Update No. 34 – 20/11/11

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I talked last week about how globalisation, and in particular free-trade appear to be dragging more and more of our global citizens out of poverty.  The evidence empirically demonstrates that each passing year fewer people in both a proportionate and an absolute sense live in poverty. I have therefore a very strong attachment to the idea of free trade, and it is for this reason I found this article on the Institute of Public Affairs website so agreeable.  I should point out that the IPA are chiefly right-wing cheerleaders, but though they drift in that direction, there is still considerable merit in much of what is published on the site.  I point out the right-wing affiliation/tendency of IPA for much the same reason I denoted the leftist views of the sites I directed readers to in Update No. 31, I never wish to be seen to push a particular belief or set of beliefs.  I read widely on a variety of issues (chiefly related to economics/finance) in order to properly inform my view of the world and how it operates, for as Desiderius Erasmus said “In the land of the blind, the one-eyed man is king”, knowledge is power, I never limit my reading based on the ostensible ideology of the author, a good idea is good regardless of its source.

Back to free trade, and the basis of the IPA article linked above points out that whilst quasi-protectionists/free-trade skeptics such as Paul Howes, Tony Abbott and Barnaby Joyce take understandable umbrage at the effects for example of distortions such as the Chinese Government propping up inefficient/marginal state-owned enterprises with taxpayer funds.  The author rightly points out why we are the ultimate beneficiaries of these actions:

“China is a developing country. Yet it is taxing its citizens in order to prop up businesses, which then go sell their products below the market cost to rich countries. These subsidies are a direct wealth transfer from third-world taxpayers to first-world consumers.”

The obvious concern is that propped up/subsidised for long enough these businesses eventually cause competitors drop out of the marketplace and the subsidies can be removed.  What they probably don’t realise or consider though if this is the true aim, is that in a dynamic capitalist marketplace, if the subsidies were what squashed competitors; their removal will lead to inevitable new entrants.

I have also mentioned before the folly of the Chinese artificially holding down their currency.  This, in the short-term inevitably leads to better terms of trade (your exports are cheaper than they should be & imports correspondingly dearer than they should be), but will also lead to the Chinese government and citizens holding large quantities of foreign bonds/cash, which will at some point be worth less (not necessarily worthless) as you eventually can’t keep the currency suppressed.  The piper must always be paid, eventually – Tony Hansen 20/11/11.

	April 1st 2011	July 1st 2011	Current Price	Current Period	Since Inception
EGP Fund No. 1	1.00000	1.08396	0.97611	(-9.95%)	(-2.39%)
S&PASX200TR	35632.05	34200.68	31733.38	(-7.21%)	(-10.94%)
EGP 20	1000.00	883.67	801.18	(-9.33%)	(-19.98%)

EGP Fund No. 1 Pty Ltd. Down by 9.95%, lagging the benchmark by 2.74% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Down by 2.39%, leading the benchmark by 8.55% all-time (April 1^st 2011).

EGP 20.  The EGP20 index is Down by 9.33%, lagging the benchmark by 2.12% since July 1^st.  Since inception the EGP20 is Down by 19.98%, lagging the benchmark by 9.04% all-time (since April 1^st 2011).

S&PASX200TR  The benchmark index is Down by 7.21% since July 1^st. The benchmark is Down 10.94% all-time (since April 1^st 2011).

Full website: www.eternalgrowthpartners.com