I have been accused of an Ad Hominem remarks – uncalled for in light of the AUD on currency markets and Australian economy not suffering from the ‘Dutch’ disease.

An ‘Ad Hominem’ remark is to attack the individual

1. (of an argument or reaction) directed against a person rather than the position they are maintaining.

“an ad hominem response”

2. relating to or associated with a particular person. “the office was created ad hominem for Fenton”

Yes – I attacked a Bank economist’s comments – in regard to the housing situation in Australia and on interest rates.

Have received an email from an associate (met in University days and kept in irregular contact) stating that my attack was unwarranted and my opinion is just that – whereby the data and history available on Australia’s situation is well documented – whereas my ‘opinion’ was an ‘ad hominem’ attack on a qualified and respected individual and Australia does not suffer from the Dutch disease.

Fair enough – everyone is entitled to an opinion – just as everyone has an arsehole.

We have had a fair few ‘economists’ who work(ed) for Banks, who think that they are fully aware of what is happening and make remarks according to a domestic situation.

Yes S_____ – reading a book on the history of the global financial crisis’ – after the financial crisis tore apart the global financial system in 2008 – is testimony to this.

Economists in the main were clueless, as to what was to happen, with the exception of those few who studied Austrian economics and or Minsky.

The simple fact is that it is recorded in history – economists care not of the actual history leading up to this period – but more for the ‘figures’ and available ‘data’ for comparison.

If one looks at the actual economic history of Australia then one can see that a real recession has been avoided for 24 years. Low interest rates have been the fore for well over a decade and mining (raw materials) is the major export – manufacturing then the service sector.

When one looks at Australia and a Bank economists predictions in the prior article – on this blog and subject to the email- I quoted what was in the news article wherein it was stated . .

– that he thinks that there is no bubble in the housing sector of Sydney and Melbourne and

– interest rates will not increase for 18 months.

For an economist to make these type of comments – one must assume that he is looking at Australia in isolation – the domestic economy – ‘all things being equal’.

This is a fatal mistake – I have debunked economic theories before and this policy of ‘all things being equal’ – there should be no such thing in economics – as nothing is equal due to human nature.

Australia suffers from the ‘Dutch disease’ – in essence any large increase in foreign currency, including foreign direct investment, foreign aid or a substantial increase in natural resource prices.

Australia is the lucky country in that it has avoided a recession – through raw material exports – principally to Japan and China. Chinese stimulus after the 2008 financial crisis enabled an increase of exports to support the massive expansionary drive.

That has occurred and has now ceased.

Commodities are no longer in demand – all commodity prices have crashed – will continue to follow the trend lower.

Look at the charts – not telling some people how to suck eggs – map the trend and extend this trend through to its lowest historical point and realize that the worst outcome will be reality due to international demand declining at a remarkable rate.

While iron ore is the hot topic – it is affecting all commodities which includes gold, oil and thermal coal.

Look at the charts – the love affair for all products has ended:-

– gold is duck diving against the USD

– oil demand has peaked, argue what you will – the simple fact is that the OPEC cartel cannot dictate higher oil prices – there are other producers in the market and technology has produced renewable resources to power vehicles and supply energy.

– thermal coal demand by China dropped 3 percent in 2014 as China has made a commitment to renewable energies, principally due to the cost and pollution.

Manufacturing and the service sector cannot fill the huge vacuum in raw material exports – value of the AUD and offshore demand is waning. All the major importers are in recession – and yes will cover that comment later.

Australian Banks command an elite position on the Australian Stock Exchange (ASX) – four of the top six companies on the ASX.

One wonders how long this will last – their major investment is in the domestic residential mortgage market – in fact when one looks at their loan – income / asset base – they are principally dependent on the inherent ‘value’ in real estate assets – residential housing.

The four Banks are ill prepared for a recession, an increase in non performing loans due to higher unemployment and a subsequent reduction in real estate values.

