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By Neville Bennett

US real interest rates are negative. In effect, the Fed is giving away money.

Every financial institution in the world of any magnitude is borrowing US$ and investing it for positive yields or opportunities elsewhere. This massive carry trade is feeding arbitrage and asset-buying sprees and bubbles in everything from gold, the shares, Hong Kong penthouses, and even fine wine.

The APEC leaders rightly warned about the dangers of the carry trade, but did not discuss the remedy—raising US interest rates. Obviously the US administration is prioritizing domestic recovery, but my argument is that this is creating bubbles. The Americans are aware that bubbles are forming, but some of their spokespeople are making the incredible argument that there are good and bad bubbles and the present ones are OK.

There are times when one wonders if the inmates are in charge of the asylum! Lax monetary policy is creating the next crisis.

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By Neville Bennett

I want to propose discussion of a new tax, the Kiwi Dollar Stamp Duty. It would be a tax on the Kiwi dollar trades wherever it were transacted in the world. It would reduce speculation in the Kiwi which is causing its over-pricing.

This is not a pipedream; it is entirely feasible, could be only 0.01 cent per $ and can be unilaterally implemented by Government. A major benefit is not only a lower dollar but a new source of revenue.

I am anxious to spread our revenue base, especially away from income and saving. Moreover, I do not favour an increase in the regressive GST tax as it is too easy a target and does not increase productivity.

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By Neville Bennett

According to CNBC, the “cash-for-clunkers” program cost the US tax payer US$24,000 per car. Still, along with the stimulus, it helped to convince many people that the US is out of recession.

As a contrarian, I believe the GDP figures were horrible. Moreover, there are increasing doubts about the stimulus: recent research shows that a dollar spent does not create a dollar’s worth of activity, but only 60cents-80 cents worth.

I suggest it would have been more cost -effective to grant an income-tax holiday.

GDP Data

Most media failed to explain that the US economy grew by 0.9%. It reported the annualized figure of 3.4%; a figure which will be achieved if subsequent quarters are equally positive. They may not be because this quarter incorporated some one-off increases. The largest was a 22% increase in consumer durables, which was largely the clunkers, not consumer whiteware etc.

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By Neville Bennett

In the last week two iconic manufacturers, within 5 miles of my home, have closed. These were NZ’s only tire manufacturer and famous outdoor goods provider. They were victims of a high Kiwi dollar. They are not isolated examples but part of a virulent hollowing out process. The Kiwi has flourished despite official attempts to talk it down as well as poor fundamentals.

New Zealand’s woes are shared by many other countries. I started to write this column on Britain’s current difficulties but when I researched the nature of its unemployed, the penny dropped; manufacturing was its largest casualty too.

While most countries cause their own problems, a large part of the global malaise is caused by the US’s selfish devaluation, which coupled with the pegged Yuan is causing mounting imbalances. Global trade is withering too and protectionism rising.

Britain’s Woes

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By Neville Bennett

While it is obvious that the credit crunch was a crisis about the availability of money, no one seems to be talking about how the crisis affecting bank capital impacts upon money and the real economy.

I want to review money creation though leveraged lending and stress again that it is a source of instability which needs more attention. At present the debate is about other kinds of regulation and the insanity of monstrous bonuses.

Instability

Larry Summers, the former Republican Democrat Treasury Secretary, reminded us that the recent crisis resulted from financial instability and “hundreds of thousands of middle class families who had nothing to do with the financial sector losing their jobs”.

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By Neville Bennett

The world system is still reeling from the effects of the Greater Depression. It effects and consequences are still not obvious, but increasingly it seems that 2008 will mark the beginning of the demise of the US Dollar.

The landscape is changing and obviously the depreciating dollar is under pressure as an unsatisfactory trading and reserve currency. But my main purpose is to substantiate the dollar’s demise in three particulars: about London replacing New York as the world’s financial centre; a ‘plot’ to introduce a gold-backed currency, and China’s building rival commodity exchanges.

Gold standard in oil trade?

Robert Fisk broke a story in the Independent last week:

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