Rudd’s War on the Economic Meltdown: Will it work?
October 16th 2008 00:12
Rudd’s War on the Economic Meltdown: Will it work?
Christmas has come early for many Australians as the Rudd Government tries to prevent a recession. Keen to avoid ‘a recession that we had to have,’ it appears there is the recession that no one wants. The US economy is already in recession with the fear that this will impact upon the whole world. As a result we here in the land of OZ have been punished with lower oil prices, lower interest rates and a raft of government cash bonuses. Pensioners will be getting a $35 hike in the pension, first home buyers grant has been increased and families with Part A benefits from Centrelink will receive $1000 per eligible child. Over $10 Billion of the national surplus is going to be spent on one great big rescue splurge. For some it may appear that we need more meltdown like this. How strange this generosity seems when contrasted with good economic times just a few months ago where Workchoices appeared to punish success and effort.
This spending spree to save us from the consequences irresponsible money management does appear to conflict with logic. We are in essence partying as the economic Titanic sinks slowly. Yet economists on the airwaves do claim that any loss in consumer spending and confidence will drive Australia into recession. It is money that drives the economy and as is so often quoted, ‘It is the economy Stupid.’ If people do not spend, then all industries are affected. Good and services cease to be required and staffing level in those industries need to be rationalized. This means retrenchments, collapsed companies that ultimately fuels high unemployment. A world wide recession magnifies the issue by closing off overseas markets for commodities. Poorer people make for poorer consumers and less consumption means less production. The vicious cycle is that less demand creates less employment, therefore less income to spend, therefore even less demand and so on. In a deep recession this vicious cycle can go on for years until wealth slowly comes back into the mainstream population to the point where some disposable income is available to drive the economy in a positive direction again.
If we look at the Australian economy it has been dependent upon several major industries: the mining boom, the housing market and consumer electronics (Plasma screens, Ipods, computers etc). There is little that can be done if the Chinese decide that they require less iron ore from Australia. Yet the housing market is an area that is an internal market to this country. Another housing boom will mean more housing industry employment and more consumers with pay in their pockets.
The irony is that the cause of the economic disaster was the driver of the US housing boom. Vast amounts of money were being loaned out to people who could not pay back those loans. Very low interest rates were being offered to entice borrowers and in the span of a decade a whole new demographic were buying homes. Had this process occurred in a responsible manner this would have been one of the greatest elevations of poverty in history. Loans were handed out in a predatorily irresponsible manner where signing up the borrower was more important than whether they could pay back the money. Many borrowers were hit as soon as their honeymoon period of low repayments ended and they were suddenly confronted with a huge hike. Others were hit by a clause that required the borrower to refinance their loan after 3 years. Many found that no one would refinance them. The boom became a bust based upon bad debts. More than just losing money, the Banks lost the ability to trust each other.
The Rudd Government has moved fast to put money back into the pockets of consumers in the hope that they will spend it. In a way he is ‘operating on the principle that you have to spend money in order to make money.’ This principle is fine as long as you can balance the books afterwards.
There is a new generation of Australians who have no living memory of an economic recession. These include migrants, people up to their mid twenties and younger. For such people it may be perplexing to see unemployment levels rise to 10% followed by deflation in where you least want it and inflation where it most hurts.
If Australia does avoid a recession it will be a mixture of luck and market confidence. We cannot do much about the luck but we can do something about consumer confidence. The money coming from the government is either a rescue plan or just another confidence trick. The lack of oversight and accountability in the US Banking market needs to be addressed or the rescue will be wasted. Closer to home, more could be done about CEO salaries and bonuses but in a free market it will have to be something constructive. Killing the landlord may feel good but it rarely solves the problem.
Prime Minister Kevin Rudd - Keven07 then Kevin 747 and now Rudd Money.
Christmas has come early for many Australians as the Rudd Government tries to prevent a recession. Keen to avoid ‘a recession that we had to have,’ it appears there is the recession that no one wants. The US economy is already in recession with the fear that this will impact upon the whole world. As a result we here in the land of OZ have been punished with lower oil prices, lower interest rates and a raft of government cash bonuses. Pensioners will be getting a $35 hike in the pension, first home buyers grant has been increased and families with Part A benefits from Centrelink will receive $1000 per eligible child. Over $10 Billion of the national surplus is going to be spent on one great big rescue splurge. For some it may appear that we need more meltdown like this. How strange this generosity seems when contrasted with good economic times just a few months ago where Workchoices appeared to punish success and effort.
This spending spree to save us from the consequences irresponsible money management does appear to conflict with logic. We are in essence partying as the economic Titanic sinks slowly. Yet economists on the airwaves do claim that any loss in consumer spending and confidence will drive Australia into recession. It is money that drives the economy and as is so often quoted, ‘It is the economy Stupid.’ If people do not spend, then all industries are affected. Good and services cease to be required and staffing level in those industries need to be rationalized. This means retrenchments, collapsed companies that ultimately fuels high unemployment. A world wide recession magnifies the issue by closing off overseas markets for commodities. Poorer people make for poorer consumers and less consumption means less production. The vicious cycle is that less demand creates less employment, therefore less income to spend, therefore even less demand and so on. In a deep recession this vicious cycle can go on for years until wealth slowly comes back into the mainstream population to the point where some disposable income is available to drive the economy in a positive direction again.
