Unions Double Down To Fuel Recessionary Pressures

WITH A RECESSION looming for the first time in decades — and with it, if it comes to pass, hardship of the kind few under 40 have experienced or can envisage — Australia’s unions are doing their bit to fuel recessionary pressures, demonstrating their real economic value in the process: their propaganda and rhetoric simply don’t add up, but their greedy, job-destroying, economic vandalism is tangible, and its likely consequences all too clear.

Everywhere you look in Australia today, the pointers to a recession are unmistakable, and whilst a cynic might suggest Labor and the unions are only too happy to see a vicious economic contraction materialise and engulf their hated Abbott government in a political backlash that sweeps it from office, such a prospect amounts to a classic case of being careful what one wishes for.

I think — or at least, I’d like to think — that even a movement as utterly devoid of ethics and morals as Australia’s unions has enough invested in the avoidance of a recession that such a scenario ought to be left unsaid, and that to even contemplate the possibility the union movement would actively foment economic malaise should be able to discarded as baseless musings.

Yet the catalogue of unions’ recent economically destructive antics is thickening, and about the most generous conclusion a reasonable individual could draw from them is that at the very minimum, the unions simply couldn’t care whether their handiwork stokes recessionary forces or not.

Taken in concert with the unmistakable criminality being uncovered in the most militant unions in the country and involving some of their most malevolent and brutal mouthpieces, it is difficult to ascribe any value — economic, industrial, social or otherwise — to the union movement in Australia more broadly at all.

And that — notwithstanding the fact I detest unions — is a slap in the face to those who really do depend on them on account of their inability to represent themselves.

Following my article on Thursday — arguing that those elected to their Canberra sinecures have an obligation, in the face of perhaps imminent recession, to grow up and behave with some modicum of responsibility — I’ve been reading a piece in the Sydney Morning Herald this morning from respected economics writer Jessica Irvine; Irvine — who spent two years in a detour through News Corp until late last year — is a voice of astute judgement and common sense within the moribund Fairfax monolith, and I am featuring her article today because for once Uncle Fairfax has nailed the point.

There is an atmosphere around the small-medium business community at present that is reminiscent of the gloom that descended on Australia in 2009 as the Global Financial Crisis bit locally, only this time it is much more intense; it has been particularly noticeable to those of us who work in sales and marketing in the advertising/media space (which in turn provides one of the indicators of economic activity that is scrutinised for signs of movement in the economy) for much of calendar 2015.

And as one of the senior economists Irvine interviewed for her piece today — Laminar Capital chief economist Stephen Roberts — observed, there is a lag between the onset of actual recession and the time it ultimately shows up in GDP numbers, and by then of course, it’s too late to avoid it.

It needs to be remembered that even economists charged with assessing key indicators try to avoid talking the country’s economic prospects down, which is one of the reasons Irvine’s article asserts that “no-one’s using the ‘R’ word just yet:” and for the same reasons, I don’t want to be seen to unduly talking them down either.

Yet by the same token, the markers pointing in the wrong direction are simply becoming too numerous and pronounced to ignore, which is why I am beginning to think a recession is likely, probably imminent, and quite plausibly devastating.

And this is why I think it’s responsible — especially for those of us not directly involved in processes of governance — to talk about an increasingly likely recession now, rather than waiting until it’s already engulfed Australia before any consideration of how to deal with it is deemed an acceptable subject for public discourse.

In some respects, the forces that fuel boom and bust cycles in Australia are beyond local influence: the heavy recessions in Europe and the USA in the early 1980s and 1990s, for example, that took us with them, or the series of oil shocks in the 1970s that ultimately plunged the West into a slump.

External factors have insulated Australia, too, in recent times; the record boom in commodity investment and exports that was a direct result of unprecedented growth and demand from China is a case in point.

And closer to home, the debt-free, robust state in which the local economy was left by the Howard government not only helped fend off the “great recession” that followed the GFC, but provided unrivalled tools for government and the Reserve Bank to use in attempts to ensure the contraction didn’t take this country backwards (although that doesn’t change the fact the Rudd government’s so-called stimuli were poorly targeted, wasteful, and unacceptably expensive, or that the prospect of a downturn back then continues to be used by the ALP to this day as a fig leaf to explain away its abysmal mismanagement of the federal budget and the hundreds of billions of dollars of debt inexcusably racked up on its watch).

But today I want to highlight some of the recent activities of Australia’s unions, and how — if a recession in Australia comes to pass late this year or at some time next — that execrable movement will wear direct responsibility for at least a portion of the causative damage.

It is rare that Australia has ever seen an entity that is simultaneously as consumed with utter self-interest, hellbent on destroying a government at any cost and able to exercise economic muscle as the current incarnation of Australia’s unions, but this behemoth — which spruiks its “responsibility” and a “legitimate” role in the affairs of the nation — has chosen to exercise that muscle to cause trouble at an already parlous time, and it seems to have forgotten that its mischief in the states (including Labor states) all feeds into the overall national economic outcome.

I raise the states because the Rail, Tram and Bus Union has over the past month been taking steps to wreak public transport chaos in metropolitan Melbourne; to date the disruption has been minimal — although any disruption through union militancy is too much — and revisiting the scenario of the early 1990s when the Cain-Kirner government lost control of public transport unions in Melbourne altogether, as the CBD ground to a halt with trams clogging city streets from one end to another, has already been raised.

This is relevant because at a time of marginal economic conditions, every impost on economic activity counts; I don’t have figures on how much a transport strike costs in lost productivity and absenteeism caused through ordinary people being unable to get to their places of work, but it adds up.

And what is the outburst of militancy in Melbourne about? A refusal to accept a proposed pay rise of 17% over four years, which is 17% more than some employees will ever see; it is simply not good enough to justify this sort of adventurism through bald assertions that union membership delivers members more money: there is always a price, and in this case those who pay it are those responsible for generating the pie in the first place that greedy unions want more of than conditions warrant.

