The disconnect between the real and financial worlds

Posted October 10, 2012 15:09:16

China's export growth is slowing and Europe remains in trouble, but not everything is gloom and doom in the financial world, as Alan Kohler explains.

There's an air of unreality about the share market at the moment. Yesterday, the Australian market hit a new 2012 high on the back of a sudden spurt in the iron ore price, as the IMF cut back its forecasts for global growth, Rio Tinto added to the gloom about China by cutting back its forecasts for that country, and the local polity managed to plumb new depths.

Investors have long since ceased to worry about politicians, but how to account for the disconnect between what might be called the real world and the financial one?

The answer, I think, is that monetary policy is helping asset prices and markets, but not the world's economies. In other words, there is cash aplenty, which has to go somewhere. It's not yet going into productive, growth-supporting investment; rather, it's seeking safety. But it is giving the world time to recover.

The world's economies are in the midst of a long correction to decades of debt-fuelled growth in consumption. So far central banks successfully prevented a 1930s-style debt deflation, but have not managed to rekindle growth.

As the IMF noted in its latest World Economic Outlook, the central problem remains Europe, where demand is crashing because of a collapse in confidence and government fiscal austerity. That is leading to a sharp deceleration in China's exports and much weaker growth there than expected.

In fact, export growth in China has dropped from 10.5 per cent, year on year, in the second quarter to just 2 per cent in July-August, which has shocked both the market and Chinese policymakers.

The People's Bank of China is pumping liquidity into the financial system, but is having much the same impact on the real economy as the European Central Bank and the Federal Reserve  - that is, not much.

Chinese factories are being told to keep producing, and employing, but with weak demand, their output is going into stockpiles.

Meanwhile, the CEO of Rio Tinto, Tom Albanese, yesterday told a conference call that Rio had cut back its forecast for Chinese from above to "just below" 8 per cent, which is roughly where the IMF's forecast now sits.

But both of them look too optimistic. China's growth in the second quarter was 7.6 per cent and its figures for the third quarter are due out this weekend. Analysts expect it to have fallen to below 7.5 per cent.

Where China's growth will come from with European imports crashing is, in some ways, the key question for Australia.

Central banks everywhere are pushing on strings, trying to kick start feeble economies. The Australian Reserve Bank is likely to find itself in the same position before long as the mining investment boom slows.

In Canberra, the consensus around fiscal discipline between the major parties appears to be holding, although the way politics appears to be degenerating, anything could happen on that score.

Yet the stock market is motoring ahead and the local property market appears to have bottomed as well, with auction clearance rates heading up. Similar things are happening in many share and property markets around the world.

In the end, reality bites, but question is, which reality? The point being made by the markets is that not everything is gloom and doom.

The fact that central banks have removed the prospect of debt deflation, perhaps permanently, has given debtors time to get their balance sheets in order, and in the meantime, the corporate sector is reaping the benefits of five years of hard work on costs and productivity.

It might just work.

Alan Kohler is Editor in Chief of Business Spectator and Eureka, as well as host of Inside Business and finance presenter on ABC News. View his full profile here.

Topics: stockmarket, business-economics-and-finance

Comments (41)


  • MJLC:

    10 Oct 2012 3:38:10pm

    Far be it for me to explain to Mr Kohler the basics of the gambling den (oops - that should read Stock Market), but it would help not forgetting that a whole lot of big players lost a whole lot of dough a few years back. If they now can talk up the market and get it ticking over and creating the illusion it's "back in business", then the rank amateurs they usually fleece (the ones that appear in brief news video clips sitting on a bench at the ASX staring at a wall of red wondering what happens now) will be back like moths to a flame. After the players manage to hand over their past loss-makers to the moths and recoup some of their moolah the whole thing can fall over properly - it won't be our friends the players now holding the invoice. It really is that simple - I have no idea why it's made as complicated as it is sometimes.

