Tis the season full of worry – Economy XXIII

The fallout from the GFC continues.

  • Overnight the world’s largest car manufacturer, Toyota, announced their first ever operating loss.
  • America’s property developers are asking to be included in a new $200 billion loan facility.
  • Stock markets continue to fall, but on the good side, the volumes seem low which exagerate the movements (both up and down)

Meanwhile – the retailers in Australia seem to be weathering the storm quite well. I heard last night that it looks like they will match last years sales figures.

From a personal POV, more friends have been let go from some of the big insurers in Sydney. Again – they are people on 457 visas – so it will not be reflected in the unemployment figures.

I think that the tide is still going out, let’s just hope that those still in the surf still have their swimmers on, otherwise it is not going to be pretty.

joni

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22 Responses

  1. So Toyota is going to make a loss because they did not read the market, well in business, thems are the breaks…I wonder where the seventy million went that the state and federal government gave them, or have they not received it yet.

    Now the US property developers want a two hundred billion loan assistance package to keep them financially buoyant…developers are greedy parasites that really produce nothing the land pimps and I’m sure they are not innocent in all this…let them sink I say so the next generation of developers can come into the market!

    If the market continues to shrink in the US car industry what will all the money being thrown at Detroit do to save jobs…and if GM goes down the gurgler what happens to all the money that our wise leader gave them to develop a car that will use more fuel and pollute more than my wife’s three year old Holden Cruze.

    Meanwhile it is business as usual for most businesses that had nothing to do with this mess and if they get into trouble no government bails them out so why are others considered more precious???

    I say let them crash and burn so more efficient players emerge from the ashes as that is the law of the jungle and when governments interfere they upset the natural balance which always does more harm than good.

    The stock market will recover over time…the market was over valued anyway and the correction was going to come at some time.

    I refuse to worry or panic about next year as it is the cycle and in years to come it will happen all over again because no lessons will be learnt.

  2. scaper

    I think that Holden will continue no matter what happens to GM.

    Although much of Holdens market is GM, I still think that they have enough other markets to keep them going, not as robustly as now, but still enough to sustain them.

    And the piddly amount of money (in manufacturingterms) being supplied is pure tokenism, a sign that the government is there to help out, nothing more. Somebody recently told me that it would cost around $15 billion to re-tool the lines for a new model, not including research and development.

  3. Sir John Gieve’s seems to have been hit with a blinding ‘flash’ of commonsense. Maybe our Governor will get hit with the same lightening bolt?

    We got it wrong: UK central banker

    THE Bank of England’s dputy governor for financial stability has admitted that the central lender failed to grasp the full scale of Britain’s economic problems before the current financial crisis erupted.

    In an edition of the Panorama current affairs television program, Sir John Gieve said the central bank was aware that a bubble was developing in the housing market, as well as in the price of other assets, and that it was being fuelled by “crazy borrowing”.

    However, it failed to comprehend how serious the problem really was and what the implications would be for the rest of the economy.

    Sir John, who is a member of the BoE’s rate-setting Monetary Policy Committee, also criticised the central bank’s policy of relying too heavily on interest rates to control conditions in the banking sector, saying that they were a “blunt instrument”.

    “We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy… and individual supervision and regulation of individual banks,” he said.

    “We need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand.”

    Sir John, who will step down next year to be replaced by Paul Tucker, claimed that if the BoE had lifted interest rates earlier to rein in the asset price boom, it would have depressed activity in the rest of the economy.”

  4. I find this hard to disagree with: Commenting on the build-up to the crisis, Gurria said there had been “a truly scandalous failure of regulation … and supervision”, and poor risk management and corporate governance by companies.

    World jobless could hit 25 million

    December 23, 2008 – 6:49AM

    The global economic crisis will push up unemployment by up to 25 million by 2010, the OECD chief has forecast, saying there has been a “truly scandalous failure” of regulatory supervision.
    “We’re heading for a loss of between eight and 10 million jobs in the OECD area … and 20 to 25 million in the world as a whole between now and 2010,” Angel Gurria said on France’s BFM radi.

    The International Labour Organisation earlier forecast that the number of global unemployed could go up by 20 million to reach a record high point of 210 million people by the end of 2009.

