Recession Obsession II

Economic data to be released today will indicate whether Australia is technically in or approaching recession.

However, the RBA’s decision to leave interest rates on hold suggests that things may not be as bad as we’ve been led to believe.

ANZ’s Mr Hogan predicts today’s GDP to be essentially flat. Not great when you look at Australia’s average of 0.75-0.8 growth per quarter, but not too bad compared to many other economies.

“Negative GDP suggests the economy is shrinking,” says Mr Hogan. “It would be seen as the first leg of a technical recession, which is defined as two consecutive quarters of negative growth.”

CommSec’s Mr Sebastian expects 0.4 per cent growth.

“Now keep in mind virtually all advanced economies around the globe have had negative growth or are in recession. What that says about Australia is we stand far apart from our global peers,” he said.

The data is likely to show rural sector is doing well, because a low dollar means their products sell cheaply overseas.

“So you’ve got this massive global economy shrinking, but Australia managed to hold their slice of the pie because of a weaker Australian dollar,”says Mr Sebastian.

In terms on unemployment, a positive figure today would mean that job cuts may not be as bad as Australian workers are bracing for.

“Unemployment will rise, but it will be a steady crawl instead of massive job shedding,” says Mr Sebastian.

“If you just get a steady crawl in unemployment we will see a period of steady economic slowdown, but not the steady contraction we’ve seen overseas.”

Turning to interest rates, Australia has had some of the highest interest rates in the world, which gives the RBA more leeway to stimulate the economy down the track. But positive data on housing and retail sales mean the RBA is taking a wait and see approach.

“A strong GDP result means the RBA will not have to cut significantly. We’re actually forecasting a 2.5 per cent cash rate low,” says Mr Sebastian.

“Certainly further cuts are on their way, we’re not out of the woods yet but we’re not going to see the substantial rate cuts we’ve seen of 1 per cent.”

Despite the pessimism constantly touted in mainstream media, Mr Sebastian believes recession ‘could be avoided.’

“Retail sales in December alone were the best results we had since the Sydney Olympics,” says Mr Sebastian.

“So consumers were out there on a spending spree, and they weren’t buying consumables. It was big ticket items like the plasma screen, or furniture.”

All that spending is one reason the Reserve Bank kept interest rates steady yesterday, he says.

“They looked at the result and said ‘you know, things aren’t as bad as we’ve made them out to be.”

If Australia can avoid slipping backwards on economic growth, we may be able to avoid a recession, says Mr Sebastian.

“It’s likely with further stimulus and further interest rate cuts, Australia may get out of this particularly global meltdown with a slowdown rather than a recession.”

So it appears that things may not be as bad as we have been led to believe. I guess we’ll find out later today when the figures are released.

If they are not as dire as predicted then this will equate to an overwhelming endorsement of the Government’s handling of the crisis.

Perhaps, “The World’s Greatest Treasurer” will need to hand over the tiara.

Regardless of the outcome, the spin from both sides, as usual, should be entertaining…

UPDATE: THE FIGURES ARE OUT….

The Australian economy contracted in the final three months of last year, surprising analysts and suggesting the nation will enter a recession this year, triggering more job losses. The Australian dollar sank on the news.

Gross domestic product growth for the fourth quarter dipped 0.5%, the Australian Bureau of Statistics said, following a 0.1% rise in the third quarter. Analysts surveyed by Bloomberg expected the economy to grow by 0.2% in the fourth quarter.

In a report just in from SMH...

”This is inevitably the first quarter of Australia’s recession, that it’s currently in,” said Matt Robinson of Moody’s Economy.com.

”It makes a mockery of the comment from RBA yesterday that Australia hasn’t seen the sizeable contraction in demand that other economies have seen.”

Excluding the farm sector, the economy shrank by 0.8% alone. The main drags on the economy were a slump in manufacturing, which lopped 0.5 percentage points off the quarterly growth rate, while property and services subtracted 0.3 percentage points.

For the year, the economy expanded 0.3%, less than expectations of a 1.2% increase according to a Bloomberg survey.

The poor national accounts figures come one day after the Reserve Bank justified a decision to leave interest rates unchanged in part because the economy had not “experienced the sort of large contraction seen elsewhere.”

Macquarie senior economist Brian Redican said there were surprises in today’s release with consumption and investment weaker than partial indicators suggested, and suggesting the RBA will have to take out its rate axe again.

”It’s a bit of a dog’s breakfast,” he said

”The RBA must be very confident that spending is holding up better than all the surveys suggest, but that’s a big risk. A cut of 50 basis points next month has to be a good bet now.”

The RBA decided to hold rates steady at a 1964 low, citing the strength of the Australian financial system and the flow-through effects of the 4 percentage points in cuts already made since September.

The Australian dollar fell on the announcement, dropping almost one US cent to 62.93 US cents in recent trade, down from 63.86 US cents. Stocks were also weakened, with the main indexes retreating to be about 2.2% lower for the day.

The December quarter was the weakest since the final three months of 2000, when the introduction of the GST distorted the economy and produced a 0.9% contraction.

Australia’s unemployment rate is now running at about 4.8%, a tally that’s set to rise in coming months as companies shed workers to remain in business.

In the past week, firms have announced thousands of job cuts, including at Pacific Brands, Robert Bosch, and Lend Lease.

”For all intents and purposes, today’s data confirms the Australian economy is indeed in recession,” said Macquarie interest rate strategist Rory Robertson. ”The good news is that the recession here is substantially smaller than the US, UK and elsewhere. But the next year or two are going to be a difficult time for the Australian economy.”

Australia is yet to enter a ”technical recession” – considered to be two straight quarters of shrinkage – because the third quarter of last year remained in positive territory. The meagre 0.1% growth for the period was left unrevised by the ABS. The bureau did chip away at the September quarter’s annualised growth figure, lowering it to 1.8% from 1.9%.

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117 Responses

  1. Keep that paper bag handy reb

  2. ….it’s all over ‘red rover’ we’re doomed (wink)

  3. Teetering on the edge?

    Stevens wants to keep something in reserve
    http://business.smh.com.au/business/stevens-wants-to-keep-something-in-reserve-20090303-8nhm.html
    ” While consumers and business alike were hoping that the Reserve Bank would slice something from our official interest rates and the financial markets were betting on it, governor Glenn Stevens decided there were enough positive signs of resilience in the Australian economy to keep rates on hold and keep his powder dry for a while.

    Only history will decide whether this was a good call. It was certainly a controversial one yesterday as it was announced less than a day after European markets were in freefall and US markets had plummeted by 4.6 per cent on the back of the fourth financial bail-out call for the US insurer AIG.

    World markets have reached new levels of ugly over the past 36 hours and in early trading yesterday the Australian market was also looking pretty fragile.”

  4. Oh, bollocks, you’re pranking again reb

    Treasurer Wayne Swan admits economy going backwards
    http://www.news.com.au/dailytelegraph/money/story/0,26860,25128787-5015795,00.html
    THE Government yesterday prepared Australians for “dramatic” news that the economy was wrenched into reverse at the end of last year and is now likely to plunge into recession.

    Official figures to be released tomorrow are expected to reveal our economy went backwards by as much as one per cent in the last three months of 2008, its first quarter of negative growth in seven years.

    Treasurer Wayne Swan said recession among seven of our top trading partners was dragging down Australia’s performance.

    “There’s no doubt there’ll be dramatic impact on growth in the December quarter from what has occurred around the globe,” Mr Swan said.

    A negative December figure and a further quarter of negative growth for the March quarter would mean Australia was officially in recession.

    That scenario is almost certain, Australia’s leading economists now believe, with ANZ predicting every quarter in 2009 to backtrack.

    Economists were sent scrambling for erasers yesterday upon the release of the latest economic data which showed corporate profit fell 6.5 per cent in the December quarter.

    The profit slump, combined with a dramatic cut back in business stockpiling, forced many to alter their December quarter GDP estimates from zero growth to as much as one per cent negative growth.

    JP Morgan chief economist Helen Kevans told The Daily Telegraph the economy was in worse shape than previously thought.

    “It is pretty dire and a lot worse than expected. So we are now tipping a technical recession, kicking off with a negative quarter of growth in December and then (also in) the first quarter of 2009,” she said.

  5. Even the Opposition Oracle has this to say:

    “Regardless of whether they show a small increase or a fall in gross domestic product, economists believe Australia will have achieved one of the best economic performances in the world over the December quarter when the official figures are published this morning.”

    “This will be the result of the massive stimulus provided by the Rudd Government’s cash handouts, the Reserve Bank’s interest rate cuts and the plunge in the value of the Australian dollar.”

  6. sreb, I read this too and then reread it – its all about playing with words…if our major trading partners can’t/won’t buy our products and services…its pretty easy from there…even the corner shop owners know that if the door bell doesn’t ring you soon run out of money…

    The data is likely to show rural sector is doing well, because a low dollar means their products sell cheaply overseas.