The RTBU has been parading what it clearly sees is its secret public relations weapon in the form of its stunning, beautiful 30-year-old secretary, Luba Grigorovitch, who is walking proof of the dangers of judging a book by its cover; a pretty face and an appealing voice she may have, but Grigorovitch exudes every sign of maturing into a nasty, conceited extremist in the worst traditions of the excesses of the trade union movement.

And proof of it came yesterday at a rally for striking train workers, when — sharing a podium at Trades Hall in Carlton with Grigorovitch — notorious CFMEU chief John Setka ranted that the looming AFL finals series offered a “wonderful time” for a train strike; Grigorovitch (either egged on by the company she was keeping or perhaps attempting to look as brazenly “tough” in his eyes) claimed she would have no hesitation calling on a public transport strike that wreaked havoc on the AFL finals, Melbourne’s eight-week Spring Racing carnival, and the Royal Melbourne Show.

CFMEU’s John Setka and Rail, Tram and Bus Union secretary Luba Grigorovitch.

NOTHING TO RECOMMEND THEM…notorious CFMEU thug Jon Setka and his beautiful but economically insidious understudy, Luba Grigorovitch. (Picture: Herald Sun)

What Setka was even doing addressing a rally for train drivers is anyone’s guess; they don’t fall within the remit of his own thuggish union.

But Victoria, like Queensland, is effectively a CFMEU-run state, courtesy of the money and might the union expended in getting the ALP elected; Setka clearly sees Melbourne as his fiefdom, and arrogates to himself the freedom to operate wherever, whenever, however, and roughshod over whomever he sees fit.

It is telling he described figures in the Victorian government as “morons:” it isn’t as if the Andrews government hasn’t bent Victoria over on the behalf of unions since it was elected.

But in a sinister warning for anyone contemplating voting Labor everywhere in Australia, this CFMEU involvement in a dispute involving another union brutally demonstrates that unless it gets 100% of any ransom list of demands it cares to name, all hell will break loose — even if it’s a Labor government that gets caught in the crossfire.

Again, it speaks to the anachronistic irrelevance of unions in modern Australia, and the extent to which they have departed their historic mission of simply advocating with an employer on behalf of their members.

Crippling Melbourne doesn’t fit that historic brief.

And for those who think I’m off on a tangent, I would point out that Melbourne’s calendar of Spring events is the pinnacle of the sporting calendar in this country; it generates billions of dollars in economic activity, and keeps thousands of people employed in tourism, retail, hospitality and accommodation, and spills into the wider economy nationally. Right now, trashing it in the name of petty and unreasonable union demands is a price Victoria — and the country — simply can’t afford.

Anyone swayed by what Grigorovitch looks like should put their eyes back in their head, and use their brains.

But what is going on in Melbourne (and we haven’t touched on the thousands of construction jobs that have been lost as a result of the union/Labor campaign against the former Napthine government’s East-West Link and the vast economic benefits it would have generated) pales in comparison to federal Labor’s reprehensible attempts to torpedo the free trade agreement Trade minister Andrew Robb has painstakingly negotiated between Australia and China.

This praiseworthy (if imperfect) deal will, if ratified, ensure open access for the export of goods and services to a market comprising hundreds of millions of Chinese consumers; to date the federal Coalition, the Liberal and National parties federally, all of the state Labor Premiers and the business community all support the deal, which only a fool would deny offers the ability to generate Australian jobs and economic activity.

Headed into a recession, it’s a significant consideration.

But lined up against it are federal Labor “leader” Bill Shorten — justifying, yet again, the moniker of “Billy Bullshit” his policy vapidity has come to earn him — and (surprise, surprise) the more militant of the country’s unions, including the CFMEU, which claims (despite the safeguard that Chinese workers who come to Australia under the agreement must be paid at local Australian rates) that the FTA would flood Australia with cheap Chinese labour working for a fraction of the conditions mandated by law, and creating millions of new Australian unemployed.

“Bullshit” doesn’t even come close to describing it.

The CFMEU, for what it is worth, has been running — paid for from the membership dues of its members — a series of xenophobic television commercials in metropolitan markets against the FTA which are almost completely devoid of any fact, and which border on racist, but never mind that. Torpedoing the FTA will hand the Abbott government an international humiliation and rob it of a potential plank for firing up the economy. The potential for damaging the hated conservatives is irresistible to the CFMEU. The cost in jobs, productivity and benefits to the country are irrelevant to it.

And in a pathetic effort to add “credibility” to an already lacklustre and deceptive argument, the unions have seen fit to co-opt “the head of the global trade union movement” — general secretary of the International Trade Union Confederation and business-hating former ACTU head, Sharan Burrow — to provide a few contemptible soundbites to add support to the union/Shorten position where there is none: and there are good reasons none exists otherwise.

To be sure, Burrow adds no “global” credibility or imprimatur whatsoever.

Like Shorten himself, Burrow is just another washed up union hack who has spent a lifetime working to destroy Coalition governments, and to shaft businesses in the name of “workers’ rights,” and should be ignored. Hers is not a voice worth paying attention to.

In the end, we’ve looked at just a couple of examples of “the union way” today but they are important, because they speak to the general modus operandi of the movement as a whole.

We have a Royal Commission that is uncovering evidence of widespread fraud, extortion, blackmail and embezzlement; evidence of systemic and institutionalised violence in the way some unions conduct their business; evidence of unions fattening the exchequer through shady (and potentially illegal) side deals with employers, whilst the pay of their members is slashed; and we have unions which, with complete disregard for anything and anyone other than the gathering and exercising of power, are prepared to bring the country to a halt to achieve their objectives: the kind of thing that should have died out in the 1970s.

Australia faces real challenges in the next couple of years. A recession is probable. A lot of people will involuntarily experience real hardship, and many will go bankrupt. Some will kill themselves to escape the stress. We know all of this because it’s what happened in the early 1990s, and the early 1980s, and every other time there has been a recession in this country.

A responsible union movement — like a responsible ALP — would be rising to the challenge of behaving in the national interest rather than its own.

But just as Labor under Shorten is obsessed with the destruction of the Abbott government for no better reason than to get the arses of its henchmen back into the gravy, so too is the union movement hellbent on demonstrating who’s boss: and in their eyes, it is nobody other than the “class” carrying a union ticket.

