A world in economic crisis

Australia: moving backwards at a fast pace

Posted in ALP, Australia, Australian Reserve Bank, Cap and Tax, stagflation, unemployment by Aussie on May 16, 2012

First of all, I apologize for the lack of posts. This year is an election year in the USA, and there is not much there that I wish to discuss at this point in time. The US economy as far as I am aware remains weak and it continues to have a problem with burgeoning government debt, with no end in sight because the US Senate will not pass a budget!! There are some new developments in Europe and especially with a renewed Greek crisis. However, I do need to spend some time on the Australian economy.

For a long time, I have pointed out that much of what we have been experiencing is similar to the situation in the 1970s when Gough Whitlam came to power, and nothing has changed in the past year to change my mind on that subject, except of course we are now seeing the nastiness and ugliness of an attempt at class warfare that has been started by the Gillard government. I am not addressing the topic of the class warfare, rather I want to address the stupidity of the Gillard government and its introduction of a tax on the air that we breathe.

The US is already aware of what happens when some bright spark (read that rather stupid Nancy Pelosi) says that you have to pass the the legislation to know what is in it. Well, here in Australia something similar happened when the tax on the air that we breathe was introduced. Insuficient time was spent on vetting the legislation. It was introduced and passed at some haste. Needless to say the whole thing is a lemon, a white elephant and it will do nothing to save the world from the predicted doom and gloom of the green (really sick) doomsayers who claim that the world will end if average temperatures are raised by 1/2 of 1/4 per cent… or something like that, over the next century. The climate debate is also not the subject of this particular post. What is relevant is the impact of this tax upon the Australian economy.

It needs to be pointed out that a price on carbon of $23 per tonne is absolutely ridiculous, especially when those silly contracts in Europe are worth no more than about $5 per tonne. It is also worth pointing out that it is really ridiculous that some people seem to be self-satisfied and smug by letting the world know that they either drive a Prius or have purchased a timber plantation (or whatever the sign on the back of their car proclaimed that allowed them to claim that they were emission neutral – what a load of tosh!!). What is more significant is that the tax itself is going to have a very negative impact upon the Australian economy over the next 15 years.

Whilst in my view I continue to see indicators pointing to stagflation, not all of the indicators have pointed in the same direction so it would seem that my thoughts on the subject might still be a little bit premature…. or are they? Let’s take unemployment as an example here. In the 1970s unemployment was very high. By the time that I graduated from university even graduates were not guaranteed finding employment in their chosen field. In fact the positions available to accounting and economics graduates were extremely tight because the big accounting firms were not hiring new staff in any great numbers. The level of unemployment for graduates by 1976 was at an all time high. The lack of jobs for graduates was indeed a signal that something was very wrong within the economy.  Whilst I am not up with the current situation for graduates I can comment upon a slightly different aspect – the hidden unemployed.  It has remained pretty much the same, and the percentage right now is probably as high as it was in 1975-1976. The hidden unemployed is usually defined as those who have given up looking for work. It should include all those who are not eligible for unemployment benefits but who want to work. These are people who are enrolled with employment agencies. The discrepancy in unemployment numbers as determined by say Roy Morgan research and the official figures from the ABS is something like 5%, and this actually takes in some of the hidden unemployed (those enrolled with the employment agencies). Australia has other structural employment problems as more and more people find themselves in part time work rather than full time employment. In other words, the number of under-employed has been rising.

Another indicator for stagflation is rising inflation. Surprisingly inflation remains a non-problem, or does it? What I would look at here is the basket of goods. The basket of goods since the 1970s have changed. What the government has done, to disguise the inflation rate has been to remove items from the basket of goods and add others. This is not the whole story because in the electronics side of the equation there have been decrease in the prices of goods. Normally, this takes a few cycles after a product has been introduced. As an example take the price of HDTVs which are imported from Japan, South Korea, Malaysia and other Asian nations. When they are introduced the price is normally high, but leave the purchase for a year or two after introduction and the  prices have dropped dramatically. This can be explained by at least 2 factors: a change in the exchange rate that has made imports cheaper, and an increase in competition for the goods. So perhaps this is a reason that the level of inflation has not been so dramatic, but then again I have my doubts because items such as doctor fees and prescriptions have continued to rise, as have increases in the price of petrol, the cost of our utilities such as gas and electricity as well as rates. The Reserve Bank continues to moniter inflation, adjusting the interest rates as required.  All the same at this point in time there is no measurement available relating to the impact of the tax on the air that we breathe.

