Monday, August 13, 2007

Go figure…

“WORLD central banks have poured almost $200 billion into financial markets in less than 24 hours in a bid to stem a global financial panic.”

Some months back, at the time of our annual budget speech, I was curious as to what the $billions held back by the Australian government. We have had a bumper income from the current resources boom which wasn’t reflected in money distributed back into the wider economy.

I posited that at least some of that money had been held back as a slush fund to manipulate the market to the benefit of big business. The confirmation came when:

“The Reserve Bank of Australia had to pump almost $5 billion into the local market, about double the normal daily injection, to ensure that the cash interest rate did not spiral higher than the new 6.5per cent....”

Now I’m a bit messy on currencies here, but you will get the general picture. Australia has a population hovering around 21 million. So balance that $5billoion (about double the normal daily injection) against:

  • The Federal Reserve Bank, in the US, advanced about $US24billion ($AUS28billion)
  • European Central Bank - E95 billion.
  • Japan - Y1trillion ($AUS10billion).

Why is it that I get the impression that the needs big business over ride those of ordinary Australians? Even worse is that those bail out funds could serve to strengthen our social and commercial infrastructure.

The Howard government refuses to intervene in market regulation but is ready to bail out these crooks on a daily basis. Meanwhile Australians are dying because there is an insufficient health infrastructure. Business is stalling because the government is determined to score cheap points against the Labor states, denying essential tax flow on funding.

But raise any of these issues among any of those suffering this bad policy and I’m quickly assured – “We don’t like to discuss politics.” Don’t you just love the way people just open their legs to be raped again and again? Frankly, I don’t!

6 comments:

enigma4ever said...

okay so where does China sit in alll of this mess....I had no idea how much was being pumped from so far away...lordy...
( friend of kvatch....economically not literate enough...)

Cartledge said...

Welcome enigma, any friend of the frog is always welcome.
For Australia China is a goldmine (or coalmine) at the moment. We downunder are riding a resource boom on the back of China’s expansion. That means coal, iron ore and any other fabulous stuff we can dig out of the ground, find port space and ships to carry off to Orient.
The offset for that expansion, I guess, is finding handy places to park and grow the loot; like US sub-prime lending…
For you China is significant. Not only do they lend heavily to the US, they are now seeking equity in western economies. You will see them taking bigger stakes in US and European corporations in the next little while. They already own significant operations here.

reality-based educator said...

I think the needs of the investment class override the needs of the ordinary folks in every country, cartledge. Here in Bushland, USA Today is reporting that workers should expect pay increases next year that will not keep pace with inflation...meanwhile the Federal Reserve is looking out for all those investors who lost money in the subprime mess (never mind that it was their own greedy actions that brought them those losses!)

Cartledge said...

RBE, yes it is a no brainer. The pendulum will swing back again, but not soon it seems.

Praguetwin said...

I guess the ECB injected more per capita than anyone else, and the US less (it was actually $38B by the end of the day).

They don't like to discuss it because they don't understand it. I even have a hard time comprehending just how exactly they "inject the money." Who gets it first? Do they have to pay it back?

Ever thought about that? It will drive you nuts if you do too long.

Cartledge said...

PT, thanks, your comments were timely. I was just writing to the federal member on this issue and you gave me some more questions to include:

Mr Vaile,
I am sure we are equally alarmed at the fallout from the US dodgy home loan sector collapse. Regrettably the Australian investment community is suffering either direct or collateral damage from the offshore debacle. That is, of course, the nature economics now.
What does concern me, and you might be kind enough to find the information for me, is where $5 billion comes from to shore up Australian markets? I refer here to an article in News Ltd papers (By David Uren August 11, 2007 07:39am):
“The Reserve Bank of Australia had to pump almost $5 billion into the local market, about double the normal daily injection, to ensure that the cash interest rate did not spiral higher than the new 6.5per cent set only on Wednesday.”
With delivery of social services in this electorate, and indeed across the country, suffering from funding shortfalls; when we have serious infrastructure issue, which I note you are working to address in Queensland at least, how can we simply pull $5 billion out of the hat? Or more worrying the daily $2.5 billion every day suggested in the article?
I have a hard time comprehending just how exactly they "inject the money" into the market. To recap the questions:
• Where do the funds come from to bail out the market?
• Why is so much injected on a daily basis?
• Who gets it first?
• Do they have to pay it back?
• Do we (the country) profit from such an injection in dividends or later sell-offs?