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miners wind up the good time spin, again « Previous | |Next »
November 13, 2009

As I was returning to Adelaide from Victor Harbor this afternoon I tuned into ABC's PM and heard I Andrew Forrest, the boss of Fortescue Metals, talking up the economic boom in the global economy.

This was no road to recovery narrative. It is boom time folks narrative. China's taking off big time and that will cause America and Europe to lift off. We--in Australia--- are going to see a boom like we have never experienced before.

Spoonerdebt.jpg .jpg

What's Forrest spruiking now I thought, cos China just isn't going to save the world. True, the US is an economically battered superpower, is heavily financially indebted to China, has huge trade and budget deficits and it needs to undergo structural change.

It is also true that Asia is becoming the centre of gravity of the world economy and an engine of global growth. This means, as an editorial in the Financial Timespoints out, that:

a move back to healthier US public finances depends, inescapably, on a strong recovery in the US economy. US policymakers cannot achieve this on their own. They need help. It is in the long-run interests of Asians to provide it.

Growth in the US economy depends on increased exports not more consumer debt bubbles, and that means dollar depreciation.

Alan Kohler points out in Business Spectator, that China cannot save the world because:
the model on which China’s growth has been based for 30 years has now ended because the debt-funded consumption boom in the west, particularly America, was unsustainable. China’s rate of economic growth will slow, he says, from the 10 per cent average of the past 30 years to 8 per cent over the next decade and then 5 per cent after that.

China used to rely on exports to the US before the global financial crisis, now it must shift to the driver of domestic consumption. However, the structure of its domestic economy does not permit it. Kohler points out that:
two things need to happen at once for a dramatic increase in Chinese consumption: corporate ownership reforms that would force more profits to be distributed to the people and more political democracy so that the Chinese leadership is driven to distribute more money in the form of welfare transfers.In other words the unelected political and corporate elites of China are hoarding the cash. Unless they let go of it, China won’t become a consumer society. And with the export model dead, that means lower growth and lower commodity imports.

Forrest is off with the fairies, if he is not simply spruiking for big time Chinese investors to put some cash into his operations.

| Posted by Gary Sauer-Thompson at 6:01 PM | | Comments (1)


If I recall the miners in Australia were saying that the boom before the global financial crisis that was a never ending one. They live in a world of illusions.