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.
The BBC reports that there has been a very big drop in Government borrowings in the present year. The financial position is being helped by two things: (1) the levy on bank balance sheets and (2) a significant drop in public sector borrowings.
It is my contention (and yes it is just theory not necessarily fact), that when the Public Sector have the lion’s share of the investment dollar, that the private sector suffers. This is because the Investment pie is limited, which means any increase in Public Sector borrowings reduces the amount of investment dollars available for the private sector. When the private sector is not able to borrow money to expand this leads to a contraction of the economy as the private sector will not be able to employ more people, or it has to let staff go in order to meet other debt requirements.
In other words, what I am contending is that Government Stimulus action does not work because it takes investment money out of the private sector, which means that the economy is disrputed. What I am arguing here is that the “stimulus” money does not come from tax receipts but from further public sector borrowing. In other words, Government action does not impact in a favourable way within the economy and it actually makes matters worse, not better.
My theory is not based upon the current experience, but upon the experience of the late 1960s, early to mid 1970s when there was global stagflation. Most economists address the stagflation by referring to the oil price shocks, however, I see this as a miniscule reason for the stagflation. There were two price shocks, one around or prior to 1972 and other during the Iran Revolution. In recent years we have experienced more oil shocks for a variety of reasons, but Saudi Arabia has actually pumped out more oil to keep the market smooth. The price of oil is really not as important as some believe, because we do not have any real control over the prices that the cartel (an oligopoly) agree to charge for their output.
One thing that was common in that period, in Australia, the USA and in the UK was that each country had a government that was into prolifigate spending. In the USA it started under LBJ, and Nixon had to try and rein in the spending, followed by Carter, another profligate spendder. In Australia it started at the end of the 1960s when McMahon was Prime Minister, followed by the prolifigate spending of the Whitlam era. In the UK it was the Wilson years of profligate spending. It is my view that the stagflation arose because of the difficulty of providing investment dollars to the private sector because the money available for investment was being swallowed up by the public sector.
During that same period, especially here in Australia, we had rising inflation, strikes and demands for higher wages which were granted because the ALP were in charge, followed by a further rise in inflation. Even though this looks simplistic, by 1974 the stagflation was actually quite evident, and these factors explain why it was a wage-price inflation which was fuelling the problems within the economy. By the end of 1975, and beginning of 1976, here in Australia most jobs had dried up, especially with regard to the requirement for newcomers in the field of accountancy (there were no jobs available for the majority of graduates). This was the point where we had the beginning of the Fraser government which also led to a wages freeze being implemented. (Nixon also imposed a wages freeze).
The turnaround in Australia occurred only when public sector borrowings began to drop and the budget was balanced or was turned into a surplus. Here in Australia this was a gradual process because we went from the Fraser government to the Hawke-Keating government when public sector borrowing got out of hand once again. Note: under Keating as Treasurer there were extremely high interest rates which were very, very painful for mortgagees. We got through those extremely high interest rates, which were greater than 17% before they began to fall again. Credit card borrowing interest rates were above 20%. Under the Howard government the Federal Budget went from deficit to surplus, but that has been frittered away by the KRUDD-Dullard governments.
So long as the rise in wages is kept under control, that is, it is related to a shortage of skills and not from some annual or bi-annual increases, then inflation itself is more or less kept under control. The way in which the Reserve Bank has been handling any inflation has been to increase interest rates, but in the present conditions the policy of the Reserve Bank which is to operate through interest rates alone can be quite harmful. The uncertainty that exists today has led to consumers holding off their major and minor purchases as long as possible.
We are yet to see the impact of the proposed carbon-dioxide tax. I have no doubt that the imposition of such a tax will have devastating consequences upon the economy. It will not bring about prosperity. It will cause massive increases in some commodities (which the government model has not predicted), and this is because a number of unknown factors have not been included in any modelling. Take for example the cost of refrigerant for supermarkets. This is something that will be taxed. Can you see how the price of frozen items will rise? Can you see how that will impact upon the cost of meat and dairy products?