Aside from the obvious threat of prosecution, it’s another reason the unions are so hellbent on shutting down the Heydon inquiry: nobody tells them what they can and can’t do; not the law of the land, and certainly not a distinguished former High Court judge. To delusional unions and the sacks of shit who run them, Trades Hall sits at the very apex of society and governance in this country when in fact — representing just one employee in seven — it is little better than irrelevant.

Nobody denies the unions have much to be proud of over their history, or that they can rightly claim a proactive role in helping to shape modern Australia. In many respects, their willingness to work soberly and constructively with the Hawke government represented the zenith of their influence, prestige and credibility.

But from the infamous day in 1996 that ACTU thugs picketed a meeting at Parliament House between then-Prime Minister John Howard and their own leaders onwards, it has been downhill ever since.

Now, it has reached the point where union involvement in virtually anything runs counter to every conceivable interest but their own — except, of course, where the electoral fortunes of their stooges at the ALP are concerned. Even that is aimed purely at the concentration and extension of union power.

There is a recession coming. The unions will be central to the economic turbulence fast heading Australia’s way. But will an ounce of positive resolution emanate from Trades Hall when it hits?

Don’t count on it for a moment.

 

AND ANOTHER THING: Post-publication of this article, I’ve seen one of my favourite columnists — Piers Akerman at Sydney’s Daily Telegraph — has today also published on the subject of the unions, the CFMEU particularly, its campaign against the FTA with China, and the weasel words of Billy Bullshit in seeking to prosecute that campaign: framed in the context of the by-election for the Western Australian electorate of Canning, it’s well worth a read.

Nearing Recession, Canberra Must Clean Up Its Act

SOBERING news yesterday of GDP growth for the June quarter of 0.2% — half the expectation of economists — and 2% for the year to that point should ring alarm bells in Canberra; whilst any recession in Australia will owe much to external factors (they usually do) local politicians can nonetheless work to avert or limit the damage. To this end, both Liberal and Labor parties, to say nothing of the Senate crossbench, must clean up their act.

At the outset, I should note I am well aware that politicians of all stripes (or at least, where the major parties are concerned) avoid “talking down” the economy like bubonic plague; on the other hand, readers of this column have come to expect nothing other than blunt candour where my views are concerned — and this candour, increasingly, has applied to my assessment of both the main parties — and so today I am simply going to stick to the subject at hand, and call it as I see it.

Before anyone gets too excited, the darkening economic outlook is simultaneously the fault of both major parties (if anyone must be blamed) and has as much to do with uncontrollable external factors as it does with any avoidable missteps at home, and I say that not to defend the Liberal Party, but to make the point that shortsightedness is a unilateral commodity in Australian politics these days, but even that sin often lacks efficacy in the face of global headwinds.

The news that Australian economic output slumped to just 0.2% in the June quarter (and an annualised rate of 2%) should serve as potent notice that for the first time in almost quarter of a century, this country is lurching toward recession; whilst it’s a vain hope in the present gladiatorial environment in Canberra, it’s not possible to pin “blame” for any contraction on one party or the other, and the temptation should be resisted.

But it won’t be, so let’s talk about it a little.

The obvious point to make is that the collapse in commodity prices over the past couple of years has amounted to a double whammy, as billions of dollars in receipts have been stripped from government coffers in addition to the billions in investment money that has dried up in the wider economy; the unemployment rate has proven a prescient indicator of this process, inching upwards as business confidence slowly evaporates, and taking consumer confidence with it.

And of course, every job that disappears also costs the country twice: once in the disappearance of tax payments and consumer spending, and one through the cost of any welfare payments it triggers.

I spend a lot of time in the course of things talking to people from all walks of life — businesspeople, those in the public sector, certain politicians, other media people, ordinary voters — and stripped of the BS that anyone can find if they go looking for quotes from government sources, the economic mood seems as ambivalent now as it has been for many, many years: and even during the Global Financial Crisis there was a sense the mining sector would somehow pull Australia through without a great deal of damage (which it did) that is markedly absent now.

Even so, more than a hundred billion dollars of poorly targeted “stimulus” money thrown around at that time by the Rudd government (and the consequent $350 billion debt pile inherited by the Coalition where none existed beforehand) has left the Commonwealth poorly placed to make any significant attempt to spend the country out of any recession that occurs, and I would make the point that loading up on even more debt now to try to cushion any economic blow will simply make an awful lot more pain later mandatory: and with the irresponsible and thoroughly reprehensible approach of the ALP to budget management and government debt a constant whether it sits in office or opposition, the kind of austerity that would be required down the track to fix the legacy of such largesse would probably never eventuate — and that would be a problem for a whole other set of reasons.

There are, to be sure, some factors at play that will work to ameliorate any recession and arguably truncate it; the Australian dollar — already down 30% from its post-float highs — is as we speak slipping above and below the 70c mark against the US dollar; widely tipped to fall another eight to ten cents against the greenback, the dollar is a potent factor in making Australia more competitive internationally whilst cutting the price of our goods and services on world markets.

Similarly, official Australian interest rates — stuck since May at an all-time low of 2% — are effectively leaving more disposable income in the bank accounts of home buyers, and whilst it remains to be seen whether any consequent discretionary spending results from this, boosting economic activity (and consumer confidence, it must be noted, isn’t what you’d call startling), it at least means that households with mortgages are better able to either save, pay down debt or to spend in the present environment than they have ever been: and whichever way you cut it, those activities too are useful at a time of economic torpor.

And for someone I’ve felt the need to be so critical of, Joe Hockey may have helped to stave off trouble too with a mildly expansionary budget this year, offering instant write-offs of purchases up to $20,000 per item to small business; at a time of economic trouble every bit helps when it comes to firing up activity, although it’s a fair bet the income tax cuts Hockey has unwisely bandied around won’t be forthcoming any time soon: and if they are promised, they should be believed with the utmost of caution.