They are undercapitalized and bear in mind that the Banks Tier 2 compulsory capital accounts are invested in sovereign bonds – the AAA bonds that are clearly under stress due to geopolitical tensions worldwide and debt.

Okay – economic history is pertinent – the buildup – the ignorance – the result – let us take for example the Great Depression.

The affect on America was devastating and assisted by the ‘dust bowl’ and the economic rationale of the Keynesian ‘new deal’ would have had a far more profound affect on the economy, if politicians did not interfere with the process.

This is history – fact.

Economists however tend to ‘miss the wood for the trees’ in that the Great Depression was triggered by what some call a ‘black swan’ event…attributed to Austria and the lending policies by an Austrian Bank – however the lead up to this event was due to lax lending policies and capital flows.

This event was not the cause – it was the effect of a number of events that had cash moving from Europe to the U.S.

What preceded the Bank collapse was an earthquake which devastated San Francisco.

Go read up on the cause and affect on the insurance companies in Europe – who were required to transfer funds through to that City for the claims that were made.

The collapse of the Austrian Bank was not the trigger – it was not the cause – it was the effect of the capital movement culminating from geo-political tensions – government debt and the Banks bad lending policy and procedures.

A culmination of events leading to a capital outflow from Europe – Adam Smith’s invisible hand at work – human nature seeking asset protection.

Capital was already moving from Europe through to the U.S. – the U.S. currency was strengthening – the Austrian Bank and government collapse just added ‘fuel to the fire’ – so to speak – through a sovereign debt default – whereby capital sought safe refuge – the flight of capital through to the USD and the U.S. stock markets.

It was a cross border contagion – It was not only the U.S. that suffered – it was a global event. Please take note – anyone who has read my blog knows my thoughts on the rebalancing of economies globally – no country is immune.

This event took shape well before the actual event – it is this simple fact which economists seem to overlook.

The catalyst was building for a considerable time due to inept governments, financial policies and lax regulations.

The lead up to the 2008 financial crisis had these similarities – politicians (with support from the Bankers) interfering with the U.S. legislation that was enacted – after the last Great Depression – to stop bankers from proprietary trading.

Motivation for this section was pure greed – to compete with the European banks – that were not harnessed to the legislation and regulations.

The 2008 financial crisis and subsequent policies implemented did not solve the situation.

Regret that cronyism – favoritism – exploitation came to the fore.

Politicians were clueless, as too their advisors – in fact I would call the ‘economic’ advisors corrupt and conflicted with their own self asset preservation and interests at heart.

The whole episode since that day in 2008 demonstrated a callous disregard by those in power of the outright fraud committed by the Banks and lending institutions.

That is history – the idiots just kicked the debt can down the road and have again swayed the legislators into changing the newly introduced legislation to cover their own greed and incompetence by making governments liable.

The liability is no longer restricted to a bank or those investors – it is now a U.S. taxpayer liability – brought about by greed by those who can sway political opinion.

Enough said on history – we have the same situation brewing now on sovereign default and the dominoes are lined up – politicians care not for what they do – they themselves are only interested in the next election and personal opinions are no longer relevant – it is the party platform that is relevant and that platform is corrupted and corruptible.

Forget which country you live in – this is a global network of incompetent politicians, plus blind economic advisors (usually educated on monetary theories) and clueless central bankers.

Then again individuals with power are corrupted by that power – self interest comes to the fore. I have made several comments within the blog to cover that aspect of self interest – none more so than Australia’s own Julia Gillard.

So here I am explaining my views on Australia’s domestic situation to Bank economist(s) and no doubt a number of others on a fallacy that real estate values will not decline and interest rates will stay on hold.

Real estate values will decline – as I have set out above and below I have covered (with links) the problems with the each of Australia’s major trading partners U.S., Japan and China.

Interest rates will rise through a simple process – the Fed Reserve of the U.S. has lent monies to a lot of countries and companies throughout the world – at low interest rates.