As we continue to head towards stagflation, the last thing we need is this particular tax which will cause a massive downturn in the economy. (again this is theory, but so is any model that claims an opposite scenario).
Public sector borrowing eats into the investment dollars, which in turn leads to a decrease in private sector borrowing and expansion within the private sector. The end result of this cycle is that business is not in a postion to continue to hire. At the same time taxes on employment also hold back businesses from permanent hiring. Most businesses have to keep below a certain staff level in order to avoid the higher taxation costs. A reduction or the dropping of such taxes would increase the levels of employment.
This company gets it!! The Brisbane Sunday Mail ran an advert from the company Trade Tools. It is one of the best and funniest ads that I have seen in a very long time. Considering the serious blunder of the announced carbon tax (taxing the air that we breathe), Trade Tools has come up with an advert that highlights the very incompetence of those who continue to push the lie of Socialism and Communism. I am not going to beat about the bush. Julia Gillard is a Marxist. Her ideology has not changed. She is one of the many who have used the ALP as a means of gaining power in order to push the Communist agenda. It had been tried in the past and it always failed. Just ask Doc Evatt about his Communist ideology and the split that it caused to the ALP during the 1950s that led to the birth of the DLP.
Without repeating the contents of the ad I am not sure that I can do justice to the delcious comments and scenarios. I will try to give a synopis of each point without their elaboration. I honestly suggest reading it for yourself. Some of you might prefer to substitute the name from Julia Gillard and use B Østupid instead. You will get the same idea.
If Julia Gillard took over Trade Tools you would get:
1. More staff with rostered days off and a 9 day fortnight.
2.The increase in staff will lead to Julia increasing the price of the tools.
3. She would respond to someone killing his dog with a jigsaw by banning the sale of the jigsaw. (the logic in this one is a beauty). This would lead to the use of alternative more dangerous equipment and a glut of jigsaws.
4. would increase the price of tools to the mining industry. This would lead to the mining industry sourcing their tools elsewhere.
5. Because she despises the electric companies she would make an alliance with a flaky inventor to come up with solar powered tools (that will not work at night or in a dark area like in a workshop). These tools will cost double that of the tools that use electricity.
6. Julia would promise not to introduce price increases prior to stabbing the former CEO in the back, and then upon becoming CEO decide to increase prices anyway.
7. She would enforce an equal employment policy, complete with creche.
8. She would ban the word “shoplifter” in favour of the word “forgetful customer.
9. Spend much of the week attending worker health and safety classes.
10. She would source the most expensive builders to help build a shed in the car park of Trade Tools for use as a classroom for all those worker health and safety courses.
11. Insist upon the wearing of hard hats in the lunch room.
12. She would find it acceptable to find Trade Tools running at a loss, and be supremely optimistic in predicting a return to profit in two years time.
Please read the whole thing. The points being made are absolutely spot on and it is a great analysis of what is wrong with the current joke of a government that is run by Juliar-the Marxist – Dullard.
The ABC Australia news site has an article regarding the university graduate job market. It reports that university graduates are taking 4 months or longer after graduation to find work. It also states that the official unemployment rate is 5% but the real rate is more like 12%. You don’t say!! Please click the link to read the whole article.
Well, this is all very predictable, because I have been saying for more than 12 months that we are experiencing the 1970s redux. Also, university graduate unemployment was in fact a very painful experience at the end of my course which was at the end of 1975. By 1975 the market for accounting graduates had dried up. Going for the vocational interviews was really horrible because the people who came to the campus were best described as either stuffed shirts or women haters (and even though I am not a feminist I have no other way of describing these men).
A lot of graduates normally end up in the Australian Public Service, and it was natural to go for an interview to see what was on offer. Imagine my horror over the bad manners of the man from the ATO. I am not sure whether it was the fact that I am a Catholic, or it was simply that he had a preference for male graduates, but either way the interview itself was really terrible. Then there was the man from Coopers and Lybrand who had an absolute set against the employment of women. It could have also been a result of the tight market, but he really made the girls feel very small with his glib talk about how women did not like to move around but preferred desk jobs, which was all about his excuses and not about those who were there for interview. The process was terrible.