Yet these things can’t counter the fact that thanks to profligate recurrent government spending — by both sides of politics at various times, and by the states as well as the Commonwealth — and by virtue of the dangerously ballooning structural deficit in federal finances, Australia comes out of a prolonged period of economic growth, underpinned by a lengthy boom in commodity prices, in very poor shape to weather a protracted recession of significant depth.

But that is the situation this country faces, as economic growth in China slows to below 5% annually, and with other so-called “Asian tiger” economies also lagging; Japan — still the world’s fourth-largest economy — continues to languish in stagflation, whilst our other key trading market in the US is growing, but of less consequence to Australia than it used to be now our exposure to Asia (and China especially) has grown as it has.

By contrast, the UK — once upon a time Australia’s most important export market — is booming, with the British economy growing faster now than any other OECD country. Yet there are lessons from the UK that can be applied here in Australia, and it is here that the economics of any downturn intersect with the domestic politics of one: and it is here that Australia’s supposed “miracle economy” is about to be exposed as severely tarnished.

Quite simply, the Cameron government — admittedly in a coalition of inconvenience with the Liberal Democrats — spent its first term in office cutting handouts, slashing politically motivated spending, implementing modest tax rises (mainly on consumption) and delivering matching modest cuts to income tax, and doing at least one thing it was elected for: to fix the British budget, which was left in far worse shape by British Labour than anything Wayne Swan could have hoped in his wildest dreams to have sabotaged, and readying to redress a similarly bloated national debt pile — which obscenely stood, the day Gordon Brown was unceremoniously dumped from 10 Downing Street, at some £1.5 trillion.

The outright re-election of Cameron’s Tory Party in May is evidence, were it even required, that a government administering tough and unpopular reforms, provided it is open with the public and explains what it is doing and why, can easily achieve re-election. But the tough reforms also need to be the right reforms (and Hockey’s 2014 budget was nothing of the sort), although even if they were the ALP would still have led a cynically populist charge to obliterate them in the interests of its insatiable lust for power at literally any cost.

Here in Australia, of course, the common ground we share with Britain is a federal budget plunged into a structural abyss by Labor, with rampant recurrent spending running out of control and a debt pile that continues to spiral: but unlike the UK, we also have a Senate — dominated by Labor, the Communist Party Greens and a motley assortment of whichever single-issue cross benchers wish to oppose the government at any given time — that has singularly and spectacularly failed to permit the Abbott government making any serious attempt at fixing the damage so ruinously bequeathed by the Rudd-Gillard-Swan Labor government.

Where I am heading here isn’t to rip into the ALP and its resident intellectual cripple, Swan, not that there is anything wrong with doing so, of course; rather, there is a shining example of what happens when the hatches are battened down and genuine repair work is enacted on a budget — and the booming British economy is proof that the pain is worth the gain — and that in any case, both sides of politics actually have a duty to do whatever they can to ensure what I think could be a pretty vicious downturn is dealt with by making the reforms a hostile Senate has to date cynically refused to allow.

One thing that is likely if the bust really hits is that the correction in Australian property markets — which should have happened during the GFC, but which was largely staved off through stimulus spending — will finally arrive, and rather than using public money to try to avert it for fear of the political consequences, whomever is in government when it hits must allow that correction to happen: property markets in this country, heavily skewed to speculation and open to non-residents to distort by making acquisitions that drive up prices, are so overblown that if the bubble bursts, no attempt should be made to stop it.

If people get their fingers burned, that’s commercial reality: there is no right or entitlement to immunity from economic trouble or bad investments; and in any case, if people who lose money on a property bust are so leveraged that a recession takes them under, I would contend it’s their own greed and lack of judgement that stopped them taking huge paper profits (built on the backs of those who can’t afford to enter the market at all) when they should have, and that they have no right to complain.

Still, the swathe of state and federal first home buyers’ schemes — all of which have helped fuel the inflation of the property bubble — should all be abolished; for one thing, it would save a lot of money; for another, the original idea, whilst worthy, has arguably had the opposite effect to the intended help for people to buy housing at all.

Heading into stormy waters, the need to toss Hockey overboard is now past due; unimpressive in office to date and unable to deliver meaningful outcomes as Treasurer when conditions were comparatively benign, there is no reason for Australians to have a shred of confidence in him now the weather has turned: come on down, Malcolm Turnbull or Scott Morrison.

And in case Labor-oriented readers think I’m handing them a free kick, the ALP doesn’t boast a single MP in its ranks with the requisite nous to do the job: Chris Bowen is a red herring and a slogan-regurgitating embodiment of the Keynesian ideas that trashed Australia’s envied international position in the first place; Penny Wong is useless, and as Finance minister presided over a debt blowout that ran into the hundreds of billions of dollars; Swan himself is so incompetent where money matters are concerned he simply shouldn’t be mentioned in the same sentence as the term “economic management;” and as for the rest of them, Labor couldn’t produce a capable Treasurer from an aggregation of the financial nous of the lot.

Today’s piece is intended not so much as to advance a particular argument or position as to raise the curtain on a subject we all knew would present itself sooner or later; after almost a quarter of a century of uninterrupted growth, a recession was always going to be a matter of “when” and not “if.”

Regrettably, I don’t think this will be the last time we talk about recession in Australia — far from it.

But aside from a new Treasurer, those who govern (as well as those who oppose) would do best to abandon the tactics of the schoolkid and the bully, and embrace some responsibility and principle — and that does actually apply to those on the Left more so than the Right, although nobody is blameless.

And the Senate — as much fun as there might be to be had in trying to destroy the Abbott government — would be best served coming to some kind of consensus built not around trying to sabotage and/or emasculate the government’s legislative program, but to enable as much of any eventual response to pass as possible: even if some minor tweaks are needed to render aspects of it less unpalatable to some of the ideological basket cases who sit in the upper House.

I am fast warming to the argument that if reasonable reform of the Senate proves impossible — or if attempts to pursue it are abandoned — then a debate that might instead be worth having centres on whether it should be abolished altogether; not, perhaps, an ideal scenario, but the Senate is being used in ways it was never intended to be, and the abuse of that chamber (right down to the series of “reforms” made by successive Labor governments last century to rig it against conservatives) simply has to stop.