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    • burke:

      10 Oct 2012 6:13:24pm

      I was always taught to buy when there were cries of doom and gloom from all around. Buyers at this time may be due to reap rich rewards. Time will tell.

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      • MJLC:

        10 Oct 2012 7:52:14pm

        I'm doubting you were taught to do that at a time of stagnating world growth, huge holes in balance sheets, massive unfunded government liabilities, and a world awash with electronically-generated cash that as sure as night follows day will bring on hyperinflation in time, but if that's your plan Burke I wish you the best.

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    • das:

      11 Oct 2012 6:39:28am

      I agree ,the stock market now has turned into a five day week betting and gambling venue .People no longer buy stock to invest for the long term but gamble ,called day trading,now with computers which can trade million of share per second and control the out come of the race,where can companies plan for the long term.We are all now forced to join the gambling club ,until such time regulation are put in place to slow down these super computer and allow markets to preform as they were designed to ,investment money for investment.

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  • John in Brisbane:

    10 Oct 2012 3:47:24pm

    I'm struck by the tension between reacting to the crowd versus getting the crowd to act proactively. The former being the overall thrust of what you've just described Alan and the latter being closer to what you specifically called, "pushing on strings".

    Maybe it's the musings of an unreformed idealist but it does irritate and even infuriate me that the solution is for everyone to simply harden up a little and act with discipline. If everyone sticks to their guns and keeps their heads, we can trade our way out of this. It's just the immature, those who think they're hiding in the crowd and the plain old scaredy-cats who always precipitate a crash. Warren Buffet was relieving such fools of their money the day the markets opened after 911.

    Our system, which I think succeeds by being the closest we can get to an unfettered biological ecosystem, isn't really set up to encourage people to think of the big picture. Indeed, part of it's success seems to be how it encourages people to think of themselves and to grudgingly pay/elect governments to look after the big picture. Now, as we appear to be reaping the rewards of too little governance, the population needs to do something that generations have learnt not to do: think globally and act locally. Hmmm.

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  • J.T:

    10 Oct 2012 4:28:01pm

    So Alan, basically what your saying is that politicians are irrelevent...

    who would have thought it.

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  • mark:

    10 Oct 2012 4:28:33pm

    This sounds like the liberal party they have a disconnect with the real world.Abbott still thinks we did not have a G.F.C anyway the global financial system in its current form is doomed to failure.The real G.F.C. is just around the corner.

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  • GetItRight:

    10 Oct 2012 5:52:54pm

    Personal tax receipts and company tax receipts are going down. It is time to reduce personal and company tax rates. That will give companies confidence to invest and not sack their staff and that with personal tax rate cuts will give consumers confidence to spend. The low interest rates will then be more effective. Couple those too with the abolition of minimum wage rates and growth will resume. The European economies need to adopt this approach as soon as possible.

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    • OUB :

      10 Oct 2012 7:27:05pm

      People aren't going to invest when there is a shrinking or uncertain market for their products. Cutting taxes is more likely to lead to increased savings at the moment I suspect.

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      • Alpo:

        11 Oct 2012 8:42:34am

        Cutting taxes is more likely to foster deterioration of puiblic infrastructure and services: the backbone of economic progress. Please throw your low-taxation myth away, it doesn't work, it never has.

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        • OUB :

          11 Oct 2012 9:19:55am

          I think you meant to reply to GetitRight there Alpo. Force of habit? But public infrastructure wouldn't create markets, it would only cut the costs of servicing them I would have thought.

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        • GetItRight:

          11 Oct 2012 12:28:44pm

          The backbone of economic progress is not public infrastructure. The backbone of economic progress is the human mind and its creative output and the skillful use of such output.

          The invention of the wheel did not require large investment in public infrastructure.

          The invention of writing did not require large investment in public infrastructure.

          The invention of mathematics did not require large investment in public infrastructure.

          The creative output of the human mind is the backbone of economic progress.