By 1975 the big 6 of the accounting firms were taking very few graduates. It meant that they were looking for the top performers. The rest of us were just dirt to them. In the early part of 1976 there were very few jobs being advertised, and when there were jobs becoming available, the employer always seemed to have a convenient excuse as to why a person fresh out of university was not suitable. Take for example the Caulfield hospital requiring an assistant accountant. I applied for the job, and the jerk conducting the interview had the cheek to state that my degree was no good, and he made a comparison between the degree qualification and that of the diploma, claiming that the diploma graduate had more practical experience (it was b.s. and probably pointed up his own deficiencies). This experience, which occurred a week after having my tonsils removed, was followed by a bad experience dealing with the Commonwealth Employment Service. The person I dealt with simply had no idea about matching the needs of the client to the experience or otherwise of the applicant. I was sent to an interview for a job where I was clearly not qualified because of my lack of experience, plus I was too young and because the prospective employer wanted a married woman, older than 25 for the position (the whole thing is laughable). I did get some better help when I changed to the Moorabbin office of the CES where the people there sent me to a factory job, which was boring but it was for a very short time, and at the end of the original contract I got an extra 2 weeks to do some accounting work. At the same time I was doing part-time cleaning of offices at the CSIRO facility across the road from my home.
This was my reality in 1975/76 and I stayed out of the workforce until 1986 when I ended up with a job, which had nothing to do with my degree with the Australian Public Service. There were many other graduates who faced similar struggles. One very well-known Arts graduate, and a concientious objector during the Vietnam War period ended up driving trams. That was Albert Langer. My experience left me wondering why I ever bothered trying to get that degree. It was not easy to get to the end of my course but I made it to the end, yet I was left empty and unfulfilled. It was not until about 1991 when there was a bit of a turnaround that I began to use those early acquired skills. In the end, by 1995 I attained my CPA status which also included further study and I did it with 3 children and a full-time job. Then with a change of location, there was more emptiness because the employment agencies pigeon-holed me into doing credit control or debtors management type work. I left the workforce after I fractured my coccyx for the second time (30 years apart). There was simply no way that I could manage to drive in Sydney to a work destination, and then have to sit all day, then drive home again when I was so darn sore!!!!!!!! On top of that we moved location again, which was a very good reason to not even bother looking for further work. There are other people just like myself who are the hidden unemployed.
This is what I mean by the 1970s redux. There is nothing new about graduates having a tough time finding work. A lot depends upon the economic cycles, and right now we are going through a period of employment contraction, rather than expansion. What must be kept in mind is that it takes 3-4 years to complete a degree. When one starts the course it is often the case that there are plenty of jobs available in the chosen field, yet by the end of a course, it often turns out that the supply and demand situation has peaked and instead of plenty of jobs available it is the opposite reality. In happened in the accounting field during the middle of the 1970s, and it happened in the IT industry by the mid-2000 period. This is because there were more graduates available than there were jobs for them to fill.
The situation is just a sign of the times, and it shows that businesses are worried about the future. My story coincides with the Whitlam era, and the drying up of the accounting jobs was merely a sign of the lack of health in the economy. The same is happening again, only this time Australia is being led by yet another communist Juliar-the Marxist- Gillard (also known as Dullard).
The disastrous Juliar-the Marxist-Gillard government continues to teeter and to topple Australian industry. The most severely hit at the moment is the rural industry involved in the live export of cattle to Indonesia. The latest information is that Indonesia has decided to slap on a ban for imports which affects more than just Australia. It goes to show that when an amateurish decision from an amateurish government is taken, and that decision is taken without adequate consultation, the result is an absolute disaster. The cost to the rural industry is more than $60 million.