If the looming recession really does hit with full force and great fury, the Senate will have a role to play in any government response; its crossbenchers and the opposition parties have already shown themselves incapable of acting with any decorum or maturity when things are reasonably good, but should they continue to do so in the depths of a recession, then abolishing the Senate just might have to be the first order of business for any government inclined to argue the case at a referendum.

 

Is The Australian Economy About To Hit The Skids?

FORTUNE may be smiling on Tony Abbott in more ways than one; a softening world economy could suggest the coming election as a good one to lose. But with a reviled and politically discredited government set to be ejected from office in a landslide, Labor would make an easy scapegoat for any recession.

Most readers will by now have heard me say several times that I believe the Australian economy — the resources sector excluded — is already in recession, and probably quite heavily so.

Nobody, and least of all the self-important know-it-all Treasurer Wayne Swan, has made any pretence to contradict the contention that the minerals and energy sector has been holding Australia’s economic performance aloft for many years now.

I read an article by Terry McCrann in Brisbane’s Courier Mail during the week (and quite probably carried by other News Ltd titles as well) which makes the case, and compellingly so, that the proverbial backside is about to fall out of that sector of the economy too.

The orthodox wisdom would be that a recession (an officially announced one, that is, of two quarters of negative economic growth) inside the first year of an Abbott government would see the Liberals blamed for it.

The political times, however, are anything but orthodox.

I tend to think a recession — after Labor has left office — is probably the final, devastating blow post mortem that could be inflicted on the ALP and its reputation (such as it is) for economic management.

Ironically, one of the strongest factors to substantiate this lies in the so-called Global Financial Crisis, which struck during the first year in office of the Rudd government, and Labor’s handling of it — or at least its trumpeting of same ever since.

By consensus, it is recognised that the GFC was an externally driven event; that is, it would have occurred irrespective of who occupied the Treasury benches in Canberra at that time.

By shovelling some $47 billion at the economy (and voters directly) under the auspices of “stimulus,” Rudd and Swan were able to point to an Australian economy unique among developed nations in averting a recession as a result of the GFC.

Nonetheless, it was a damned-close run thing: one-quarter of negative growth, followed by another in which the economy recorded growth of just 0.1%.

Whether the Rudd government’s actions had anything to do with avoiding recession, or whether it was simply the case the mining industry would have taken care of that on its own at that time, remains a moot point.

But the $47 billion in (often rorted and abused) stimulus spending set in train a behaviour pattern that has since seen the Rudd-Gillard government rack up another $200 billion or so in additional debt since the GFC in 2008.

Swan, in particular, has dishonestly and consistently tried ever since to convince anyone who would listen that the Australian economy has faced a revenue problem, and that government receipts collapsed in 2008 and have never really recovered.

His own budget documents, however, show that revenue has increased by an average 7% each year since the ALP took office — despite the GFC — and that they increased by that amount in the past year despite Swan tabling a budget that included an $18 billion deficit.

So the problem isn’t revenue at all; it’s spending. This is a critical point we’ll come back to.

Bristling with class envy and resentment, the ALP under both Rudd and Gillard set about finding a way reap billions of additional tax dollars from the mining sector to help offset the profligate and uncontrollable spending spree to which it had become addicted.

It is a matter of record that the mining tax, in its first full year of operation, has raised next to no money.

Yet the damage was done, as fears of sovereign risk and considerations of increasing costs and regulation punctured confidence within the industry.

Investment in mining projects began to fall, and some projects worth tens of billions of dollars in foreign investment and orders were simply abandoned.

Today, we face a major trading partner in the US, whose economy is finally showing signs of sustained growth after six years of torpor.

This would ordinarily be a good thing, except for the fact — as highlighted by McCrann — that the US is also flooding world commodity markets with the same resources, and in huge quantities, that Australia’s minerals boom has been predicated upon.

Between the mining tax and the carbon tax, Australia has become far less competitive as a supplier of minerals and ores on world markets. The falling value of our dollar — if sustained — will ameliorate the effect of these to a point, but until they are abolished these measures will remain a killer of primary sector activity.

This is exacerbated by the fact that China — long the reason a mining boom took off in the first place — has been deliberately slowing its economy, with the direct consequence that the appetite of is industrial sector for raw Australian materials has eased.

And whilst the re-emergence of the US will do little to assist the sector, it’s a problem compounded by the fact Japan — traditionally another key destination for Australian materials — remains moribund economically, with continuing weak demand for the kind of things Australia has to sell.

Further afield, Europe is almost a basket case, despite signs that the UK economy is coming back to life; the EU remains a key destination for Australian exports, but the Eurozone as a whole is depressed, and hardly a growth market for Australian product.

It needs to be remembered, too, that just as we sell resources and mineral ores, so do South Africa, a number of countries in South America, and the US — which means there are just as many players (if not more, counting the US coal and shale gas industries) competing for larger slices of a rapidly shrinking pie.

This is where the discussion of government debt comes into play, and why Labor will be damned for the coming recession in Australia long after it has been removed from government.

As the Australian dollar falls, it is true our exports will become more competitive in price; the flipside is that with most government debt priced in US dollars, falls in the value of our currency increase the amount that must be paid to service or retire that debt.

Interest rates in Australia are already low — historically low — and despite the bleating of Swan, they are low because the economy, mining sector excluded, is virtually moribund.

We are already seeing sharp falls in company profits from the first firms reporting this financial season, and unemployment is beginning to rise despite this government fiddling the method by which unemployment numbers are calculated to push them downward.

If the economy plunges into official recession, at some point the Reserve Bank will need to lift interest rates to support the currency to contain the amount of money required to make interest payments on government debts. Even now, with the dollar still near parity with its US counterpart, the annual interest bill is $7 billion, and rising.

And this is the point.

Australia might have low debt “by international standards” — a cavalier justification for mismanagement indeed — but those debts are already high enough to cost $7 billion per year to service with a currency near parity, and stand to become more expensive in proportion to whatever degree the dollar falls against the greenback.

