,2)then the white house ……………& 3) the real controllers of the white house ,america,,the rothchilds
google or youtube them
Well, yes, the big picture is once again more comlex than a simple analysis can hope to cope with.
The technology and knowledge transfer that was allowed to take place from the West to the East through corporations seeking a fast buck, largely explains why and how the West, with the US at the helm, is losing on just about every front. And yet, the giant will not go down without a fight, and there is a good chance that at some point down the track, a fight we are going to have.
Major forces in the world are on a collision course, and when it gets to a point where the chips are down, and noone knows what else to say to make the other side listen, the guns will have their say, and there will be hell to pay.
PF, did you see the ads on the ABC? The gunfight at the OK Corral will be on on the ABC, tomorrow night at 8.30pm.
cb – well I have now, but the relevance is lost on me I’m afraid.
lol, PF, you made a figurative reference to it some time ago when PuntPal’s gunslinger failed to show at OK Corral, remember?
I still don’t know if he showed when we thought he did. Did you hear anyone shooting back? Me neither.
cb – yes you are right. All lost in the smoke of battle now.
Well in view of the comments regarding war the last paragraph of this speech by Macarthur after the Japanese had signed the ceasation of war documents has a profound ring in todays war on terror world.
Today the guns are silent. A great tragedy has ended. A great victory has been won….
As I look back upon the long, tortuous trail from those grim days of Bataan and Corregidor, when an entire world lived in fear, when democracy was on the defensive everywhere, when modern civilization trembled in the balance, I thank a merciful God that he has given us the faith, the courage and the power from which to mold victory. We have known the bitterness of defeat and the exultation of triumph, and from both we have learned there can be no turning back. We must go forward to preserve in peace what we won in war.
A new era is upon us. Even the lesson of victory itself brings with it profound concern, both for our future security and the survival of civilization. The destructiveness of the war potential, through progressive advances in scientific discovery, has in fact now reached a point which revises the traditional concepts of war.
Men since the beginning of time have sought peace…. Military alliances, balances of power, leagues of nations, all in turn failed, leaving the only path to be by way of the crucible of war. We have had our last chance. If we do not now devise some greater and more equitable system, Armageddon will be at our door. The problem basically is theological and involves a spiritual recrudescence and improvement of human character that will synchronize with our almost matchless advances in science, art, literature and all material and cultural development of the past two thousand years. It must be of the spirit if we are to save the flesh.
cb – I received this information in an email this morning
“But what the English landholders did not anticipate was a large, one in a three-generation inflation in land prices during the term of the leases they had granted. Land prices in Europe surged, partially because the money supply surged with the opening of gold and silver mines in the new world. Meanwhile, the land owners were receiving fixed rental payments, just as the three-life lease holders were fully benefiting from an historic appreciation in land prices.”
Wow – sounds like property is a good long term investment and a hedge against inflation. It was from some guy named Dan Denning, ever heard of him?
Peter – Property WAS a good long term investment….that was before a 30 year debt-fuelled property boom made any further capital appreciation on property fundamentally impossible – not to mention increasing the likelihood of an abrupt crash.
You will also notice that Dan makes mention of the one of the causes of this surge in property prices (100’s of years ago!)…it was an increase in the supply of money. I bet once that supply of money eased back, so did the inflated property prices. Funny that our surge in property prices was also accompanies by a surge in the money supply.
By the way, maybe thats why people keep thinking we have a shortage of houses. Yes we have a shortage of houses compared to the money that has been available for buying property over the past 30 years, but once the tide of credit receedes, it will be shown that the land of Oz has plenty of houses to go around.
If you are relying on history to show that Australian property prices are not insane and unsustainable, then you are choosing an unlikely and unhelpful ally.
PuntPal – good to see you are alive and kicking. Yes you made some good points, but at the end of the day I need to live somewhere, and I choose not to rent. I still consider that property is a great investment but it has to be managed correctly.
Let’s agree to disagree on that. Best of luck with picking the finals winners. What sports do you cover in the off season?
Oh and yes, we have had a massive population increase. It is not fiction, it’s just that Dan has spent too much time in Paris and Normandy and not enough time driving in nearby rural areas that are blossoming like annuals in the sun. I have recently been looking at the hamlets and towns that I visited many years ago – man have they changed.
Show me all the pretty graphs that you like, but when I see sleepy hamlets transformed into new developments complete with a new Woolworths supermarket and Tavern I know things are changing, and the immigration figures are real.