          The maintenance of some public infrastructure is critical to the continuance of modern economies. The improvement of public infrastructure may or may not assist economic progress. It depends on what is constructed and how much it costs and how it is used.

          Cutting tax rates can lead to increases in taxation revenue being generated (you can do the research to find the proof of this yourself - look to the economic history of the USA).

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        • luke warm:

          11 Oct 2012 2:27:29pm

          "The invention of the wheel did not require large investment in public infrastructure."

          Maybe not, but the widespread distribution and use of wheels does. And the continued use of wheels requires continued maintenance of infrastructure.

          I wonder if it ever occurs to those entrenced in an extreme position that the world is not either/or.

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      • GetItRight:

        11 Oct 2012 12:21:25pm

        Businesses, competent businesses, usually do market research into their intended potential customers thereby eliminating uncertainty and creating a clearer picture of the risks involved in investing to serve potential customers.

        Markets may shrink, some may disappear, others will come into existence.

        Businesses in a shrinking market may still invest if they have a competitive advantage over their competitors and if the roi is better than they can achieve elsewhere. It depends on the size of the market and the forces acting on the market.

        Cutting tax rates affects people who pay taxes not those who don't earn an income. If take home pay increases, that is the basis for greater confidence. The individual circumstances of tax payers and their individual proclivity will determine if most goes to saving or maintainence of current expenditure. The savings rate in Australia has dramatically increased.

        I believe that if my prescription is followed it will lead to and encourage the maintenance of a return to growth sooner rather than later.

        The distribution of wealth is skewed. The distribution of income is not the same as the distribution of wealth. Wealth is some combination of net assets and income.

        It is my belief that people consistently on low incomes will not take the chance that their income will be eaten away by inflation and will spend income rather than save. There being far greater numbers on small incomes and with few assets, most of the extra income will be spent.

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    • Rob:

      11 Oct 2012 2:04:16am

      GWB had tax cuts- US wages have been declined in real terms for two decades. Europeans have seen their wages cut by up to 50%- not much growth happening in the US, the UK or Europe.

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      • firthy:

        11 Oct 2012 1:41:47pm

        Good points - if our economy tanks one can run a reasonable argument that the minimum wage should stay as it is but a drop in wages as has been suggested simply leads to lower consumption. That won't assist business either. Evidence you say? Have a look at the fall in demand during the great depression that occurred following wage cuts. The poorest spend basically everythign they receive so cutting those receipts will inevitably lead to falls in consumption.

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    • Rae:

      11 Oct 2012 9:22:57am

      Check the history books.
      It is the inequity of income that contributes to a depression.
      It has taken from 1929 until 2006 for the money to concentrate at the top to the same level. Top salaries rose 227% but the average only 34% and the minimum 18% from deregulation in 1997 to 2006.
      Prices kept rising for essentials.

      The ordinary workers then had to go into debt.
      Now they can't afford to spend and the wealthy won't spend.

      Ordinary wages didn't rise enough to sustain the boom.
      The rich got greedy then scared.
      Unfortunately humanity is not always sane and doesn't act in the interest of the common good.

      That is why regulation insists on a minimum wage because workers cannot trust management to do the sane thing.

      Our government has been dropping the income tax rate for years now but it isn't working to well.
      It will take decades for the built up wealth inequality to readjust.

      Unless we go to war in which case the adjustment happens quickly as it did in WW11.
      Study all the big depressions. The one big common was huge wealth inequality.

      The companies should have used their profits for business instead of paying a few people at the top ridiculous incomes.
      Incomes for the top pegged to the bottom income is what was needed.

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      • GetItRight:

        11 Oct 2012 10:21:57am

        Rae, both you and I and others respond to incentives, one way or another, usually in a way that benefits ourselves. But not always. But most often. There are many history books Rae, and not all of them say the same thing. Some are even complete packages of lies and mistruths. It takes time to establish which books are full of lies, partially filled with lies or just wrong through incompetence.