Add into this mix steep rises in unemployment and the consequent explosion in the nation’s welfare bill, along with falling corporate profits that lead to a real decline in Commonwealth revenue rather than an imagined one, and the economic picture that begins to emerge is bleak indeed.

In such a situation, the capacity of a government — any government — to respond with stimulatory measures would be hamstrung; with a budget already in heavy structural deficit and an interest bill on existing borrowings making additional loans punitively expensive, the effects of such a recession would be brutal, savage, and enduring.

You’d think this might be a good election, viewed this way, to lose; but the irony is that by having created the environment in which such a scenario may well emerge, Labor will attract only the blame for any recession rather than obtaining a political weapon with which to try to beat its way back into office.

Indeed, such a recession could entrench the Liberal Party in government for decades, as the memory of Labor mismanagement is endlessly recycled for public consumption in a campaign strategy the ALP would have no answer for.

It’s a salutary warning to Labor types every time they run around, publicly thumping their chests, and holding up their economic management “credentials” during the GFC as proof of their fitness to govern.

It’s perverse, but those stimulus measures have likely exacerbated the severity of any recession Australia might suffer.

And whilst it’s an old story, the ALP’s eternal penchant for taxing and spending like drunken sailors, racking up enormous public debt for someone else to clean up, won’t help.

This time, the recession will be impossible to avoid, and it will make anything Rudd, Gillard and Swan think they have to boast about pale in comparison.

If the Liberal Party is able to show a causal link between a collapse in the mining sector and the recession that results from it and Labor’s taxation and borrowing practices, the next Labor government will be a long time coming.

And in a final, exquisite irony, had that $200 billion in extra debt gone to finance roads, rail, and other desperately needed infrastructure — rather than paying for more public servants, pay rises for public servants, spending programs delivering little benefit, and to finance economy-dampening measures to suit the unions’ wishes — then employment in Australia would be booming, irrespective of what might transpire in the mining sector.

Trouble Ahead As France And Greece Vote For Economic Chaos

Elections overnight (AEST) in France and Greece raise the prospect of the collapse of the Eurozone and a consequent world recession; voters in those countries might be pleased with themselves, but the rest of us should worry. This could get very, very ugly.

I would begin my remarks today with an observation: nobody really likes or enjoys economic austerity; only a masochist believes that slashing government spending to the point it begins to kill off economic activity is the prizewinning formula on a permanent, ongoing basis by which to govern.

But that observation is tempered by a reality: around the world, in liberal democratic systems of governance, electorates that are politically aware but mostly economically ignorant vote time and again for predominantly left-of-centre governments who engage in profligate spending, accompanied by exorbitant taxation and/or foreign debt.

Eventually the consequences of such governments must be addressed and the damage repaired, but in 100% of cases the same electorates will vote for a return to the spending-based model at the earliest opportunity — irrespective of whether such activity is sustainable or not.

And so it has come to pass in two constituent countries of what is increasingly the basket case that is Europe; in France, a new Socialist president — whose economic pledges essentially boil down to a promise to “let it rip” — has been elected in Francoise Hollande; in Greece, elections have resulted (at this stage) in the election of nobody in particular in a popular revolt against financial measures designed to stop that country from defaulting and going bankrupt underneath a mountain of self-inflicted government debt to other nations.

Back in August last year, in an article entitled “Gathering Storm Clouds,” I examined the very real prospect of world recession in the foreseeable future, and with specific reference to Europe, said this:

“One of the greatest acts of economic lunacy in the late 20th century was the Euro: a currency founded on the noble but idiotic belief that it is possible to federate a couple of dozen disparate countries into an economic and political union and — among other things — give them the same single currency to spend….many of these countries, whose currencies were rapidly appreciated to qualify for entry into the ERM and then the Euro, were left with nowhere else to go except the path of high sovereign debt to compensate for the fact there was less money in real terms to run their economies as a consequence.”

Clearly, those words are more applicable now than they were then, given Greek voters appear determined to throw off the shackles of forced financial restraint, and given the new President of France has essentially promised to spend up with reckless abandon.

In an early (and typically knee jerk) response, share markets across the world — including here in Australia — have recorded sharp losses today, as markets are swept with panic by the prospect of the collapse of Greece and, conceivably, of the Eurozone with it.

It is true that such movements on share markets are sudden, reactive, and often quickly reversed; but on this occasion, some consideration of the wider ramifications of the French and Greek votes should be given.

The immediate problem is Greece, a country known for decades as a byword for slovenly governance, mismanagement, corruption and official incompetence; indeed, at the time the first bailout packages were being devised for Greece last year, this critique extended as far as talk of the “lazy” Greek workforce, its abominable culture, and virtually non-existent work ethic.

It is one of those countries that should never have been part of the Euro project; not because there is anything wrong with Greek people of course, but because its economy was one that was so comparably weak, and its drachmas worth so little in comparison to other European countries, that Greece was hit extremely hard by qualification to join the Euro — and the consequences of that are now being seen all too clearly.

For Greece to collapse — as seems distinctly possible — becomes very tricky on a wider basis, as monies from across Europe (and including from the UK, which isn’t a part of the Eurozone at all) have been poured into Greece in the billions to attempt to stabilise that country.

Remembering that other countries such as Portugal, Italy and Spain also find themselves in debt problems of their own, economic collapse in Greece — not least as a direct consequence of an election result — will rightly make the likes of Germany, France and the UK think twice before throwing good money after bad in additional potentially ill-fated rescue attempts.

And should that occur, the Eurozone as a whole will likely collapse; the tiny handful of economically secure countries in Europe will leave the remainder to fend for themselves under their restored former currencies, but with the final result that Europe as a whole will sink into deep and sustained recession.

Interesting to watch in the context of all of this is the UK. Whilst not part of the Eurozone, it nonetheless counts itself (misguidedly, in my view, where the Euro or the EU generally are concerned) as a financial partner of Europe.

The UK is itself lumbering under £1,400 billion of debt — the legacy of 13 years of borrow, tax and spend Labour governance under Tony Blair and Gordon Brown; whilst the harsh austerity measures put in place by the present Conservative government will eventually fix the British economy, the pain is such that every opinion poll in Britain indicates that the British public would, at a hypothetical election held this week, opt for a return to Labour in a landslide and to its discredited and destructive economic management regime.