    Three words – floods, droughts, fires – limit our ability to produce agricultural products…you must watch more TV…

    “Unemployment will rise, but it will be a steady crawl instead of massive job shedding,” says Mr Sebastian.

    Slow and painful instead of quick and painful…I know what I would prefer…a rise is still a rise…(shouldn’t it be that the number of people in employment goes down?)

    “If you just get a steady crawl in unemployment we will see a period of steady economic slowdown, but not the steady contraction we’ve seen overseas.”

    Meanings:

    Recession
    Some say he’s the Stig (oops) – some say that recession is three Q of economic loss not two…some say…yeah…we’re in trouble…

    Negative growth:
    Financial nonsense jargon (how can you grow negatively)

    Economic contraction http://en.wikipedia.org/wiki/Economic_contraction

    Economic slowdown
    MMMMMM…

    Still its all about your perspective – some people were complaining bitterly on News.com yesterday because the interest rates hadn’t gone down – from 3.25%! FFS! – and they were relying on that to make their next house payment.

    Now, which generation is subsidising which again? 😯

  7. TB

    It’s all about praying for a soft landing. Easy as she goes now. Don’t want a major panic on our hands…we didn’t see this coming…?

  8. John McPhilbin, on March 4th, 2009 at 11:52 am

    Take two aspirin and lie down. If the syptoms persist call your financial advisor. 😀

  9. Reb

    I do think that the Government have done the best they can. I can’t really find fault despite disagreeing with the first-homebuyers grants (dangerous stuff). At least they have the opposition sucking eggs.

  10. That’s – symptoms – if the financial boffins can make up words so can I…

    “Syptom” – a fear of accepting or recognising financial, historic or political truths…

    😆

  11. So it appears that things may not be as bad as we have been led to believe.

    NO!!! IT’S WORSE!!! We’re all doomed …

    We’re all going to be BROKE and down to our last grain of rice and then global warming will BURN us all to cinders and then the rising SEAS will put the flames out and we won’t be able to swim to shore to save ourselves because we’re all OBESE and we all drink too much and you can’t swim when you’re DRUNK and then we’ll be attacked by SHARKS who hate us and if there are any survivors they’ll all gather in the same place but they’ll be OBESE too and that will tip the earth off it’s AXIS and send us hurtling into the SUN but before we get there an ASTEROID will smash into us and send us back into the proper orbit but it will be too LATE because religious FUNDAMENTALISTS will have taken over by then and they’ll force us to eat FALAFELS made from POPPY SEEDS and worship WINNIE the POOH!

    Makes perfect sense when you think about it. Now … where’d I put my tinfoil?

  12. TB

    Take two aspirin and lie down. If the syptoms persist call your financial advisor. 😀

    I can hear them now, “interest rates have never been lower, stocks are a screaming bargain…, bricks and mortar perhaps? I’m so glad you came 😀 What do you mean you want all your money back?

  13. Ross Sharp, on March 4th, 2009 at 11:57 am Said:

    Sharpie! for God Sake MAN!, stop stealing my lines (wink)

  14. Reb

    How many people do you have sitting on that fence of yours?

  15. Ross

    I like the bit about drinksh…that sort of negates the rest of the story…

    …is it true BTW?

  16. sreb, you may have syptoms

    This just in…

    http://www.news.com.au/business/story/0,27753,25136994-462,00.html

  17. What did I say?

    I finally come out to play and everyone buggers off!

    Oh! Well some one has to build the railway…

  18. I’ve got to say reb over the last couple of days I’ve been thinking ‘well maybe reb is right, maybe it is all just a hoax’ then you follow up with ‘this was a minor hiccup’. You’re making all of this up as you go along aren’t you reb?

  19. Fellow Comrades,

    MODERATOR MODE:
    Completely off topic John. Save it for Midweek Mayhem…

  20. TB:

    Now, which generation is subsidising which again?

    Interesting comment. Please explain….

  21. John McPhilbin, on March 4th, 2009 at 12:25 pm Said:

    Fellow Comrades,

    MODERATOR MODE: Completely off topic John. Save it for Midweek Mayhem

    Off topic?

  22. oh…I get it now reb it’s a fantasy piece right?. I almost forgot what this post was about. Apologies.

  23. You’re making all of this up as you go along aren’t you reb?

    Of course. “Consistency is the last refuge of the unimaginative..”

  24. ….I knew it …I knew it…

  25. How about this headline: “The economy grinds to a halt” by John Durie in the Australian?

    http://www.theaustralian.news.com.au/business/story/0,28124,25137528-5013408,00.html

    Excuse me if I am mistaken. Doesn’t “grind to a halt” mean actually STOP? You know, no economy at all? Nada, nil, finito? GDP = $0.00

    In my simple way of understanding things, GDP growth has plateaued. The economy has simply failed to continue growing. That is, we are doing roughly the same as last year, minus a wee bit in the December quarter. But near as dammit to roughly the same activity level in the economy, overall.

    We might as well say that “the child has died”, when its growth spurt plateaus for a while. Wouldn’t that be a bit OTT? Better headlines though…

  26. I have a small problem with this business of Aussies spending their money on goods from China (plasma TV’s etc) and our debt being essentially met by foreign investment (probably also largely by the Chinese).

    The Rudd government exhorts people to go out and spend their money, so that the GDP figures can keep growing. Perhaps we should be spending on items made in Australia by Aussie firms?

    I know, I know – the economists remind us of the trade barriers erected by the US before the Great Depression, which caused retaliatory barriers and shut down world trade. Everyone lost. The Rudd government is running the same line, about no trade barriers. Totally agree. No trade barriers. I’m not suggesting trade barriers.

    What I am talking about here is, do we for example spend money on a new kitchen, built in Australia by Aussie tradesmen/women? The money goes to the Aussie company and to the Aussie tradesmen, and supports them and their families.

    Or do we give it to Harvey Norman/ JB HiFi for a home theatre system? Some money goes to the retailer, and the rest goes to China.

    And we buy the stuff on hock, using dollars borrowed from them either via our banks or our government (and handed to us as a stimulus package)?

    Does this make sense? Maybe this focus on GDP is the problem? Maybe it measures the wrong thing?

    I wonder if its a bit like measuring relative speed in the water, rather than progress towards the shore, when your surfboard is in a rip going backwards as fast as you are paddling forwards? Hey man, look at that wake behind me! A bugger about not getting much closer to shore, though…

    Could a similar argument be made about our long-term economic growth versus the current fixation on short-term spending patterns, irrespective of what the spending is directed towards?

  27. Elise

    I have actually started to look more carefully at the product I buy from the superdupermarket to make sure as much as possible that I buy Australian.

  28. Elise

    “Could a similar argument be made about our long-term economic growth versus the current fixation on short-term spending patterns, irrespective of what the spending is directed towards?”

    Excellent point. We are carrying way too much debt as it is, and now we’re caught in the trap of whether to buy locally which is likely to be more expensive or buy from overseas which is currently cheaper (and quite frankly we can expect incremental increases in those prices as well).

  29. joni, on March 4th, 2009 at 2:05 pm Said:

    Elise

    I have actually started to look more carefully at the product I buy from the superdupermarket to make sure as much as possible that I buy Australian.”

    Thanks for doing your bit Joni, but if money becomes tight as it will for many will you still buy the more expensive locally made products or will you opt for cheaper foreign goods?

  30. joni, on March 4th, 2009 at 2:05 pm

    First small steps to “nationalist” rather than ‘globalist” thinking…joni?…

    …it can get dangerous when millions (billions?) start to do it…

    …history can repeat itself…if we are not vigilant… 😯

  31. Too right TB

    “1930’s-style trade war” ?

    Super bear warns on US, China risks
    http://www.theaustralian.news.com.au/business/story/0,28124,24919910-643,00.html
    “In 2009 it is not the mounting risk of depression in developed economies that will come as a major surprise,” Mr Edwards wrote in a note to clients, “it is economic implosion in China and the global and geopolitical risk thereof.”

    In forecasting a depression in the US, Mr Edwards means that he believes the US will see a peak-to-trough decline in its gross domestic product of more than 10 per cent.

    In China, Mr Edwards expects the worst domestic upheaval since the Tiananmen Square protests in 1989 may cause the Chinese authorities to undertake a “mega-devaluation” of the Chinese currency, the yuan, in an effort to stay in power, as “the very survival of the regime depends on growth”.

    A devaluation of the yuan would cause the rest of the world’s economies to competitively devalue their own currencies in response, Mr Edwards said, sparking a “1930’s-style trade war” that “could see a rerun of the Great Depression”.

  32. John and TB,

    I am fortunate that cost is really not a factor for me, and so – yes – I will continue to buy local.

    Oh and I do realise that it is being nationalist rather than globalist, but it also saves on transport cost (and emissions). I just think that for produce that we should buy local.

    Interestingly, the SMH yesterday had an article on buying local food products and it recommended that we should actually buy rice from Thailand as the amount of ground water needed to produce rice in Australia is much higher (in environmental costs).

