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Australia entering into hyperinflation? (update1) – America’s recession, Australia and South America’s China bet.

Posted by Adrian on January 8, 2008

When America officially goes into recession (with all the hallmarks being presented daily), the question is how this will effect commodity, mining based economies such as Australia and parts of South America namely Brazil and Argentina. With Australia’s stock market and credit markets closely linked to the American market, the effect as far as declining US stocks inevitably has a panic effect on the Australian All Ords, not to mention the Brazilian Bovespa BVSP which loss 264.45 points on the close of trading on the 7 Jan 2008, from it’s previous close of 61036.6 now 60772.15. The Argentinian MERVAL index also declined on the 7th Jan, it dropped 25.22 points from 2,128.94 to close at 2,103.72. These losses occurred in relation to the recent large reported job loss figures from the US.

The Australian stock market seems especially prone to dramatically fluctuations via the US stock market, whether panic selling or not, if the stock markets are an indicator or bellwether to looming economic doom. Australia, like Brazil and Argentina economically will be effected by recessionary fears and recessionary conditions in the US. How large will that effect be? If there is a bet that China will soften or offset any major spillover from the US economy onto commodity (mining exports) based economies such as Australia and South America. Is at most a hopeful speculative bet, I agree with what Marc Faber has recently stated in an interview with Bloomberg, that Argentina and Brazil have ‘overstated’ their resource boom with China (in 2004), the same could be said for Australia too. The commodity boom will not last for ever and if investment into America contracts from Asia, we may see contraction generally from Asian countries that have invested into the American economy. But, aside from declining stock markets the spectra of the beginning of hyper inflated economies, namely Australia. With food and Oil now overinflated, the housing and rental markets are now extremely overinflated, most consumers are offsetting or relying on credit to counter the rise in living costs. Combine that with a tightening credit market from the global credit crunch, high interest on repayments from credit – puts an overinflated economy such as Australia’s in a problematic position, as far as hoping that the boom from China will continue and inflation will be contained. So the overall assumption that Australia like Asia can continue along without much effect from a US recession fallout is in it’s self a worrying assumption, especially with looming hyper inflation in both China, Singapore and Australia.

Australian CPI figures are due out later in January 2008, the Australian Reserve Bank will sit in mid February 2008 to discuss another rate rise.

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2 Responses to “Australia entering into hyperinflation? (update1) – America’s recession, Australia and South America’s China bet.”

  1. […] Australia entering into hyperinflation? (update1) – America’s recession, Australia and South A… […]

  2. […] Australia entering into hyperinflation? (update1) – America’s recession, Australia and South Amer… […]

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