Home > Finance, Government > Australia’s Economic Storm: If only it were real rain

Australia’s Economic Storm: If only it were real rain

Where will the lightning strike?

Where will the lightning strike?

First Drops of Rain

As predicted, the world economic storm has become more than a mere shadow over Australia’s immediate future, as ABC News (Australia) reports:

The International Monetary Fund has drastically downgraded its outlook for the Australian economy, forecasting it will contract by 1.4 per cent this year before growing slightly again next year.

Their estimations are that the US will contract by 4% in 2009, making Australia look good in comparison, but Australia’s situation is not necessarily better. Everything just seems to happen later here.

Tax revenue is falling like a stone, making the indiscriminate Rudd cash stimuli (nicknamed the RuddBank) impossible to fund on anything other than debt. From a Chinese source, as it happens. The problem is that Australia is receiving paper money, but that China will want something more substantial, more tangible in return, such as assets, foreign policy decisions, even domestic policy changes. Such is our patriotism that the idea of a kind of one-child policy for Australia is actually being discussed. Freudian slip, perhaps?

It’s also becoming clearer by the day that the housing market is being propped up by artificial interventions such as the First Homebuyer’s Grant and mortgage relief programs for the unemployed, which are around the corner. The sub-prime mortgages in the US were simply a way of propping up (and worsening) a housing bubble by making the purchase of housing on debt an irresistible prospect for the soon-to-be unemployed. The current Australian Government’s fiddling with the housing market will have the same effect. Sure, it is not causing rises in housing prices, but it is hiding the true bottom of the market, which is falling away silently in the background.

The one big thing missing in Australia so far is to wake up one morning and find that one of the giants of the economic landscape turned out to be a huge fraud, wiping out thousands of investors in one fell swoop. The ANZ Bank was looking like a possibility in this regard late last year. It was said to have the largest international exposure to the economic downturn, when compared with the other three large banks. However, recent reports suggest that the opposite might be true, that the Big Four have come out stronger than ever before, as they buy up assets around the place which have been put up for sale by other struggling banks, including the smaller ones in Australia. There are a lot of unknowns in all of this – many balls in the air, as it were. It smells like the banks are still quite vulnerable, however, with the Government being ever so eager to prop them up, especially in the real estate sector.

As was stated in previous posts, we are experiencing the calm before the storm in Australia. News abounds on just how bad the USA is faring, with ‘tea parties’ all over the place and the possibility of dissolution of the Union getting a mention here and there on the mainstream media. A lot of that is staged and therefore meaningless, but a groundswell of genuine discontent is building rapidly. Yet still the politicians and talking heads pretend that Australia doesn’t have a problem, that the nation will pull through with a few little bumps but not much else. This view is ridiculously optimistic.

Conflicting Interests

The differences in economic opinion between, for example, the IMF and politicians, occur because of differences in points of view. That is, each source has a different aim and will tend to report the things it wants to believe. The IMF stands to gain from the global recession, whereas politicians stand to lose. Therefore, the IMF will choose to ignore the stock market rally in the US and the politicians will try to take credit for it, even though the entire thing way out of their control at this point.

This illustrates one of the difficulties in judging the economic situation in Australia. The useful data is outdated and current information comes from biased sources.

Our prime minister is a bit like a real estate salesman, desperately trying to talk up a barren, rocky wasteland as a development opportunity of a lifetime, with the building materials (rocks) all ready for your dream home, no neighbors or traffic noise (middle of nowhere), and so on. Sure, it’s a rocky wasteland, he says (so you can’t quote him later that he lied) but imagine the possibilities! It’s no surprise that the only customers coming to help Rudd are those who don’t want to be part of the neighborhood (we think) but plan to come in, take the rocks away, and leave the sand behind. A real estate agent does not care what the place gets used for as long as it sells. Neither do politicians, as a general rule.

The IMF, on the other hand, is a bank – hard nosed and greedy. Banks, too, have their sales pitch of walking hand in hand with little battlers, helping them realize their dreams, but in the end they are still banks, out to make money for their shareholders. And when there is more money than can be counted, that money turns to power, influence and control. The IMF has designs to manage the world on every level, through de facto ownership of key infrastructure and government assets. The International Monetary Fund is therefore not an objective source of world economic opinion. It has a vested interest in things being really really bad, as is shown by an eagerness to unify world currencies (under its own banner) and to become an issuer of money to the developed world as well as the developing world. The IMF stands to gain a lot from economic badness. It is also a private organization, let’s not forget, and is unlikely to descend upon the chaotic world as a knight in shining armor, eager to spread democracy and fairness.

Which weatherman do we believe?

We can safely say that neither is to be believed to any great extent. The nose knows.

If we ignore the media and look at what is going on in the street, we can already see people getting irate, complaining of having too little money and feeling some economic strain. People are spending more of their money on groceries and less of it on non edible stuff. This is because the price of groceries is rising, leaving less money for toys, bikes and other discretionary items. The shift in spending habits precedes the eventual fall in total spending, which will come as a result of unemployment and the drying up of stimulus money. Staff in supermarkets are already under pressure, with reduced numbers on the floor and increasing workloads. In other stores, staff are failing to meet sales quotas and are gradually being laid off.

To stretch the weather analogy to its limit, all of this is like a cloud that has passed the brink of precipitation. The droplets of rain now falling are the heralds of a coming economic deluge.

If only it were real rain!

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