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November 09, 2007
If we move behind the twitter of the election campaign and the political chatter about who won the weeks campaign to governance, then we have problems looming on the horizon, which will shape how things will change and the policies required to address them.
Nicholson
The unprecedented resources boom, which is currently dominating the Australian economy and shaping government revenue and polices, will continue due to the charging economies of China and India. So what happens when the boom ends? The campaign twitter and chatter is mostly about the past, a strange rewriting of history that ignores the then regulated economy, and a fetish about interest rates as the sign of economic competence and good governance.
Do not the signs point to adverse economic circumstances?
If rising interest rates do mean more pain for heavily mortgaged households, then those optimists at the Australian Financial Review who write the editorials, say that the interest rate increases do need to be kept in perspective:
a booming economy and a roaring jobs market will make it easier for households to afford them [increased interest rates] by taking on extra employment. Indeed bipartisan welfare to work and tax-cut policies are aimed at making it more attractive for welfare recipients and low and middle income earners to increase their hours of work. Work choices also boosted the supply of unskilled jobs, at least until the fairness test came along.
No worries. We just need some real spending cuts. And climate change? Or upskilling Australians so they can participate in a global information economy? Or developing new green manufacturing industries. Or poverty and social exclusion?
John Quiggin gives a different perspective in an op-ed in the AFR. He says that it seems likely that the long period of cheap money that has driven the Australia's housing boom is drawing to an end, thereby creating a situation where high levels of debt becoming unsustainable and consumer spending and demand is reduced. This tightening process, which is already happening in the twin deficit US, will be influenced by the tightening credit and instability in the US, due to the subprime mortgage fallout.
Nouriel Roubini paints a bleak picture with his argument that the credit crunch in the US is getting much worse and its financial and real fallout will be severe:
The amount of losses that financial institutions have already recognized - $20 billion – is just the very tip of the iceberg of much larger losses that will end up in the hundreds of billions of dollars. At stake – in subprime alone – is about a trillion of sub-prime related RMBS and hundreds of billions of mortgage related CDOs. But calling this crisis a sub-prime meltdown is ludicrous as by now the contagion has seriously spread to near prime and prime mortgages. And it is spreading to subprime and near prime credit cards and auto loans where deliquencies are rising and will sharply rise further in the year ahead. And it is spreading to every corner of the securitized financial system that is either frozen or on the way to freeze:
He adds that the reality is that most financial institutions – banks, commercial banks, pension funds, hedge funds – have barely started to recognize the lower “fair value” of their impaired securities.
Of course US optimists, such as Robert Samuelson, whose weekly Washington Post column regularly appears in the AFR, says the slowdown in the US is not all doom and gloom. There are lots of benefits to a mild recession in a self-adjusting market.
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so according to the AFR, they think that my spending capacity will increase because of higher employment? and tax cuts around or below inflation mean that i'm going to work longer hours for the pay i already receive, or go out and get a second job?
what utter codswallop! this analysis doesn't have a leg to stand on. it's embarrassing to be treated with such contempt and just highlights that the journalists peddling this nonsense either don't know what they're talking about or are in cahoots with the political parties to dupe the public.