PF, yes, you would have thought so, and if we attribute price rises to increased supply of money and credit, then the conclusion is analytical, not empirical, meaning that the conclusion follows from the meaning of the relevant terms, so when Sayce was ridiculing the suggestion, he was effectively saying something akin to: “Paul is an unmarried man, but it is ridiculous to think of him as a batchelor.”
Anyhow, I am still waiting for that magic graph juxtaposing property prices with CPI+2% doctoring adjustment, to get a visual fix on the truth of the matter.
correction: bachelor. I should mind both my fingers and my senior moments, but I seem to increasingly neglect both of late.
Hey, PuntPal, your logic is fine, but if any of your assumptions and premises happen not to be correct, your well constructed argument will take you elsewhere. The one that is particularly in question, to my mind, is that money and credit are going to be choked off for long enough to cause a crash in asset prices, and in particular in property prices. This, to me, is not that certain, and especially when you factor in that mild inflation is stated policy, and that we continue to live in a global fiat money system. The current choking off of credit by lenders is causing a period of mild deflation, but what makes you so utterly confident that they will not turn the whole thing around, and that the current trend will overnight turn on a dime again, repeating the very scenario described by Denning?
In a fiat money system it is all in the hands of people I can neither trust, nor predict sufficiently to make a bet on it one way or another. I admire your resilience, though, but anybody undiversified and sitting on a pile of cash instead, with the belief that general and serious deflation will keep making cash to be king, is taking quite a punt with their savings.
I mentioned the notion of SPECFLATION by Keiser in an earlier post, and gave a particular interpretation of the concept, which might and might not have been what Keiser in fact had in mind. Looking through the comments on his site, I came across a very interesting take on the concept, so I will post it in here. It employs a vivid and potentially useful imagery in its portrayal of the resultant uncertainty and volatility from the $US carry trade. Speaking of which here is a link to a very good video explaining the new carry trade, with the $AU being used for illustration. It also highlights the dangers of the $US/$AU carry trade in particular.
http://www.youtube.com/watch?v=wxPQTa1JhBQ&feature=player_embedded#t=13
“Adam C
Sep 21, 2009 at 5:01 am
As I understand it, SPECFLATION is looking at the volatility of all things priced in dollars due to currency flows in the dollar carry trade. It’s not about the inflation/deflation debate, though bailouts of the short-squeezed will likely be paid with inflation.
For SPECFLATION I’m imagining a rough sea that completely covers the entire globe. The sea represents dollars with bobbing boats and tilting tankers representing various classes of dollar-denominated assets. As the sea gets increasing rough and choppy nobody can really know what wave will rise or lower them next. All measures of value (altitude of wave) are completely relative and limited to only being able to see the horizon and no further.
The only way to escape this madness is to be in a submarine – gold – swimming below the surface. The only way to sustainably survive is to build on the sea bed, scavenging any real assets that sink down below the surface and whilst being willfully oblivious to the chaos and destruction above.”
cb – nothing is ever constant, so your right the money supply will vary. Actually it looks as though the RMBS market is about to recommence trading so that will enhance money supply. I think that eventually all bank LVR’s will increase again to 95% with savings, but hopefully the 100% loans are a thing of the past.
Cheers Peter, like you said, we should just agree to disagree on property in Oz as a good long-term investment.
In terms of the footy, I think the Parramatta Eels have the momentum and should play Melbourne Storm in the Grand Final…where the Eels will win in a close one. My off-season is up in the air at the moment, I might start taking my love of finance and economics to a new level with some more DIY tutorage. Over Xmas I hope find time to re-configure my betting model, as the predictive powers I possessed earlier in the year have dissipated, along with my credibility.
In relation to population increases, well we could go on and on about this issue. Clearly the data on this is a bit vague…but did you see the story from Brisbane last week where they found a house that was sleeping 20 international students? I wonder if that kind of co-habitation is factored in by the pdh crew working over with Joye? Or have they just assumed that all imigrants will look to buy their own McMansion immediately. Having a Greek heritage, I can tell you that my grandparents, after arriving in Australia after WWII, slept on the floor of their cousins house for years until they decided they could afford their own house. Aggregate analysis of population misses these factors and tends to overstate the need for new housing in the short-term.