    And I try to not each meat much as the cost to the environment is high. Then again, it could be the nagging from the boyf that is making me more of a veggie 🙄

  33. TB Queensland, you are right of course:

    “First small steps to “nationalist” rather than ‘globalist” thinking…joni?……it can get dangerous when millions (billions?) start to do it…”

    Nevertheless, in tough economic times, I still reckon we need to moderate our usual habits a bit, and look after the home team a bit more.

    Here is a relevant article in ABC News about this topic – especially the section under the dramatic heading “Hand grenade”.

    http://www.abc.net.au/news/stories/2009/02/27/2503430.htm

    Even someone with a global perspective, international experience and relevant training has his concerns.

    It’s not just me and a few crazy “nationalists” that have trouble with the idea of borrowing from someone to buy from them, and calling that useful growth.

    I also have trouble with someone buying our assets then selling them to themselves (e.g. Rio or Fortescue Metals). At a good price for us, of course, naturally. Are we kidding ourselves???

  34. John McP, further to your worry about the Chinese situation, I have been reading a set of slides from a talk in February 09 called “China Economic Outlook” by Dragonomics.

    I can’t find the slides freely accessable online, but this is their website:
    http://www.dragonomics.net/index.php/services/

    Anyway the gist of this detailed report is (by my amateur understanding) that:
    1. China’s slowdown is largely home-grown
    2. China’s recovery will be similarly home-grown

    This is exactly contrary to popular belief that their downturn is mainly affected by the GFC in OECD nations (especially US, UK and Europe), and popular belief that they will only come good if we do so first.

    The gist of the data and discussion by Dragonomics is that China had a huge growth in Construction internally, both commercial and residential and infrastructure. This required huge amounts of Aussie iron ore and Aussie coal for both making steel (metallurgical coal) and supplying energy for the process (thermal coal). We have heaps of all of the above.

    As a result of the huge growth, and the relocation of rural people to the cities, and the growing wealth, China had its own real estate boom. Prices were escalating alarmingly and they had their own inflation problem also.

    As with our RBA, the Chinese equivalent became concerned about rapidly rising prices and tightly curbed lending to developers and real estate investors in 4Q07. This caused a rapid reduction in construction growth by 3Q08 and thus collapse in steel demand. Thus the steel mills slowed, and less demand for iron ore from Australia. Thus lower prices for iron ore.

    The key point of the report is that the original source of the problem was an internal construction boom in China which was choked off by the Chinese government. A much smaller proportion of our iron ore finishes up in Chinese exports. The OECD economy is not the dominant reason for the reduced demand.

    Assuming that this analysis is correct, then Dragonomics estimates that pickup in demand will happen by 3Q – 4Q09. Largely internally generated within China.

    Meanwhile they are making use of the low commodity prices (due to breaking long-term price contracts and only buying on the spot market) to pick up ownership of distressed assets they intend to buy again in the near future, at knock down prices. Shrewd buggers…

  35. Can someone let me know if it is time to hoard food and head to the hills to wait for the collapse of civilisation?

  36. Joni, this could be “premature evaluation”.

    I’d wait til Antarctica melts first…

  37. Elise,

    Never been accused of that before. hehe

  38. Elise

    “Meanwhile they are making use of the low commodity prices (due to breaking long-term price contracts and only buying on the spot market) to pick up ownership of distressed assets they intend to buy again in the near future, at knock down prices. Shrewd buggers…”

    We did have them paying premiums because of their boom, and even if their economy gets back on track it’s not likely to be the same scenario again.

    The issue of concern is whether China will be able to get back on track without experiencing social and political turmoil in process. Millions of people who went into the cities from rural areas have lost their jobs.

    So much now relies on China from a US and Australian perspective. Meanwhile, the US have got to get their act together and fix the banking and finance system.

    This is actually a topic I’m addressing on another post
    https://blogocrats.wordpress.com/2009/03/04/rbas-sitting-on-rebs-fence/

  39. Can someone let me know if it is time to hoard food and head to the hills to wait for the collapse of civilisation?

    Where’s John McPhilbin when you need him? Maybe you could split the cost of the baked beans and the bunker…

    Personally, I’m with the Raelians. The aliens will be here any day now to rescue us from ourselves…

  40. Reb

    “Where’s John McPhilbin when you need him? Maybe you could split the cost of the baked beans and the bunker…”

    As it so happens I’ve just finished off the bunker…baked beans are not the best food to take into bunkers though…

  41. “This is actually a topic I’m addressing on another post RBA’s sitting on rebs fence”

    Yes, and quite a rigorous debate you’ve got going on over there with yourself I see…

  42. John

    LOL…. I guess you need food with less, let’s say, emission potential, eh?

  43. Lol , very rigorous. It seems everyone’s dazzled by my brilliance.

  44. joni, on March 4th, 2009 at 3:49 pm Said:

    John

    LOL…. I guess you need food with less, let’s say, emission potential, eh?”

    What can I say Joni, I care about the environment, especially if I’m underground.

  45. Maybe you need carbon-bean-based emission sequestration?

  46. Reb

    I’m glad to see you’re starting to accept reality. Be careful to rub your eyes too hard the sand can cause you real problems.

  47. You know, changing the name of your post isn’t going to make it any less interesting….

  48. You know, changing the name of your post isn’t going to make it any less interesting….

    I realised that using the name ‘reb’ wasn’t a smart thing to do nor was it fair on myself. It’s reliability that people crave and using your name obviously threw people.

  49. If “it’s reliability that people crave” then why didn’t you just call it the “empty glass club”

  50. John McP, how about an alternative to carbon emission sequestration as Joni suggests?

    Perhaps you could go high tech and capture those emissions for subsequent burning, to keep you warm in the eternal winter of despair?

    Anyway, why don’t we fit our sturdy Aussie cattle with emission bags, to “harvest” all that wasted energy? Umm, is methane heavier than air, or will our cattle do a Mary Poppins and float off to China?

  51. John McPhilbin, on March 4th, 2009 at 3:42 pm

    How about they stop screwing around and ‘nationalise’ *eeks* the Federal Reserve as a failed institution along with ‘nationalising’ their other failed banks and just don’t give that locus of control back when they’re farming out banking functions as both a privilege and a responsibility?

  52. Elise of Perth, on March 4th, 2009 at 2:51 pm

    (Hope you saw your namesake on Top Gear, ‘tother night…pity its electric and not hydrogen fuel cell…)

    Re your link:

    “So we’re left with the plasma TV and the debt and China has the jobs and the credit.

    That’s very misleading from an “expert”…we do sell raw materials to China, they have to buy it – that’s their debt…plus all those miners, tradespeople, administration, small shop owners, motels operators, fuel suppliers, airlines, consultants all paid for by China buying our raw materials…

    …the plasma TV has to be warehoused, packed, transported, marketed, advertised, sold, serviced and eventually recycled…it will display local content TV shows, movies…I’m sure you get my drift – all these functions have to be paid for and keep people in the economic cycle…the multiplier effect makes one dollar go around approximately ten times…

    …beware academics who spout nonsense and don’t live in the real “productive” world…neither “professor” impressive BTW…

    I’ve never actually been a fan of “globalisation’ it generates too much “fiat” money (ie has no value), eliminates our manufacturing, our farming, our research and development and worst of all our unique way of life…

    ,,,we’ve been screwed left right and centre with our loss of tariffs while others (eg the EU and USA) put in more and more…

    …if we were truly global we should have a global currency not national…reduces another area of speculative money making for doing nothing…

    …however it was nationalist thinking that caused both world wars – with a smattering of ideaology of course…

    …WWII began almost 70 years ago…

    …a decade after the Wall St Crash…

    …and we can still find plenty of idealogical issues to “smatter” around…

  53. Hi Guys

    All I can say is I am currently working my arse off with loan applications for over $10,000,000 and thats why you have not seen me much lately.

    Hope all on my blogocrats home are well.

    Recession PPFFFFRRRTTTT.

  54. Good for you Shane. May all your applications be approved (and may all the photo-finishes go your way).

  55. Tony

    Thanks mate, have you backed a winner lately. I haven’t had time for the last few weeks.

  56. Not lately Shane – I’ve had other things on as well. Never mind, they’ll still be running them when we get back.

  57. Hi Shane,

    No surprise really given that interest rates are at record lows.

    Good on you!

    One of the younger guys at work asked me what it was like to live and work through a recession (he was at UNI during the last one in the early 90’s). He was obviously a bit concerned about how the markets were playing out.

    I explained that I had been at work during both the 87 tech crash and the early 90’s recession and to be honest I didn’t notice any difference at all.

    Except for doom n gloom headlines everywhere, those who wanted to work and get ahead, just kept doing so….

  58. Legion

    You lost me completely

  59. Another happy soul…

    Senator Sherry said yesterday the average wage earner was aware superannuation was linked to the share market, but beyond that most were in the dark and had little understanding of potential conflicts of interest or fees charged.

