Looking through the mist to the road ahead

Looking through the present  volatility, to what’s ahead this year, might be the best thing we can do right now.

That’s what the economist, Don Stammer advises.  He admits, quite frankly, that he has given up trying to predict short term movements in financial markets.

That may be no bad thing.  There’s nothing essentially wrong, after all, with a medium term outlook.

We should still watch markets closely, though. So it is still important to note that by the close of trade Friday, New York time, the Dow Jones index had recovered roughly a third of  the ground that it had lost, the previous day,  on fears of persistent instability in Europe.

The Treasurer, Wayne Swan, too, is urging Australians to be confident – as politicians usually do  in bad times.

In his weekly economic note, Mr Swan says:” While we see continuing global turbulence and economic instability in countries like Greece, we know that our own economy is the strongest in the developed world and is backed up by a robust and resilient financial system.”

“The responsible economic management on display in the Budget means we’ll return to surplus ahead of every major advanced economy,” Mr Swan says.

“And just this week it was reported that Australia is among the world’s top five most competitive economies according to the World Competitiveness Yearbook,” he adds

Mr Swan’s assesement of Australia’s current economic strength, of course, is based squarely on our exports of iron ore and coal, particularly to China.  So how good are they likely to be, in the months and years ahead?

Happily, there is no sign, at present, that they are likely to flag, any time soon.  Chinese demand, for both commodities,  is likely to remain strong in the immediate future, especially as China, itself, still has a lot of work do, to meet meet domestic expectations of higher living standards.

Doubts might well be raised, though, about China’s ability to maintain its export growth, in the years ahead.  The United States,  was once seen as the engine of global growth.  But it has been idling recently.  US dominance of world trade has certainly faded, over the past decade  However America is still a big customer  for China, in particular.

And a new spectre has appeared there.  The Nobel Prize winning economist, Paul Krugman, is warning that the US could face a Japanese style lost decade, because the Obama administration’s stimulus measures, in the wake of the global economic crisis, may not have been strong enough.

Writing in the New York times, Krugman sums up, by asking:”Will the worst happen?”

He then answers his own question, saying:”Not necessarily.  Maybe the economic measures already taken will end up doing the trick, jump starting a self-sustaining recovery.

“Certainly, that is what we are hoping.  But hope is not a plan.”

There is, clearly, a warning in what Krugman says, not only for Wayne Swan, but for the rest of us, as well.  That is, perhaps, best illustrated by another question.

Has Mr Swan being been so dazzled by the present minerals boom, that he is simply not seeing real dangers, like a stagnant US economy,  in his headlights.

Just a thought.

Mr Swan, himself, had another one, too, for the miners, who are campaigning against his recently announced Resource Super Profits Tax.

It was blunt. “The purpose of the RSPT is to ensure Australians receive fair value for these non-renewable resources that miners extract from our country,” he declared, bravely.

“No other business would try to argue that they should get their primary input for free courtesy of the Australian people just because they pay company tax – and neither should Australia’s largest mining companies,” he added.

Fine words.  However, they probably won’t end the huge row, that now surrounds that tax.

So what else is ahead, this week?  No major statistics are scheduled.

However Federal parliament will debate  the  budget, when it meets again, later today, for a two week session.