I don’t know if we have enough houses, but I do know that I won’t be convinced we have a housing shortage by the housing industry association, Chris Joye or the banks….or some bloke from Treasury!
cb – You are correct that I assume the credit tap has run dry and maybe I am wrong there. Maybe more money will be diverted from productive business investments to fund speculative investment in housing. However, the reasons I believe that the credit frenzy is finally drawing to an end are:
- I believe it is not feasible for your average first home buyer to take on a mortgage at the moment. The free money boost has nearly ended and interest rates are heading up. I didn’t think it made sense for people to be taking on 500K mortgages 12 months ago, let alone now. The lack of any rush for the FHBG in the past month shows that we may have reached a tipping point.
- Banks have tightened their lending criteria. This was a major source of money entering the residential mortgage sector and without 95% loans being handed out, there are a lot of people that will have to save that little bit longer.
- The politics of housing affordability will re-emerge. PM Rudd simply cannot be everything to everyone and housing is a clear policy issue where he will have to prioritise the interests of some over the interests of others. For a while, Rudd has been winning over mortgage holders and baby boomers, but soon the backlash from renters/savers will become too big to ignore. Don’t rely on the Government propping up prices any more without it becoming the major issue leading into the next election. A Government that intentionally distorts a market to drive up the price of any good or service is playing with fire.
I understand the deflation/inflation scenarios pretty well and although I am not utterly convinced asset deflation cannot be avoided by Government’s willing to do anything to prevent deflation, I don’t think people will appreciate having the other inflationary effects that would come with such an irresponsible inflationary approach.
I think the Government is under the belief that any falls in house prices wont materialise until after the next election…like so many issues, I think they have underestimated the speed at which a housing crash can occur.
Kris is way off line on this one and there are two issues that counter his whole premise. The US took a leaf out of the German playbook and the mercantilist way on pharamceuticals which creates excessive costs (or reverse dumping if you will). And free market consumerism doesn’t work with medical services.
Once big uncontrollable costs get into the system you can quibble about the public sector being worse at cost containment and you will be right, but in the big scheme of things you are on the wrong boat.
In the US as in Germany their consumers pay a price premium, a straight and massive subsidy, to big pharma which lets them recoup their full R&D costs at home and allows them to penetrate world markets with lower prices. So people in the US go to Canada to buy US made drugs.
In the surgery the offer of endless diagnostic tests on more and more expensive equipment & plates of medication is refused by who? What price is your life worth? There is only one answer and it distorts the market, creates overservicing, and displaces more productive consumer savings and investment.
Someone needs to carry the stop sign on pharma, halting the push promotion of drugs with offered financial commissions or conferences to doctors. The diagnostics must be removed from medical insurance except in cases where it passes a test. The inducements to media & new rooms for public hospitals and goverments to buy big dollar hospital diagnostic equipment or run subsidised general public screening programmes. We would all like to have the tests and physician team backing the US President but it isn’t on.
We all pay for overprescribing because we all want it, that creates the need to insure , and because not all of the community can afford to insure the full medical costs, we get a bodgy half way system where drugs and others are plus plus to try and keep affordability in play but then too many still can’t afford it for either inclusiveness or to prevent the public debt blowing out now, let alone with the onset of ageing populations getting another 1 year and 1 day of life out of drugs they could never afford.
So don’t knock the one who has to say stop as somesort of anti market socialist, and then start to craft your free trade and free market narrative after systemically unaffordable costs and the things that drive natural but economically irrational consumer sentiment are removed.
Yes, that’s a good one, Mick. Thanks.
Alas, the banker’s sons and the president’s daughters are not going to be on the front lines, and the horrors of war that inspired the good General in his moment of triumph, will be the last thing on the key players’ minds if, and when, it comes to the crunch. You would probably not disagree with that.
As for China’s increasing financial and economic power, it is real enough, if, and as long as, all things stay the same. But in fact, there is the paradox of power that underlies the US-Chinese relationship.
According to that paradox, “There more one has, the more one has to lose.” And conversely, “The less one has, the less one stands to lose.”
At the moment, China has a growing mountain of savings in US dollars, and dollar denominated assets, and if they push their luck too far, they risk having the bulk of their savings wiped out just like that, with the stroke of a pen. And if that weren’t enough, the US can also put the screws on them via Uighurstan, and Tibet.
If faced with a real choice, would China rather hang onto these occupied states, or let go of their advantages or demands that so many pundits today believe that China will be able to force onto the US going forward? It won’t be an easy choice, to be sure. China might be a rising dragon, but its backside is as vulnerable as Achilles’ heel.
An unsettling implication might be that the bankster oligarchy will have enough leverage on China, to ensure that they will be given the keys to the henhouse of the dragon state, and debt enslavement will continue on its relentless world-wide march.