The remaining indicators are related to any increase in industrial disputes as well as increases in wages that is not justified by a rise in the cost of living. There has been an increase in the number of industrial disputes after industrial laws were changed to once again favour the unions. Of anything we will see a greater impact from this industrial down the track because of lags in the economy. I would think that within the next 12 months we will have a better idea about what effect, if any industrial disputes have had on the economy. One thing is certain, and that is we do not have right now the kind of disruption that we had during the 1970s when it was a union free-for-all.

Despite the fact that the indicators do not totally suggest stagflation, I continue to believe that if Australia does not reverse some of its policies then we will have stagflation and the effects this time around will be even more prolonged because of the impact of the rise in government debt for our nation. This is probably what David Murray, the former Future Fund Chairman and CEO of the Commonwealth Bank means when he warns about the difficult economic times ahead in Australia.

As a result of these developments I will be keeping a sharper eye on the Australian economy than I have done in the past 12 months, because I forsee that Australia could be heading for a downward spiral and it is not in a strong enough position for a fast recovery. This is not 2008 when we had the GFC in full swing and Australia was relatively insulated because of the budget surpluses of the Howard Government – these surpluses were wasted by the Rudd Government and in particular by that goose, Wayne Swan.  There are other problems such as the fact that the expenditure on the NBN white elephant remains off balance, and then there is the over-estimation for taxation reciepts by billions of dollars.

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12 Responses

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  1. Carlyle said, on June 26, 2012 at 8:25 am

    Hiya Aussie – all moved are we? Did you prohibit comments at ‘opentheads’? Cannot log in.

    I tired to email you but not sure I have your latest/best address. Email me, if you could. Thanks.

    • Aussie said, on June 26, 2012 at 9:59 am

      you should be able to post. My email address remains the same. Nothing is changed in that respect !!

      Oh I still have plenty of unpacking to achieve. It is just that I have had a few bad weeks because of a cold.

  2. ZurichMike said, on July 8, 2012 at 6:53 pm

    Hi, Aussie! I heard you are now “in moderation” at the Treehouse. What on God’s green earth is going on these days? I seem to miss all the “action”, although sometimes I think the “action” belongs in a children’s sandbox.

    • Aussie said, on July 9, 2012 at 7:24 am

      ZM I was a bad person I told Ad Rem to get stuffed and I am not going to apologize.

      The issue is a stupid one. I could not care less because there is one thing I cannot stand and that happens to be related to words meaning things.

      It is “tenets” not “tenants”.

      The fact is that if people care so little about their use of words then I am not interested in dealing with them.

      As far as I am concerned the administration there is simply full of it.

      • GruntOfMonteCristo said, on July 13, 2012 at 5:59 am

        You’re quite right about that, Aussie. Thanks for the invitation, and I’m glad to finally be aware of your blogs. If you don’t mind, I’ll read your work and try to stay in touch! Take care!

      • Aussie said, on July 13, 2012 at 6:05 am

        You are most welcome. I would hate to lose contact with both you and Barnslayer,

        Some of us go back a very long way. We all got along quite well. 🙂

      • barnslayer said, on July 13, 2012 at 6:45 am

        Hey Aussie! You told Puddy to get stuffed? Nerves must be getting really frazzled at the Treehouse. I thought she was one of the few rational admins left (Weed and Menagerie too). Glad we found you! One day when I can gather my facts I’ll bend your ear regarding long lost family I have in Sidney (I think).