However, it is not just the cattlemen who are suffering as a result of this arrogant cabinet decision that was taken when Kevin Rudd the Foreign Minister was in another country at a meeting. It also affects a very large trucking business that has millions of dollars worth of rigs and road trains in the north. This means that the jobs of the drivers of the road trains are on the line as well. This will impoverish a lot of people, not just the cattlemen.
However, wait…. there is more…. the distastrous and unnecessary carbon tax that is being foisted upon us at the insistence of the greens is going to cause enormous hardship upon the population. The reasoning of the greens is so bad that it is truly amazing that people have fallen for their particular style of spin. One very big issue is the fact that such a tax is going to affect the price at the pump… or is it? According to Juliar-the Marxist-Gillard, petrol is to be exempt. However, the well-known Watermelon Bob Brown says differently and the Watermelons claim that the exemption will have to be lifted. In their airy fairy world of pot smoking and other drug taking, the Watermelons cling to the idea that if the petrol prices are so high that people cannot afford to pay to put petrol in their cars then this will reduce the number of cars on the road, thus reducing emissions. This ideas sounds like someone only attended Economics A at university but forgot to attend the rest of the courses.
Let me explain just a little bit, and again I will use the experience of the 1970s to put it in perspective. The oil industry is an oligopoly. It means that there is a tight group that controls the means of production – OPEC. This group determines the output that will bring the best price for fuel. During the 1970s when we had both the first and second oil shocks, the price of petrol began to rise. The economic theory is that when a commodity, such as oil, is inelastic, and there is a shift in the price of the commodity, there will be a temporary shift downwards in demand for the product. Since there are few suppliers and the market is not one where thousands of new suppliers will enter the market then there is actually little change in supply and demand for the commodity. However, what we have seen is that there was a shift in the type of product for cars to both diesel and LPG… but the shift was very small. During that initial period people moved into smaller more fuel efficient cars, but gradually there was a shift back to the 6-cylinder cars.
The illogic of the watermelons is that the price rise which they are demanding will affect the driving habits of the general population, who will then choose other forms of transport over driving cars. They have this airy fairy idea that people will be prepared to shift to electric cars (which are very inefficient with regard to transport). The other expected shift will be a move to use public transport over the use of a car.
Let’s break this down to the micro family level, to see how the thinking of the watermelons remains in Fantasyland. Take for example, a military family, where the husband has family in one state (Newcastle, NSW) and the wife has family in another state (Melbourne, Victoria), and they have three children. As a military family they can get posted anywhere in Australia, including Townsville. Some of the areas where they are posted do not have public transport, and that means that there is a dependence upon the use of a car. It is not possible to fit baby seats etc. into the back of a small car, so out of necessity, the family has a larger car to carry the family. Now imagine for a moment that the family is posted to Richmond, NSW. What is the cheapest method for visiting the family of either husband or wife? Considering the location, as well as fares to and from the actual locations, as well as family size, the obvious answer is that it is cheaper for the family to travel by car. The travelling time from Richmond to Melbourne was as much as 10 hours but this has been cut significantly due to the building of better roads – the better roads actually means better fuel efficiency on the open road. The travelling time from Richmond to Newcastle was approximately 2 hours, but this has also been reduced due to the building of better roads. The awkwardness of the location means that it is not viable for the family to fly to and from Newcastle, and ditto for the train services. Also, the cost of using the public transport makes this kind of alternative prohibitive, as does the luggage limitations that are imposed by airlines and other forms of transport. Another point to make here is that in the Richmond-Windsor district the transport system was rather abysmal, and buses were pretty useless when it comes to toting around a pram because of children. On top of that it is not possible to cart one’s groceries on public transport and taxis are an expensive alternative.
Now imagine that the family is posted to Melbourne, and they find a house in Sth. Oakleigh, followed by a move to Mt. Waverley. Both locations also suffer from a lack of good transport, which is ok if the weather is fine, but limiting when it comes to being able to visit family. A car in this situation is absolutely essential especially when shopping centres are not close at hand, and there is no logical way to bring home the groceries. Now imagine that in this situation, the husband learns that a family member is dying from cancer. Once again the costs of travel for the whole family are prohibitive if they have to choose to fly between Melbourne and Newcastle. It is also a bit complicated to make the tripe that way, and the car is the best alternative for the transport of the family.