PF, did you mean RMBS, or CMBS?
I did a search and there is quite bit of huuuuhaaaaaa about the latter, but google did not turn up anything for me on the former. Would you have a link, perhaps?
Having been advised many times to check on the facts first I Googled ‘100% home loans’ and refined my search to Australian websites. I am now not very convinced that 100% LVR home loans are actually a thing of the past after receiving 209,000 hits on how you or I or (best of all) first home buyers can get up to 106% of the required purchase price of their new home. Sure, they aren’t the major banks offering, but the techno savy generation of first home buyers aren’t going to don a suit and tie and go meet the manager of their local branch of the NAB for a cup of tea whilst discussing the merits of a conservative sized loan against the dangers of too great debt servicing level on their shiny new loan. They are far more likely to do precisely the same thing and surf the web to get the ‘best deal’ from one of the organisations spruiking these offers. Check it out for yourself. Oh and even at 95% that is way too leveraged in my opinion. If re-regulation of lending practices with a minimum of 30% equity as a benchmark demonstration of capacity to borrow (ie: You have saved $105,000 to buy your first home for $350K ) this would go a long way in diluting the concepts and conflicts driving property investment up against that of genuine home ownership.
Well, BB, I dunno what is going on, but I have been chasing loans and can tell ya that lending is very tight whether you chase a full doc, or lo doc loan. What sorts of interest rates would you have to pay to get one of those stupid loans? Plus, a lot of that crap might simply out of date, attracting attention, but when you in fact start to follow it up, you will find that you do not qualify, or if you do, then it will be at a huge expense of LMI, plus high rates, which you would be insane even to touch.
Hey, PF, I just thought of something. There might well be a connection here with the $US/$AU carry trade, and the increasing likelihood of the RMBS and CMBS markets restarting here in Australia. If you think about it, all that cheap $US money of the carry trade will be looking for income producing assets, and MBSs will be prime targets. And if so, we might just be getting ready to blow up our very own BIG ONE.
If banks here don’t have to keep dodgy loans on their own balance sheets, or are otherwise enabled to hedge against balance sheet blow ups, if things go sour, then WATCH OUT!!! If we think this is a bubble, we ain’t seen nothing yet!!!!!!!
And, come to think of it, the Australian borrower cannot just walk away from a debt, like US home owners can, so this will no doubt be an attractive selling point for the pushers, and since there are plenty of financial cowboys out there looking for just this sort of market to kick into high gear somewhere, you might be soon looking to expand business to make hay while the sun shines
. What d’ya reckon?
BB – Good, can you please tell me where they are, cause I and the rest of the brokers in Australia can’t find them.
Your just looking at old links that haven’t been updated. I am willing to bet that you can’t locate just one from an institutional lender in Australia. The Max is 95% plus LMI.
Actually I don’t like 100% loans and I can say I have never written one. I know that you won’t believe me because everyone loves to think that there is a conspiracy out there, but seek and ye won’t find.
cb – no investor has ever lost on Australian securities. Going forward we will probably copy the Canadian scheme where it is regulated and quality controlled.
That guarantees constant supply of funds and pricing, but limits oversupply. Not really carry trade fodder, but maybe some innovative investor will find a way of making small margins on overnight currency. Who knows.
Really if the government guarantee these products we need them to be well regulated.
And thinking of the major players with a say in this game, who would say NO to such a party?
- Rating agencies? NO CHANCE!!!
- The politicians? – NO CHANCE!!!
- Potential home buyers, as PuntPal suggests? Hmm… Maybe, but probably not, if there indeed is a pent-up demand, and landlords remain arseholes and rents will not come down in a hurry, as they probably will not.
- How about APRA? Hmmm, now there is a genuinely unknown quantity for me, but perhaps you might have something illuminating to say about them and their likely tack. Could it be as easy as the wizards finding an agreeable way for APRA to cover its own arse, if, and when, things go stupid and the whole thing blows up?
cb – RMBS is a Residential Mortgage Backed Security (ie houses) whilst CMBS is a Commercial Mortgage Backed Security (ie Offices, industrial property, shops etc etc)
Residential mortgages are generally covered under UCCC lending code, whilst Commercial mortgages are not.
Home lending currently is generally up to 90% LVR and is considered safe, and Commercial property lending is around 65% to 70% and considered higher risk.
All of that is a generalisation, but pretty close to the mark.
