Mining will keep economy growing Need to increase production Prices may fall but demand will be strong

 

THE mining boom will help keep Australia’s economy from falling into a hole until at least 2013, a report suggests.

Economic forecaster BIS Shrapnel said record levels of mining investment together with a ramp-up in production will insulate the economy from recession for the next five years - even with commodity prices tipped to fall.

“We didn’t really do enough investment, with the benefit of hindsight, through the 1990s to gear ourselves up for maintaining strong growth in mineral output and what we’re trying to do now is catch up,” said Adrian Hart, senior manager of BIS Shrapnel’s mining unit.

“The next five years will all be about increasing production to meet demand from China and other emerging economies . . . and once that production comes on stream that will drive weaker prices for a lot of commodities.”

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A fascinating discussion a few weeks ago in welling@weeden with Albert Edwards and James Montier of Société Générale is republished below with the necessary permission.

“In the cacophony that is global investment strategy research, Albert Edwards (below left) and James Montier (right) stand out as clearly distinctive voices. And not merely because of their British accents or because they’ve tended to the decidedly bearish side of the scale over the last decade or so.

“Despite long tenure in the rarified top echelons of the investment banking world, for many years with Dresdner Kleinwort and more recently at Société Générale (where they are co-heads of global cross asset strategy) both have managed to retain a natural plain-spoken bluntness.

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If our report of earlier in the week wasn’t bad enough about the British economy, more figures have come to light that suggest it’s almost in free fall, so rapid is the downturn. It’s a slump that is being repeated in more and more of Europe. The Irish economy is moving closer to recession, and now economists say that Denmark, Portugal, Italy and Spain are hovering on the brink as the European Central Bank prepares to lift rates tonight (our time) by 0.25% to 4.25%. That rate decision could very well change the dynamics of markets here, in Europe, the US and Asia. A rate of 4.25% from the ECB, compared to 2% from the US fed, has the potential to cause more damage to the US dollar, drive commodity prices even higher, especially oil, and further boost inflation. Commodity prices moved up sharply overnight with oil above $US144 a barrel, copper hitting a ...

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Bear Market, the Dow is down 20% YTD, Recession, Stagflation, $4 Gas...Help me Obi-Won Kenobi you're my only hope.  Is there any hope left on Wall Street?  As Obi-Won would say, I have a bad feeling about this, but there is hope. Jedi Mastery, Stock Mastery, you can only turn to the largest and most successful of corporate giants: Microsoft Corporation  (Public, NASDAQ:MSFT) and General Electric Company  (Public, NYSE:GE) These companies need no introduction and thanks to the Force, they are trading at or near 52-week lows, then again, what stock isn't these days? However, the market cap ...

Article Source Arnold Kling poses a question for Paul Krugman. Here's how I would answer. Kling writes: Early in 2007, the price of oil was $60 a barrel. Recently, it has been above $130 a barrel. Which of the following does Paul Krugman believe: (a) market fundamentals justified $60 a barrel then, and they justify $130 a barrel now; or (b) market fundamentals justified a much higher price in 2007? ...We know that Krugman does not believe that today's oil price is out of line with fundamentals. Krugman's view, in effect, is that if speculators artificially boost the price of oil, then supply will exceed demand, and the excess has to go somewhere. Where are the inventories? This view ought to hold in reverse. If speculators artificially kept the price of oil too low early in 2007, then demand should have exceeded supply and inventories should have ...

By Mike Caggeso Associate Editor Canada’s consumer price inflation rose 2.2% year-over-year in May, edging ahead as the Bank of Canada signaled it would last week. The spike suggests Canada’s economy of is also sputtering alongside that of the United States, but soaring commodities costs just may help our northern neighbor skirt recession. Inflation is up significantly from the 1.7% increase reported in April, Statistics Canada reported yesterday (Thursday). And high gas prices are to blame as fuel costs rose 15.0% in May compared with the same month last year - that’s considerably faster than the 12-month change of 11.6% posted in April. Excluding gasoline prices, 12-month inflation grew 1.6% in May. Last week, the central bank voted to keep its overnight interest rate at 3%, warning that inflation risks have “shifted slightly to the upside.” But the bank quickly followed that up ...

By Martin Hutchinson Contributing Editor Presidential hopeful, Barack Obama, recently told The Wall Street Journal that he intended to lift the United States out of recession through a burst of government spending on infrastructure and a venture capital fund for the new energy sector. Obama has made few economic mistakes in his campaign - he avoided the economically counterproductive proposal to cut petrol taxes between Memorial Day and Labor Day backed by both John McCain and Hillary Clinton - but he has shown his Achilles’ heel with this proposal. There may be many reasons to increase government spending, to better defend America or to introduce a more generous healthcare plan or other social programs, but helping the economy recover is not one of them. In the long run, higher government spending makes the economy worse. This may seem heretical to those ...

Article Source Over the past few days, I've been trying to identify appropriate measures of the output gap (and trying to relate that to exchange rate changes). As I've done so, I've come to realize that (1) it's a difficult thing to do, and (2) interesting stories come out of different measures. The easiest thing to do is to pull down the CBO's measure (interpolated to quarterly frequency). This yields the following picture (in logs): Figure 1: Log real GDP (Ch.2000$, SAAR) (blue line), and log potential GDP. NBER-defined recession dates shaded gray. Source: BEA, GDP release of 29 May 2008, and CBO, Update of CBO's Economic Forecast (February 2008), data [xls], and NBER. Two observations: (i) recessions do not necessarily coincide with negative output gaps (although they do seem to coincide with the beginning of periods of ...