Central bankers and fools. Bill Bonner, writing for the Daily Reckoning , put it better than anyone last Friday when he noted “in a nutshell, it is obvious now to everyone that the world economy is going in two directions at once. Consumer prices are going up – as if there were a boom going on. Asset prices, lending, IPOs, and consumer confidence are all going down – as if there were a bust.” Therein lies the problem for Ben Bernanke and Central bankers across the globe.

So far, Bernanke slashed rates to prevent the bust in asset prices, allowing cheap money to flood the market and causing commodities (which are generally denominated in US dollars) to skyrocket, thus worsening consumer inflation. So far, Bernanke’s moves have been disastrous – the US will probably enter recession anyway, and combined with inflation, the bust will hit harder than had Bernanke taken steps to curb inflation earlier, like Australia and the EU. The other point to note is that falling asset prices (such as US real estate) isn’t necessarily a bad thing, allowing lower earners who would otherwise have been locked out of the property market to purchase the cheaper assets. Of course, the situation isn’t ideal for asset owners, but ultimately, it is the primary role of the reserve bankers to control inflation, not to protect fools who overpaid for assets.

Mapping the decline of Austock. While not quite as dramatic as the collapse of RAMS a week after listing, the performance of the House of Austock wouldn’t have pleased investors who bought into the float at $1.80 per share. After listing, the broker briefly leapt to $2.20 but has since slumped, closing last week at only 47 cents. Austock has been buffeted by the collapse of its major client, ABC Learning Centres, woes at another major client, Timbercorp, and problems at its managed funds. To make matters worse, staff are believed to be departing in droves while hundreds of thousands of shares are released from escrow (around 85% of Austock scrip was locked up in escrow at the time of the broker’s float). Sadly for Austock shareholders, its graph looks remarkably like a map of Queensland – great for holidays, not so good for the super fund.

  Oil and de-evolution. While Brendan Nelson and his merry band of opposition shadow ministers push for a five, 10 or 20 cent reduction in petrol excise (and push to exclude petrol from any carbon emissions trading scheme), perhaps the party once known for sensible economic policy should heed the words of a truly great leader. Unlike Nelson, Sheikh Rashid bin Saeed Al Maktoum, former ruler of Dubai for 32 years and Prime Minister of UEA for 11 years (who was known as “the Father of Dubai”) can lay claim to be a visionary. In the 1970s, Sheikh Rashid, fearing Dubai’s oil riches would soon run dry, embarked on one of the great nation building exercises, turning Dubai from a desert wasteland into a thriving metropolis. Nelson would be wise to note the Sheik’s comment that, “my grandfather rode on a camel, my father rode in a car, I ride in a jet, my children will ride in cars, my grandchildren will ride on camels.”

Ross’s world. Welcome to Garnautland, a fantastic and magical place where dreams of an abrupt yet manageable shift to a low-carbon future can come true. Its creator is Professor Ross Garnaut, who has taken a handful of courageous assumptions, a little guesswork and a big bucket of optimism to create an epic vision of a little country that made a big difference.

Garnautland is a marvel of positive thinking and selective policy engineering. It has been built entirely inside that other magical kingdom, Labor Party policy. In Garnautland nuclear energy isn’t needed unless all other low-emissions sources have been tried. The efficacy of the Rudd Government’s large and arbitrary mandatory renewable energy target is just accepted, along with non-existent reform of retail electricity markets and the unchallenged logic of starting a national emissions trading scheme in 2010. In Garnautland the industries and companies that produce most of the nation’s greenhouse gases enjoy generous profits that will only be slightly rifled by a national emissions trading scheme. They need the discipline of an emissions trading scheme to bring them into line with their OECD peers. — Matthew Warren, The Australian

Nelson finds supporters for his fuel plan … in the UK. The Conservatives announced plans yesterday to curb rising petrol prices by cutting fuel tax when oil prices rise, saying the move would reduce prices at the pumps by 5p a litre. A Tory government would introduce a “Fair Fuel Stabiliser” to use the additional tax revenue generated by the oil price rise to absorb increases at the pump by 50 per cent. The Tories claim that the Treasury benefits from an additional £100 million a year for every $1 a barrel rise in the oil price and want to use this to “share the pain”. They deny this will create a financial black hole because oil windfalls are not used when calculating spending plans. Motorists would also face tax rises on fuel if the price of oil dropped, with a target level set in the first Tory Budget. This is designed to ensure that the government met its revenue forecasts. — Sam Coates, Times Online

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Peter Fray
Peter Fray
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