Global Economy Headed For “Slow-Motion Train Wreck”

6 Jul

The RBA’s soon to be dumped Board member Warwick McKibbin warns – unofficially – that Greece will be just the first carriage to careen off the rails, in what will be a global train wreck.

From Bloomberg, 30 June 2011 (emphasis added):

The fiscal outlook “is what I call the slow motion train wreck — the first carriage to break is going to be the Greek economy, but we have a series of economies facing very serious fiscal adjustment,” said McKibbin, a professor at Australian National University whose board term ends July 30, in a speech in Melbourne today. He said his comments reflected his personal views, not those of the Reserve Bank of Australia.

“There’s almost guaranteed collapse or crisis in the euro zone and there’s serious global inflation problems and a policy response looming,” said McKibbin, who is also a senior fellow at the Brookings Institution in Washington. “All of these have implications for relative commodity prices.”

In contrast, Treasurer Wayne Swan in a speech at the same Melbourne conference today said: “Some have a dire view of what’s happening in Europe. I don’t share those views.”

Hmmm.

Just as he did not share Senator Joyce’s views in 2009, that the US economy was on a debt trajectory that made the risk of default a real possibility. One that Australia should have “a contingency plan” for, just in case.

A warning that is now coming to pass.

Barnaby was right.

And Swan, and every economist in the country (except Dr Steve Keen) … was wrong.

Bookmark this page.

So that you can refer back to Swan’s latest oh-so-confident and authoritative pronouncement that all’s well.

I know that I for one am fully seized with absolute confidence in the word of our career political hack cum “Treasurer”. An arts student, with zero business or financial credentials or experience whatsoever.

Here’s how McKibbin’s comments were reported locally, compared with the USA’s Bloomberg.

From the SMH, 1 July 2011:

The global economy is facing ”a slow-motion train wreck” with Greece only the first nation to be hit, Reserve Bank director Warwick McKibbin has told a Melbourne conference.

Referring to the most recent global economic crisis as a mere ”blip”, he said the coming crisis could undo the mining boom and bring on inflation of the kind not seen since the 1970s.

Professor McKibbin told the Melbourne Institute conference dozens of European countries now had gross government debts on track to exceed 60 per cent of GDP. ”Japan is forecast to be 200 per cent of GDP, the US is forecast to be over 100 per cent of GDP,” he said.

”At zero interest rates that can be sustained, but at 5 per cent interest rates countries have to put aside 5 per cent of their GDP every year just to service the debt. That is not sustainable.

”Already consumers aren’t spending and investors aren’t spending because of the tax increases that are in prospect.

”Greece, Portugal and Ireland don’t just need to have their debts written off, they need to have a 30 per cent to 40 per cent depreciation of their real exchange rate,” he told the conference.

”There are two ways to do that, either pull out of the euro and depreciate by 40 per cent, or have deflation of 40 per cent over the next 12 months.

”I do not believe any society can survive having a 40 per cent deflation that’s been imposed by the International Monetary Fund and the European Central Bank.”

As the US created more dollars to inflate away its debt repayment obligations, countries that are linked to the dollar, including China, India and parts of Latin America, would suffer 1970s-style inflation.

”In India inflation is 9 per cent, in China it is 6 per cent. That inflation is pushing up resource prices for now, but it will have to be brought under control with much higher interest rates,” he said.

Joking that he could not talk about Australian interest rates, which were in any event ”always appropriate”, the Reserve Bank board member warned that the inflation would spread worldwide.

Soon-to-be-former Board member McKibbin has form.

For criticising the Labor Government over its “stimulus” measures in response to the GFC, amongst other things.

Little wonder they will not renew his term.

Can’t have anyone in a position of “authority” telling something even vaguely resembling the truth, now can we.

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11 Responses to “Global Economy Headed For “Slow-Motion Train Wreck””

  1. Tomorrow's Serf July 6, 2011 at 6:47 am #

    Our incompetent “Depooty” Leader subscribes to the theory that if you tell a lie often enough, it becomes the Truth. Our banks are stable and well capitalised. Inflation is not a problem and won’t afffect Australia. The mining boom will never end. A Carbon “X” is the right thing to do, good for us and will make Australia prosperous.

