Top StoriesMay’s sharp fall in jobless numbers added to the greenness of the ‘recovery’ (or less bad) thesis; overnight June’s unemployment figures were so awful that they could have stunted at least, the wavering shoots.
The reckless stimulus package we didn’t need
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In a credit constrained world where most sovereign states are having to put balance sheets on the line to save banking systems, what on earth is the Rudd Government doing blowing $10 billion in largely unproductive welfare payments? Isn’t this just feeding the debt-funded consumer culture that got the world into this mess? Now, more than ever, Australia needs a strong federal budget but, in the blink of an eye, we could be back in deficit in 2008-09. Crikey had some excellent links to quality commentary from around the world in the “Briefly Business” section yesterday and the overwhelming message was that the world has to start living within its means. That means everyone from the US government with $US10.2 trillion in public debt to an Australian pensioner maxing out their credit card. As a nation lumbered with $1 trillion of household debt, $620 billion in foreign debt and a current account deficit of $60 billion a year, we are far more highly leveraged than most of our Asian partners who learnt the savings message from the Asian economic crisis. Warren Buffett is getting plenty of coverage with this quote:
And so it is with Australia. What contingencies are in place if house prices plunge by 30%, our banks need to be recapitalised and the dollar crashes below US50c? The government only has $30 billion in foreign reserves, which is way below the Asian average, and has now recklessly distributed $10 billion before we really know the full implications of the meltdown. Whilst the solvency of the world’s major financial institutions has now been saved by governments around the world, the next phase of the crisis has to be a contraction of economic activity as the debtor nations repay their dues to the creditor nations. Witness the weak Pepsi profit last night and Intel’s gloomy forecast for the fourth quarter. The banks have been the first to pay the price in a massive transfer of value from their shareholders to the people who have defaulted, starting with those 3 million Americans who should never have been lent money to buy homes in the first place. However, with governments now stepping up to the plate, the game now shifts to the inevitable economic slowdown and the strength of public sector finances. Never before in peace time has the world seen such a sudden surge in public sector debt issuance, so why on earth should Australia join a very long queue in a crowded debt market by blowing $10 billion? Who would have thought Australia would come out of the biggest resources boom in history to be a nation back running twin deficits. And how long before the Federal government has to formally guarantee the $20 billion-plus that profligate state governments are planning to borrow this financial year? *Listen to yesterday’s financial crisis discussion with Deborah Cameron on 702 ABC Sydney. |
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11 Comments
Thank you Crikey and Stephen Mayne. It is broad ranging, sensible analysis such as this that will keep me subscribing to Crikey.
This policy is economic madness. They are essentially trying to encourage Australians to take on more debt at the most uncertain economic times in modern history. How can this end well for anyone?
The Baltic Dry Index has crashed recently. That is the main indicator of iron ore and coal shipping. If it continues to fall, Australia’s economy is in deep trouble.
I think Stephen is both right and wrong in his assessment here. From what I can see, Kevin Rudd is throwing 10 billion at us in the hope that it will stop the Australian economy from heading into recession.
He is right in that Kevin Rudd is moving too quickly. We might be heading to recession regardless of anything he does now. However, there is nothing wrong with Fiscal Policy. It just should happen to stimulate the economy after a down turn, not to prevent one that may or may not occur. While in medicine, prevention is better than cure, sometimes its better to catch the cold and get over it than wait for the killer flu.
Yep, grade A bullshit. Extending the first home buyers grant - wtf?
Okay, pernsioners need a top-up. But surely we also REALLY need to spend on infrastructre - staff that will actually ensure some kind of future?
Nah, house prices ALWAYS go up.
Simon
Good commentary from Mayne..Keith
Spot-on Mr Mayne! Why would Rudd do such a stupid thing? Because he can.
First, the surplus is simply the amount of money that we were over-taxed. Give it back so we can reduce the interest we pay to banks by reducing our debt! Alternatively, if we do spend it on goods and services from companies, the GST immediately returns 10% to the ATO. Of the remaining 90%, let’s say half goes to PAYE employees - of which about 1/3 goes immediately back to the ATO. Let’s say the goods and service providers make a profit before tax of about 25% - of which 1/3 sooner or later goes back to the ATO. Confused? So am I, but the fact is that the money being pumped out of the government’s coffers will help to make the world go round, and the nett effect on the budget will be much less than the initial amount. Read J K Galbraith’s “The Age of Uncertainty” and the need to keep the money moving.
The schoolboy economic analysis by Mick, Michael & Graeme L. do nothing for this discussion. At least Scott & Robert Molyneaux provide the basis for their views, whether you agree with them or not.
I sense these naysayers’ team lost the last election & they’re not EVER going to get used to it. All I can say is ’ thank the cosmos’ that the coward Howard is not in charge at this time of need for dynamic leadership.
As for Stephen Mayne’s predictions, we’ll wait & see if he’s got it right. …or even half right.
Dear Stephen, I bet you haven’t ever been forced onto relying on the “largesse” of welfare, have you?
Sorry Kevin Charles Herbert, I’m a Labor voter, always have been. Kevin Rudd’s policies this time are a case of ‘WWJHD?’
Mick#2: what does WWHJD mean?
It is another 10 billion dollars of inflation which we don’t need at the present time when markets are trying to find their own level. This will just skew the market. A better strategy would be to provide a fair pension (to those who qualify) on a permanent basis.
Markets go up and down with a slight upward trend. Everybody has made really good money in the last five years in housing, on stock markets, in art, on wages, and we have been able to buy consumer goods at cheaper and cheaper prices (complements of our trade with China). Why are we complaining when the market stalls for a few months/years to correct?