The UK is already teetering on the brink of falling back into recession as a result of the current government’s austerity measures; monetary collapse and economic malaise on the continent would suck Britain right into the vortex with it.

Yet this must now be viewed as more likely than not. The new French president is set to repeal those austerity measures in France set in place by his unpopular but competent predecessor, Nicolas Sarkozy; indeed, Hollande promises “growth and prosperity” — both of which can only be delivered in the immediate term by sloshing borrowed money anew through his country’s economy.

Further, he has pledged to renegotiate European deals to bail Greece out from its woes, and to withdraw from agreements (especially with Germany) on binding austerity measures across the Eurozone.

Greece, for its part, has effectively delivered the rest of Europe a one-fingered salute at the ballot boxes over the weekend.

So where will this lead, and what are the consequences here in Australia?

Any collapse in Europe and resultant recession will automatically take the UK, the USA and many other countries with it; the prospect of economic depression across the world emanating from malaise in Europe is one that must be taken seriously.

The so-called GFC may have had its roots in the US, and the contagion from that is an obvious factor — but not the underlying cause — of Europe’s woes; but having precariously navigated that event, developed economies are far more fragile, and far more susceptible to another severe financial event afflicting the global system.

Here in Australia, it is highly likely that we, too, would succumb.

Elements within the Australian public — and, it must be said, among its circles of governance — labour under a pretence that our trading relationships with Asia, and with China especially, will shield us from any sustained world economic slump.

This is a myth, and one which conveniently ignores the fact that whilst China is an important trading partner, so too are the US, Europe, and other markets that would be hit hard by adverse events in Europe.

Australia’s present debt ratios may be low by current world standards, but they are rocketing: by $A100 million per day over the past four years.

It bears remembering that even with the mining sector running on high, the overall Australian economy is patchy, sluggish, and hardly growing at speed.

Yet despite my complete aversion to unnecessary deficit financing and budget deficits born from the sort of mismanagement the ALP in Australia typically engage in and has done in its present manifestation in government, plans by Treasurer Wayne Swan to rip $40 billion out of the economy in one fell swoop in tomorrow’s budget — to meet an arbitrary promise of a budget surplus in time for an election year — are dubious at best, and downright dangerous at worst.

Clearly, there is much at stake, and much for ordinary folk — not just in Australia, but in western democracies around the world — to worry about, and quite literally.

France and Greece have elected new regimes with the promise of inflicting great damage on themselves, and on hundreds of millions of people across the globe who did not have a vote at yesterday’s elections.

It is to be hoped that politicians in those countries are adept at breaking promises; for if they don’t, the consequences will be far-reaching, and nothing short of disastrous.

Just How Bad Is The Economic Situation In Australia?

It’s not a very scientific analysis, I know, but sometimes raw observations can be the most powerful. I spent an hour wandering around Westfield Southland tonight, and what I saw got me thinking about a whole slew of layman’s economic “indicators.”

For those who aren’t local, Southland is the second-largest shopping centre in Melbourne, after Chadstone (also in Melbourne); it is located in Cheltenham, about 14km south of the CBD, and is the eighth-largest shopping centre in Australia (Chadstone, incidentally, is the largest in the country).

I haven’t been to Southland on a Friday night for a couple of years; typically my visits there are on a Saturday to shop at Coles. But historically, a Friday night visit to Southland involves half an hour of looking for a car park, followed by the crush of making one’s way through the hordes of people who descend on the place for whatever reason at the end of the working week.

What I saw tonight was stunning.

The car park was, without exaggeration, half-full at most; even the undercover spaces, on a cold and squally Melbourne night, were easily snapped up — even the ones closest to the entry to the shopping mall itself.

Walking from one end of the centre to the other, then back again on a different level, I noticed not only how few people seemed to be around — not much of a surprise, given the state of the car park — but also how many shops were, at 7pm, either closed or closing: right at what should be the peak of the evening shopping rush.

Many of the shops that were open were placarded with sales and discounts for this and that…but I also noticed that quite a few retail spaces were vacant, and that quite a few others had turned over very recently — also a sign that business conditions aren’t the best.

And on the way back to my car, I stopped in at Coles to buy a packet of cigarettes, because I’d left mine at home; rather than queueing long enough to get nicotine withdrawal symptoms, I saw that not only were there only three checkouts open (in quite a big supermarket), but that nobody was queueing at any of them.

So Southland was a virtual ghost town; it says pretty clearly to me that people aren’t spending money because they’re at home, and if people aren’t spending money, it’s a telling pointer to the state of the economy.

And it got me to thinking about everything else that’s going on economically in Australia at present — and the picture isn’t pretty.

Official government figures from Treasury tell us that the economy is, indeed, growing; I have suspected for quite some time now that if the minerals and energy sector of the economy were to be excluded, then the remainder of the system would actually be in heavy recession.

So let’s look at some of the other indicators; you draw your own conclusions.

Job losses seem to be rocketing at present; between companies going into voluntary administration/receivership/liquidation, and companies simply sacking staff in the name of restructures and finding efficiencies, the stream of such stories in the media is now almost a multiple event on a daily basis — just like at the beginning of the 1991-1992 recession.

It’s true that some companies shedding staff do so for a reason; Qantas recently announced it would axe 400 maintenance jobs. But this was due to the retirement of old aircraft, whose replacements require little or no heavy maintenance, which has made those jobs redundant.

On the other hand, an exponentially greater number of businesses are simply failing; just today a Melbourne company called Brides of Melbourne went into receivership, with the loss of 16 jobs. Hundreds of customers are believed to be collectively at risk of losing hundreds of thousands of dollars in deposits, progress payments and even finished goods, to say nothing of hundreds of wedding plans that have probably been thrown into chaos as a result.

