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let the good times roll « Previous | |Next »
December 28, 2007

The odds of an increase in interest rates in February have shortened after the sold-out sales over Xmas. The emphasis has been on the big ticket items---game consoles navigation devices, LCD and plasma TVs, digitial cameras were racing out the door in Sydney and Melbourne.

My PC at Victor Harbor, which ran Microsoft Windows XP and Office 2003, died just before Xmas. I've decided not to upgrade to Microsoft's Vista and Office 2007 for my personal use. I'm shifting over to an Apple Macbook, display screen, i-pod and photographic software. But I am going to pay off one of my credit cards before I spend up big.

Xmas.jpg Alan Moir

The Xmas sales indicate that the household debt level and the current interest rates are not too restrictive for Australian households. The resources boom continues, house prices continue to rise the field of investment dreams grows ever more expansive, there is easy money is too be made and the Liberals have been swept into history. The future is ours.

The public mood is rather different in the US. House prices continue to fall and consumers are underspending. it's enough to cause jitters on Wall Street that is finding it rather hard to spin the huge loses incurred by the global banks and brokerages (eg. Merrill Lynch) from the sub-prime mortgages as good news. The US is headed towards a hard landing in 2008. Nouriel Roubini, over at Project Syndicate, spells this out. He says:

The US is now headed towards recession, regardless of what the Fed does. The build-up of real and financial problems – the worst US housing recession ever, oil at $90 a barrel or above, a severe credit crunch, falling investment by the corporate sector, and savings-less and debt-burdened consumers buffeted by multiple negative shocks – make a recession unavoidable. Other economies will also be pulled down as the US contagion spreads.

Robert Schiller has an article at Project Syndicate, which explores our images of economic disaster entitled Imagining Recession. He says that:
Popular images of past disasters are part of our folklore, often buried in the dim reaches of our memory, but re-emerging to trouble us from time to time. Like traditional myths, such graphic, shared images embody fears that are deeply entrenched in our psyche. The images that have accompanied past episodes of market turmoil are largely absent today.

However, there is an image that does exist in the US :
The images that are uppermost in our minds are of a housing crisis. We imagine residential streets with one “for sale” sign after another. Worse, there are images of foreclosures, of families being evicted from their homes, their furniture and belongings on the street. If home prices continue to decline in the United States and possibly elsewhere, there could be many more vivid images. You may yet be presented with the image of your child’s playmate moving away because his parents were thrown out in a foreclosure. You may see a house down the street trashed by an angry owner who was foreclosed. Such images become part of your sense of reality, and could disturb your sense of confidence and reduce your willingness to spend and support the economy.

This is what is happening in the US now, though not Australia. The good times are rolling along courtesy of the resources boom.

| Posted by Gary Sauer-Thompson at 9:44 AM | | Comments (6)


I read that there have been around 300-400 people an hour going through Ted's Camera Stores in Pitt Street Sydney and Chadstone Melbourne buying video cameras and digital SLR's. That's a lot of people and cameras.

I haven't seen the scenes described by that article. It has more been that people have been trying to sell their houses but have been unable so the "For Sale" signs are hanging out the front for six months at a time. When I lived in VA many took their houses off the market as they weren't selling.

there is a lot about rising mortgage foreclosures and deliquencies in the AFR in Australia. Less is being said about the lack of trust amongst the banks re interbank lending here.

Roubini describes the situation this way:

At the same time, monetary injections cannot resolve the generalized uncertainty of a financial system in which globalization and securitization have led to a lack of transparency that has undermined trust and confidence. When you mistrust your financial counterparties, you won’t want to lend to them, no matter how much money you have.

Roubini argues that the coordinated liquidity injections by the Fed and four other major central banks will fail to reduce interbank spreads significantly, because monetary policy cannot address the core problems underlying the crisis.
As he says:
The issue is not just illiquidity – financial institutions with short-term liabilities and longer-term illiquid assets. Many more economic agents face serious credit and solvency problems, including millions of households in the US, UK, and the Eurozone with excessive mortgages, hundreds of bankrupt sub-prime mortgage lenders, a growing number of distressed homebuilders, many highly leveraged and distressed financial institutions, and, increasingly, corporate-sector firms.

When Merrill Lynch has a $7 billion writedown and needs to require a $6.2 billion cash injection from a Singapore state owned Temasek Holdings, then something significant is happening. The AFR reports that governments in the Middle East and Asia have agreed to invest more than $25 billion in Wall Street firms since the banks began to disclose sub-prime mortgages. Potential mortgage losses for the US is estimated at $500 billion.

It's a crisis in global financial markets that is unfolding.

this paragraph from the Edlin article about Microsoft's monopolist practices that you linked to is so true:

So, by creating incompatibilities, some subtle and some obvious, that make its old software obsolete, Microsoft can sell its operating systems at high profit margins without fear that people will wait until the price drops. The price will never drop, because Microsoft will just roll out a new system, again at high profit margins.

Whenever my Office 2003 plays up--eg., Outlook, which plays up often or IE --- the tech support message advice is 'upgrade to Office 2007.' They are not even bothering to support Office 2003 anymore. I don't really want to make the shift to Vista and Office 2007.

that is one reason why I'm making the shift to an Apple Macbook.I will keep Microsoft software and a PC laptop for work. Another reason is that I'm not persuaded that the new versions that Microsoft is touting are actually compatible with, and significantly better than, the old versions on our computers. So, for work we just get by with patches and putting with the buggy software.

the spending spluge may well be a 'let's get it now before the interest rate squeeze comes'. The squeeze also refers to belt tightening in the wake of the credit crunch and 'global financial turbulence'.

Swan, no doubt, will soon talk in terms of Australia's strong economy (courtesy of his stewardship) being the foundation to enable the Rudd Government to steer a course of stability through global financial turbulence; one arising from the global credit problem that started in America, and which is now the most immediate challenge for every economy. Etc etc.