November 1, 2010

The paradox of thrift

We're alright Jack.  Doing fine in the lucky country.  Digging up iron ore with our left hand and uranium with our right.  Hell, can't dig fast enough.  Building a desal plant here, rolling out an NBN there ... we're booming!

Whether we would have plummeted into the depths of hell without the cash for all, the useless buildings for every school, pink bats and whatnot, all thrown at us by the Rudd government is impossible to know with any degree of rigor, although superficial economic analysis has suggested we would have been fine.  Arguably then, the Australian response to the GFC - go in early and go in hard - was over the top for our circumstances.  Certainly, Australia does not suffer the economic, political and regulatory purgatory that is the US (where it all started), so common sense alone should have tempered the response here.

The ugly irony is that the one country that did not need to go in so hard or so fast did, while the countries that should have then, and still need to, haven't come to grips with macroeconomics 101:  the paradox of thrift. 

Contrary to a lot of bleating in the US and in Britain, very little money was thrown at trying to avert the worst ravages of the GFC in those countries.  At best, the government measures were measly and useless.  In the US, most of the money was thrown at propping up financial institutions, which, not unexpectedly, didn't create a single job or build anything.   Both countries are now cutting and slashing like Edward Scissorhands and foregoing investment in  infrastructure for recovery and future growth, thereby guaranteeing there will be none.

A lot of countries are still struggling, or will never recover fully (hell, Iceland no longer has a bank to call their own).  Japan, on the downward slide for a decade prior to the GFC, continues to build stuff no one wants or needs, abandons things half way, and slides ever more.

Those with crystal balls claim that it will take ten years for the US to create the jobs lost during the GFC; just to get back to where they were in 2007.  

The GFC supposedly wiped out the previous twenty years gain in wealth across the world, and even little Aussies would largely agree with that sinking feeling, thanks to our enforced superannuation funds.   Bizarrely, the one area that did not by-pass Oz - the drubbing of every financial investment - is the one that Rudd, then, and now Gillard, is going to force us to risk more of our dollars.  We have no control over how our money is invested, other than a tick a box, and the collective investment, prior to the GFC, was fast heading to a trillion dollars, yet Rudd/Gillard will make us risk 12% instead of the still nerve racking 9% being mandatorily stashed into a crap-shoot.

This is our security for the future, so we can all retire in self sufficiency and comfort.


America goes dark

Britain reels as austerity cuts begin

Housing woes - let the market fall

Developing nations leaving rich ones behind 

The end of the tunnel

Hey, small spender

Long recovery looks like recession 

Japan - the never ending decline 


  1. Anonymous10:08 PM

    "America is now on the unlit, unpaved road to nowhere." Paul Krugman

    And they only have themselves to blame:

    Until Obama deals with the reality that the financial system is rotten to the core then America (and by default just about everybody else) is just at the beginning of a rather ugly journey.

    No better example of the Gresham dynamic (ethically speaking) than can be witnessed in the land of truth, justice and the biggest fucking kleptocracy our Planet has ever seen.

    In America the game's over - the bad guys won.


  2. Anonymous10:27 PM

    Re: Japan

    But the bubbles popped in the late 1980s and early 1990s, and Japan fell into a slow but relentless decline that neither enormous budget deficits nor a flood of easy money has reversed.

    It has not be lost on China that a material reason for the asset bubbles in Japan was agreeing to appreciate the yen against the dollar (The Plaza Accord) to assist the US with their trade imbalances etc. etc. (think debt reduction/default by another name).

    The Yanks got away with bullying the Japs; under the circumstances it would be in Australia's interests for the Chinese to tell the Yanks to go jump - which they have, hehe.


  3. Yet the Tea Party is a reaction to profligate federal gov't spending, amongst other things, Justin.

    Does truly beggar belief, particularly when most of the money that was spent in the US went to the rulers of the universe. Would have thought that would make any right leaning person throb and glow with inner warmth.

    Obama's problem, superficially, is his lack of gumption. His timidity in taking on the worst aspects of the US economy. (Kra-rist - even the desperately needed health insurance reforms almost didn't get up, and the insurance still isn't equitable, community risk basis. Mind you, they still have no thought of reforming the hideous situation of insurance companies dictating to doctors and patients what they can and can't do. Imagine that happening here Justin?!)

    Interesting point you make about Japan's capitulation to the US and appreciating the yen. Not the only factor, or course (they're no longer a dynamic economy, other, cheaper and more innovative countries stepped in, while Japan churns out Hello Kitty in every possible configuration), and China is by size and population many times that of Japan, so could probably well afford and should appreciate their currency ... it's a different circumstance and place in time ... but yes Justin, they probably do have one eye to the past, and are assuming the outcome would be the same. It wouldn't be, not least because China is a few steps short of being a thriving capitalist democracy.

  4. Anonymous8:34 PM

    Maybe, "change you can believe in" Obama decided that throwing his lot in with the kleptocracy would at least ensure he lives to see his grand kids, unlike JFK, who can be accused of being a lot of things, but was nobodies fool when it came to the military and banks.

    China like Obama have noted the past. Once upon a time the Chinese built a rabbit warren of tunnels (shelters) under Beijing in case of a US nuclear attack. These days the Chinese hold enough T-bills etc to stop the US in its tracks should the US try it on.

    Of course those T-bills help finance those neocon wars of "full sprectrum dominance". While China underwrites US wars China grows strong and the US grows weaker - by the day.

    "Hence to fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy's resistance without fighting." Sun Tzu

    The Yanks have been fighting the wrong wars (underwritten by the dragon); the Chinese have been fighting the real war, in a most subtle manner - but that's obvious isn't it?


  5. Justin - I'm not convinced that any of it has been calculated that well by China. More accidental than deliberate.

    Hell, even the communist gov't would never have figured on the West's, and in particular America's, insatiable appetite for cheap, tawdry goods - disposable stuff (think every Easter, Xmas, and Halloween bauble), and disposable consumer goods (does Walmart stock anything not made in China).

    History is littered with unplanned outcomes. Men aren't clever at manipulating locally, let alone globally. (If it was that easy, diplomacy would actually work.)

  6. Anonymous10:29 AM

    No war ever goes to plan, but China has indeed done a lot of calculating and planning.

    It is no accident that China is now one of the worlds major players, it was planned that way: to exploit globalisation and development their nation, along with their internal and neighbouring markets.

    Deng made this perfectly clear yonks ago - but he insisted that they do so with patience and humility.


  7. Many a man (and woman) has taken full and elaborate credit for a plan that didn't exist Justin.

    If only the Chinese rulers were smarter than the rest of the men in the world ... well, err, if they were, perhaps they'd feel less need to murder so many of their own citizens, and perhaps they'd stop the murder of millions of baby girls.