And anecdotally, just as these jobs are disappearing, it seems there isn’t a great deal around to replace them; a common complaint increasingly heard in social and business circles is that there isn’t a great deal of work on offer at present (which refers to the same type of work as people ordinarily do; of course there’s a lot of work to be found, but it’s often a different type of job and/or remunerated at a vastly inferior level).

Moving on, the residential property market is stagnant, and has been for some time; reports of house prices falling for the past year in most major markets seem to be just that: reports. First home buyers are still locked out of the market to a great extent, whilst intending vendors are sitting on their assets until they can realise greater capital growth from them.

The high Australian dollar is hurting a lot of businesses, and especially those reliant on imports; it has also cruelled domestic tourism and hospitality to a considerable degree, and that industry — which employs over a million people — is doing it tough.

Yet one of the things a high Australian dollar should redress is the price of fuel; as I have said before, the cost of oil is 40% below its 2008 peak, and the dollar is 10-15% higher than at the same time, yet petrol prices are equivalent to their all-time peak of four years ago.

The latest ACCC investigation into price collusion can be confidently expected to identify and rectify nothing; the ACCC’s investigations into the retail petroleum companies never do.

And living costs are higher than they have ever been; rocketing prices for gas, electricity, petrol and water are one thing, but they feed into the price of everything else we buy. Fuel especially — everything needs to be transported.

I was discussing the cost of living some time ago with some of my associates — all of whom, myself included, have travelled — and we concluded that it is now probably cheaper to live in the United Kingdom than it is in Australia when all of these factors are taken into account. And that is an indictment — a very heavy indictment.

Wage growth — which grew strongly in real terms from 2000 until the onset of the GFC in August 2008 — has stagnated, even falling in many industries.

Interest rate movements are a red herring, as it is estimated officially that only one in three Australian households have a mortgage; but to the extent they are a factor, banks increasing rates by more than an official movement on the way up, but reducing them by less than the official movement on the way down, strips more money from households on the dubious pretext of bridging shortfalls in “funding costs.”

And for those who do not own homes outright or have a mortgage, most rent; and residential rents have exploded in the past ten years to the point they have more than doubled, in real terms, in some areas of major capital and regional city markets.

Add to this a MRRT (the “mining tax”) which the Gillard government will shortly impose; whilst not denying the profitability of the mining sector, this means — in actual terms — that gross profit dollars that pay mine workers as highly as they do will begin to dry up; similarly, infrastructure spending by mining companies will contract, just to name a couple of examples.

Add to this a carbon tax of $23 per tonne from 1 July, levied on the “500 biggest polluters” as designated by an arm’s-length government agency; it doesn’t take an economics degree to understand that the more money withdrawn from a market system in the form of taxation means that less money will remain in that system to be otherwise used or deployed free of government interference, intervention of influence.

And it doesn’t take an economics degree to see what the coming federal budget will achieve, either.

Treasurer Wayne Swan is getting ready to rip $40 billion in recurrent spending out of the budget when he delivers it next week to achieve the paper surplus he is so obsessed with; pulling that amount of money out of the economy is only going to increase the financial strain on individuals, families, small businesses, and local communities.

I’m sure there are other “indicators” I haven’t included here — some of which I will no doubt think of as soon as I publish this article — please feel free to put them in your comments, folks, because this is a large discussion subject in which some points are going to be overlooked by some of us, and highlighted by others.

But I return to my opening point: just how bad is the economic situation in Australia?

I think it’s pretty bleak; in fact, I wouldn’t be at all surprised if we follow Europe into recession later this year.

Quite aside from the points I have covered here, there are other, more ominous warning signs. China has recently agreed to begin to appreciate its currency against those of its trading partners, whilst slowing its overall rate of economic growth; both movements have the potential to inflict horrendous damage on the Australian economy as China pays less in real terms for what it buys, and then begins to reduce the actual volumes of what it buys.

Europe and America remain large trading partners with Australia in their own right; yet Europe is heading back into the depths of severe recession, whilst the USA seems mired in economic growth so sluggish it barely makes a mark on that country’s manufacturing and employment figures, let alone increasing demands for goods and services from external markets like Australia.

And to cap it, the risk of military misadventure (North Korea, Iran etc) — were such an event to materialise — would be enough to send shock waves through already rattled world markets to which Australia is openly and highly exposed to.

Official figures are one thing (like inflation running at 1.6%, for example, because the price of cyclone-ravaged bananas is no longer a price pressure, and its removal masks the effects of a 25 cent per litre rise in the price of petrol), but reality is quite another matter altogether.

I don’t think the Australian economy is in very good shape at all, and I think that’s something that is likely to deteriorate in the next six to twelve months.

At some point, under the pressures in the system and the drain on those who sustain it monetarily — Australian consumers — something has to give.

I think the result is likely to be a fairly hefty recession.

Those are my thoughts; what do others think?

Storm Clouds Gathering: More Perspectives

Following on from last night’s article, it becomes clearer that yes — indeed — the clouds of trouble are gathering.

The head of the World Bank, Robert Zoellick, has now weighed in; according to him, the problems in Europe are far worse than those afflicting the USA.

That’s a big call, given the US is the largest economy in the world.

Mr Zoellick appears to endorse the course of action the British government has embarked on, but notes the riots could play havoc with that particular strategy.

Yet he also praises Australia’s multilateral approach to world affairs, but describes China as a “reluctant stakeholder.”

The comments of Mr Zoellick are surely just a taste of what will come from senior leadership figures on the international money circuit.

Boiled down, his remarks essentially acknowledge Australia has many fingers in many pies, but one or more of those fingers could be badly burnt at a second’s notice.

I’m sure that other major figures in international economic leadership will — at some point — weigh in here with a little more honesty than has been forthcoming thus far overall.

Last night we spoke about the portents (and they’re there — nobody who has responded as yet has denied that there’s a problem; indeed, the only real dissent is over whether Australia could survive a recession or not).

I’m actually not going to speak for so long tonight; my post is merely to highlight the comments of the head of the World Bank as a pre-eminent figure in international economics who, clearly, is uncomfortable with the direction in which things are headed.

We’ll continue to follow this issue as it develops, and I’m sure we’ll continue to talk about it as it does.