        Depression these days does not happen all that often. Recessions are two successive quarters of negative growth. The term depression is usually associated with the Great Depression of the 1930's.

        If you read the books that I read you will read that it is the intervention of governments to redistribute wealth via taxation, subsidies, price controls that prolongs economic problems.

        You talk about ordinary workers. I don't believe you know much about ordinary workers, even if you are one yourself.

        The "common good", what is that?

        What is sanity, according to you? When did you become an expert in psychology or psychiatry, or economics for that matter?

        You say that workers cannot trust management. Why is it that workers don't believe that management won't act in the best interest of managment, according to you?

        You say that "Our government has been dropping the income tax rate for years now but it isn't working [too] well". I am under the impression that the Australian economy is doing very well and that the Australian people have never had it so good. In which country are you living?

        Do yourself a favour and stay in touch with reality.

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        • Yoda:

          11 Oct 2012 12:02:19pm

          "The common good" what is that you ask. It is what drives people together in times of crisis like war. its what makes us show compassion when friends lose loved ones or are in some sort of strife.
          Its the incentive that drives decent people to care about others even though the benifit is not always to themselves.

          That is reality!!

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        • GetItRight:

          11 Oct 2012 1:16:43pm

          Yoda, you are wrong, in part.

          The common good must be an outcome or outcomes. What drives us is our emotions, feelings, judgement.

          The desire for self-preservation motivates people in time of war. It led to conscription. And to the killing of other people.

          Our ability to have compassion is a human trait, certainly and I would agree that is common enough and of such a quality that it is a common "good".

          You allude to altruism, the sacrificing of the self for the benefit of another or others. Given that such an activity cannot be commonly exercised without broad-scale damage, I cannot agree that it is a "common good". Parents sacrifice for their children is not a common good. It is an individual choice from which parents benefit, potentially. Anything else is personal destruction and not that common.

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      • lindsay Cooper:

        11 Oct 2012 11:59:40am

        Yes Rae, that is basics of the whole problem but very few will look at it that way.

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    • luke warm:

      11 Oct 2012 2:33:00pm

      Your recommendations worked so well in the US that BEFORE the GFC they had a $10 Trillion deficit, an unsustainable housing bubble and a finance system so corrupt it defies belief. They also had health care twice the cost of that in Australia, people working 3 jobs and unable to afford a mortgage, and massive personal debt brought on by virtual zero interest rates.

      Reaganomics does not work.

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  • Geoff:

    10 Oct 2012 5:58:47pm

    We desperatley need to put a legal framework around micro-equity like kickstarter and other "crowdsourced" funding initiatives. The stock-market is no longer a viable capital investment tool and is instead a speculative casino. Money invested in the stock market produces nothing except for the occasional IPO and those are few and far between due to the breuracracy and institutionalisation of the system. People would eagerly shift money from phoney investements like the big stock markets and property or safe havens like precious metals if they had some viable options for genuine investment in productive ventures. Crowdsoursing veichles like kickstarter provide a glimmer of hope that there might be better way to connect people with money with people who need it to produce stuff, or invent stuff, but at the moment these systems are hampered by regulatory reigemes which do not allow them to offer the kind of equity people want in the ventures on offer.

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    • OUB :

      10 Oct 2012 7:43:32pm

      Mate you are dreaming. I can't see micro-equity working in Australia, the land of the petrol station thieves but that might be my lack of imagination. The ASX is doing a hell of a lot of heavy lifting as far as capital raisings go. Most of it seems to be in hybrids lately I'll grant you but the market is still a good venue for raising capital when the time is right. IPOs that are a bargain for buyers have been mispriced at the expense of the sellers.

      The ASX is going backwards at the moment but a lot of that is a result of regulators believing there is a benefit in having competing exchanges. Unfortunately that has a number of negative consequences, especially in obscuring transparency of trading with dark pools, more exotic markets, the re-emergence of undisclosed orders and the creation of playgrounds for high frequency traders.

