One needs to be in a quiet place with no distractions in order to think about the information that the US government’s biggest creditor is its own Central Bank – The Federal Reserve. On behalf of the nation, the government has so far borrowed $1.3 trillion from the Fed – almost all of which was created at the click of a mouse or the rumble of a printing press. This process gloried under the name of Quantitative Easing, and there have been two sessions of this event known as QE1 and QE2 in the last few months as the US has tried to force its way out of recession. However, that government, like many others, pursues a policy of every day spending far more than they collect by way of taxes. Some of the spending has, of course, to be used to service the debt, because if they did not do that then the USA would be in default – just like Greece – and everyone knows that the US is way better run than Greece. I hope you are following this.
Washington has been spraying the rest of this borrowed cash around in the hope of making its citizens feel prosperous and optimistic again. Sadly for the suits, this has not happened. The reality is that job prospects, wages and most significantly house prices in the US are all still very subdued. Another factor is that the second biggest category of lender of cash to the US Treasury is the US householder, who is at last starting to wonder if he will ever get all his money back.
A great number of those freshly printed notes found their way into the hands of folk who decided to spend it in the share markets. This helped to keep prices looking rather buoyant for several months. But now comes the news that there might not be a QE3. Buyers are disappearing and US share prices are doing what they probably ought to have been doing for a long time – falling. Even in those markets where their government has not been so financially imprudent – like here – bulls have also been standing back and the JSE had a poor week
It is hard not to be cynical about the reason for the unexpected shuffling of the boards of the big state owned enterprises. It is true that none of the organisations was performing in an exemplary and admirable way but in some cases the deposed incumbents were new and inexperienced (much like their replacements) and had not had time to show their stuff. But as we can see with the proposed information secrecy bill, the government appears to be tightening its grip everywhere and perhaps the enterprises were straying too far “off message” and needed to be reminded that ideology comes before customer satisfaction.
On this theme, Durban must now be one of the largest cities outside of China and North Korea where the mayor is a communist. Mayor James Nxumalo, draped with the city’s R2.3m mayoral chain of office, looked rather un-proletarian but declared himself to be an activist and servant of the people without any aspiration to being a capitalist. Well that sounds very good then. Good luck James.
And now I am off for a beer with a squad of loyal and fanatic Sharks supporters. I shall of course tell them about the TV pundit I watched last night who felt the Lions were in with a good chance and how I hope he is right. Of course I won’t admit to them that I really do want to see three SA teams in the playoffs and will move swiftly on to the topic of whether we can hope for another toothy South African lad winning a golf major at the US Open.. And then of course we can discuss the very first IBF women’s welterweight belt being fought for on African soil tomorrow night. It is between a South African lass and a New Zealander. I wonder if she starts off with the Haka?
James Greener
10th June 2011