All one has to do is look at history and what is happening now throughout the world. Currency wars are in process (Canada the latest entrant) to offset export demands.

Then all one has to do is look at the geopolitical situation throughout Europe, Middle East, China and Asia which is forcing capital to seek a safe haven – that safe haven just happens to be the reserve currency – the USD.

This in itself will not necessarily increase USD value immediately – the USD is in an upward trend – the biggest impact will be in the U.S. Stock markets for an extended term – as capital does not want to commit to US bonds – due to the uncertainty on interest rates.

Shares themselves can be traded through any global exchange.

The Fed Reserve will ‘appear’ to have created a stock market bubble domestically through lower interest rate policies – therefore to avoid congressional blame will attempt to offset the stock market ‘bubble’ by increasing interest rates.

This is a domestic decision by the Fed Reserve – this will not be based on international factors – as the Fed Reserve knows too well that they cannot afford domestic criticism and allow low interest rates to create a further bubble in the stock markets.

Everyone has been warned that rates will increase – the simple flow on effect will be an increase in USD against all currencies – a compounding increase in interest rates to all borrowers of USD.

All one has to do to realize there is a problem is to look at the international bond market volatility. There is a simple explanation – lack of liquidity! Capital is sitting on the sidelines – no commitment to inane zero and negative interest rate policies enacted by central bankers.

The increase in interest rates by the US Federal Reserve will thereafter create a debt servicing situation – by all central banks, commercial banks and companies – which will impact on the sovereign health of nations.

Countries will default – and the cross border contagion will impact all countries and principally the Tier 2 capital of all major trading banks rendering them insolvent overnight.

Governments will induce investors with higher interest rates to meet capital account shortfalls – the problem is the lack of liquidity and a recessionary climate and serviceability of these debts.

Governments will be forced to legislate bank capital controls and thereafter close banks to allow depositor funds to recapitalize the Banks balance sheets.

Australia is not immune. To those who seek a large capital return I personally would be short selling the four pillars of the banking sector in Australia and the five pillars of the banking sector in Canada. Bank economists in both countries have their heads firmly up their arses on real estate values and interest rates.

An no not an ‘ad hominem’ attack – an attack on their inability to understand the problem – get their head out of their arse and see the light.

What you don’t expect will happen.

United States

I have mentioned in a prior post – after the release of the Qtr 1 figures 2015 – that the U.S. is most probably in a recession. However looking at data – let’s say that the U.S. is skating on thin ice.

Minimum wages increasing against consumer spending dropping.

The Qtr 2 information that I am now looking at which does not show a real change.

http://www.bls.gov/webapps/legacy/cpsatab7.htm

This report is relevant in Q2 as much as it was in Q1. Jobs growth attributed to foreign immigrants whose disposable income repatriated.

http://www.reuters.com/article/2015/01/21/us-usa-cities-economy-idUSKBN0KU24C20150121

Small business is the largest driver of employment – the NFIB small business optimism index disappointed expectations in June (94.1 vs. consensus 98.5), falling to its lowest level since March 2014 – the biggest drop since 2012. All components were weaker but most notably hiring and plans to raise worker compensation tumbled.

If one studies these figures the increase in part-time jobs has increased – yet the majority are under employed. Full time jobs rise was minimal against a backdrop of a higher minimal wage. Increased purchasing power.

Consumers are hoarding.

http://www.prnewswire.com/news-releases/professional-diversity-network-q2-2015-jobs-report-highlights-two-tier-job-market-lgbt-community-in-workforce-300109154.html

http://www.brookings.edu/research/interactives/metromonitor#/M10420

Industrial Production rose just 1.54% YoY, the weakest growth since Feb 2010 and flashing a major recessionary red light. Utilities were the biggest contributor, as Manufacturing output ended June unchanged (against expectations of a modest 0.1% rise), missing for the 2nd month in a row. Notably vehicle production tumbled 5.5% MoM. Not exactly the end to Q2 that GDP hockey-stick’rs will be wanting.

