Thursday, 9 August 2012

Debt doesn't just go away ....

Today's release of minutes from the BoE reflects exactly what I've been acing about QE for some months now; that is that the effects from each easing are lessening each time to the point of no effect. Governor King (if that's what I should call him) now recognises the "Japan-ofaction" of the western democracies and is in my view quite rightly calling for an adjustment at the point of credit rather than at the point at which money flows into the economy. He has seen that zero interest rates help no one if the banks are unwilling or because of capitalisation factors unable to lend. Why cut another 25bp if all that will happen is that loans become evenmore unprofitable, rather better to incentivise banks to loan money. How such loans are established is up for question, but certainly King's thinking is at least the first crack in the Keynesian wall.

More cracks are appearing in the economic wall of China every day. I nearly spat out my cappuccino this morning when I read the economic forecast at Rio Tinto that Chinese GDP will be above 8% this year. I cannot believe Mr Albanese and the management team honestly think this is correct. This of course is a company who will go down as perpetrating a huge mistake (Alcoa) on its shareholders. More write downs testify to why the management team should be encouraged to move on and leave their bonuses behind them.

 Readers of this blog know that I have warned on numerous occasions about the effect of the massive rise in student loans on American (and many other G20) households. Today I read that the average upper middle class household has over 50k in such debt. That would not to be such a problem unless one considers the disinflation of the housing market which for many was the prime financing agent for such loans. Now we need to wait until September when we will  see the release of the arrears figures for the most recent tranche of said loans. If as I suspect we see a sharp rise in the defaults, etc. then we will see yet another significant torpedo put in the hull of the good ship USS American Consumer.

So far today in Melbourne I have seen rain, cloud and sun continually repeated over the last 6 hours. It's almost the perfect cliche for what Sydney people think of Melbourne weather. This morning I was tempted to give the local version of the "Boris Bike" a try, but though better of it not because of the trams, but rather because of the ever changing skies.  The locals here like to think of their fair city as being very European and in a way they are correct, but as I said to my travelling companion Melbourne reminds me more of those great American mid-western "metropoli" in that the flat geography and wide boulevards set out on a grid pattern allow a very even pace of life to exist in a bustling city. I like everything I see and especially the restaurant scene here. I'd happily trot out my Pinarello for a run down to St Kilda if I thought the rain was not going to get me at some stage and leave me sprawled across a tram line.


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