Bound to be wrong. The one thing to remember about the latest budget is that it is just that — a budget. Leave aside some of the figures about what should be spent in the 12 months from 1 July and the rest is nothing more than one big guesstimate.

All those figures about the size of the deficit in 2010-11, 2011-12, 2012-13 don’t actually mean anything. What actually happens is just as likely to be lower as higher — whether we look at the future estimates for revenue or spending, economic growth or anything else.

The only safe bet is that most of the figuring will turn out to be wrong.

The risk for Australia from Europe. All those rosy forecasts in last night’s Australian budget are predicated on what is happening to the financial system in Europe being, as Wayne Swan described it, simply aftershocks of the world financial crisis — unsettling and annoying smaller versions of the real thing but not something that is going to disrupt our own recovery. Oh that it is so but there are good reasons to be more pessimistic than our Treasurer.

The more you look at what is happening in Europe the more it appears that the $US1 trillion pledged to help countries under stress is really all about saving the banks that have lent the countries the money they are having difficulty paying back. If the rescue plan does not work then banks will be going down the gurgler and the world banking system is again going to freeze. And the consequences of that are something that Australia will not escape.

Leading the sceptics are the Germans with these pieces from Der Spiegel giving the flavour of those who think that plenty can yet go wrong.

  • The rescue package has bought nothing but time: With the massive 750 billion euro rescue package, the European Union is hoping to reinvigorate the ailing euro. But not everyone thinks it can be done. German commentators on Tuesday voice their doubts.
  • The biggest poker game ever – Will the European debt package really work?: Germany’s cabinet has passed a draft law to provide for its portion of Europe’s 750 billion euro package to prop up the ailing currency. But will the fund work? Experts are warning that the side effects may be difficult to stomach.
  • The dangers of the Euro bailout: The euro has been rescued for the moment, but European politicians have thrown the foundations of Europe’s common currency overboard with their unprecedented bailout package. In the longer term, the dangers of the crisis can only increase, and the flood of billions of euros could also lead to inflation.

Go at the first opportunity. The Federal Opposition have picked on these uncertainties about future budget growth estimates and the potential spread of Europe’s problems as the weak links in the Wayne Swan budget but talk of things that maybe going to happen are hardly the stuff of a real fear campaign. And to the extent that voters take any notice of what Joe Hockey and Andrew Robb are saying the result more than likely will be to persuade the people that this is not the time to take a chance by changing the government.

For Labor the hope must be that the generally favourable response to the budget from press and pundits will be enough to reverse the popularity decline shown by the recent opinion polls. As soon as that appears to be the case Kevin Rudd should be calling his election.

A tiny little upturn. A rare bit of good news this morning for the trade union movement. Figures from the Australian Bureau of Statistics show that in August 2009, the proportion of employees, who were trade union members in their main job, increased from 19% in 2008 to 20%. This was an increase of 82,200 from the previous year — the first time the number has gone since the ABS started this particular collection.

12-05-2010 unionmembership

Data collected about trade union members in their main job for August 2009 also showed: 22% of full-time employees, and 15% of part-time employees were trade union members in their main job; 46% of public sector employees compared to 14% of private sector employees were trade union members in their main job; and

Tasmania had the highest proportion (26%), while the Australian Capital Territory had the lowest proportion (13%) of employees who were trade union members in their main job.

We haven’t got a clue really. Quite amazing testimony overnight in the United States by the Securities and Exchange Commission (SEC) Chairman Mary Schapiro before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. Ms Schapiro was reporting to the Congressmen on “the Severe Market Disruption on May 6, 2010” that saw stock market prices go down and up like a yo yo. In summary you could say of her evidence that no one has a clue as to what actually happened and why. Or, as she put it, “at this point, we are unable to point to a single event which could be the sole cause.”

What she did do is downplay the likelihood that the “Fat Finger” was to blame. There have been reports in the press, Ms Schapiro commented, about a “fat-finger” error where, it is hypothesized, an order of billions of shares was entered, rather than an intended order of millions of shares. “While we cannot yet definitely rule that possibility out, neither our review nor reviews by the relevant exchanges and market participants have uncovered such an error.”

Nor does it seem that trading in shares of Proctor & Gamble was to blame. Commenting pn reports that one or more exceptionally large orders in the stock of Proctor & Gamble may have preceded and helped to trigger the broader market decline, she said there does not appear to have been any prior unusual trading in Proctor & Gamble that would have triggered the broader market decline.

As to the focus on the role of the E-mini S&P 500 future in leading the market decline and recovery the SEC is concluding that to a great extent, this concern merely reflects a basic fact of market dynamics — much of the price discovery for the broader stock market occurs in the futures markets.

The involvement of hackers and terrorists is being downplayed with the SEC having not identified any information consistent with computer hacker or terrorist activity.

And so where does that leave all those theories about the efficiency of the market? Well, Ms Schapiro conclues that “ultimately, we may learn that the extraordinary disruption in trading, however it may have been triggered, was the result of a confluence of events which, taken together, exacerbated what already had been a down day and led to an extraordinarily steep price drop and recovery. However, we are not prepared at this time to draw that conclusion.”

Peter Fray

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