Indonesia’s New President and the Federal Reserve Minutes – Are In

Indonesian election results are in. US Federal Reserve minutes are in. And Argentina and Germany are in the World Cup final! What a busy twenty-four hours.

To the Indonesian elections first. The early results show that Joko Widodo beating Prabowo Subianto by three to four percentage points. ‘Jokowi’ becomes the first post-Suharto reformist to win Indonesia’s Presidency. Subianto was a general in the Suharto regime and portrayed by the Western media as the more nationalist of the candidates.

Either way, Indonesia will be worth watching in the coming years. It was Lee Kwan Yu of Singapore who once referred to Australians as ‘the poor white trash of Asia’. If Australia has trouble being ‘Asian’ in the ‘Asian Century’, the most likely flash-point is with Indonesia. Not because it’s a large Muslim country immediately to the north, but because the less stable or established the institutions of civil society are, the more easily radicalised and authoritarian they can become. Stay tuned.

The Australian stock market should get a breather today. Both the Dow Jones Industrials and the S&P 500 closed higher after the release of the minutes from the June meeting of the Federal Reserve’s Open Market Committee. That’s the unelected group of bankers who set the price of money in the United States, and thus, in most of the world.

The Federal Reserve minutes didn’t reveal anything markets didn’t already know. If all goes according to plan, the last ‘taper’ will come in October. The Fed will cut its purchases of long-term Treasury bonds and mortgage-backed securities to zero. That’s if nothing happens between now and then to rattle the markets.

Fed reserve
The academic economists who manipulate price signals in the US believe that the American economy is ‘recovering’. But you can bet your bottom dollar they’ll be watching 10-year US interest rates. There are two reasons why US rates would rise. First, on fears of inflation, which you only get with higher economic growth (or expanded money supply leaking into the real economy instead of into asset prices). Second, because investors bail on bonds as an asset class. I’ll have more on that when I visit America on Friday in the second-to-last stop on the ‘rim of fire’ tour.


Dan Denning
for Markets and Money

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Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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