(1) New US/Australia dollar ‘carry trade’ (2) DEPRESSION CONTINGENCY PLAN?

(1)  ALAN KOHLER DISCUSSES NEW US/AUSTRALIA DOLLAR ‘CARRY TRADE’

Move over Japanese yen! Alan Kohler describes the newly-developing USD/AUD borrowing-lending relationship in today’s “Business Spectator”. Of course, the thinking underpinning the USD/AUD ‘carry trade’ in the article relies on the premise that Australia has somehow or other managed to outsmart other nations by averting the property crash resulting from its bubble.  Apparently, the Australian government believes it has forestalled the real estate collapse by means of the ‘First Home Buyers’ Boost’, a handout never designed to assist first home buyers but to pump up the real estate market. It hasn’t obviated the crash. It has only delayed it and made it much worse. Given that its real estate bubble was actually 1.7 times America’s, might I suggest the new US/Australia dollar carry trade will be relatively short-lived as Australia’s chickens come home to roost?  Hmmm… on the other hand, as the downside prospects for the US dollar are also extremely threatening, maybe some sort of ignoble nexus may linger between the two doomed currencies?  🙂

There’s a remarkable ability for the human psyche to draw the line behind bad news and to conclude “Well, if this is as bad as it gets, it should be easy running from here”.  However, this will often ignore fairly obvious things called FACTS. We’ve become expert, for example, at overlooking the sheer extent of the debt leveraged off this worlwide land price bubble.  But I guess if newpapers don’t offer a new ray of hope each day amid the gloom, folks might get a little depressed?

Helicopter Ben
Helicopter Ben

But how long can governments continue to ‘stimulate’ the economy to keep things moving, while unemployment continues to rise and people cut their real spending.  Forever?  Not likely!  Can governments really be ‘stimulating’ the economy with one hand while they tax (read fine) labour and capital for working with the other, anyway? They’ve got to get out of the way; they’re meant to be helping us!

Now, let’s get down to basics.  What’s the bottom line in the US, for example?  What if their real estate prices haven’t finished declining?  What if the share market recovery IS a ‘dead cat bounce’?  What if they ARE moving into a depression?

(2)  DEPRESSION CONTINGENCY PLAN?

Does President Obama, or Congress, have a contingency plan of ‘last resort’ for this situation? I think not.  Why not? So let me offer one. How about we keep this shot in our locker …. just in case stimulus gets to the point it isn’t working any longer, unemployment is still skyrocketing and depression has set in:-

[THEN]

  • 1)  Eliminate EVERY tax on productive effort – in order to encourage employment and production.  (We may even discover that we’re not ‘post-industrial’ after all!, and that finance, insurance and real estate [the ‘FIRE’ sector] is relegated from its ‘leading’ role within the economy to where it more properly belongs – as part of the ‘service sector’.)
  • 3)  The combination of these two measures, AS A DISASTER CONTINGENCY will, at least while the contingency is being exercised, eliminate tax write offs and other advantages given to real estate, so that land is stimulated into USE for labour and capital (rather than held out of the market, dog-in-the-manger-like, for capital gain by monopolists and speculators).
Sir Thomas Stamford Raffles
Sir Thomas Stamford Raffles

On any analysis, it can be seen that this contingency measure works.  No quibbles.  Just do it.  After all, isn’t it preferable to another lengthy economic depression which ends in war?

But it mightn’t get that bad?  Hey! It’s a CONTINGENCY remember!  THE ONE WE FAILED TO EXERCISE LAST TIME!

Has this ever been done before?  Yes.  Thomas (later Sir Thomas) Stamford Raffles  brought about the  Dutch East Indies (“The Spice Islands”, now Indonesia) emergence from a depression, by introducing a land rent system and eliminating a multiplicity of Dutch-imposed taxes.  Raffles then went on to found Singapore, now one of the world’s greatest ports, on the same basis.

Not a bad ‘contingency’!