My point here is that on this micro level, decisions have to be made about the best means of getting around, and the car is often the best way because of the prohibitive costs of moving a whole family from one part of Australia to another part, sometimes at short notice, as was the case when a family member was dying of cancer, and the word came that the end was close (the call came on the Saturday). This was true in other situations where the trip being made was between Sydney and Melbourne (to attend another funeral or two, or three). There are many reasons why, for example, flying is not always the best alternative to move from one place to another.
The watermelons, on the other hand, are not capable of understanding the scenarios that I have set out, because they have never experienced those situations. They live in their own little worlds. They even think that it is possible to ride bicycles everywhere… again that is a bit of a joke… what if due to an accident (like slipping down the stairs and fracturing one’s coccyx) means that one is unable to sit upon the bicycle saddle? How many people understand what it is like when it hurts to sit down, especially on a little bicycle saddle? The watermelons seem incapable of thinking things through, to the point that they are a total embarrassment with their ideas.
On top of that the push towards electric cars is nothing more than sheer fantasy as well. The electric cars are inefficient. They can only go short distances. They require electricity to recharge the batteries. The electricity is based upon the coal industry. However, the watermelons want to push us towards even more inefficient methods for producing electricity such as windpower – they want those ugly wind turbines with their noise etc. to pop up everywhere. Again, they have no idea because they do not live near the locations. They do not understand the actual harm to the wildlife in the environment that is caused by those wind turbines. This is not clean energy!! If they wanted clean energy then they would look to other alternatives such as nuclear and hydro-electrictiy. However, they refuse to contemplate the nuclear industry and they are attempting to shut down the hydro-electric schemes as well!!
The obvious consequences of following the wet dreams of watermelons is that everything will become more expensive, and on top of that the watermelons are determined that there will be no exemption at the petrol pump from the carbon tax that they want to see introduced. The long term effect of their stupidity will be higher prices for every product – groceries, clothing, transport, etc. etc. This will mean a lot of hardship for families that are already struggling to survive.
I have concentrated on the car aspect of the policies, but there are other aspects because so many products actually use the other bits of the oil production e.g. nylon and other synthetic materials are based upon oil. Also, things like soap and shampoos use oils as part of their ingredients. This affects almost everything that is produced in one way or another. We need to think hard about the long-term consequences of this short-sightedness, because this policy will help to propel us towards one very deep recession, which will be much worse than just the consequences of the stagflation that is almost upon us.
Yet another sign that Australia is about to hit a period of prolonged stagflation.This time it is the awarding of a wage rise worth more than $19 per week for those on the minimum wage. You can read about this decision here, and here. This wage rise is yet another repeat of the 1970s under the Whitlam Government when Australia experienced a number of the symptoms relating to what is known as stagflation:
1. cost-push inflation
2. high interest rates
3. high unemployment
The interest rates are being kept steady by the Reserve Bank, however, since the major banks borrow from overseas in order to make loans for their customers, it is more than likely that they will be unable to contain interest rate rises, especially when the cost of their borrowings also rise.
On top of that, the government is running a budget deficit which means that they have to borrow funds from the limited available resources, thus squeezing out available capital to businesses. This is a repeat of the situation in 2008 because the source of the problem has not been remedied. To put it bluntly, no amount of stimulus, which also involves Government spending money that it has not received via Taxation receipts, causes a spiral or an exacerbation of the situation. Any stimulus will not be able to drag Australia out of the doldrums.
The wage increase is very high, and this will add to the cost burden of most companies. Since most states in Australia also have a tax on employment called Payroll tax there will be a further shedding of jobs, leading to higher, not lower levels of employment. On top of that employers are being hit with a double wage whammy which will hit retailers very hard.
