Econmics and dismal science... - Blogs - Aussie Stock Forums

View RSS Feed


Econmics and dismal science...

Rate this Entry
Here is a good write up on an interview. Worth a read as it has touched on many issues raised by many people in this forum.

While you are reading, keep this mind though... economists have this tendency to look back and then talked themselves into some kind of pessimistic lunatics that if you are not careful you might just be converted into one yourself. So, always remind yourself of this "danger" whilst you are seeking knowledge and wisdom from people who are brilliant in hindsight analyses.

Always remember the main objective of your quest of knowledge - it's supposed to provide you with an understanding that would allow you to develop an edge in your market venture be it trading or investing. Your activity time frame may be very different from theirs, as in this case, Dr. Hunt's point of view could very well mean 20 years, if not, many years before he would say with confidence of what has happened...

As an investor, you are not interested in what has happened, rather you are interested in what is happening now and what is likely to happen from now, with respect to what has happened in the recent past. It probably makes more sense and more profitable to you if you can look back, learn from the past and adapt that knowledge into some kind of wisdom or foresight that would allow you to develop a plan for your market venture - this, to me, is the primary reason why you bother to dabble into this dismal science.

Adaptability, flexibility, common sense and contrarian perception are some of the basic attributes I believe crucial to survive and to prosper from the market. The ability to spot a market weakness and to exploit what it has provided, is the primary goal of any market participant. It's the action that counts, the rest... are just words, as in this blog.

Here are the main points...
* The US is in a period of debt deflation that may take up to 15 to 20 years to normalise
* The S&P is at risk of some 'false dawns'
* There will be a major shift in US consumer behaviour as savings start to rise and people live more within their means
* He describes the US stimulus in its current form as a grab bag of political promises and says it may be doing even more damage
* Diversified equity portfolio models may not work in the debt deflation environment

Here are some random thoughts in reaction to the above main points:

1) if the global economy were to decouple, and the US economy has become less influential, does the above points still carry that much weight? In other words, would the global economy still this US-Centric?

2) if the US$ were to lose its hegemony, will what is happening in the USA still exerts that much impact to an economy such as Australia?

3) if the US$ were to be replaced with a "global currency" built on a basket of the current major currencies (EUR, US$, YEN, RMB for eg), would the US financial stability still play this crucial a role in the stability of the global financial system as well as the global economy?

4) with this major shift in the US consumer behaviour, is it time to consider the relevance of the argument of global economy's dependence of US consumer recovery? Is it time to move on?

5) saving, in general is deflationary, whilst the US economy may be going through a deflationary period, say up to 15 years (pick any number), what does that mean considering the monetary inflationary effect of the current QE exercise? Which will prevail? Deflation or inflation at the end?

6) more... like these which I generally find issues with them economists...

a) most economists' view are US-centric and they rely too much on hindsight which as usual is US-centric - but at this juncture, since the GFC, it is very clear with evidence that there's a break down in the US-centric, US-focussed global financial and economic system. The QE and the runaway printing of the US$ and the runaway deficits in the USA are both unprecedented - how could they relied what is in the past mainly and based on that observation to assume the future of without taking into consideration of what has changed?

The rise of China was never in the past equation. But they are now, esp considering their large holding of US debt.

The USA taking a QE move in such scale and scope has never happened before. The synchronised crash of both US+EU economies in this scope and scale is also quite unprecedented. Whilst other economies such as the Chinese' are showing growth and strength - they may yet proved to be the ultimate change agents to this US-centric world... this, I doubt has been taken into consideration by many economists.

How valid are their views if the Chinese influence in the US$, bonds, interest rate and international trades are totally left out of their considerations?

Is there a paradigm shift happening right before their eyes and they are not seeing it?

If there is a paradigm shift, if it is happening, then how much is this shift, I guess, is the key to the future, and possibly a whole lots of fortune awaiting those who can think of the box.

Can you?

