The Diet Chocolate Recession.

The Diet Chocolate Recession.

I feel it is an important subject..Our finances..The Recession etc.
Remember how we were supposed to boost the economy with all these pre-Christmas bonuses??? Spend, spend, and spend some more... Did we all really think the money was staying within Australia...No, it was going to overseas companies and their shelf companies that sometimes wear the Aussie logo, thus sucking us into believing that the product is Aussie made therefore the money stays here to boost our treasury dept.'s growth...WRONG!! Many products might be assembled here, or one or two of the parts might be made here, but it is still an overseas company that gets the profits... So have a read of this article from the DAILY RECKONING...and see if you still think we are not in a RECESSION or Mr Rudd is doing the right thing by us...as I don't. His true colours are surely showing through...Just like the obamessiah's is showing up all the colours on the colour charts...He is one that stands out, for all the wrong reasons...
I actually sent an email to D.R saying I enjoyed this article...

The Diet Chocolate Recession‏

The Daily Reckoning Australia (dr@dailyreckoning.com.au)

Thursday, 4 June 2009

Melbourne, Australia

Two Time-tested Economic Errors
From Dan Denning at the Old Hat Factory:

--Today's Daily Reckoning is brought to you by the stupidity and buffoonery of Australia's politicians and mainstream economists. We thank them for today's bounty. Seldom in our four years since moving to the Lucky Country have we had such a target rich environment. Today's papers are filled with flim-flam, idiocy, and good old fashioned economic illiteracy.

--But wait! Before you write in accusing us of being perma-bears and running down Australia's economic good news, just remember this: the economy is not a footy team. It's not something you cheerlead or barrack for. Of course you want things to be good. But whether they actually are or not is a matter of fact, not national pride.

--And the facts? Here they are, in brief, for the March quarter: imports fell 1.6%, exports rose 0.6%, consumer spending rose 0.3%, and "consumption expenditure" fell 1.1%.

--"Consumption expenditure," by the way, is government, household, and business spending. And business spending, as you know, is investment (it creates jobs and incomes). Business investment actually fell 6.1% in the March quarter. That's an ominous sign for future employment.

--All of that added up to 0.4% GDP growth. That means that technically, Australia hasn't had two consecutive quarters of "negative growth" and isn't in a recession. That's if you accept the technical definition of recessions, or if you're a moron.

-- The numbers show reduced imports because consumers are scared. They show statistically goosed exports which predict lower commodity prices and therefore higher export volumes. And they show the biggest contraction in business capital and machinery outlays since 1991.

-- In summary: to celebrate the GDP figure as a triumph of government policy is to shout your economic ignorance from the rooftops of the world. Sure, there are items to be positive about, especially exports. But the idea that government spending has somehow spared Australia from the long-term consequences of debt and leverage is beyond absurd. If this isn't an old fashion recession, it's a Diet Chocolate recession, in which the short-term benefits of consumption belie the long-term consequences of debt.

--Specifically, there are two errors we'd like to expose, and ridicule if possible. The first is that increased consumption implies healthy growth. For starters, the government's December cash splash may have boosted consumer spending by 0.2% during the quarter. But the bigger contributions to the GDP figure were the surge in exports and big decline in imports.

--Why should that matter? Basic economics. Exports generate income and add to GDP while imports cost money and subtract from GDP (in general terms). Or if you were a business, when you sell more and spend less you generate greater income and profits. That's positive for growth, obviously. And that's what led to the positive quarterly figure.

--But by boosting consumer spending with borrowed money, the government detracts from Australia's long-term health for a short-term political benefit. Healthy consumption is financed from production. You make something. You sell it. The income you generate pays for the things you buy.

--But in the interests of generating the appearance of activity, the government borrowed money so people would spend it (or spent the surplus accumulated in the boom years). That's debt-financed consumption, an economic stupidity that has led America into a national nightmare. That is what the Aussie government seems to be encouraging and crowing about today.

--Of course it's said that deficit spending is "temporary and targeted." But no one has really explained yet how long it's going to take to pay off a $300 billion deficit. It will take years. And it will mean higher taxes or lower spending on other things.

--It reminds you a little of Scarlett O'Hara pinching her cheeks to make them rosy for Rhett Butler in Gone With the Wind. The colour rises, but it's all artificial. It's the same with Australia's GDP figures. The number expanded, but it was completely artificial. It didn't indicate a blush of health, but a kind of bureaucratic harlotry.

--So why go to all the trouble of making a sick economy look pretty? Well, if the first error is believing that you can borrow your way to prosperity without producing something of value and generating surplus income from it, the second error is one a four year old might make. You believe you can have something for nothing. And you want it now or you'll pitch a fit.

--The second error is confusing the temporary benefits of a policy for a small group with long-term benefits for an entire economy. It's like believing you can eat chocolate without getting fat, or get drunk without getting a hangover. Or, if you're doing it on purpose-knowing full well what you're up too-it's putting your short-term electoral prospects ahead of the national interest (something all politicians everywhere now do as a matter of course.)

--To be fair, the journo and politicians who think yesterday's GDP number is a victory for Keynesian policies are making perhaps the oldest mistake in economics. Bad economists and policy makers have always focused only on the immediate and obvious effects of their decisions. After all, it is easy to show who benefits in the short term.

--Pensioners get more money. Who'd argue with that? Who wants to see Nanna starve? Consumer spending rises? What retailer will complain? If you focus only on the short-term and obvious, you see that GDP grows and Australia manages to pull off what only two other industrial countries in the world have? Shouldn't we all be justly proud?

--All these obvious benefits have unseen costs that come later, and hardly anyone in Australia is talking about what those costs are and who doesn't benefit (the next generation). Chocolate makes you fat. Drinking to excess ruins your liver. And debt financed growth ruins a nation's economic health and steals a fair go from the future. Don't take our word for it, though. Just listen to Fed Chairman Ben Bernanke speaking to Congress yesterday in America.

--"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term," the Chairman said, "we will have neither financial stability nor healthy economic growth...Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance."

--Bernanke knows America has to get its fiscal house in order before investors lose complete confidence in the U.S. dollar and dollar-denominated assets. But judging by the reaction of markets, it might be too late already to restore confidence. America's debt and deficits are large and getting larger.

--Australia's, by contrast, are merely small and getting larger. But if people begin believing that more borrowing and government spending is good for the economy-based on this first quarter GDP number-then Australia will walk even further down the road that has taken America to a road of national servitude to foreign creditors.

--Any government that is proud of a policy with that result is either incompetent or economically illiterate. However, now that we write that, we realise that is what most governments are: incompetent and economically illiterate. So what should investors do now? More on that tomorrow...

If you are at all interested in tomorrow's follow up, just go to the website of Daily Reckoning..not hard to find.