    The Organisation for Economic Cooperation and Development in Paris brings together 30 countries, including all the world’s industrialised economies. The group conducts research and publishes economic forecasts.

    Gurria also said that European countries should spend more in stimulus plans to kickstart their economies and suggested that the European Central Bank should lower interest rates because of falling inflation.

    The European Union should “go beyond” the fiscal stimulus plans already announced, equivalent to around 1.4% of GDP, since “all the other major countries are going beyond that”, Gurria said.

    He also said that the OECD economies were in recession in the current quarter and would remain so for at least the first two quarters of 2009, with many countries being in recession for most of 2009.

    “We predict a recovery at the end of 2009 and weak growth in 2010” he said.

    Commenting on the build-up to the crisis, Gurria said there had been “a truly scandalous failure of regulation … and supervision”, and poor risk management and corporate governance by companies.

  5. Interesting Tom R…so if it takes fifteen billion to retool and more for R&D then how many decades of sales will there be just to recoup the outlay?

    Will diesel, LPG, petrol in plentiful supply then?

    Did not GM produce an electric car then crushed the lot not long ago???

    This just like my comment by the water cooler…we have a government who says we should move away from fossil fuels but then turns around and supports a vehicle that only offers a marginal fuel economy and pollution reduction.

    I prefer to move away from fossil fuel myself and would have expected the government to do the same as that was part of their policy platform or was it a misunderstanding of one of the PM’s cliches???

  6. “We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy… and individual supervision and regulation of individual banks,” he said.

    “We need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand.” 3. John McPhilbin

    They need to get out of their ivory towers and let people out of the “circle” run the show – Sir John has just realised this, hey?

    =================================
    This throwing of money around to maintain business reminds me of the $1 million grant to keep Kodak (film & photograph developing) going in Melbourne (in the 70’s if memory serves) – just before the digital camera revolution – never let a politician run your business – however, its a shame we don’t have honest business people running the government!

  7. Shit TB I would never let a business person run government. In my mind they both are mutually exclusive.

    Turnbull is a businessman as are many others in government, some successful many not.

  8. “the retailers in Australia seem to be weathering the storm quite well. I heard last night that it looks like they will match last years sales figures.”

    That was the story on the TV last night in Brisbane. Some were even suggesting that Saturday’s trade was up 4% on last year. But we will have to wait and see until the official figure are released.

    As for:

    “when governments interfere they upset the natural balance which always does more harm than good.”

    Always does more harm than good? ‘Natural balance”? Perhaps someone should have told Franklin D. Roosevelt and his New Deal which saw massive government intervention. Does one have to be reminded that Franklin D. Roosevelt is the only President to be elected for four terms?

    Perhaps someone should tell Obama who proposes his own first one hundred days. Perhaps someone should tell the current world leaders who are proposing more regulation of the finance industry.

    Sorry, the days where government simply watch from the sidelines are going rapidly if not already gone. As Arianna Huffington says in today’s Huffington Post: ” Laissez Faire Capitalism Should Be as Dead as Soviet Communism”.

    More here http://www.huffingtonpost.com/

    “also the correct response to anyone who continues to make the case that markets do best when left alone. “

  9. They need to get out of their ivory towers and let people out of the “circle” run the show – Sir John has just realised this, hey?

    It’s absolutely astounding that people like Sir John now understand why preventing bubbles is much better that having to find a cure when they do burst.

    It’ll happen again though, the same defects that were evident in 1929 seem timeless :

    “Even in such a time of madness as the late twenties, a great many man in Wall Street remained quite sane. But they also remained very quiet. The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them.”

    …now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound.”

    J.K Galbraith

  10. Adrian, Turnbull is not a businessman, he is what is called a corporate cowboy, akin to real estate agent and second hand car dealer.

    A businessman would not pump money into a demonstratable failure, a politician is a different story.

    Was not Turnbull involved with funding a rain making scheme???

  11. Scaper

    I think the auto-industry is a money-pit which will swallow bail-out funds and still collape.

    Weak sales could topple US carmakers despite bailout

    “With a massive government bailout secured, US automakers are focused on a far bigger threat than empty coffers: empty showrooms and spooked consumers.

    The US auto industry dodged almost certain collapse last week when the government extended 13.4 billion US dollars in loans to cash-strapped General Motors and Chrysler. The plan could include an additional four billion US dollars from February for GM pending congressional action.