PF, I don’t understand this well, at all. Would you mind explaining why cheap borrowings at under 1% in USD should not target a Australian MBSs? Are these too illiquid, or what? Are they typically traded, or simply sat on by buy and hold funds? Even if so, why would they not be an attractive target for cheaply borrowed money? The yield differential would surely be attractive enough, wouldn’t it?
cb – I think that you are being too cynical. In the light of what has happened in the world in recent times we now have a great chance to get something good in place. You forget that lending quality in Australia was good, so rating agencies, politicians, and all the others you mentioned are not tainted. In fact if anything, mortgage insurers and lenders have lately become a bit over protective in my opinion.
The danger will come in 10 years when the world will get complacent again.
cb – carry trade is “hot money” that is continually being placed, withdrawn and replaced elsewhere to get the best return, whilst an typical tranche of mortgages is a longer term investment.
But as I said earlier, some innovative investor may find a way.
The carry trade, and in fact all hot money is detrimental to lenders, as it has loyalty only to the highest return. Therefore a lender cannot count on that money for a long term loan. Hot Money can be used for 30, 60, or 90 bills but not term loans. You may have noticed that a bank will often offer a better rate for an investment of $20,000 than it will for $1M.
A securitised lender may use the money for short term finance, but ulimately those mortgages will be sold to a church, a municipality, or smaller investor with a lazy $25M or so looking for a good return over a longer term.
Carry traders don’t like exposure to currency market fluctuations, and that exposure increases with time.
I hope this make some sense.
yes, it does, PF, thanks. I guess, you are working with a narrow definition, whereas I am working with a wider definition, according to which, a fund like you mentioned, might gear up with short term borrowing on a rolling basis and seek a better return here, as they get practically nothing in the US. But this sort of thing might fall outside the strict and proper technical definition of what the carry trade is?
ah, cynical I can be, PF, there is no denying that. Alas, many of those in the industry in the US knew all too well what they were paddling, from agents to raters and regulators, and I do not suppose that our own should be any less vulnerable to human weakness. Let’s hope, however, that I am the one who is way too cynical for a long time to come yet. In the US, there was a very corrosive process of wilful deregulation going on, and I suppose nothing of that sort can get up here.
The whole carry trade idea is most certainly an entertaining one to play with. But let us not forget that China central Bank in one foul hit about ten months ago lost a cool 10 Billion in the US stock exchange.
One interesting quirk with the US and it’s investment laws is if your not a US citizen you can’t actually directly own us stocks in the top 500 companies. you have to go via an american investment house and they own the stock for you.
So China Bank went to Lehman Bros or who ever and put a suitcase of ten of cash on the table and told them to invest.
Needless to say the fall-out from that item alone will take a while to resolve so China’s money is looking for far more secure homes to go play and who has the highest interest rate of any OECD country? who has managed to dodge most of the economic bad bullets? Our dollar is artifically inflating at quite a rate while the greenback crumbles.
Against the Yen we are in the same spot we were two years ago but the greenback… it’s a good 20 us cents difference.
So expect to see more Asian money heading our way plus the weekend trades from large asian banks working a roaring trade on 3 day weekends with regards to carry trade deposits and our global location with regards to the int’l date line etc.
It’s like the traders in London who got caught dropping 20-40 million pounds worth of clients money in to their own personal bank accounts for the weekend.
As a closer just remember All those credit rating agencies that said Bear sterns, and so many other dead institutions were AAA rated are here saying the same thing about a whole raft of exceedingly dodgey institutions like the NSW state Govt.
The whole financial sector is little more than castles built on sand.
The good fortune these days has more to do with skipping a king tide than true business sense.
Oh and CB A lot of people who wanted to bai lout of their toxic home loans could not as the property had been leveraged so many thimes through so many banks, brokers and other loan sharks no one could actually fathom out who really owned what so the county will in effect grab the property and take on ownership with a clean slate so you can pay out the rates bill and a nominal amount for the property.
It’s like approaching a finance company here and asking if they have any repossesed properties they want to offload at a good price. You can buy plenty of debt for 14 cents in the dollar or less now.
cb and Mick – I have never been involved in the carry trade so yes my definition may not encompass everything. Perhaps you should seek a better definition and explanation from someone in the trade.
Mick – you have hit everyone from the CBA to NSW Rail. And yes China has lost a lot of money in the US, so they will look to us a bit more to place funds. After all we have what they want. Why buy the product if you can buy the company that supplies it.
The US is worried that they will not longer be the secure dollar that every investor looks to in times of trouble.
