Pallative Care

It seems a few governments, Australia and the U.S. included, are taking the opportunity to put distressed businesses on life support. Protectionism cannot be far behind.

Failing car manufacturers need to be restructured and rebuilt in both the US and Australia. I find it difficult to imagine that after spending (wasting) AUD 6.3b of taxpayers money supporting two US multinationals that additional "supportive" measures won't be considered.

The Day After

Please find a link above to Mr. Solberg’s article on the future of the US dollar from Prudent Bear.

You may wonder how a recession can become a depression? The suffering citizens of Iceland recent woke up over night to 6% higher interest rates the following day. A future run on the US dollar and its potential collapse as the world’s reserve currency remains somewhat ethereally between the possible and the probable. As the author points out, the current interventions in global markets are highly inflationary. I agree fully that inflation rate targeting is now a historical concept and central banks seem to have settled on inflation as the lesser of two evils. High inflation will help heavily indebted entities by reducing the relative size of their existing liabilities, however it will may also function as a mechanism for significant reductions in real wages.

As this article correctly identifies, the real danger for the world economy in Stage 2 of the Great Recession is a sudden decline in the value of the US dollar leading to the Federal Reserve being forced to rapidly rise US interest rates to protect the value of the currency. That’s the week you wake up one morning to find your mortgage rate 6% higher than the day before.