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October 9, 2008
Mike Steketee in The Australian says that Labor governments in Australia are fated to deal with economic crises. He adds, with respect to the current financial crisis and spooked markets, that:
Less than a year in office, the Rudd Government faces the worst episode of global financial instability since the Depression. Its prospects of matching the Scullin government's unenviable record of losing power after one term hang on Australian financial institutions avoiding the collapses suffered by their counterparts overseas and the nation not sliding into recession alongside the rest of the developed world. Whether or not voters blamed the Government directly for a failing economy may be less important than the souring of the political mood that would come with mounting job losses and shrinking personal wealth.
Rudd faces the possibility of being undone by a Depression is the argument. Steketee adds that what the Government can do to influence these events is limited. This is the reality in a world integrated by trade in goods, services and finance and there is no way of insulating Australia against a worldwide recession.
This bleak scenario is then qualified. Australia's cushion is strong growth in China and India, its main banks, are "in first class working order", whilst it has "we have the best regulatory system in the world". It's the standard narrative ---trust our banks---repeated by Steketee without a critical edge.
What of falling house prices? The plunging dollar? The current account deficit? Consumer debt? The focus of this narrative is all on the banks, regulation and easing the liquidity freeze. Have faith in our banks is the sub message and the assumption is that things will return to normal. Yet we have a bursting housing bubble, highly indebted consumers who are facing falling house prices in Sydney and elsewhere, rising unemployment and reductions in household wealth.
What we know is that the long economic expansion in Australia is over. Market prices for coal and iron ore have dropped below the highs established in this year's contract negotiations. That means growth slowing and consumer spending contracting.
What about all the infrastructure spending that is needed to keep Australia growing. Who is going to finance that nation building? The assumption that it will be private public partnerships no longer looks realistic as the private investors flee from risk taking.
Are we looking at a Depression scenario in Australia ? What we can say is that growth slowing, consumer spending is contracting and market prices for coal and iron ore have dropped below the highs established in this year's contract negotiations.
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What about NSW? It is very vulnerable to a deep recession.