How is your Mandarin?
Wow, Mick, you covered a lot of ground. I think that you are spot on with China learning some important lessons the hard way, especially about the risks of dealing with Wall Street banksters who have been selling them a few pups here and there, and as the realisation dawns on them that they have been had, they are making noises that they reserve the right to reneg on some of the more dodgy derivatives on which they have been fleeced. They did the same to the US taxpayers, of course, through derivative bets they placed through AIG, and as they blew up their clever bombs, AIG kept paying them and paying them and paying them, until they ran out of money, and then the US taxpayer was fleeced through the bailout, so that AIG could continue paying them on all their little dirty bombs.
You following what I am saying? GS and JPM take out insurance in the form of CDSs over an underlying product that they don’t even bother to actually own, effectively saying, pay me a truckload of money if entity X goes to the wall, even though I do not own entity X and will have nothing to lose if X goes to the wall, and here is a pittance for the insurance premium for insuring me against a disaster that in fact would not affect me, but I would like to collect big anyway if X fails, and then AIG says, okay boys, no probs. Then GS and JPM engineer the collapse of X in the background and then AIG is tapped for paying out on the phoney insurance, and so on and so on, until AIG itself is on the ropes and then if that was not enough, the taxpayer is made to pay out on the phoney bets by bailing out AIG.
Now, this criminal syndicate will get away with this nonsense where the US politicians have jurisdiction, but they have been playing the same tricks on Chinese SOEs who are reluctant to pay the criminals because they are slowly figuring out that they have been had by the white shoe boys of Wall Street.
Ah, I am forgetting where I was going with all this ramble, but anyhow, we can only hope that this sort of banditry will not be allowed in Australia, but then again, we already know that gangsters involved in high speed trading and front running on US exchanges are also operating here on the ASX, and what I would like to know is whether this corrupt and illegal front running operation is in fact happening here in any shape or form. I fear that it might be.
After a full 5 minutes of very deep research and analysis it does appear that whilst the Australian banking majors certainly aren’t casting their lures for dumb fish borrowers with any ‘ninja’ type loan offers (as yet) you would have to say from a cursory glance that very enticing offers such as those from the well known RAMS provider still maintain a link (www.rams.com.au) titled ‘RAMS NO DEPOSIT HOME LOAN’. Admittedly the detail of the deal provides 95% NOT 100% of the loan but there are many lenders and lending brokers who appear very willing to use the FHOG as a ‘quasi’ deposit for a loan. I also stumbled upon CENTURY 21 HOME LOANS (I assume it has some sort of affiliation with the real estate organisation of the same name?) that does offer 100% loans. This is splitting hairs really. I thought perhaps the government and maybe even the banks may have learnt a bit of a lesson from the GFC in respect of financial risk and lax lending standards but maybe not.
PF – as a matter of interest (no pun intended) as this is your vocational area of expertise what would you consider to be the appropriate ( ie sustainable) LVR for a housing loan for first home buyers and why? Cheers.
http://www.imf.org/external/pubs/ft/weo/2009/02/pdf/c3.pdf
Well, this should have cb, PF and the other bulls a little worried. Seems the IMF have attempted to identify macro trends leading up to house busts and found that:
“In the post-1985 period, large deviations in credit relative to GDP, in the current account balance, in the residential investment share of GDP, and in house prices themselves are particularly predictive of an impending house price bust” – p.8
Correct me if I am wrong, but don’t we have a big tick for all those factors???
BB, me reckon that those website searches present a false picture. I have been in the loan market for quite a while now, and I can tell you from first hand experience that the lenders have just about shut up shops. Forget the LVR they are advertising, and look in detail into WHO can meet their extremely tight lending criteria. Not many. The famous RAMS lo-doc loan, for example, has also been tightened up and a borrower needs to show evidence of solid income, not merely say that they have a solid income, that won’t cut it with virtually any of them anymore.
And even at an 80%LVR, they insist on LMI.
I am about to lose a deal because it looks like I won’t be able to get even a lo-doc loan because of all the tightened up conditions they have all slapped onto their lending. It is very frustrating if you are trying to get a a loan, even though, perversely, servicing a loan hasn’t been easier in decades. Far from the market being flooded with easy money, lending is drying up faster than the morning dew on a hot summer day, and this has already been the case with FHBs who are now mostly locked out of the market and have been for weeks.
If this doesn’t change, there will be even less homes being built, so there is not going to be a flood of newly built houses on the market, unless things ease up on the lending side, or interest rates, job losses, or taxes will start pushing home owners over the edge into forced sales.
