–If Australia has always reminded you of the Catskill Mountains, tea at Tavern on the Green in Central Park, and the frozen vistas of Lake Erie as seen from the shores of the great city of Buffalo, now you know why.
–It’s because Australia is the New York of America. Or is it that New York is the Australia of North America?
–Okay, maybe the cool map by the Economist that compares U.S. states to various nations around the world is conceptually flawed. The map tries to match a state, as measured by GDP, with a country that has a similar GDP. The State of New York has a GDP of just over US$ 1 trillion. The country of Australia has a GDP of just under US$1 trillion.
–If Australia were a U.S. State, then it would have the third-largest economy in America, behind Texas and California. But while California has agriculture and tourism and Hollywood…and while Texas has oil, and energy, and the Dallas Cowboys…and while New York has Goldman Sachs, and the Brooklyn Bridge and Broadway…Australia has it all.
–Australia produces energy (LNG, uranium, and thermal coal) and food (wheat, rice, and beef) and finance (the Big Four Banks, AMP and Macquarie Bank). New York has the Jets. But Australia has the North Melbourne Kangaroos. New York has the Yankees. But Australia has won the last three Cricket World Cups (truly a world tournament…in the places where people actually play cricket).
–What is the point of this comparison? Australia and New York are alike in GDP but different in many other ways. The only important question for 2011 is will anyone anywhere be spared from wealth destruction as the era of Quantitative Easing implodes before your eyes.
–And implode before your eyes it is doing! Exhibit A is the fact that Irish Central Bank is printing money it doesn’t have to make loans that are secured by collateral that Irish lenders no longer possess. Irish borrowers can’t get money from the European Central Bank without collateral. So they’re getting it from the only place left, the nowhere land that is the nursery of fiat money.
–If you read the story we’ve linked to at the Telegraph you’ll reach the same conclusion we reached this morning: Europe’s debt problems will result in either default or increasingly absurd (and counterfeit) operations by Europe’s central banks (which were supposed to have surrendered monetary policy to the ECB upon monetary union).
–How can a currency retain integrity when anyone can get permission to print more of it when times get tough? This is surely a sign that at some level, the Global Financial Crisis that began in 2007 is about to resume again. For 29 months the central bankers of the world have managed to prevent a reckoning with more loans secured by more questionable collateral. Is financial entropy beginning to reassert itself?
–One sure sign that the crisis in paper money is at a new stage is that food prices are rising even in places where there’s a lot of food. Sovereign Man Simon Black reports that, “the prices of staple foods in Laos, including rice, have soared in recent months, and that the Laotian government is now under intense pressure to ‘do something’ about it.”
–And of course it’s not just food prices that are rising because of inflationist central bank policies. Fuel prices are rising too. Bloomberg reports that, “Power station coal prices rose for a seventh week to a more than two-year high and steelmaking coal gained 5.7 percent after heavy rain and flooding curbed output in Australia, the world’s biggest exporter of the fuel.”
–There’s no doubt that limited supply is a factor in rising coal prices. But oil prices are on the up and up too. All of these commodities have one thing in common: they are priced in U.S. dollars. And like the Euro, the dollar is the badly managed currency of head-in-the-sand counterfeiters who are running out of ideas and credibility.
–This is an open secret. Russia and China were sellers of U.S. government bonds in November, according to the Financial Times. Russia has energy. China has a huge war chest of foreign exchange reserves. Both must be looking at the world and wondering why they have so many liabilities backed by bankrupt government.
–Luckily, Australia is not a U.S. state in need of a bailout by a U.S. government that doesn’t have the money for it. But if rising food and fuel prices around the world mean that the era of quantitative easing is about to go up in flames, it will affect Australians as much as it affects everyone else in the world.
For Markets and Money Australia