      Have fun with crowdsourcing if it appeals to you but don't expect the same levels of disclosure required in more regulated markets. If those ventures can't attract capital in more orthodox ways and have to resort to more expensive social media avenues it is presumably because of a very small scale of operations or because they haven't been able to convince more sophisticated financiers of the value of their ideas. Call me cynical.

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  • R. Ambrose Raven:

    10 Oct 2012 6:27:58pm

    Well, no, the aim is not to rekindle growth but to save the filthy rich for a while yet at the cost of eventual European economic and social collapse, by using an expanding money supply to conceal economic decline. Thus the ECB controlled by a ex-Goldman Sachs executive will own the bonds of distressed Euro states. Governments thus stabilised would themselves be able to stabilise dodgy European banks while they enjoyed the ECB's pleasure. A substantial amount of such funds would also buoy the stock and commodity markets. A classic example of the time value of money.

    Germany's narrow interpretation of the Draghi plan is driven by its awareness that its ruling class in particular will be the banker of last resort. Banksters and banks will continue to be supported and encouraged in their plunder of Europe, but not by Germany while it risks bearing the costs (limited as it is to ?139b).

    Draghi?s earlier ECB plan to feed European banks ?1 trillion in low cost loans allowed the banksters to loot windfall profits from an officially sanctioned carry trade paid for by the taxpayers of the austerity states.

    Its huge direct and indirect costs - interest costs, lost opportunties, mass housing repossessions, budget funding for profits rather than people, asset-price inflation with falling wages, slashing of employment standards, cutting of the social wage - will be paid by Europe's citizens.

    Such a scheme is why Draghi requires "more Europe not less", by requiring southern states to cede their sovereignty "to fiscal, financial, economic and political union", meaning control by and for northern banksters also despite German political opposition.

    Thus Signor Draghi has shown Europeans their future - rule by banksters.

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    • firthy:

      11 Oct 2012 1:50:09pm

      So you don't think countries who have spent more than they have earned have any part to play in the problem? By all means the banks are partly to blame but you simply sheet the blame home to one side of the equation (as usual to business).

      Southern Europe has some serious structural problems to overcome - it's is sad to see what is happening there but the alternative (default) is actually worse as the economies in question will simply collapse without access so credit (even countries that are in surplus have to borrow at times to fund expenditures let alone those that are in deficit).

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  • John:

    10 Oct 2012 6:44:46pm

    When you see that assets are inflating but business expectations are in the doldrums and question why then you are ignoring the elephant in the room of monetary expansion beyond business growth i.e. pump priming, quantitative easing, interest rate fiddling or what used to be known as money printing. So rather than bad investments being allowed to be cleared they are propped up with more cash and the agony is prolonged because resources are still being directed to inefficient investments. So Alan's closing line that "it might just work" sounds like tongue in cheek to me.

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  • David Nicholas:

    10 Oct 2012 7:13:49pm

    You got me wondering Alan,

    What I am thinking is if the money is staying in Australia and is being invested in and supporting domestic businesses, which do not rely on overseas borrowing or to supply foreign markets, it's a pretty good bet right now. Insular investment not subject to dollar fluctuations.

    Are there many local companies who don't borrowed or rely on money, directly or indirectly, from overseas? Maybe Coles and Woolworth's, real estate firms,stock and station agents. Who else?

    Anyway I hope you continue this. Thanks Alan.

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  • Bobbicton:

    10 Oct 2012 7:26:19pm

    You have to be joking when saying "So far central banks successfully prevented a 1930s-style debt deflation," There is no evidence that this policy has helped at all. You have to ask yourself why would a government or anyone giving cash handouts ( making a budget deficit) to a lot of people so a lot of them can spend it on holiday trips or drunken binges or entertainment is better than spending it in a controlled efficient manner on things that people need now and will need over the long term like medical, dental, energy facilities. There is no sense in the so called 'stimulus' since it is based on flawed argument- just a politicians ploy. If not then the process would work at all times!! or why wouldn't it? Witness what happened in the third world economies when these economic stupidities were followed. A good examle is Zimbabwe where deficit spending failed dramtically ! Same in Brazil some years ago. Same everywhere it has been tried. All it doed is temporarily cover up economic policy failures and results in inflationary pressure.