Submit "Econmics and dismal science..." to Digg Submit "Econmics and dismal science..." to del.icio.us Submit "Econmics and dismal science..." to StumbleUpon Submit "Econmics and dismal science..." to Google



  1. haunting's Avatar
    Here is a good one to provide more "colour" to the current economic landscape.
  2. haunting's Avatar
    More dismal analysis...

    "But whatever the exact figures are, the bottom line is that consumption accounted for 70 per cent of US GDP, or about 14 or so per cent of global GDP.

    "So if that US consumer stops consuming, that could be a major whole in global demand.

    "And to go back to the effectiveness of China's fiscal stimulus, there is a risk that Chinese investment might actually increase production and in the absence of global and domestic demand, might actually exacerbate some of the overcapacities we have in the global economy, which could lead us further into deflation."

    ** do you believe the US consumers as a whole will stop consuming? How much would you assume in order to emphasise a point for your overall argument?

    How objective is that assessment, the US consumer as a whole will stop consuming? It is not quite realistic to assume both the US+EU would reduce their imports totally in this case. Yes, it's true that the Chinese demand will never replace the combined demand of both the US+EU, but making the assumption that the demand will completely stopped is nonetheless disingenuous.

    The pick up in the Chinese domestic demand will never save the global economy anyway. The Chinese demand has been brought up time and time again not because it really matters but because it serves a dismal purpose coz it sounds convincing and logical.

    I can play along this line of argument by arguing that the Chinese domestic demand whilst will not replace the combined demand of both the US+EU, nevertheless it suffices to provide a cushion to China and the rest of the Asian neighbours and the commodity countries such as Australia a breathing space to tide over the recession. It is sufficient to generate enough growth for this part of the world and the regional economy to break away from the recessionary impact of the advanced economies, thereby paving the road for the eventual recovery.

    In short, the Chinese demand and growth engine might just be sufficient to effect a decoupling of the global economy, allowing this regional a chance to breakaway from the advanced economies. How about that?

    In any case there has been a whole lots of upgrade in Chinese GDP growth from the World Bank to the OECD recently, so let's just wait and see if the Chinese econ is that fragile as she is saying.
  3. MRC & Co's Avatar
    Cheers for the comments. Some food for thought on the deflationary topic.
  4. haunting's Avatar
    Here's the tale...

    Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing little to help lift the world economy out of slump.
    If the world's biggest surplus state ($US400 billion) is too structurally deformed to help offset demand shock as Western debtors retrench, we are trapped in a long deflation slump.

    ** the hope and expectation that a Chinese superman would fly in and help the rest of the advanced nations to avoid a painful recession seems to be quite ingrained within the psyche of western media brain. I am not sure if this is how the Chinese leadership is seeing their role in the global arena.

    The old foggies in the Chinese communist politburo may be old and not talking much, that don't mean they are all senile. You can bet they have been briefed at least of this fact, that is, the total Chinese domestic consumption would never replace the combined consumption of both the US+EU, there's not a shred of hope that the China would lead the world recovery through her consumption and spending. It's simply not realistic (laughable actually) to expect that.

    In addition, I am not sure if the Chinese are that keen to overhaul their internal welfare system and open up her domestic market for the advanced nations just so they can avoid the necessary recessionary adjustment in each respective economy. QE has never been a long term solution. It was just a short term move to arrest the credit freeze and restore confidence back into the banking system. Now that it has done its trick, it's about time QE to be phased out just so the threat of inflation/hyperinflation can be contained before it gets out of hand. But based on BIS reported caution yesterday, it seems there's great doubt if the advanced nations would be able to do what is required of them.

    So here's the situation, accordingly the Chinese domestic structure is too deformed to save the west whilst the west is too lame to help themselves out of the hole - what's the future gonna be?

    Deflation in the west and inflation in the East?

    If what is reported regarding the abuse of the Chinese stimulus is true, god helps Australia because the question of where's the next two quarters' commodity demand is coming from if the past few months' demand are just speculators betting with Chinese stimulus money and there's no genuine fundamental demand... now I am waiting to see how RIO is going to report its outlook and then I would like to check again if it has made the "right call".
Aussie Stock Forums