    “I’m not optimistic we will be able to successfully turn individuals, in the terms of superannuation holders, into informed decision makers,” he said. “We should aim for a better-educated market, but we need to take a reality check on how that can happen.”

    Never mind, a British research report commissioned by the National Lottery Association (which may or may not find its analogue in the Australian context, whether that’s generally or in relation to stockmarket-as-lottery) finds that most people are genetically pre-disposed to optimism and gazing at sweets, and will choose to look away from negative things like a tarantula in the six-foot banana bunch, leaving only the genetically aberrant still peering into the dark side of life without corrective meds or attending happiness school.

  60. Elise of Perth, on March 4th, 2009 at 4:33 pm Said:

    John McP, how about an alternative to carbon emission sequestration as Joni suggests?

    Perhaps you could go high tech and capture those emissions for subsequent burning, to keep you warm in the eternal winter of despair?

    Anyway, why don’t we fit our sturdy Aussie cattle with emission bags, to “harvest” all that wasted energy? Umm, is methane heavier than air, or will our cattle do a Mary Poppins and float off to China?”

    Sound good (wink) when can we start?

  61. John McPhilbin, on March 4th, 2009 at 7:01 pm

    Why leave the Ben Bernankes, and before him the Alan Greenspans, swanning around while cleaning up banking as if they’re some or any kind of independent authority without a vested interest in all that’s occurred?

  62. “most people are genetically pre-disposed to optimism and gazing at sweets, and will choose to look away from negative things like a tarantula in the six-foot banana bunch, leaving only the genetically aberrant still peering into the dark side”

    I think Legion’s having a crack at you reb

  63. “leaving only the genetically aberrant still peering into the dark side”

    D’ya think?

  64. Legion, on March 4th, 2009 at 7:08 pm Said:

    John McPhilbin, on March 4th, 2009 at 7:01 pm

    Why leave the Ben Bernankes, and before him the Alan Greenspans, swanning around while cleaning up banking as if they’re some or any kind of independent authority without a vested interest in all that’s occurred”

    Someone’s gotta fix the problems Legion, because reb or myself are not going to do it. I don’t think TB or Elise are going to put their hands up neither.

  65. Legion, a bit worried about this conclusion:

    “…leaving only the genetically aberrant still peering into the dark side of life without corrective meds or attending happiness school.”

    So it’s all in the genes? Cripes!!!

    Is there a chance that it could be rectified by gene therapy, or will John McP be stuck that way forever…? Sorry John, couldn’t resist it… of course, the reverse argument applies too!

  66. Tony, on March 4th, 2009 at 7:11 pm Said:

    “leaving only the genetically aberrant still peering into the dark side”

    D’ya think?”

    Genetically aberrant? Sounds nasty. Ah, I get it, it’s the doomsayers who are misfits.

  67. Elise

    “Is there a chance that it could be rectified by gene therapy, or will John McP be stuck that way forever…? Sorry John, couldn’t resist it… of course, the reverse argument applies too!”

    You mean I’m stuck here forever?

  68. John McPhilbin, on March 4th, 2009 at 7:12 pm

    And I’m suggesting that Ben Bernanke and friends share divided loyalties and are the last people who should be doing it no matter how high they raise their hands, but that would be taking as back to 1913, and questioning how the Federal Reserve operates as an unnecessary layer of bankers’ rent-seeking.

  69. John, a word in your shell-like if I may: If you’re gonna be taken seriously as a Doomer, ya gotta cut out the funny stuff. OK?

  70. Reb’s the misfit, I’m pumping away comments on his thread while my more considered and vastly more superior , but somewhat aberrant t post Keysian thread , gets one hit from him. He’s no doubt got the ‘selfish bastard’s gene’.

  71. “Ah, I get it, it’s the doomsayers who are misfits”

    But how can that be John, there are so many of you…

    My take:

    Regardless of whether you think the outloook is good or bad, you’re probably right.

  72. Legion, on March 4th, 2009 at 7:15 pm Said:

    John McPhilbin, on March 4th, 2009 at 7:12 pm

    And I’m suggesting that Ben Bernanke and friends share divided loyalties and are the last people who should be doing it no matter how high they raise their hands, but that would be taking as back to 1913, and questioning how the Federal Reserve operates as an unnecessary layer of bankers’ rent-seeking.”

    Now that makes sense Legion, but who?

  73. “a British research report commissioned by the National Lottery Association”

    What next John, quoting from the Pond’s Research Institute to support your perpetual negativity….?

    LOL!

  74. Reb

    “Regardless of whether you think the outloook is good or bad, you’re probably right.”

    Take another look outside your window reb, are the people from the RBA still sitting on your fence?

  75. TB Queensland, speaking of China and them buying things, I have a small question.

    The Chinese economy is so broke they can’t continue buying our resources. Yep, all the Aussie journos are buying that story, by the truckload.

    Sooo, then how come they have all that money to splash around buying up sizable stakes in Aussie resources companies?

    How many broke economies are there with large state-controlled companies going out on international spending sprees? Just curious.

  76. reb, on March 4th, 2009 at 7:21 pm Said:

    “a British research report commissioned by the National Lottery Association”

    What next John, quoting from the Pond’s Research Institute to support your perpetual negativity….?

    LOL!”

    That was Legion’s source reb, I’m more likely to source my info from the ‘Global Aberrant Society’

  77. “a British research report commissioned by the National Lottery Association”

    Pfffft. I listen only to the financial advisers at my local TAB.

  78. Elise of Perth, on March 4th, 2009 at 7:23 pm

    I always knew you were astute! …and certainly smarter than, moi!

    BROKE? China- the richest, most populated, most controlled, with the longest government plan (50 years) country in the world…

    …Kevin Rudd’s command of Mandarin may be far more important than all the ridiculing of the Liberal Party and others realise…its too uncanny not to be historically significant…

    I have this conspiracy theory that no one seems to argue with (strange on this blog) but the Chinese have a plan to dominate the world – economically…militarily is too messy…

    …and China is the real Sleeping Dragon…(a famous line from the movie, Tora! Tora Tora!…)

    …China Towns in every major city…

    …China owns more US dollars than any other country in the world…

    …China is not a signatory to any ‘intellectual property” agreements (including the Bierne Agreement)…copy, copy, copy…but is still part of the world trade agreements…?

    …China had the means to “manipulate” a foolish capitalist system into another Great Depression…and also the means to “buy” us out of it…

    …China has won this second battle (China Towns was the first) – let’s hope it isn’t the last battle…and the war!

    …our advantage (Australia and the West) is creativity and (I know it sounds corny) and freedom of expression…

    …and – WE SELL NO AUSTRALIAN COMPANY to China…ever…

  79. TB Queensland, definately agree with your concerns.

    Not sure about: “…certainly smarter than, moi!”

    Don’t think so TB! But always grateful for any bouquets that you might toss this way!

    Just doing my best to understand what is going on behind the scenes. I really think we Aussies underestimate those guys, and take their statements at face value too often.

    Hopefully Rudd’s judgement and diplomatic skill is up for this tightrope act?

    If not, then Aussies will most likely be the losers in the long term from this economic takeover of our natural competitive advantage.

  80. “WE SELL NO AUSTRALIAN COMPANY to China…ever…”

    unlike the days when Australia loved China

    http://www.trademinister.gov.au/releases/2004/mvt024_04.html

    Media release
    23 April 2004 – MVT24/2004

    Australian Companies Expand in China
    Trade Minister Mark Vaile today attended ceremonies in Shanghai to mark the expansion of Australian companies BlueScope Steel and Elders Livestock in China.

    “Companies like BlueScope Steel and Elders Livestock are showing the way for other Australian companies looking to build their presence in China, demonstrating that partnership and cooperation can deliver significant mutual benefit,” Mr Vaile said.

    BlueScope Steel (formerly BHP Steel) has begun construction of a $280 million flat steel, metallic coating and painting plant in the Suzhou Industrial Park, 80 km west of Shanghai. The plant will produce steel solutions, including pre-engineered buildings and other high-quality steel building materials to support the burgeoning building and construction markets in China, and should be completed in early 2006.

    “Australia and China have a broadly-based complementary trade in resources with iron ore exports, worth more than $1.7 billion last year, our largest export,” Mr Vaile said.

    “BlueScope Steel’s Suzhou plant will enable Australia to take a stake in the higher end of the value adding process in China – a great result.”

    Elders Livestock today signed a contract for the sale of dairy cattle worth more than $6.5 million with the Xuzhou VV Group, as well as a Memorandum of Understanding for broader co-operation. Elders also received its business licence from the Shanghai Municipal Government to trade in a range of agricultural products and associated services.

    “Australian exports of dairy cattle to China substantially increased from 9,000 in 2002 to 44,000 last year. Most were exported by Elders and this contract should accelerate this trend,” Mr Vaile said.

    I take it we don’t put companies into China anymore TB
    🙂

    Just sayin’ .

    I remember the same warnings about Japan in the 80s. You know, the country that’s been in recession for gawd knows how long.