If we look at the Australian economy it has been dependent upon several major industries: the mining boom, the housing market and consumer electronics (Plasma screens, Ipods, computers etc). There is little that can be done if the Chinese decide that they require less iron ore from Australia. Yet the housing market is an area that is an internal market to this country. Another housing boom will mean more housing industry employment and more consumers with pay in their pockets.
The irony is that the cause of the economic disaster was the driver of the US housing boom. Vast amounts of money were being loaned out to people who could not pay back those loans. Very low interest rates were being offered to entice borrowers and in the span of a decade a whole new demographic were buying homes. Had this process occurred in a responsible manner this would have been one of the greatest elevations of poverty in history. Loans were handed out in a predatorily irresponsible manner where signing up the borrower was more important than whether they could pay back the money. Many borrowers were hit as soon as their honeymoon period of low repayments ended and they were suddenly confronted with a huge hike. Others were hit by a clause that required the borrower to refinance their loan after 3 years. Many found that no one would refinance them. The boom became a bust based upon bad debts. More than just losing money, the Banks lost the ability to trust each other.
Booms and busts - Is the cycle as inevitable as Communism claims?
The Rudd Government has moved fast to put money back into the pockets of consumers in the hope that they will spend it. In a way he is ‘operating on the principle that you have to spend money in order to make money.’ This principle is fine as long as you can balance the books afterwards.
There is a new generation of Australians who have no living memory of an economic recession. These include migrants, people up to their mid twenties and younger. For such people it may be perplexing to see unemployment levels rise to 10% followed by deflation in where you least want it and inflation where it most hurts.
If Australia does avoid a recession it will be a mixture of luck and market confidence. We cannot do much about the luck but we can do something about consumer confidence. The money coming from the government is either a rescue plan or just another confidence trick. The lack of oversight and accountability in the US Banking market needs to be addressed or the rescue will be wasted. Closer to home, more could be done about CEO salaries and bonuses but in a free market it will have to be something constructive. Killing the landlord may feel good but it rarely solves the problem.
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Comment by katyzzz
Photography Tips
Health Focus
Poetry Lighthouse
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You have put a lot of time into this post, your efforts are recognised and appreciated at least by me, let's hope there are a lot of other readers out there for you.
I love your heading, it really says it all.
Comment by Damo
For the Sake of Argument
My Apologetics
Thanks for your comments.
Killing the landlord was pretty much a throw away line. So I do not mind being hammered on it.
My thoughts were in two camps on that matter:
First was that often public lynching usually only catch a few bad eggs but leave the corrupt system in tact.
The second was that I would live to see ASIC have some real teeth. Yet I do not want to see the market buried in red tape like it was in India.
Comment by Mr Nice Guy
Pop Culturist
Nice piece
Comment by Damo
For the Sake of Argument
My Apologetics
Thanks for your comments.
I think we would need a complete meltdown before the monster of Communism is brought back to life.
Yet a few old die hards might be salivating at the prospect.
Comment by The wonderful Peter Yang
The wonderful Peter Yang's No.1 blog
The wonderful Peter Yang's Ghost Story Blog
Oh, well, I hope it will all eventually blow pass, quickly.
Cheers
Comment by Damo
For the Sake of Argument
My Apologetics
Thanks for you comments.
I agree with you. I hope it passes soon.
Comment by KylieW
Celebrity Obsession
Comment by Damo
For the Sake of Argument
My Apologetics
Thanks for comments.
There was a time when I would give my eye teeth to have ASIC crush a few head on the stock exchange. (Thieves in three piece suits run free as they spend other people money)
I would like to see some of these insane bonuses regulated and linked to profitable returns on investment. The days of $30 million packages to executives in companies that make only $40 million should have gone years ago.
Comment by D. Armenta
The Florida Keys and Everglades
The Black Sheep Chronicles
What constitutes bad manners?
The male mystique
Debate Fan
L.A.M.P.
I think that all industrial countries should study each others' economic histories and measures and compare notes. A lot of mistakes could be avoided that way.
Comment by Damo
For the Sake of Argument
My Apologetics
Thanks for your comments.
It is strange to see the differences in how capitalism manifests it self in the US and Australia.
I can see that Australia and Europe will be detaching much of their money from the US from now on. Previously over 70% of the world banking passed through the US.
I do not see socialism making a big impact in Australia. The brand name is tarnished.
I do however see a rise in regulation of the stock market and banking.
Comment by D. Armenta
The Florida Keys and Everglades
The Black Sheep Chronicles
What constitutes bad manners?
The male mystique
Debate Fan
L.A.M.P.
Comment by Damo
For the Sake of Argument
My Apologetics
Come the revolution they will all be put up against the wall.
Comment by D. Armenta
The Florida Keys and Everglades
The Black Sheep Chronicles
What constitutes bad manners?
The male mystique
Debate Fan
L.A.M.P.
Comment by Damo
For the Sake of Argument
My Apologetics
As for me. It will be cryptonite