PuntPal, you may not believe me when I say that falling prices do not worry me, but I have been waiting for bloody prices to fall for a long time, and I am sick of waiting any longer. Alas, to make things worse, now that loan servicing has become much easier than it has been in decades, the lenders have shut up shop and do not want to lend. Enough to drive me to distraction.
My case is a good example of how you can mistime the market. Had I made my move even 3 months earlier, I could have gotten in much easier. Now it all looks doubtful.
I know that your advice would be to wait in any case, for prices to fall. And that would be a good thing, as one would have to pay less in stamp duty, borrow less, etc., to secure the same place, BUT what is the guarantee that with falling prices it will be even harder to actually get into the market, because lending criteria get tightened even further? NONE. Anyhow, I have rambled enough about this ….
If anyone knows of an easy lender who will be willing to give me an easy loan, I will be grateful.
PF, did you see today’s DR or MM? Someone has been again shooting off their mouth without thinking, missing little details, like:
1. Private schools receive a lot of govt funding.
2. Chances are that the poor girl is only suggesting an increase from 9% to 15% in compulsory super, not 30%. I cannot see how he got from the evidence he presented to 30%. Can you?
Oh, and more has been promised on property!!!!!!!!! Stand by!!!!!!!!
cb – I did read the email. The minute anyone suggests investing in any other asset class or investment product these boys are against it. Clearly we should all have every last dollar invested in the stock market and be paying the good people at MM a small fee for their stock picks.
I’m not against putting money into the market, or against using Sayce and co for stock picks, but the single mindedness of their advice is a concern. Still they need to sell their wares.
BB – Your question re the LVR for FTB’s is interesting. As a broadsweep obviously the lower the better, but really it is the committment level that concerns me. To explain – a 90% LVR on a $200,000 home in a country town for two people on average wages may be easier to manage than an 80% lend for two professionals on a $650,000 purchase in a Capital City, especially if they also have big credit card limits and big lease payments on their BMW.
Although residential lending is a tick the box exercise, each case is still treated on its merits. Banks stress test the loans by using interest rates at least 1.5% higher than current rates (often higher) and such things as rental income get discounted by 30%, foreign wages get discounted about the same, income from share dividends don’t get counted at all, second jobs won’t be counted in many cases, bonuses, overtime payments, and commissions are not counted unless you can show previous group certificates to prove it is ongoing etc. After allowing for those things, other existing committments, and average cost of living for your family unit, you still need to show a decent monthly surplus on their calculator.
As far back as I can remember in lending, it has always been a struggle for FTB’s to get into the market, and some do fail. That’s the nature of life, nothing is guaranteed.
PuntPal – we also have a stimulous package and a continuing resource boom. You have to factor that in.
cb again – you will get an 80% low doc if you have had an abn for 2 years, 12 months of BAS returns, and usually 3 or 6 months of trading statements. But any defaults or even missed payments or dishonours on your trading account and they will say no. You have to be perfect to get a low doc loan these days. The last few loopholes were closed in the last few days. I think that there is something available though, but I would need to spend time on the phone to chase it up. It propably won’t be there tomorrow.
PF, you said: “Still they need to sell their wares.” Yes, and because of it, I say: Buyer Beware! What else can you say when it is even alleged that property is presently more risky than shares. There seems to be no line to be drawn anywhere in terms of what can be claimed and pushed in that single-minded endeavour, which is somewhat disconcerting. But, hey, the small print disclaimer will take care of everything, won’t it?
PF, I don’t follow all that you are saying, but please do chase it up for me, and send me an email with what you find. I have been registered for yonks, but whether my figures will satisfy is the big question. Will email you shortly as well. Thanks.
PF -
SORRY PF
I would say we HAD a stimulus package, a lot of which has already filtered through to the consumer economy and we HAD a resoruce boom, that seems to be slowing down with the eventual slow down of China (thats right, I think China’s growth is a mirage, just like eveything is the world’s zombie economy).
If you read the IMF report, I think it is reasonably clear that there are certainly factos that indicate a house price bust is just around the corner and as I said, we have all those factors (with the widening current account deficit just another worrying sign).
PuntPal – No problems – hold that view. I love property bears because I have found that they make excellent long term tenants. They don’t complain because they know that I will lose and they will win eventually. In the meantime they just pay their rent.
A perfect match.