    I love the way we freak out about China everytime Labor is up for an election. And Pauline raises her “trade disrupting” head.

    BUT…you might be right to be a bit wary. I feel the same about American corporate raiders, venture capitalists & private equity groups.

    N’

  81. “Kevin Rudd’s command of Mandarin may be far more important than all the ridiculing of the Liberal Party and others realise…its too uncanny not to be historically significant”

    From the PM’s site:

    Mr Rudd gained his Bachelor of Arts (Asian Studies) degree with First Class Honours in 1981 from the Australian National University in Canberra. After graduation he was appointed to the Australian Department of Foreign Affairs as a cadet diplomat. He served in the Australian embassy in Stockholm and later in the embassy in Beijing as First Secretary. In 1988, Mr Rudd was promoted to the rank of Counsellor and later to the Senior Executive Service.

    In 1988 Mr Rudd returned to Queensland to work as Chief of Staff to the Hon Wayne Goss, the Queensland Opposition Leader. Mr Goss made history the following year, leading the Queensland Labor Party back to government in its first election win since 1956. Mr Rudd served in the Goss Government first as Chief of Staff to the Premier and later driving the Government’s reform program as Director General of the Cabinet Office, the central policy agency of the Queensland Government. During this period Mr Rudd, a Mandarin speaker, was also appointed by Prime Minister Keating and the State Premiers to chair an inter- government committee to develop a National Asian Language and Studies Strategy for Australian schools.
    ————-

    Sounds to me like Rudd was thinking ahead in the late 70s & early 80s…as was Keating.

    I give them credit for that. I like the idea of PMs who are PREPARED, knowledgeable, wide thinking & ready to build diplomatic & healthy trade bridges w/ influential neighbours & such.

    Cheers
    N’

  82. Nasking, I have been nursing a question about FDI (Foreign Direct Investment) for some years now, and perhaps you or others have a view on it?

    It seems that most economists see FDI as altogether a good thing. You know, more money put into the economy of a country, meaning more jobs and more wealth, etc, etc.

    I wonder if we should distinguish FDI investment that CREATES something new and improved, e.g. like building factories, training local staff. That seems like a reasonably good idea, even if it means that a lot of the profits may subsequently be exported.

    By contrast we have FDI investment that mainly buys a stake in an EXISTING enterprise, that was already built with local money. This is basically buying part of the future profit stream, and buying the right to control the asset if a large enough stake is aquired. I’m not convinced that this form of FDI is a good thing, unless you happen to be the aquirer not the aquiree.

    Mind you, most of the fundations of economic theory (Keynes and co) were developed in the UK and US, as far as I understand. They were colonial empires in those days, so would have been the aquirers, and thus totally in favour…

  83. I take it we don’t put companies into China anymore TB
    N’

    May I rephrase N’, we don’t sell our companies or part(s) thereof to China…and certainly none of the “farm’ in any form…

    …do you play Monopoly, N’…the chess game for this was played out a few decades ago…its now getting a bit more “detailed” (tactical as opposed to strategic)…

    Elise, re the question you ask of N’ – put China in the role of the FDI acquirer and Australia as the acquiree?

  84. “do you play Monopoly, N’…the chess game for this was played out a few decades ago…its now getting a bit more “detailed” (tactical as opposed to strategic)…

    Yes, I also played ‘Risk”…remember this?:

    Continents Holding continents is a great way to increase reinforcements. Players often attempt to gain control of what the game manual calls Australia (Australasia) early in the game, since Australia is the only continent that can be successfully defended by heavily fortifying one country (either Siam or Indonesia). Generally, continents with fewer borders are easier to defend as they possess fewer points that can be attacked by other players. South America has 2 access points, North America and Africa each have 3, Europe has 4, and Asia has 6.
    (Wiki pedia)

    I must admit TB, that I was pleased to hear that Labor is ramping up the submarine production. I’ve always felt this Country could be highly vulnerable during an economic meltdown, particularly if the American umbrella is weakened & the Americans distracted by multiple fronts and diminishing tax revenue. And protracted conflicts on their Southern border and such. It’s quite possible that the Bolivarian Revolution & other related movements will cause a migraine headache for the Americans and potentially lead to resistance movements thruout Brazil, Mexico and such, and even thruout the USA itself, that will be exploited by other nations competing for resources. In a sense we might see a battle for INDEPENDENCE from AmeriCORP that could lead to a complete shift in borders & social alliances.

    It would be interesting to see who allies w/ who (think of France navally supporting the young Americans cause for Independence from the British crown).

    As a resource-laden country we need to think outside of our reliance on the American umbrella and ensure our ASEAN relationship is beyond that of a “deputy sherrif”. I’m digging how Keating is thinking. And Rudd.
    N’

  85. Elise of Perth, I’ll think over your valid queries…I haven’t really thought thru this stuff enuff, need more time. And must spend time w/ my wife.

    But I’ve scanned thru this…found it useful:

    Chinese Foreign Direct Investment in Australia: Policy Issues for the Resource Sector
    P Drysdale, C Findlay – Presentation to Australian National University Crawford …, 2008 – eastasiaforum. org

    http://eastasiaforum.org/wp-content/uploads/2008/09/drysdale_and_findlay_chinese_fdi3.pdf.

    Cheers
    N’

  86. Really interesting article Nasking, and exactly on the topic in question.

    I have a small query about the assertion in the article, that: “FDI in the resource sector offers a number of advantages to the host country including the provision of capital, technology, know-how and access to markets.”

    With the proposed Chinalco investment in Rio, where exactly is the superior technology and know-how that they are transferring to us? The provision of capital and access to markets is a clearer argument.

    By comparison, the Japanese have a major investment in our oil and gas resources, via INPEX. An Aussie who worked for them in a senior capacity here described having his every move shadowed, and having to detail and explain every technical decision. He had never been questioned in such detail before, nor forced to document in such detail.

    There seem to be 2 obvious ways of seeing this.

    As a senior professional, he took this as being doubt about his professional ability by people of much less experience or even relevant qualifications. He had worked for major international oil companies for decades, and found this inquisition experience humiliating.

    I would venture to suggest another alternative, that he was in fact unhappily participating in knowledge transfer. i.e. They were sucking his brains for all that aquired wisdom, and recording it for their future use. And treating him like a second class citizen in their company at the same time. Neat trick.

    Those learned chaps from ANU might think that Japan, as a developed nation, is providing Australia with oil and gas technology and know-how. Nup. Japan has NO oil and gas industry, and no expertise to transfer. However they do have money, and they can buy expertise.

    I would hazard a guess that China is similarly placed in terms of oil and gas, mining, and minerals extraction/metallurgy. They are more likely to suck our brains, along with our resources, than to provide any superior expertise or technology.

    Those ANU guys should get out and do some fact finding in the real world, if they believe otherwise. And what does this do to their assumed benefits of FDI for our resources sector?

    As TB said earlier, perhaps the uni boffins can be clueless about the real world upon which they pontificate so definatively?

    Can we hope that our pollies in Canberra would have any better understanding?

  87. At least Kevin gets it.

    Global fix for global problem
    http://www.theaustralian.news.com.au/story/0,25197,25144500-7583,00.html
    My seven-point plan will solve the crisis, contends Kevin Rudd | March 06, 2009
    AS the global economic recession increasingly weighs on the Australian economy, the prospects for recovery hinge on the success of efforts to deal with the problems that caused the global financial crisis.

    That is why it is so critical for Australia, as for other economies, that the world’s leading economies agree to implement a clear plan of action to cleanse the global financial system of the trillions of dollars of toxic assets that are stopping credit flows and driving the world into recession.

    The global private credit process is not working because bank balance sheets in the US and Europe are weighed down with toxic assets: loans and securities infected by bad sub-prime lending. These toxic assets have become a poison in the bloodstream of the global financial system. While US and European banks have regulatory capital of about $US3.4 trillion ($5.2trillion), estimates of the potential losses from these toxic loans and securities range from $US2.2 trillion to as high as $US3.6 trillion, and as the global recession creates even more non-performing loans, these numbers could go higher.

    Without new capital, writing off these bad loans would result in the US and European banking systems breaching capital adequacy, with some institutions being left insolvent. The International Monetary Fund has estimated that the net capital shortfall in US and European financial institutions is likely to be at least $500 billion. Some market estimates say the shortfall could be as much as $1 trillion.

    Australian banks have very little exposure to toxic assets, and that is one of the reasons they are among the best performing banks in the world today. But Australia is closely integrated with the global economy and the global financial system. Many of our businesses sell goods overseas and rely on finance from overseas to invest and grow. The crisis in global credit markets has direct impacts for Australian banks, Australian businesses and Australian households.

    If the flow of global credit is restricted to Australia because of the impact of toxic assets on the major banks’ global balance sheets, then it becomes harder for banks to lend money and, as a result, business investment and consumer spending get choked off. This creates a vicious cycle: as the economy slows, unemployment rises and household incomes fall. As household incomes fall, demand falls further and business investment is further reduced.

