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Archive for the 'business' Category

Greek Debt & the Sunk Cost Obsession

Sunday, July 5th, 2015

In the 1950s Germany had debt at 25 per cent of GDP (Gross Domestic Product) and the major lenders of that debt opted to let half of the debt go. Countries that let Germany off the hook included Greece, Spain, Pakistan, Egypt, the United States, the United Kingdom and France. This was public and private debt accrued before and after World War 2 that stood in the way of a rebuilt and stronger Germany. Greece needs the same strategy.

The current ratio of debt to GDP in Greece is at a ridiculous 177 per cent. While austerity as an economic panacea as espoused by Carmen Reinhart and Kenneth Rogoff is pretty well disproven. Although austerity measures still seem to dominate the minds of economists who have had careers espousing the austerity paradigm. In short, austerity isn’t the cure. Slowing down an economy isn’t going to fix it.

And if Greece has the little money it generates heading offshore as interest payments on further accruing debt then how can Greece rebuild a healthy economy? Is it about Greek debt? Or having collectors go around to break some legs?

Think of this as a simple business problem. A sunk cost problem.

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The Average Punter is an Importer

Sunday, May 31st, 2015

The rich people who run this country loved to bang on to the poor about how we were crippled by a high Australian dollar. What they never pointed out was that a low Australian dollar makes just about everything we wear, eat and manhandle more expensive. The average Australian punter is an importer.

A high Australian dollar makes for lower import cost – consider your dollar exchange on Amazon purchases. Most business in the World is done in US dollars. So, while exports are expensive – imports are more affordable.

A low Australian dollar makes exporting more viable. We can sell things cheaper on the International market. Primarily we’re talking about poor old mining magnates. Yes, I know there are a lot of smaller businesses exporting and that international trade is important. But the bottom line is a lowering Australian dollar makes life for the average punter more expensive.

There’s a trade-off. We need a dollar priced low enough to be competitive, while we have it high enough we can afford goods and services from overseas.

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Increased Supply & Lower Demand Drive Prices Down

Tuesday, May 19th, 2015

There is an interesting story unfolding around Australian iron ore production – group A states that groups B & C are oversupplying the weak market to drive down iron ore prices and push smaller players out of business. This is an interesting business strategy. Note: this post does not address the accusation of collusion.

Micro-Economic Supply & Demand Graphs

A simple micro-economic graph for demand shows that a commodity like iron ore will fall in price given lower demand. The less people want something, the less they are willing to pay.

An equivalent supply graph would show that increased supply also pushes down the market price of iron ore. And if there is increased supply of iron ore causing the iron ore prices to fall then the quantity of iron ore demanded will increase. Because, when you think about it, cheaper iron ore means cheaper steel means cheaper projects. And voila… projects that weren’t viable become viable. The equilibrium for quantity demanded in the market increases; customers want more iron ore.

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About the Author

Steven Clark Steven Clark - the stand up guy on this site

My name is Steven Clark (aka nortypig) and I live in Southern Tasmania. I have an MBA (Specialisation) and a Bachelor of Computing from the University of Tasmania. I'm a photographer making pictures with film. A web developer for money. A business consultant for fun. A journalist on paper. Dreams of owning the World. Idea champion. Paradox. Life partner to Megan.

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