Pretty well everyone thought that Governor Bernanke would change US interest rates this week. But he declined to do so. He and his advisors clearly felt that American money is priced just right and there was no need to make it either cheaper or dearer. The bulls, who were anxious that rates might go up, were delighted with the news and charged up Wall Street dragging most of the world in their wake. All concerns about the effects and consequences flowing from the rapidly growing mess in the housing finance market appear to be forgotten or at least dismissed. The business comedy channel on TV found a US government official who assured the viewers that all was well and that there was no contamination of other credit markets by the hollowing out of the so-called sub-prime mortgage industry. Did they really believe he could tell the world that things were getting mighty smelly and that the US housing market is already experiencing major price falls?
In Joburg the All Share index joined the excitement and surged to within just a few hundred points of its peak. As far as we know there is no similar credit market debacle lurking in the wings here at home for us to dismiss. But we did see some rather dreadful economic data published the day after we had all stayed at home to polish up our human rights. So we ignored those instead.
The news was that the current account deficit rose to 7.8% of GDP in the last quarter of 2006. This has caused an epidemic of hand-wringing and forehead-dabbing among the talking heads. Despite being told not to panic, we amateurs are left in no doubt that this number is bad news. A gloomy future threatens with a falling currency, higher interest rates, and coming last in the Tri Nations. Regular readers will be painfully aware that I am devoid of any economic learning and that my pronouncements and interpretations are usually naive and embarrassing. My observation is that the share market cared nothing for the news but I do wonder how a mineral-exporting nation in a time of high prices and a weak currency can earn less from its exports than it spends on importing iPods and Cadillacs. We must be paying ourselves much more than we are really worth. This complaint, as ever, leads my eye over towards all those politicians, bureaucrats and legislators who produce nothing but words, virtually none of which have any worth.
For example, I could raise little enthusiasm for the excited report that Eskom have chosen the names for the six new power stations that they plan to build just as soon as they get the money, the permission, the plans and the time. I have no doubt that the announcement was made at a well-catered little ceremony for two or three hundred guest and dignitaries. Contrast this story with the report that every year China adds twice as much generating capacity to its electricity network as we here in SA actually have right now (and for some time to come). But I’ll bet the Chinese power stations have boring old plant numbers and not even names.
Once again, a criminal event casts a pall over us as we go into the weekend. There is no comfort that this time it took place on the other side of the world. Bob Woolmer was an important figure for all local sports lovers and his links to South Africa were strong. He would be thrilled to see us beat the Aussies on Saturday.
James Greener
23rd March 2007