Manufacturing growth worst since February 2010

image

Graph courtesy of Bloomberg – click to make it look better

Empire Manufacturing jumped to 3.86 (beating expectations of a 3.0 print for the first time since Jan). Take note that both New Orders and Number of Employees fell in July, as inventories plunged.

image

image

Charts courtesy of Bloomberg – clicking on them will make you feel better

Japan

Inflation – drop in real wages.

http://www.bloomberg.com/news/articles/2015-07-13/careful-what-you-wish-for-abe-s-inflation-hits-japan-s-households

Despite efforts to cut Japan’s public deficits, they continue to rise due to the significant cost associated with sustaining the social security system.

http://www.forbes.com/sites/markadomanis/2015/01/03/japans-demography-will-eventually-crush-its-economy/

http://www.academia.edu/2368322/Explanations_for_Japanese_Population_Decline

China

The similarities to the lead up to the Great Depression are remarkable and in particular the effect on China – domestically the country can ill afford a crash in both real estate and the stock market – investors in both markets are heavily indebted – a severe drop in asset values will create civil unrest.

Can one actually believe export data when this does not correlate with energy usage?

If one follows reads history an accounting concept of JIT (just in time manufacturing) was formulated to cover over production – channel stuffing – lead time for delivery.

Chinese local governments are ordering factories to maintain workforce – maintain production to meet national government forecasts and meet financial grant deadlines.

Continued recipe for a harder landing.

http://www.ft.com/intl/cms/s/0/b5198b66-2ac9-11e5-8613-e7aedbb7bdb7.html#axzz3frK7YEAx

Edit: had to delete a name through threat of legal action.

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One thought on “I have been accused of an Ad Hominem remarks – uncalled for in light of the AUD on currency markets and Australian economy not suffering from the ‘Dutch’ disease.

  1. Excellent Post mon ami,

    The Japanese – advised by Paul Krugman – have wiped out a quarter-century of wage growth. (Bill Bonner)

    Austerity, globally, accelerates the recessions transmutation into a Depression. By itself, it kills

    Adam Smith’s “invisible hand” is a metaphor for that which economists don’t know – which is a lot and not just about “economics”.

    In this current age of “science” divisions between contexts have high walls built (which seems to be a fetish) and let no man trespass – hence, in an Universe of singularity, not much at all, is allowed to be known.

    Admitting this one must also view the weirdness (yet another metaphor for ignorance) of the ‘demographic’. Every community which includes towns, cities, states and nations, satisfies the holistic completeness right to the last statistical analysis, the definition of demographic whole. (I had started to design a Database for global purposes before they sent in the ‘men in black’) and until these meal-ticket economists begin to acknowledge human behaviour input, at demographic levels of the smallest village, they are not going to get anything right. Yes, it is possible – I designed the whole system.

    The transitionary forces are indeed biological forces that too, can be accurately modelled as long as one accepts that “mistrust” must be a priori’ included and acknowledged so a combination of Reich, Lipton d’Olivet and the work of Engel and myself must be taken into consideration. There is nothing new about any of this – it is just that it is ignored and not taught. Math is taught but math defines and describes – it cannot predict and or project.

    Australia gets worse by the day – there is only BHP and Rio hanging on with any integrity. The Banks need House Prices to rise and for this they Lobby Tony and Co. It will not last long now.

    Some mines have brought in US auto or Robo-trucks – McDonald Robo Tellers – automation or Robotics is the trend and one must ask if Corporations are given tax relief, SMI are run out of town by government, tax, ATO and the Banks, while people have no jobs, just where does the money come from especially in light of the new Government revelation in the Policy of Austerity (yours)? The answer lies believe it or not, in hiring battalions of economists and their Clerks – or that what is going to happen.

    As I said, excellent article

    peter

    Like

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