Anyone know if the credit crunch is officially over yet? Just checking.
The US Fed was busy pumping US$38 billion into the financial system in the last two days. “The Federal Bank of New York added US$6 billion in 14-day repurchase agreements, US$20 billion in 14-day repurchase agreements, US$7 billion in seven-day repurchase agreements and US$5 billion dollars in one-day repos,” according to wire services.
Yep. Everything is probably fine. Enjoy your bread. Take a look at that circus. Look, it’s Elvis! Hey King!
The Fed is attempting a giant credit transfusion. But its patient, the fat, bloated, ten-year old credit bubble is leaking money in all sorts of directions. We reckon the nominal highs on the Dow are merely maintaining the illusion that things are fine.
“The Australian jobless rate is certainly on track for more record lows and we may even see the unemployment rate with a three in front of it,” says CommSec economist Martin Arnold. The jobless rate is headed under 4%. The fuzzy logic is this means another rate rise.
Wages are haven’t enjoyed their very own bubble yet. That’s because of the massive deflationary influence of China and India on global labour markets. But Australia finds itself in a tight spot. Maybe it’s time for a wage bubble. We know plenty of people who wouldn’t complain. But rising wages might prompt the Reserve Bank to raise interest rates yet again—putting even more Australians facing “housing stress” to the sword.
Do you think John Howard regrets his claim that interest rates would stay low in Liberal government? Granted, nominal rates are lower than previous periods. But the low rates have encouraged Aussies to take on even higher debt loads in relation to disposable income. The rate may be lower. But the servicing cost is higher as a percentage of disposable income. When you borrow a bundle, even a low rate means big payments.
Aside from the fact that he has no control over interest rates, Howard made the promise at a time of historically low interest rates worldwide. Economists even had a name for it, “The Great Moderation”. What a fancy name for a short-lived idea. Like everything else in markets, interest rates go in cycles. China’s manufacturing prowess, low labour costs, and recycling of trade surpluses back into the US bond market have kept US rates abnormally low. The rest of the dollar-pegged world followed suit.
The Daily Reckoning Australia