    But analysts warn it could be a temporary reprieve unless sales improve soon.

    And few predict sales will increase without significant government help as the United States slips deeper into its worst financial crisis since the Great Depression”

  12. Christmas sales may be steady, but what’s the bet everybody’s charging it all to credit cards.

    Meanwhile the banks continue to raise the interest rates on credit cards despite rates falling considerably.

    I think there are going to be a whole heap of people in fanancial trouble in the new year – defaulting on credit cards, defaulting on home loan repayments.

    It is the most vulnerable in society that get lured by offers of cheap introductory credit along the lines of the Hardly Normal lines.

    Gerry Harvey is a man of no ethics to prey upon these people.

  13. Yes scaper, it sounded like a lot of money to me too, I am not certain of the veracity of the statement, but it would explain why major model modifications are not done lightly.

    I think the move from fossil fuels is going to be a slow and, sometimes, painful excercise.

    We should have been doing this 20 years ago, but inertia is so much easier.

    The entire worlds economy is tied to the automobile, and turning that around is going to be harder than steering the Titanic. Is is going to be very gradual.

    Modifying peoples ideals is going to be the first step, the car makers will follow the trends. Holdens large six cylinders were selling well a year ago. Times are changing quickly, and, personally, I think that Holden have moved fairly quickly on this (considering the r&d that goes into these things)

  14. Reb, you have something there…I went on a strategically planned and executed xmas shopping mission this morning and did not see much cash or debit cards getting flashed at the sales counters, maybe because of the message getting out there of spend, spend and spend that has been prevalent in the last few weeks opposed to don’t spend six months ago.

  15. Doom and gloom makes headlines. A couple of begrudging remarks about retail in Australia being about the same as last year.

    The post New Year stats will be interesting. It seems shonky business/get rich quick schemes down the tube but that the good old Australian public just keep choofin’.

  16. Scaper,

    I think it’s all part of the “she’ll be right” attitude. Buy now (on credit) and worry about paying for it later.

    The funny thing is, whenever you go on a credit card spending spree, it doesnn’t actually feel like you’re spending cold hard cash.

    I think if people were handing over wads of fifty dollar notes at the registers rather than a piece of plastic – they might be a little more cautious…

  17. Min, Scaper,

    I once had a mate who racked up $10,000 on his credit card, it was almost impossible to eliminate the debt. I think the minimum monthly repayment was about $500.

    And of course, just paying the minimum really gets you nowhere. And he was earning reasonable money too.

    Eventually he toook out equity in his home to pay off the CC debt, which was the smart solution, but stupid to get into that situation in the first place.

    And as scaper mentioned recently, we have the CC companies gleefully offering people unsolicited credit limits of 10,000, 25,000 and 50,000 dollars.

    What hope do these people have, that get sucked into racking up that much debt on 17% interest (or more – when it comes to Harvey Norman).

  18. Reb, I do not have any credit cards for that reason alone…Mrs scaper has one to buy things like Cold Play concert tickets and to book a hotel room with a grand view of the fireworks on new years eve but that was because cash is a hastle and we would have missed out.

    She pays it out monthly and that is how they should be used…if people want to buy stuff to the tune of thousands of dollars than I recommend they either save for such or get a bank loan where you know the total interest paid and how much needed for repayments.

  19. 7. Adrian of Nowra

    Ever wondered why they are in politics?

  20. And i just got an offer from my bank to up my credit limit on my card to a silly amount. I declined.

  21. “I do not have any credit cards for that reason alone…Mrs scaper has one to buy things like Cold Play concert tickets

    Lucky bastards, that’s one concert I’d like to see!

  22. Agreed Scaper.

    I have a credit card, but clear the debt entirely at the end of each month.

    It’s convenient for things like travelling, hotels and large ticket items. And I get free travel insurance if I pay by CC.

    But I’d slit my own wrists before ever entering into one of Harvey Norman’s “No interest, no deposit, no repayments until 2012” schemes.

    I think the interest rate is around 27% for those. And let’s say you miss your first repayment due in 2012 – the interest rate is calculated back to when you first purchased the item today – four years prior!! Sheer bloody madness!!

    And the ***t has the cheek to cry poor on TV that he’s worried about not having any money. The f**king w@nker!

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