    He ought to try standing in the middle of the tracks at Singleton, facing a fully laden coal train, and tell himself that the impending impact won’t hurt a bit..try it Wayne. See if your ridiculous, ignorant spin will make one iota of difference to what happens next…

    I’m tiring of hearing the “emperors’ new clothes” story from the current government.

    The lunatics truly have taken over the asylum………….

    • The Blissful Ignoramus July 6, 2011 at 11:09 am #

      Wait till you see tomorrow’s main post TS. If we thought Goose was bad, you’ll be fascinated to discover just how clueless our probable Treasurer-elect is.

  2. JMD July 6, 2011 at 12:13 pm #

    Unless this guy was appointed post 2008 then he is culpable. I say good riddance to bad rubbish.

    Coming out now & saying it like it is doesn’t excuse previous inflationary propensities. And that includes during the ‘prosperous’ Howard years.

    Mind you, I don’t imagine anyone more competant will be appointed.

  3. Whacked July 6, 2011 at 3:37 pm #

    I cannot see inflation without an increase in money supply to the plebs.

    This will not happen, we are in the midst of a credit freeze by the Banks, so how is the money going to get to the plebs and rabbits? No miracle bottles of money buried a la` Keynes so it ain’t going to happen.

    Deflation has a hold and it does not matter how much money that the individual Feds print the Banks ain’t lending, wages may go up, but who can afford to pay these when all other business sectors are experiencing a downturn?

    Commodities are rising, as hot capital thinks that it is the way to go, but as with Corn, it is speculative and the hit will come.

  4. Whacked July 6, 2011 at 5:03 pm #

    You cannot.

    The politicians see the RBA as the only sane way of providing them with the working capital requirements.

    They are blinkered and will therefore continue on keeping on with well paid idiots in control of the capital. If .. and I say if the US Fed Reserve reaches its demise then the RBA will be abandoned but I cannot see that happening in my lifetime.

    • The Blissful Ignoramus July 6, 2011 at 5:14 pm #

      Maybe it can be done whether they like it or not .. from grass roots. Think complementary currencies.

      • Whacked July 7, 2011 at 3:41 pm #

        Ah yes complimentary currencies.. I use those to hedge.

        Grass roots are ignorant and do not give a brass razoo about what the RBA, Fed etal are up too. Just look at history.

        As I said not in my lifetime .. takes a lot of effort to survive as a serf on this island and then you have idiots voted into the Senate who can dictate policy… now that is a brilliant inditement on the population of Australia is it not?

  5. dankcastleConrad Greenwood July 7, 2011 at 9:45 am #

    Interest rates need to rise to pop this crazy housing bubble. Aussie house prices are the most expensive in the world and have been in bubble territory for a long time. The RBA need to do their job, stamp down on inflation and burst the bubble, NOW! Australian housing affordability is the worst it has ever been (see Housing Affordability Crisis ). Our governments have a woeful record in providing a fair property markets. Many European countries have better models that operate more equitably for everyone, yet even still, those countries ended up bailing out their financial sectors!

    Dank Castle
    AustralianPropertyForum.com

    • Whacked July 7, 2011 at 3:36 pm #

      Dank

      Since when is raising interest rates a measure to pop a housing bubble. if it is a bubble it will pop, regardless of what the RBA does or does not do.

      Everything reverts to its mean over time … …. take that as read.

      Now housing affordability … like wtf has the Government to do with this? I know that the state and local governments manipulate property releases and ensure regulations in place etal but if there is a bubble (and I am not saying there is not) then it will pop of its own accord. Proven by ‘fact’ in other Countries, all northern hemisphere properties cheap at the moment due to stupidity, and they are no better or worse off .. unless of course you refer to some countries where my gun is bigger than yours!

      On inflation, do not ignore housing in the assessment, as a house is consumed. As prices are dropping it does not speak to me of inflation ..

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