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  • Asceptic:

    10 Oct 2012 7:28:41pm

    Presumably the following is not what it seems?


    Do you mean China export growth has dropped to 2% per annum or 2% over a 2 month period?

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  • stj911:

    11 Oct 2012 1:26:08am

    In the meantime the human population screams towards 8 billion. Everything is still growing unless a mass extinction of humans is on the horizon. Which is quite possible considering how we are ignoring Global Warming. This current economy is still on a War footing from WWll where we have to have an crisis to keep the masses in fear, away from regulation and even distribution.Renewable/Sustainable/accountable economies with Decentralisation are the four words right wingers have never come to terms with.They either corrupt,destroy or make their crisis the only game in town. If the spineless world CEO's and so called Leaders embraced the future we could have a war like economy which meant something. Work really hard,fulfil your dreams and you will pass on a future that has clean air/water and land with no need to send your children to another country to kill other humans just so you can secure your ever diminishing resources. If the Finance Industry ever wanted to regain some credibility it would jump on board this investment future...Alas short term profit margins and monopoly privatisation's are king.

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    • ConfusedPerson:

      11 Oct 2012 9:55:34am

      What is the current growth rate of the human population?

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  • One rule for all:

    11 Oct 2012 1:27:21am

    You claim The Peoples Bank of China is pumping liquidity into their financial system.

    This sounds a lot like printing money. Is it?

    But as I understand in China interest rates are not yet at zero, like they are in Japan, the US and Europe. As I understand they are more like 6 percent. How does this conform to economic orthodoxy?

    Or is it only other countries that are expected to "play by the rules"?

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  • Budget Austerity:

    11 Oct 2012 1:41:56am


    Clearly what needs to happen in the US, in Japan and in Europe is that these countries need to get back some of the manufacturing that has been transferred to China so that their trade deficits become more balanced. The wholesale transfer of manufacturing from the US to China was very, very short sighted. The US, Japan and Europe need to get back into manufacturing low cost widgets again but instead of using lots of low skilled cheap labour they need to use a small number of highly skilled technicians and professionals who are combined with automation and robotics to produce the widgets cheaper than even the cheapest unskilled labour can produce them.

    This transformation will probably take some years. Between now and then some budget austerity combined with a little inflation will be required to keep the bond holders convinced that they will eventually be repaid their money.

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  • Yoda:

    11 Oct 2012 2:34:05am

    'There is an air of unreality about the share market at the moment"
    Well whats new? the share market is as predictable and as transparent as a casino.

    "Investors have long since ceased to worry about politicians" So have most of us who know Governments are too scared and too corrupt to do anything about reforming a dsyfunctional global economy.

    "The answer I think is that monetary policy is helping asset prices and markets but not the world's economies" and 'there is cash aplenty- its not going into productive growth supporting investment"
    The cash aplenty arising as a result of the shift of private debt to taxpayers. And why would banks put the cash into productive growth supporting investment when they can borrow at % interest from taxpayers and invest it at 12% or gamble on derivatives?

    "The world's economies are in the middle of a long correction to decades of debt funded growth in consumption"
    Aint that the truth and is that not what led to the dsyfunction we have now. How can you have growth when global wages are being cut and the "funding" has dried up?

    'It might just work" it well may- for some- but the most likely scenario is that the positions of Asians working in sweat shops to satisfy our debt funded consumptions may be reversed. We could be the ones working in sweat shops to satisfy the needs of the global rich.

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  • Argus Tuft:

    11 Oct 2012 7:33:50am


    And there is the rub in this matter.

