President Obama’s trip to Asia reflects a growing political pressure at home as the combination of the health care reform and climate change leads to concerns about rising taxation, collapsing commercial property prices and increasing rates of small business failure.
The ominous sign is the decline in chip prices as inventory levels for the IT industry are rising at as fast a rate as the release of new smart phones and new efforts to flog the Windows technologies.
As in Australia, there are many more people seeking work than the more limited numbers of displaced workers. In the US there are now more than 25 million looking for jobs, nearly one in five of the workforce. There is a continued requirement from the G20 finance ministers to keep the stimulus packages coming, invest in major infrastructure programs and leave small business to wait for a rising tide of economic activity around third quarter 2011.
These figures help explain the slide in the President’s popularity with the jobless rate being at its highest level since WWII, at a rate double than in Australia. The difficulty is explaining that the Fed’s policy is to drive the US dollar down, increase exports, pressure China to revalue the Yuan and use a lowered level of consumer confidence to reduce household expectations whilst attracting overseas tourists.
For those who still believe that they will be getting a better return from the tooth fairy – assuming the value of the gold fillings is a real demand function – it is worth noting that Fed Chairman Ben Bernanke is pessimistic about the prospects for 2010, warning that persistent high unemployment, tepid bank lending and continued troubles in commercial real estate will dampen any purported rebound.
It is interesting in this context to note that a 3% reduction in the payroll tax for US small and medium enterprises to enable them to take on the jobless would have the same impact on the Fed’s treasury as a further US$700 billion stimulus package for boon-doggling infrastructure projects designed to prop up the Democrats numbers in the Senate for the Health Care and Climate Change bills.
The trick is to watch the price of commodities because they are currently the preferred safe haven of all the currency speculators who are still expecting Glenn Stevens to fulfil the wishes of carry traders who expect that the RBA will deliver another rate rise in December, February and March. If the price of a barrel of oil heads up over $85 a barrel and gold heads up to $1,250, don’t be surprised to see the greenback artificially lowered by the US Fed to tackle the rising joblessness at home.
If you are planning a trip to the States or ordering online, now is the time to maximise your currency exchange into the greenback. While the pundits are talking up parity with the once mighty US dollar, the reality is that trading conditions are likely to be at their peak in the next couple of months and then there could be a major readjustment.
More importantly, the hot tip is to get forward commitments on your sales overseas as a hedge against further rises in Australian interest rates and find ways to develop import substitutes in the Australian market as the rising dollar makes local markets more attractive.
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Dr Colin Benjamin
Entrepreneurship and Strategic Thinking Consultant
Marshall Place Associates offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.
Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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