I can see that, lol. What I cannot figure out is whether this is a match made in heaven, or only here on earth?
to PuntPal, – Well, yes, there are uncertainties about Chine, for sure. But these are only uncertainties at this stage, not certainties of impending disaster. Have you considered, for example, what will happen inside China if they have an internal economic collapse? I do not think that the communist govt has the luxury of allowing anything of the sort to happen.
And if so, they have plenty of ammo to throw at their economy, should it start stalling. Two trillion USD is saved money, and they can leverage that through their banks, so they potentially have an ocean of money they can spend to develop their internal economy, even if the West is not going to maintain their export economy.
And if the opportunity is there, which chinese family will not want a better house, a washing machine, a laptop, a car, or even a flat screen TVs? And if you accept this line of reasoning having merit, as a possibility, then the implication for our resource industry is not going to be as dire as you expect. ???
cb check this out
http://www.elliottwave.com/freeupdates/archives/2009/09/21/Global-Cargo-A-Ship-Stuck-at-Sea.aspx
thanks, etch, I have. It certainly confirms the overall impression I have of what in fact is happening. All this optimism in the share market and the green shoots that our political leaders and banksters are pushing would be far mor likely to be due to green weeds they have been smoking, than what they are trying to suggest. Who do they think they are fooling? Hmmmm, maybe quite a lot of people. I just dunno. I, for sure, do not belive a thing they are saying, if I do not see independent evidence of it from non-partisan sources who are free of vested interest.
PF – you are right, tenants like me have made y0ur investments in property pay off…that, and a whole lot of meddling by the Government and credit expanision by the banks to fuel this ponzi.
But havent you heard, savers are back in fashion. Those idiots like me, that actually believe you should have at least 20% of a deposit for a house before you make the purchase, are becoming the norm. Lets see how much you appreciate tenants like me when we start buying our landlords house in a firesale!
cb – China’s industrial emergence is guaranteed, no doubt about that. But there are so many hurdles from here that it is very optimistic Australia can just keep riding this mineral boom. Eventually, trade wars, environmental degredation, civil unrest amongst young dissidents and the collapse of the US consumer empire will bring the world economy back to its knees.
We are fortunate to be linked to China through trade, however we are placing way too much importance on that relationship and have no real plan B if things do pan out like the DR and MM teams are suggesting.
PuntPay – Sorry mate, I have to put your rent up by 10%, I’m sure you understand. Thanks for the savings too, that means my bank has less reliance on offshore borrowings at a higher rate, so I can save there as well.
I do agree about China. We will make a mountain out of our trade with them, but we as a nation need to save some of it, because that heavy reliance on just one big customer does leave us very vunerable. In business finance that is considered a no no.
The problems may not come for 100 years, but they will come.
Go the Broncos. Sorry mate I just had to say that knowing that you have money on an Eels/Storm Grand Final.
Yes, just a little too much hoping about China continuing to do well. And they probably will, until they don’t. And therefore, we continue to remain vulnerable for a king hit, should a black swan event knock them out cold. What could that be? Let me speculate a little:
One possbility would be if the giant is cornered and sees no better way out than having a fight. In such a fight, we will inevitably aligned with the giant. But in such an event, I suppose, we will have a war economy to energise us and keep us ticking over, but I have no idea what such a rotten development would really mean.
ps. by the giant I do not mean the Dragon, of course.
but, hey, you make hay while the sun shines, don’t you? So, the more dirt we can sell for good money, the less there will be for the next sand storm to dump into the sea. What a waste, we could have sold all that dirt.
cb – probably no-one will read this post, but China will probably have a peak between late this century and mid next century, and then wane as it devours not only it’s own product but everyone elses as well. It will turn from a low cost producer to a demanding consumer at some point. Throw in some world population control problems, energy supply problems, political problems as the east is the new west, ecological issues, food supply issues, and there are heaps of problems with the potential to derail China, but it won’t be in this decade, or perhaps in our lifetime, but history has taught us that empires come and go.
Bye.
Yes, the unimaginable happens with unmistakable regularity. That is one of the lessons of history. And the debasement of currency seems to be one of the ingredients that accompanies the collapse, although I cannot be sure whether it is there primarily as a cause, or mostly as symptom.
but, I had a more imminent possibility in mind, PF, a possible war between the US and China within a decade or so. If the US cornered too much on the economic front by China, war might be the way out for the US military establishment. They might not do it openly, but they could wage a proxy war over Ujghurstan and Tibet, or even Taiwan – all cards up the sleeve for the US when the tough must get going.
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