But my guess is that, then as now, Australians were not the speculators on the stock market that the Yanks were (and are). The prices therefore hadn’t been leveraged as high and had less to fall. Again that seems so today–the DJIA and the ASX were at much the same level after the 1987 crash; 13 years later theformer was 12,000 and the latter 3,000. Even recently the DJIA peaked at 14000 versus 6000 for the ASX. So again we have less to fall than do the Yanks.

I enjoyed your ASX lecture the other day.

At the start of the Great Depression (ie the 1930s one), the US sharemarkets went down about 90% (MASSIVE)(over a 3 year period I think) whereas the Australian sharemarket went down “only” about 45% (like a “normal” (but larger than average) bear market). This “superior” Australian sharemarket performance was despite the unemployment rate getting to 29% in the 1930′s in Australia vs 25% in the US. I do not know if these rates were determined on a comparable basis, but I assume that things were pretty bad at the time in Australia, just as they were in the US. GDP I understand went down greatly in both countries (of the order of 10% pa for each year over 3 years?) and deflation was substantial in both countries in the 1930s also.
I take your point that private debt levels are substantially higher now in both countries compared with those just before the Great Depression (being quite a bit higher in the US compared with Australia on both occasions).

Questions:

1. Why didn’t the Australian sharemarket go down nearly as much in the first 3 years of the Great Depression as it did in the US?

2. In the event of the US sharemarkets falling significantly in the next couple of years (eg via a second leg downturn and then possibly a third):
Are the differences between Australia and the US and the differences in the interactions between these countries and the rest of the World now compared with at the start of the Great Depression sufficient to indicate that the Australian sharemarket will fall more in line with the fall in the US sharemarket in the coming couple of years compared with in the 1930s? If so, why?

I was comparing what you said about the creation of money not being in the RBA control and that they know it with Benanke’s printing press quote and base money expansion. I’m still left wondering about the divergence. Would it be correct to say that the Fed and out RBA having pushed their strings are not so relevant at the moment for what happens next (assuming they don’t pull their strings)?

I thought that MMitchel and you comment were the same one and now you have thought that my reply camwe from MMitchel. Perhaps there is an option in wordpress to Highlight the name of the poster to clearly indicate the name of the poster (in bold rather than italics) so that individual comments are more clearly delineated.

I know what you mean about the (Boatdeck) cafe being a grat place to sit and enjoy a cuppa by the lake. If you’re interested the house that we’re moving out of is available through realestate.com.au for $320 per week.

Bob

Colonial BancGroup shut down by federal officials

WASHINGTON — Real estate lender Colonial BancGroup Inc. has been shut down by federal officials in the biggest U.S. bank failure this year.

The Federal Deposit Insurance Corp., which was appointed receiver of the Montgomery, Ala.-based Colonial and its about $25 billion in assets, said the failed bank’s 346 branches in Alabama, Florida, Georgia, Nevada and Texas will reopen at the normal times starting on Saturday as offices of Winston-Salem, N.C.-based BB&T.

The FDIC has approved the sale of Colonial’s $20 billion in deposits and about $22 billion of its assets to BB&T Corp.

Regulators also closed four other banks: Community Bank of Arizona, based in Phoenix; Union Bank, based in Gilbert, Ariz.; Community Bank of Nevada, based in Las Vegas; and Dwelling House Savings and Loan Association, located in Pittsburgh.

The closures boosted to 77 the number of federally insured banks that have failed in 2009.

http://www.google.com/hostednews/ap/article/ALeqM5gg9RS-ZvzlfzrcnujKaEDMXrYyYgD9A36DIO0

I think Brazil has been doing it’s fair share of price cutting which can’t help Oz much either.
Interesting Medvedev saying Russia can’t continue to be a bigger and bigger hole in the ground. We don’t here too much of that from Rudd or Turnbull.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6011832/Russias-economy-contracts-11pc-as-Putin-model-hits-dead-end.html

“Russia’s economy shrank at an annual rate of 11pc in the second quarter and has yet to show any signs of durable recovery, despite the rebound in the price of oil. President Dmitry Medvedev blamed the country’s reliance on energy and commodity exports, saying the economy “crumbled” as the global crisis hit. “We can’t develop like this any further. It’s a dead end,” he told party leaders. “We’re hovering in place, and the crisis brought this home. We will have to make decisions on changing the structure of the economy. Otherwise our economy has no future. The situation is outrageous and has been for a long time. We continue to ship raw timber for export, and processing isn’t being developed.”

My take is Medvedev is talking it up for the foreign investors. Putin has an iron grip on Russia and the commodity sector in Rusia is controlled by cowboys masquerading as corps. Russia’s response will be to try to make up for the revenue shortfalls with higher commodity volumes.

There is no doubt that the BDI is sinking because of reduced demand. BHP says as much in the article below. The huge uptake of bulk commodities in Q1 and Q2 by China was in some part a response to the collapsed freight rates, as well as the waves of cheap money being loaned out courtesy of China’s stimulous. I recall (sorry lost the link) an article back in April/May by SteelGuru about how something like more than 60% of ships in China offloading bulk cargoes then were ex speculators and not smelters/producers, an unusual circumstance. This has now run it’s course and shipments are falling fast.

Who knows where the BDI may settle but looking at this report from BHP they are not sounding confident. It is important to seperate hopes from facts. Like all big multi- nationals, BHP “hopes” for a lasting recovery too;

“The world’s largest miner BHP Billiton (LSE: BLT) revealed the exact impact the “rapidly deteriorating economy” has had on its operations in its full year report for the year ending June 30 2009. The group also repeated concerns over restocking activities in China, which the commodity sector heavily relied on during the economic downturn in the second half of 2008 and first half of 2009.

The plummeting demand for commodities sent BHP’s H2 profits down 62% to US$11.6 billion, while the company’s EBITDA (earnings before interest, tax, depreciation and amortisation) declined 21% to US$22.3 billion and revenues dipped 16% to US$50.2 billion.

Supplies were cut 5 to 25% year on year in H1 in view of the declining spot prices for BHP’s commodities, which fell 50 to 90% over the period, amid destocking in all markets.

The Melbourne-based company reiterated that China has been the most supportive market since the beginning of the economic crisis with the government pouring heavy investments into infrastructure, keeping the demand for raw materials at a high level.

However, the economic outlook remains mixed as the commodity restocking in China is “largely complete” and it’s hard to gauge the economic growth beyond the period of each stimulus program, said the company.”

http://www.proactiveinvestors.com.au/companies/news/2225/bhp-billiton-posts-62-h2-profit-slump-expects-commodity-demand-to-strengthen-over-long-term-2225.html