    We need to break the vicious cycle caused by the build-up of toxic assets in the global financial system. That is why the Group of 20 Leaders Summit on April 2 in London is so important. It represents the best opportunity to reach agreement on a global strategy to cleanse banks of toxic assets. Australia has been working intensively on this strategy with other G20 members. This is the central element of a wider strategy to strengthen the regulatory framework for the financial system and move towards economic recovery. So what does this mean in substance?

    Australia is actively pressing for a seven-part strategy to cleanse balance sheets of toxic assets.

    First, all weak and all systemically significant financial institutions should be subject to a stress test. The public and governments need to know with confidence that the assets on bank balance sheets are sound. There should be no more surprises.

    Second, all non-viable banks must be closed or nationalised. Keeping insolvent banks alive is itself systemically damaging.

    Third, toxic assets on bank balance sheets must be neutralised. This can be achieved by the creation of a “bad bank” or through an insurance mechanism. This needs to be done quickly and comprehensively, and may require compulsion.

    Fourth, the prices of bad assets should be derived from a transparent and simple formula that is consistent across jurisdictions.

    Fifth, it is essential that the public and private sectors, and international financial institutions, work closely together. If governments go down the route of nationalisation, it should be temporary. Nevertheless, the details of a future resale to private buyers do not need to be addressed now.

    Sixth, a critical element of the stress test must be to recapitalise banks, so they have the capital they need to lend and reopen the arteries of credit.

    Seventh, once banks have been adequately capitalised, they must formally agree to maintain regulated levels of lending in return for government support through sovereign guarantees on deposits and/or interbank lending.

    We are in a global economic emergency. We have seen the sharpest synchronised downturn in the global economy in our lifetimes, and Australia has not been immune from that.

    Australians know we are coping with this downturn better than other countries, but our medium-term prospects depend on global efforts to deal with the cause of this emergency. That is why a strong co-ordinated response to the toxic assets crisis is so important, and that is why Australia will press so strongly for a clear plan of action in London next month.

  88. Worth a revisit?

    Why This Aint No Ordinary Recession Concern
    https://blogocrats.wordpress.com/2009/02/28/why-this-aint-no-ordinary-recession-concern/

    Ross Gittins has done an excellent job of explaining why this global crisis is no ordinary crisis, and in terms that are relatively easy to understand.

    And unfortunately the last time we faced a crisis of this magnitude was in way back in the 1930’s, as Gittin’s explains:

    we haven’t seen anything so life-threatening since the Depression of the 1930s. That’s what’s so different this time.

    Here’s a quick break down of recession types and causes that usually underline economic downturns as Gittin’s explains them:

    Type One – Wage Inflation

    Your classic post-World War II recession is a wage-inflation recession. The economy booms and unemployment falls below the “non-accelerating-inflation rate of unemployment”.

    In a situation of labour shortages, wages rise excessively thus feeding a wage-price spiral. The authorities become alarmed by the growing inflation pressure and start applying the brakes – raising taxes or, more likely, raising interest rates to discourage borrowing and spending.

    Type Two – Asset Boom

    The second type of recession is an asset-boom recession. You start with a boom in a market for assets such as shares, residential property or commercial property.

    Asset prices go sky-high because the boom is being fed by borrowing. You end up with a bubble – prices that are far higher than is sensible, matched by ever-growing levels of debt owed by households or businesses.

    The authorities worry that asset-price inflation will start translating into ordinary, goods-and-services price inflation, so they jack up interest rates.

    Type Three – The Global Ponzi Financing Boom Led By The US

    The crisis that arose from the failure of Lehman Brothers in mid-September last year was like a global heart attack. For a while the heart stopped beating, credit stopped flowing and we went perilously close to a global financial collapse that would have wreaked untold destruction on economies around the world.

    Point is: that doesn’t happen in every recession. In fact, we haven’t seen anything so life-threatening since the Depression of the 1930s. That’s what’s so different this time.

    You might have noticed that much of what is being reported around the globe, is in fact, an overlapping of types two and three. That’s because that’s exactly what is happenning.

    If I were to further elaborate on what we are seeing and experiencing I’d be tempted to go with Soros’ super-boom hypothesis and the credit expansion theory, which of course has been caused by a global market system that be can best be described as a ‘rogue system‘ . Soros explains:

    Globalisation allowed the US to su k up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.

    The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.

    Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market. Investment banks’ commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties.

    The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of institutions than ever before. That made the crisis more severe than any since the second world war.

    And what does Gittin’s article conclude?:

    Punchline: as everyone from the International Monetary Fund to the US Federal Reserve chairman, Ben Bernanke, has warned, until the Americans fix their blocked banking system, no amount of fiscal stimulus or interest-rate cuts will make any difference.

    Our economy will remain in trouble until they do.

  89. I think it’s important to note that from from having a pathologically pessimistic attitude I actually have a hopeful disposition. I hope we can confront and deal effectively with what’s happening. If we don’t, no amount of positive thinking on anyone’s behalf will fix economic reality and the fallout. That’s life.

    China’s Implosion Could See Re-Run Of Great Depression
    Posted on March 2, 2009 by johnmcphilbin
    https://blogocrats.wordpress.com/2009/03/02/chinas-implosion-could-see-re-run-of-great-depression/
    WARNING THE FOLLOWING MAY CONTAIN INFORMATION AND OPINION THAT SOME MAY FIND DISTURBING:
    So much for our robust economy, but what about a speedy recovery? The bursting of the commodities bubble and a softening Asian economy on top of a sea of personal debt doesn’t make for a robust economy. But that’s not the really bad news.

    First, some really bad news about our export market:

    China steel lockdown hits exports

    DOZENS of freighters carrying Australian iron ore are stalled outside Chinese ports amid a collapse in demand for steel, dashing hopes that Chinese industrial demand will protect Australia from the worst of the global recession.

    Tumbling Chinese exports and renewed stock market lethargy indicate that efforts by Chinese leaders to defy the global economic crisis are struggling.

    Instead of being used in new office buildings, factories and bridges, steel is being stockpiled, driving an 8.6 per cent fall in Chinese steel prices in the past fortnight.

    The situation bodes ill for pivotal annual iron ore contract negotiations between Australia’s big iron ore miners and China’s steel mills.

    The emerging weakness in China will weigh on the Reserve Bank board, which is meeting in Sydney tomorrow to consider a recommendation from the RBA management to halt its run of interest rate cuts.

    Although Chinese authorities hope they can hold the decline in the country’s growth rate to 8 per cent, the IMF is forecasting 6.5 per cent and private analysts are suggesting it could be considerably lower.

    In January I posted this prediction Societe Generale strategist Albert Edwards, which pointed to major problems with the Chinese economy and the implications globally, especially for the US:

    Super bear warns on US and China

    “In 2009 it is not the mounting risk of depression in developed economies that will come as a major surprise,” Mr Edwards wrote in a note to clients, “it is economic implosion in China and the global and geopolitical risk thereof.”

    In forecasting a depression in the US, Mr Edwards means that he believes the US will see a peak-to-trough decline in its gross domestic product of more than 10 per cent.

    In China, Mr Edwards expects the worst domestic upheaval since the Tiananmen Square protests in 1989 may cause the Chinese authorities to undertake a “mega-devaluation” of the Chinese currency, the yuan, in an effort to stay in power, as “the very survival of the regime depends on growth”.

    A devaluation of the yuan would cause the rest of the world’s economies to competitively devalue their own currencies in response, Mr Edwards said, sparking a “1930’s-style trade war” that “could see a rerun of the Great Depression”.

    Only last week I indicated the importance of US and China relations and the important role China plays in supporting US efforts to stabilise their economy:

    Clinton’s recent visit to China is SIGNIFICANT

    Posted on February 24, 2009

    Secretary of State, Hillary Clinton’s recent visit to China is a significant event in U.S – Chinese relations and the implications are sure to effect the future direction of the global economy and world markets.

    Global markets have every reason to be jittery. In the last few years, Japan and China have bought into US treasury bonds and hold large significant US currency reserves. Why? To keep the value of the dollar high so the US can continue buying lots of their exports. What would the dollar be worth if they were not propping it up? What will it be worth when they can buy no more?

    This seems to be the question being asked by investors on Wall Street

    What does this all mean? If the Chinese economy implodes the consequences will have far reaching effects on the global economy and financial markets, not to mention the potential political upheaval it will cause.

    We’ve seen our largest trading partner, Japan’s economy tank and now if our resource exports to China should fail badly, there’s little room for our government to successfully guide us into calmer waters.

    I sincerely wish I were seeing it in a more optimistic light but it’s simply not the case at the moment. All we can do now is cross our fingers and hope China’s fortunes turn.

  90. Why on earth are our banks going for a cash grab? The old saying is ‘grab while the grabbing is good’. Not me being pessimistic, just realistic.

