07 February 2010

The Global Financial Crisis

Under the heading Stocks and dollar dive amid new economic fears, an article on the front page of The Weekend Australian, 6-7 February 2010 begins:

Global financial markets reeled yesterday, with $30 billion carved off Australian stocks alone, amid escalating fears the world has not seen the last of the economic crisis.

My only question about that is to ask who on earth thought that the world had seen the last of the economic crisis? There is worse to come, much worse.

As I wrote last March in Debt and sovereignty: another issue for the White Paper, what we are seeing is not a blip in the story of Western dominance of a process of endless economic growth, with a return to “normal” in a year or two’s time – it is a fundamental change. There is no “normal”, there will be no going back to the status quo ante. That lesson seems to be lost both on governments who ought to know better and on the bailed out bankers rubbing their paws in anticipation of their next fat bonus.

Later in the article:

The Australian dollar, which last year was chasing parity with the US dollar, slumped to US86.63c last night as investors flocked to the greenback.

One has to wonder about that too. This time last year the smartest people in the financial world were bailing out of the Australian dollar in the flight to “quality” or “safety” in the form of the greenback. By 1 February 2009 the AUD had been sold down to 63.6 US cents. Just over seven months later, on 10 September 2009, it cracked 90 cents, and on 17 November it was worth 93.5 US cents. Someone buying Australian dollars on 1 February and selling them on 17 November would have made 47% profit – not a bad little return for a bit under ten months. One didn’t have to be very precise about picking the right day – the average price for February 2009 was 65 US cents, and the average for November 2009 was 92 cents.

So why were all the experts selling Australian dollars in February and buying them in November?

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