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Title: Facing a crisis we did not create (Australia)
Source:
The Australian
URL Source: http://www.theaustralian.news.com.a ... 0,25197,25018283-16741,00.html
Published: Feb 7, 2009
Author: editorial
Post Date: 2009-02-06 21:57:25 by X-15
Keywords: None
Views: 96
Comments: 3
NOTHING Australia can do will end the global financial disaster. The challenge is to reduce the damage it does CONSIDERED in the context of the international situation, the Rudd Government's economic stimulus package looks less impressive. And Malcolm Turnbull obviously does not have any comprehensive answers. For all the pseudo-certainty with which both sides are arguing their case, the brutal truth is that neither Kevin Rudd nor the Opposition Leader knows what will happen to the world economy in the short term. Nor does either of them have a sure-fire solution to insulate Australia against the crisis. If the Government is right, cash giveaways and programs to employ people putting pink bats in roofs and improving schools will reduce the rate of growth in unemployment. But they will not kick-start lending by banks in London and Toyko, Washington and Beijing. Nor will tax cuts and capital works spending. When the tide of global economic activity turns, when US consumers return to the mall to buy Chinese-made goods, economies all over the world, including ours, will pick up. But no one knows when this will happen. Even with the Prime Minister's big spending announcement it was a hard week for economic optimists. At home, retailers reported falling sales and corporations announced capital raisings to cover bad debts and worse investments. And if the world's major economies are not in freefall, they are enduring something close to it, with unemployment rising as fast as business is shrinking. The US shrank at an annualised rate of 4 per cent in the last quarter of last year. And of the 130million Chinese workers who leave home to find jobs, at least 20million are now unemployed. The British economy is expected to experience its deepest slump since World War II in 2009. And the core of the crisis, the freeze in global credit, shows no sign of a lasting thaw. In the past six months, the impact of years of bad lending practices by banks, and of corporations taking advantage of low interest rates to pay too much for assets, has been hard. In the US, theeight biggest banks are worth $US418billion ($646million) less than they were four months ago. It is a sum that far exceeds Washington's $US300 billion bailout, and there are warnings of more more bad debts to come. One estimate puts the capital that US banks will need to raise to stave off bankruptcy at $US1.4 trillion, more than President Barack Obama's proposed $US900 billion stimulus package, which is intended to refloat the entire economy. Given the size of these losses, it is hard to imagine how banks overseas will resume lending to even the safest and most productive businesses for many months to come. And with banks in the US and Britain now answering to government, there is a risk their effective owners will order them to withdraw from the Australian market, to lend money only at home. This makes a strong case for Canberra's plan to become a lender of last resort for solid commercial property projects that lose foreign bank backing. The government guarantee for bank deposits up to $1 million has also helped local lenders stay secure, albeit at the cost of forcing deposit-taking institutions not covered by the guarantee to ban capital withdrawals. But even though Australia's big four banks are stable, until money begins to flow through the arteries of commerce the global economy cannot recover. Inevitably, this includes Australia. Given the way we are caught in a global crisis that dwarfs our economy, only the most obdurate of optimists can believe the Government's stimulus package will save us from recession. Nor is there any guarantee all its elements are correct, with economists divided on whether giving $12.7 billion in cash payments to low- and middle-income earners is the best way to stop spending seizing up. Certainly, the $8.7billion Christmas cash splash helped December retail sales rise by 3.8 per cent. But the way Mr Rudd is telling us how terrible things are going to get will not encourage millions of people to spend the $950 they are set to receive. Sugar hits also wear off. Although tax cuts take longer to work their way through the system, they give people more control over their own money, especially the confidence to make long-term spending commitments. There is nothing in the present crisis that challenges The Weekend Australian's belief that allowing people to spend their own money is superior to the state taking it in taxes and then giving some back. The case for spending $28.8 billion on make-work projects is equally arguable. Every school in the country will benefit from new facilities, or repairs to existing ones, and roads across the country will be safer. If you do not have insulation in your roof, the Government will install it for free, at a cost to the taxpayer of $3.9 billion. Mr Rudd's strategy is to put people to work almost immediately, on socially useful projects, to try to stop unemployment exceeding an anticipated increase of 300,000 by the middle of next year. And there is also spending on long-term infrastructure to come from the Government's $26 billion Building Australia fund. But the nearly $30 billion announced this week is an extraordinary amount to spend on projects that will add nothing much to GDP, when Australia lacks decent roads and railways between capital cities and ports. Treasury secretary Ken Henry says the stimulus package is on the money, if the economy is to avoid recession. Reserve Bank board member Warwick McKibbin says the package is too much, too soon, and suggests more infrastructure spending than cash handouts. Given the way Mr Rudd and Wayne Swan appear at times to be on the point of panic as they grapple with their first major crisis, they were always going to go in hard. But Mr Turnbull is right to question the size of the stimulus and its strategy, and to protest at the way the Government has wanted to push it through parliament without the detail being debated. Mr Rudd argues in a new essay that the global financial crisis means government must save capitalism from itself. He is wrong. Only the free-market economy can produce the profits and generate the jobs that are the lifeblood of all economies. But he is right to be working hard to reduce the impact of the crisis, to show us we can get through the slump. He would do an even better job if he stopped telling us how terrible everything is going to get, before most of us have felt the impact of the economic crunch. As Yale University economist Robert Shiller, who predicted the crisis in credit markets, said on ABC TV's Lateline during the week: "The real issue is how we can restore confidence. We have to get people back to doing the normal kind of things they do in a normal economy." Before the last election, Peter Costello warned there would be a financial tsunami if China's economy slowed, and now it is approaching our shores. There is nothing anybody can do to stop it. The challenge for Mr Rudd is to pile up the sandbags to stop us getting too wet, but not too many sandbags -- particularly those filled with public money.
Poster Comment: Bold type to highlight the similarities to our stimulus bill. Has anybody else been keeping up on the Australian version of the Obama stimulus bill? I didn't even know they had one in the works.
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#1. To: X-15 (#0)
I was in eastern Australia this time one year ago, and it was a boom time. Things were very expensive for a USD holder. China was buying anything A could dig out of their ground. Newcastle was the largest coal exporting port on the globe - most to China. I knew that something was out of wack when I looked at the real estate - prices for shacks a couple of blocks from the beach in backwater towns with no real economy that I could discern were just extravagant. $480,000 for a run down shack of maybe 1600 ft^2 in a area prone to flooding in a swamp. I am not happy to be proved right, and I certainly didn't think it would happen with such dynamic, but Australia is going to be creamed. Don't know how many UGG shoes the Americans are going to be buying for $35 in the next few Q's. Quanta is emailing me with offers to fly LAX to Sidney for --------------------------------------$760 USD RT!
"Satan / Cheney in "08" Holy shit!! Effin' cheap!!!
_________________________________________________________________________ Yeh, its $400 for a domestic flight from COS to Lake Charles RT. I think I saw a $170 RT to LAX from COS (Colorado Springs). So From COS to Sidney for under a grand. RT. Guess I am going to do this soon.
"Satan / Cheney in "08" 
#2. To: tom007 (#1)
Quanta is emailing me with offers to fly LAX to Sidney for --------------------------------------$760 USD RT!
"This man is Jesus,” shouted one man, spilling his Guinness as Barack Obama began his inaugural address. “When will he come to Kenya to save us?”
-Schweizerische Schuetzenzeitung (Swiss Shooting Federation) April, 1941
#3. To: X-15 (#2)
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