    The gamblers who paid too much for their under-productive assets are saved by artificially induced inflation; printing money.

    Meanwhile, thrifty savers are penalised by a devalued currency.

    This conspiracy is being held in place by that great con, compulsory superannuation.

    As a wage earner, who would be happy to simply take my pay home and feed my kids (genuine consumption), I am forced to hand over 10% of my pay to the gamblers and speculators. And then most of my super ends up disappearing in excessive bonuses and wagers on "slow horses (low yielding shares).

    If I happen to save anything else for a rainy day, that too will be eroded by QE2 induced inflation.

    The fact is that we have been spending tomorrow's productivity on today's consumption. At some time, we are going to have to pay back that credit card. For the Greeks that repayment is taking the form of Merckel's austerity measures.

    And if the bright sparks decide to print money so we can avoid the belt tightening, we could easily see the savings of the middle class wiped out with hyperinflation.

    So choose your poison.

    Water canons in Athens or some new version of Hitler's Germany.

    But why worry your pretty little head? Why not just debate whether Gays should get married or whether the country is blighted by too much sexism.

    Anyone remember Stanley Holloway in Hobson's Choice?

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  • STB:

    11 Oct 2012 8:00:02am

    You forget to mention IT IS estimated that the world?s High Net Worth Individuals (HNWIs crooks ) hold around $11.5 trillion of assets offshore.
    These ill gotten assets produce nothing now, do not pay tax, and do not circulate in any economy to help offfset the current stagnation.
    Further as a result of such funds being being held offshore, it does not help with the OECD countries? official development assistance or the need to print money by the central banks.

    Care to comment?

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  • The Eggman:

    11 Oct 2012 9:49:36am

    Seeing as we are discussing disconnects between abstract ideas and reality, how about a few words on the total breakdown of reality at the nexus between growth economics and reality?

    The global financial crisis is a good example of what can happen when wishful thinking overwhelms realism. In this sense, it's the harbinger of a far bigger crisis that is looming large on the near horizon.

    Infinite economic growth is not possible in a limited ecological system; so we had better try to do something about the drive for same before reality starts to bite.

    We can either change our economic model from one based on infinite growth to a steady state system, or have reality impose this change on us via widespread depletion/degradation of resources and our environment.

    Without change we are heading towards a disaster that will make the global financial crisis and its fallout seem like a storm in a teacup.

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  • John51:

    11 Oct 2012 1:19:02pm

    Alan, it is not so much about growth, but the amount of growth. It is interesting that the United States (US) growth is running at about average. This would be ok in normal times, but of course we are not in normal times.

    The difficulty for the United States is that need above average growth capable of soaking up the high level of unemployment. This problem is even greater for many of the developed economies in Europe which have even higher levels of unemployment and have not even returned to average growth.

    As we know with China it is still a developing economy. It is still in the process of their populous moving from an agrarian economy and lifestyle to an urban economy and lifestyle. To achieve this it requires what developed economies would call a high growth economy.

    An economy with a 7.5% growth in the US, or even Europe, would quickly soak up their unemployment. Whereas a 7.5% growth rate for China is barely treading water with those seeking jobs. A growth rate of only 7.5% for China is probably leaning to unsustainable as at some time China is going to have to add further boost to its economy. Otherwise it will see its economy quickly loosing jobs, if that is not already happening.

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  • Don Bradman:

    11 Oct 2012 2:48:55pm

    Greece , Spain , Portugal and all the others should do what Iceland did.. Simple.
    The Banksters will love it !

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  • Billy Bob Hall:

    11 Oct 2012 2:49:51pm

    The main 'dis-connect' out there is the bunch that still seem hell-bent on taxing energy inputs unnecessarily. The carbon (dioxide) global warming tax nonsense being the prime example.
    Until banks and other FI's begin to wean themselves of expecting 'great gains' from this codswallop, there is no recovery in sight.

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