5 Jun. 2007

What Happens To Howard's Economy If There Is Another Asian Meltdown?

In all the gushing talk about Australia's economic "miracle" of the "wise" leadership of John Howard, there has been little acknowledgement of the Chinese economic boom (and consequent Oz resources boom) which has sustained it. And in all the talk about the Chinese economic "miracle" there has been precious little acknowledgement of the corruption and high-level manipulation which underscores it. As we've seen with cases like Enron, BCCI and Arthur Anderson, Wall Street prefers to ignore such matters. So do politicians with a finger in the pie. And the professional media happily follows suit.

But corruption creates its own dark dynamics. This is from today's New York Times:
Share prices in China plunged another 7 percent this morning, only to turn around in the afternoon to finish with gains after the government authorized four large funds to raise money for the purchase of stocks.

The remarkable volatility of Chinese markets underlined again the extent to which stock market investors continue to look to the government for cues on when to buy and when to sell.

Many experts have warned this dependence on the government could make investors especially angry at Beijing officials if the market were to suffer a deep and prolonged drop.
The danger for Australia is that such a drop would not only affect China, but the whole region. The mandarins in Beijing are well aware of this:
The turnaround in the Chinese stock market in afternoon trading seemed to occur in the nick of time for other Asian stock markets.

After largely ignoring the Chinese stock market’s troubles through Monday, stock markets began to dip this morning in Hong Kong, South Korea, Thailand, Malaysia, Singapore, Indonesia and India.
In fact, the whole thing is being carefully stage-managed:
The Chinese government authorized the creation of four funds that will be allowed to raise up to $1.3 billion each from investors for the purchase of stocks, the official China Daily newspaper reported on its Web site today. Other state-controlled newspapers also published articles suggesting that investors focus on potential long-term gains.
And voila!
By the end of the day, with the Chinese market rising again, most Asian markets were posting gains.
Movers and shakers like Rupert Murdoch knows exactly where they fit into such a scheme. After all, it is not all that different to the Wall Street version, is it? No wonder nobody wants to talk about it.
Investor reaction outside China to the sharp drop and considerable volatility of Chinese shares since last Wednesday — when the government tripled its tax on share transactions — has been fairly muted.
The ancients Greeks used to believe that the Earth was sustained on the back of two giant turtles. That always struck me as a rather precipitous arrangement. The modern world's economy is sustained on the back of several giant stock exchanges, and the balance seems (to me at least) no less precipitous. Maybe if there were not so much insider trading and rampant corruption, I might be persuaded to think otherwise.

The Oz resources boom supports Howard. The Chinese economic boom, carefully orchestrated by Communist Party mandarins, supports our resources boom. But let's not forget what is really underscoring this whole show. Human misery.