      • Aussie said, on July 13, 2012 at 6:59 am

        Hey Barnslayer, yes I did tell Ad Rem Puddy to get stuffed.

        She told me to stuff it because I was having a go about the fact that SD kept on getting words wrong. I am very particular about the misuse of the word “tenant” for “tenet” but it went a little further than that because I objected when he misspelled Dingo. Ad Rem had given an extremely absurd response over that one so I was already on high alert.

        Anyway I was misbehaving and would call a troll, a troll. So someone would put a line through that. Then I said “Use your brain” which is actually shorthand for “think for yourself or think it through” but someone objected and Admin also moderated that…. this went on for weeks… until Ad Rem told me to stuff it and I told her to get stuffed.

        Yes, I really said that… and immediately I was given the chop. Not that I really care because I certainly had some major differences of opinion 🙂

  3. barnslayer said, on July 13, 2012 at 7:29 am

    At one point I had reason to believe Ad Rem, Weed and Menagerie were in the crosshairs and waiting to get banned. I see the three of them are still at the Treehouse, but I have no idea what (if anything) is hanging over their heads or what is going on in the admin. room. It used to be fun over there. Once the Zimmerman trial became SD’s obsession everything changed… for the worse. By the way, how else could one spell Dingo?

    • Aussie said, on July 13, 2012 at 7:33 am

      the plural is dingoes. SD put in the headline Dingoe…. that grated. Ad Rem made up a word…. and that was offensive to me.

      I can see both Menagerie and Weed getting banned but not Ad Rem. She is doing a lot of work behind the scenes.

  4. silver account said, on July 25, 2012 at 3:53 pm

    Today, Australia’s economy has truly reflected this “condition”. Prior to the 1970s much of Australia’s trade was held with the European and North American markets. During this period, Australia was also considered as a relatively closed and protectionist economy. However, as key economic reforms were gradually being introduced by the Australian government, the Australian economy also started to turn their attention away from trade with the Western markets to trade within the Asia Pacific region.

    • Aussie said, on July 31, 2012 at 2:53 pm

      The change came in the 1980s when Paul Keating moved us to a floating exchange rate. From personal experience it was not fun living in another country when our dollar suddenly collapsed. We were living in the USA during 1984-85 and saw the exchange rate take a very big dive.

      I see a few things that went wrong in the terms of trade, especially when we turned more to the Pacific Region. This was the beginning of the period when Australia was being flooded by those cheaper imports that in the long term led to a lot of our manufacturing industries such as in clothing, shoes etc. moving offshore because our industries could not compete. It was the beginning of the end of the printing industry as well because it has been cheaper to have magazines etc. printed in Singapore or other Asian countries.

      In the longer term I think that we will be happy to have moved away from the protectionism but there has been a terrible price that we have paid.

      At the moment there are just too many other factors that are called into play. We no longer have our once strong manufacturing base. We are even losing out on the manufacture of such items as steel and we no longer spin our own wool or cotton. The manufacture of material for making blankets, sheets and similar no longer happens here in Australia. I do believe that this has been the wrong direction for Australia and that more support should have been given to those industries. The problem has been the influence of the unions, and as they became stronger and made demands upon their bosses the industries were no longer competitive on the world stage.

      It has always been my belief that we have got it all wrong when it comes to world trade. We should have been continuing to make our own clothing, blankets etc, and only import what is not being manufactured in this country. The death of those industries is a very big mistake.

      One thing that has been on my mind relates to the once strong shoe industry. Instead of making shoes here in Australia they are made in Asia. The problem for a woman is that those shoes do not have additional widths. It means that women with big and wide feet have limited choices. I fit into that category and have to wear a men’s shoe because the width of women’s shoes is too small. One possible reason for the discrepancy has to be that Asian women do not have large feet. At the same time there is a problem with the manufacture of women’s clothing and I might add that we see the same thing again where Asian sizing is different and that means a lot of ill-fitting clothing being available in the shops. There is no demand when the clothing does not fit!!


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