    Australian banks to make $5 billion in fees in 2009
    http://www.news.com.au/dailytelegraph/money/story/0,26860,25142115-5015795,00.html
    AUSTRALIAN banks will collect more than $5 billion in fees in the year ahead as they aim to survive the global economic crisis, a researcher forecasts.

    In its annual bank fee benchmark report, Fujistu Consulting found Australian households on average pay 22 per cent more in bank fees than British households, and 11 per cent more than those in the US.

    The survey concluded the average Australian household pays close to $1000 in fees each year, compared to $749 in the UK and $850 in the US.

    Report author Martin North estimates Australian banks collected just under $5 billion in fee income in 2008, ranking them among the most expensive in the western world.

  91. Our Banks are going for a cash garb for one reason. They Can.

    While everyone else announces profit falls as a result of the economic dowturn the Banks are determined to mantain their profit at any cost.

    The loss of the smaller funders as a result of the GFC has been a major blow to competition. The smaller funds were unable to pass on the rate cuts to the extent of the major Banks.

    The 4 major Banks used to receive around 50% of loan applications from brokers. They are now receiving over 90% of loan applications and are growing in strength due to this lack of competition.

    While a tightening in financial discipline is a good thing the fallout is far less competition and the Major Banks are now calling the shots and changing their rules daily.

  92. Shane

    Don’t you get the impression they’re saving for rainy days ahead. They’ve all but admitted that. But will they do borrowers and savers any favours? Not likely.

  93. Shane

    The facts and reality are quite daunting which is why I continue pursuing the direction I am. I refer back to another thread where Michael West raised some very important points.

    We keep forgetting about the ‘Howard Era’ hangover

    Don’t mention the debt: It is Australia’s Ponzi scheme
    Posted on February 19, 2009 by johnmcphilbin
    https://blogocrats.wordpress.com/2009/02/19/dont-mention-the-debt-it-is-australias-ponzi-scheme/#comments

    Looking at the numbers, according to the Australian Bureau of Statistics we have about 21,374,000 or so people living in this country. Our combined national debt (taking all government, personal, private and business debt into account) is $2.32 trillion ($3.4 trillion including equity) as of September last year – and growing. A falling Aussie dollar makes it more expensive to repay, or roll over.

    Each and every Australian then, including babies, accounts for foreign borrowings of nearly $110,500 dollars. If we use the same method to calculate what the cost of Prime Minster Rudd’s “stimulus package” is to the nation, we end up with a cost of nearly $2,000 per head.

    Inching to the edge

    To put it another way, says macroeconomic consultant Mark Beavan, Kevin’s rescue package is increasing the nation’s net debt by little more than 1%.

    ”Malcolm might happily forget that while his former government colleagues were steering the good ship Australia, the nation’s total debt soared from a mere $700 billion in 1997 up to $3.2 trillion by the close of their term. An increase of 387%”.

    Deregulation brought growth alright. But there is a yin for every yang. The Opposition may well brag that it left office with zero debt – zero government debt that is – as the upshot of policy was to lump it onto the consumer.

    That is something the nation has to live with for a long time. In the meantime, it will do the sovereign credit rating no favours.

    ”In the fluid deregulated markets, the government (past and present) didn’t think for a second about regulating the extent and rate at which the nation got itself into debt,” says Beavan.

    ”It is too hooked on the drug of national economic growth for economic growth’s own sake and refuses to allow the dream of many Australians (who still believe that housing prices can only go up) to be punctured along with our economy”.

    Inflating house prices

    Beavan believes that if all that debt were stripped away, irrespective of land shortages, property prices would be half to two-thirds of what they are today. ”If homebuyers don’t have money on loan from the banks, then they could not afford to pay the higher housing price – so the price would have to fall or the market would stagnate”.

    ”Why did we not index the rate of debt growth (15% per annum compounding for the last 12 years straight) to that of the country’s economic growth (less than 3% when the debt is stripped out)? Surely a lending system predicated on genuine national economic growth would be a far more practical solution?”

    If governments had constrained debt growth, bank profits could not have kept growing at 15% a year. Or executive salaries at 30% for that matter. (Not to mention state stamp duty revenues.)

  94. It’s worth repeating; “all eyes on Chin, and keep your fingers crossed” I know I am, for our sake.

    Metals markets still waiting for Wen
    http://business.smh.com.au/business/metals-markets-still-waiting-for-wen-20090305-8q26.html

    THERE could be more pain for metals markets after China failed to produce a much-expected new economic stimulus package.

    In an annual speech to parliament, the Premier, Wen Jiabao, reaffirmed the nation’s ambitious target of 8 per cent gross domestic product growth this year but did not unveil a new stimulus package beyond the 4 trillion yuan ($911 billion) announced last year.

    He said yesterday that China faced “unprecedented difficulties and challenges” in light of the global financial crisis.

  95. Okay ‘all eyes on China’

  96. And all eyes on the US

    Wall Street tumbles 4pc to 12-year low
    http://www.theaustralian.news.com.au/business/story/0,28124,25146520-643,00.html
    US stocks plunged as one of the world’s most prominent banks and a once-mighty US manufacturer traded as mere shells of themselves.

  97. Wave after wave of economic realities keep coming in. I wish it were different, but it simply isn’t

    Citigroup shares fall bellow $US1 as financial crisis continues to hit banks
    http://www.theaustralian.news.com.au/story/0,25197,25146530-12377,00.html
    ONE dollar could buy a pack of chewing gum, a roll of toilet paper or a few lollies.

    Now for the first time, it could also buy a share of Citigroup, once the world’s largest bank by market value.

    The price of a Citigroup share fell below $US1 ($1.57) on Wall Street overnight in a sign that investors are losing confidence that the lender, which operates in more than 100 countries, can be restored to health after $US37.5 billion of losses in the 15 months ended December 31.

    Shares fell as low as 97 cents, leaving the bank with a market value below $US6 billion – down from more than $US277 billion in late 2006. The decline came even though Citigroup has gotten $US45 billion of taxpayer-funded capital since October, and despite federal efforts to stimulate the economy and lending.

    Citigroup was not immediately available for comment.

    “It’s nothing but bad news,” said James Barth, a finance professor at Auburn University and a senior fellow at the Milken Institute. “One might have thought the stimulus from Washington would have had some positive impact, but nothing is turning around investor confidence. The concern is that there is a point at which the Government looks at Citigroup and says, enough is enough.”

    Gittins’ “Punchline: as everyone from the International Monetary Fund to the US Federal Reserve chairman, Ben Bernanke, has warned, until the Americans fix their blocked banking system, no amount of fiscal stimulus or interest-rate cuts will make any difference.

    Our economy will remain in trouble until they do.”

  98. John McPhilbin, on March 6th, 2009 at 7:25
    https://blogocrats.wordpress.com/2009/03/04/recession-obsession-ii/#comment-25886

    At least Kevin gets it.

    John,

    May I draw on your extensive research in this area, because I’m having trouble seeing how Mr Rudd’s plan to ‘solve the crisis’ will work.

    If I’m not mistaken, the plan in a nutshell is:

    Stress test all banks for unsound assets; close or nationalise non-viable banks; neutralise toxic assets by transferring them to a ‘bad bank’, or by using an insurance mechanism; recapitalise banks.

    The genius of this plan must be masked by its child-like simplicity, because, to me, it raises more questions than it answers. For example:

    •How do you go about closing non-viable banks. What would happen to their loan-books, or depositors’ funds, for example?

    •How do you determine which banks should be closed, and which nationalised?

    •If banks are to be nationalised, presumably this involves governments providing capital in exchange for a controlling stake in their equity. Where would this capital come from, particularly when governments have already borrowed heavily on international bond markets in order to to fund their so-called stimulus packages?

    •What is a ‘bad bank’? Who would own it? Why would any government or investor want to own a bank whose only assets are ‘toxic’?

    •What kind of ‘insurance mechanism’ would be used to neutralise toxic assets?

    •Where would the capital come from to recapitalise banks?

    John, can you, or any other blogocrats, shed some light on any of these questions. Please.

  99. General Motors have announced that they reckon that their business is no longer feasible.

    Sounds like they’re lining up for a cash handout.

    The reality is, that the businesses that survive this crisis will be the ones with bold leadership – that make the tough decisons -launch into R&D and give the people the products and services they need NOW and the products and services they will need in the imminent future.

  100. Probably Reb, but in the case of the car industry, the time gap between the first design sketch to the day a new model rolls off the production line could be 10 years or more.

    The horse may have bolted by then.

  101. *Make that 5 to 7 years, although that time is shortening all the time with new computer programs.*

  102. Tony

    All good questions. I have no answers I’d like to offer at the moment, these should be addressed and examined in more detail via specific threads, in my opinion.

    My concern from recent reactions is that most people don’t think there are very real and major financial and economic problems to contend with. I could be wrong but that’s the impression I get.

    When I said ‘Kevin gets it’ I meant he knows exactly what’s happening in global markets. He’s been brave enough to throw his hat into the ring and offer potential solutions.

