Reply #36: 1985 economically - 1984 socially-never a truer word was spoken [View All]

[ausiedownunderground]

In 1985 Reagan wasn't in the middle of a "real" war - although according to Fox, CNN, NBC etc etc this war is "Grenada" all over again. Down here in Oz we know your in a real war this time with the hopeful prospect of escalating it to include the whole middle east if were all lucky! This has a good economic effect in that it allows the US military-industrial complex to greatly expand production and as a consequence hire all you guys to make bombs and guns and missiles and death rays and photon torpedo's and light sabres etc etc. Your taxes are then passed back to the government which then spends it on more bomb making etc etc and the cycle continues. However it also has bad economic effect in that the real war has to be paid for with little real benefits trickling back - unless your in the transfer tube industry or want to start a private mercenery business. As the war gets bigger and more and more costlier the question will be are the increasing tax revenues from the military-industrial complex expansion covering the costs of fighting every "rag-head" on the planet? If they do - then the smiling chimp and his merry men will make hay in the sunshine. If they don't then Alan Greenscam is going to have to hire more printing presses.
The smirking chimp a la 2004, has a falling dollar and historically low interest rates compared to Reagan's 1985. Normal economic theory would suggest that a low dollar will make US products that are still made in the US more competitive against the rest of the world's products and so the US deficit will over time start to close up again. However unlike 1985 there are a couple of wildcards today that may throw a spanner in normal economic theory. The rest of the world and the US's dependance on China for manufacturing affordable goods. China's renminibi currency is currently pegged to the US dollar so as the dollar dives the renminibi dives with it - no advantage there! However the rest of the worlds currencies rise making Chinese goods even cheaper than they are now. More US manufacturing sees the getting richer rest of the world countries buying more and more Chinese goods so decides to move out to China to take advantage of its much cheaper production costs leaving less and less goods being made in America which in turn causes the US Trade deficit to keep rising as American's will only be able to buy Chinese products with their reduced dollar wealth. So the reduction in US consumers purchasing power which should slow up the trade deficit over time could be negated by the fact that Chinese products are still very affordable.
This problem is further compounded by the fact that "just quietly" the rest of the world hates the smirking chimp's guts. As a consequence of this and from conversations i've had with quite a few people here in OZ and over the rest of the world there does appear to be a growing boycott of anything American's produce. If this really gets going around the world sales of "Made in America" products or sales of American company subsidiary's producing in other countries could fall dramatically no matter how low the dollar is!
The other difference that The Smirking Chimp and his cronies face that Reagan did not is historically low interest rates. This phenomenon has not just been restricted to the US. All anglo-saxon based countries have experienced this. However non have experienced it the way the US has. Down here in Oz official government interest rates fell to a low of 4.5%. The cheapest mortgage rate fell to 6% which by Oz standards historically was incredibly low. US Fed rates fell to 1%!!!!!! In Oz these rates created a Housing Bubble frenzy and i mean frenzy!!! In November 2003 the Oz rates were raised by 0.25%. In December 2003 they were raised a further 0.25%. They have not moved since then. Over the last 12 months the bubble has burst!! Housing activity has slowed pretty dramatically and prices have fallen over the year. Houses down 10-15% since the peak at the end of 2003, and more worringly apartments and what you guys might call "condo's" down 20-25% Some poor people who bought at the peak are still crying in their soup bowels. I don't exactly know how frenzied the US building and house buying market got but at 1% official rates i suspect it was pretty ugly! Now that Greenscam is starting to "crank" em up i suspect it won't take long for the pain to start if the Oz experience is anything to go by. Just 2, 0.25% hikes and the bubble began deflating over the next 12 months. Consumer spending over here has followed suit as people spend more of their income trying to keep their housing investments. The cost has been that people have found it hard to consume less and personnel credit for consumption items has skyrocketed. Ozzies like most Anglo-Saxon's still find it incredibly hard to save up for that latest gadget or car or TV etc etc. I think Oz is probably about 12 months ahead of the US on the cycle of pain so if our experience is any example be very careful in your house or condo purchasing plans as you may be buying at the "Peak"!!!!!! of the cycle.