Sent: 17-06-2008 13:00:03
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Sub-prime, credit crunch, record oil prices, falling US dollar: The Perfect Storm?
Some readers may have seen the film "The Perfect Storm" released in 2000 staring George Clooney. This was of course the film about a tempest that supposedly happens only once in a century, a nor'easter created by so rare a combination of factors it created waves ten stories high and winds of 120 miles an hour.
The expression has since become part of our lexicon and as such was used by the OECD in its recent Economic Outlook. They were of course referring to the recent credit crunch, in part caused by the sub prime implosion, plus of course the inexorable rise in energy prices, the falling US dollar, and no doubt a host of other things that have come together in this current nexus.
No doubt various brokers have produced their analyses of what it all means and I do not intend to repeat any of their verbiage. Suffice to say the OECD commented that with regards to the US (which after all does have a very major impact on everyone else whether we like it or not):
"The economy is facing strong headwinds, which are exerting a sizeable drag on activity. The financial crisis is resulting in a credit squeeze, declining house prices are putting pressure on household wealth and the sharp increase in commodity prices is eroding workers' disposable incomes."
I am most certainly seeing evidence of that. Whilst the impression of the US is that it is very wealthy, it is also a place of extremes. There is also much poverty.
John Howard's work place reforms took Australia from what I must admit I thought was an extremely benevolent almost paternalistic environment and tried to bring it more into line with what occurs in other countries, particularly the US. Australia obviously was not ready for such a radical approach (no I am not saying I agreed with the reforms, nor am I saying they were not needed). However, I have discovered that the work environment here is much more savage.
Many more people are on minimum wages (about US$6 an hour) and are not employed enough to warrant any annual leave. There is also of course the issue of health care and many at the lower end simply cannot afford any health cover.
Whilst petrol is much cheaper here (see my recent blog on the issue for details), what cannot be denied is that petrol prices have doubled in a very short period of time in the US. Given that thus is such a car orientated society, this has had a dramatic effect on low income families.
I became more aware of this last week-end when I noticed an unusually large number of vehicles broken down on the highways. I then found out that the motoring organizations had reported that this has become very common. Not just because people cannot afford regular maintenance, but also because they have a dollar amount they can afford for petrol. With the huge increases in petrol (or rather 'gas') prices, they have been putting less and less in their cars but still need to get to work, often two or three jobs I might add. The end result is obvious for all to see.
Where does this leave us? In some respects in limbo. Bush is regarded as a lame duck (that is one of the more polite names I have heard, and I currently live in a republican area!). Until a new President is sworn in I doubt there will be much dramatic change. The Fed Chairman seems to be trying to overcome the inflationary problem, but the low US dollar and the high oil prices is making it difficult for so many people. As I have discovered to my cost, a large number of companies are simply not engaging new people, in fact they are doing the opposite.
So, we may (possibly) be over the worse the 'Perfect Storm' hurled at us, but we are most certainly not yet back at home port.
Seem to recall that the main characters in the 2000 film didn't actually make it home. Wish I hadn't remembered that...
For those who are interested, my blog is all about just how different things actually are over here. I have been surprised and you may be as well.http://brock-expatblues.blogspot.com/
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