    I happen to agree with what Rudd is suggesting but to get into it here would be a mammoth task. The questions would never end.

    Both Swan and Rudd have been accused of talking the economy down, when in fact, they’ve had their eyes wide open.

  103. Tony, on March 6th, 2009 at 9:28 am

    It seems a tad like pre-emptive agenda-setting to me, given that most of those talking up London’s April and what will occur there before its being April and having April’s argey-bargey are the same ones who sent emissaries lacking any requisite authority to discuss anything in particular to Davros, and were otherwise too busy dealing with domestic matters to attend to the global matters upon which their domestic fortunes, intervention measures included, depend. And remember, seven items on a list is the largest ‘chunk’ that the average human can juggle in their short-term memory at once. 😉

  104. Then why not throw up a thread on Mr Rudd’s op-ed, John? We could examine it there.

  105. reb, on March 6th, 2009 at 9:31 am Said:

    General Motors have announced that they reckon that their business is no longer feasible.

    Sounds like they’re lining up for a cash handout.

    The reality is, that the businesses that survive this crisis will be the ones with bold leadership – that make the tough decisons -launch into R&D and give the people the products and services they need NOW and the products and services they will need in the imminent future.”

    Exactly reb, but first they have to acknowledge and understand the challenges. Those companies built on shifting sands will be shaken to the core. I actually see that as a positive, despite the threat of people losing their jobs.

  106. Tony, on March 6th, 2009 at 9:55 am Said:

    Then why not throw up a thread on Mr Rudd’s op-ed, John? We could examine it there.”

    I’m temporarily retired Tony. I need to step back for a while and focus on other things in my life – I think I’ve put in a big effort so far, but every now and again it’s important to maintain perspective – this stuff can become addictive you know. And the only reason I came on today was to clarify my position. There are absolutely no bad feelings and I hope to get back into it in the not too distant future. In short Tony, I need a break.

  107. Tony

    Legion posted this on another thread, and frankly it’s spot on, in my opinion.

    Legion, on March 6th, 2009 at 9:41 am Said:
    A somewhat interesting thread over at teh LP on ‘sentiment‘…

    But let’s not get too gloomy. Just because I’m in my 50s and my superannuation has dropped by almost a third with no sign of an end to the fall and I haven’t got a job as my company just made big redundancies (but as I was a contractor I was laid off without any payment), there is little need to worry, apparently. Because … well, the theory seems to be that if we all just carry on as usual, the system will recover and we can all carry on as usual, ad infinitum.

    I’m not an economist but I don’t buy it. This is the time to be having a national conversation about the purpose of the economy.”

  108. Sorry to hear of your retirement, John. I was hoping the reports were premature.

    Seriously, though, I would love to debate Rudd’s fuzzy plan to save the world. Anyone want to defend it?

  109. Tony, on March 6th, 2009 at 10:11 am Said:

    Sorry to hear of your retirement, John. I was hoping the reports were premature.

    Seriously, though, I would love to debate Rudd’s fuzzy plan to save the world. Anyone want to defend it?”

    It’s a little fuzzy because the world is fuzzy at the moment Tony.
    You should have fun with it though. Hey, you put it up.

  110. Our banks are certainly bracing themselves – NAB first cab off the rank.

    NAB preparing to slash its 40,000-strong workforce
    http://www.news.com.au/heraldsun/story/0,21985,25145073-664,00.html
    NATIONAL Australia Bank is set to slash its 40,000-strong workforce in a revamp of its Australian and offshore operations.

    Details of the job cuts will be revealed on March 12 when new chief executive Cameron Clyne unveils his highly anticipated strategic blueprint for the group.

    Hundreds of full-time equivalent roles in Australia will be axed under the revamp, including contractors and permanent staff.

    Details of the imminent NAB cuts came as Bank of Queensland chief David Liddy last night confirmed that his bank was set to slash staff numbers by about 10 per cent.

    That equates to a reduction of about 150 staff across the business

  111. John @ 8.33am

    If the Banks were serious about saving for a rainy day they would slash the percentage of profit they provide as a dividend and hold that percentage.

    They are already saving for a rainy day in another way as well, their margins have substantially increased with the demise of the smaller competitors.

    The fee fiasco and job cuts are opportunism during a crisis, nothing more. Slashing jobs while sending emails advising decisions on loan applications have now blown out from 4 days to over 4 weeks shows the contempt and control they have in the whole financial industry at the current moment.

  112. Shane

    “The fee fiasco and job cuts are opportunism during a crisis, nothing more. Slashing jobs while sending emails advising decisions on loan applications have now blown out from 4 days to over 4 weeks shows the contempt and control they have in the whole financial industry at the current moment.”

    Like you, I feel contempt and every day it grows.

    What I hope now, especially here on Blogocrats, is that some people who are very hurt and angry who may join in conversations will receive support and acknowledgment as to why they’re feeling the way they do. I have no doubts that yourself and others understand just how important this is.

    Losing your job or home and even family as a result of job loss no doubt elicits grief for many people, as do other traumatic events.

    Understand the five stages of grief are helpful.

    Grief is a somewhat complicated and misunderstood emotion. Yet, grief is something that, unfortunately, we must all experience at some time or other. We will all inevitably experience loss. Whether it is a loss through death, divorce or some other loss, the stages of grieving are the same.

    There are five stages of grief. If we get stuck in one stage or the other, the process of grieving is not complete, and cannot be complete. Thus there will be no healing. A person MUST go through the five stages to be well again, to heal. Not everyone goes through the stages at the same time. It is different for each person. You cannot force a person through the stages, they have to go at their own pace, and you may go one step forward then take two steps backward, but this is all part of the process, and individual to each person. But, as stressed, ALL five stages must be completed for healing to occur.

    The five stages of grief are:

    1-Denial-“this can’t be happening to me”, looking for the former spouse in familiar places, or if it is death, setting the table for the person or acting as if they are still in living there. No crying. Not accepting or even acknowledging the loss.

    2-Anger-“why me?”, feelings of wanting to fight back or get even with spouse of divorce, for death, anger at the deceased, blaming them for leaving.

    3-Bargaining-bargaining often takes place before the loss. Attempting to make deals with the spouse who is leaving, or attempting to make deals with God to stop or change the loss. Begging, wishing, praying for them to come back.

    4-Depression-overwhelming feelings of hopelessness, frustration, bitterness, self pity, mourning loss of person as well as the hopes, dreams and plans for the future. Feeling lack of control, feeling numb. Perhaps feeling suicidal.

    5-Acceptance-there is a difference between resignation and acceptance. You have to accept the loss, not just try to bear it quietly. Realization that it takes two to make or break a marriage. Realization that the person is gone (in death) that it is not their fault, they didn’t leave you on purpose. (even in cases of suicide, often the deceased person, was not in their right frame of mind) Finding the good that can come out of the pain of loss, finding comfort and healing. Our goals turn toward personal growth. Stay with fond memories of person.

    Get help. You will survive. You will heal, even if you cannot believe that now, just know that it is true. To feel pain after loss is normal. It proves that we are alive, human. But we can’t stop living. We have to become stronger, while not shutting off our feelings for the hope of one day being healed and finding love and/or happiness again. Helping others through something we have experienced is a wonderful way to facilitate our healing and bring good out of something tragic.

  113. In short Tony, I need a break.

    Take a well earned break john, you’ve put in a huge effort, thanks for your work/contributions here.

    shaneinqld,

    I was listening to ABC radio yesterday and someone was talking about the banks and fees. Compere said shouldn’t fees be going down, instead they are going up. Financial guy said high fees actually hide the fact that our banks perform pretty lazily rather than quite well as everybody says.

    The banks’ excuse is (they say) here in Australia they trade off high fees for low interest rates, but the financial guy says not true.

  114. Thanks Kitty much appreciated

    Cheers

  115. Shane

    More shocking news

    US bank deposit guarantee could go broke
    http://www.news.com.au/dailytelegraph/story/0,22049,25146492-5014099,00.html
    THE US government is warning banks that its deposit insurance fund could go broke this year as bank failures mount.

    The head of the Federal Deposit Insurance Corporation, Sheila Bair, in a letter to bank chief executives dated March 2, defended the FDIC’s plan to raise fees on banks and assess an emergency fee to shore up the fund and maintain investor confidence.

    Ms Bair acknowledged the new fees, announced Friday, would put additional pressure on banks at time of financial crisis and a deepening recession, but insisted they were critical to keep the insurance fund solvent and protect.

    “Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote.

    The FDIC chief said in the letter that the rapidly deteriorating economic conditions raised the prospects of “a large number” of bank failures through 2010.

    “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative,” she wrote.

  116. John,

    I have read your contributions with great enthusiasm. Your views and analyses of the GFC have always offered learning opportunities for me as I am certain is also the case for others.

    I look forward to your return and wish you good health and tidings until then.

    Cheers

  117. Thanks RN, hope you found it useful. You’ve been a pretty quick study.

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