The obvious response to a 4% wage increase is that retailers are going to reduce the hours of casual staff. This in turn will reduce tax receipts for government, which in turn will create an even bigger demand for private sector funding of government services.
The obvious response should be that Government should be cutting back on its spending e.g. the NBN rollout should be postponed, and the BER program should be brought to an end, plus Government should work on reducing the number of its employees via redundancies.
The policies of the present Federal Government in Australia are an overwhelming disaster, and with families being hit rather heavily via tax increases, as well as increases in utilities due to the Watermelon pushing of stupid things like wind power, a once bubbling economy (it was not in trouble in 2008 and we did not need a stimulus) is now going belly up.
This might not be bad news because the dip comes on the back of a disastrous wet summer, where there was flooding in Queensland, Victoria, New South Wales and Tasmania. On top of that Queensland was subjected to the effects of cyclone Yasi.
Whilst it is easy to see the dip in terms of these two disasters, there might be other factors coming into play. It is too soon to tell. Australia is heavily reliant upon the resources sector and the mining boom. However, the Watermelons aka the Greens want to put an end to the Australian mining exports. On top of that the Federal Government under Julia-the-Marxist Gillard is intent upon introducing a mining tax as well as the extremely stupid carbon pricing. These are the kind of things that will impact upon Australian exports in the future. The thing to watch will be a flight in capital, as investors flee the market once these things are in fact introduced.
If Australia starts to falter then it will be the fault of the KRUDD-Julia-the-Marxist governments. This is because KRUDD and Julia-the-Marxist have indulged upon an orgy of spending that has driven up the budget deficit from a budget surplus when KRUDD was elected to power.
The ABC news site is running with a story that mortgagees, that is home owners and others who have a mortgage will soon be hit with higher interest rates because of the continuing global financial crisis.
Up until now, Australia had been somewhat isolated from the crisis. In fact I had argued that the “stimulus” in 2008 was totally unnecessary because Australia did not have a problem – it was a problem for the USA and Europe at the time. I should add here that my husband was one of thousands made redundant or who lost their jobs in the November (his redundancy was delayed until January 2009) of 2008 as some companies such as QANTAS responded to their own crisis needs.
Australians are being hit by a rather stupid Federal Government who wants to increase our taxes over non-existent climate change (they do not seem to understand that it is called “weather”). As a result we are being burdened with the likelihood of a new carbon tax that will cause an increasing amount of stress and strain on families. Many of us are also burdened by the introduction of a flood levy that covers the butt of the Queensland government because it does not have disaster insurance. If tha levy had been a fair one, then the burden would be shared by all taxpayers. Well it is not, and it was a tax on the middle class a la the usual Marxist pap.
This is what the ABC has to say about the coming interest rate hikes:
Analysts say the increasing cost of funding for the banks will mean higher interest rates, creating another headache for consumers already under pressure from rising rents and utility prices.
Investors bailed out of banking stocks on Monday morning, wiping $8 billion off the banking index.
They are concerned that bank profits are coming under pressure from the rising cost of sourcing wholesale funds offshore, particularly from Europe.
James Rosenberg, a private client stockbroker with Macquarie Bank, says the whole banking sector was affected by the bailout.
“I think ongoing issues in sovereign debt, particularly in the Iberian and Mediterranean nations, are leading to a view that there will be a scramble for wholesale funding,” he said.
“And given the Australian banks have a wholesale funding gap, the costs of it will be putting them under pressure and we’re seeing a pretty broad sell-off across the sector.”
The Australian banking sector may not be under threat yet, but the risks remain for homeowners.
Mr Rosenberg says the banks have a history of passing their cost increases onto customers.
“[The] simple fact is that Australian banks have to source a lot of their funding offshore,” he said.
“As the rises in that funding cost go on, some of it is often passed on to shareholders and some of it to customers.”
He predicts mortgage holders will be hit by a sharp rise in interest rates.
“There has been quite well-publicised history recently of banks passing on rate rises over and above the Reserve Bank rises,” he said.
“That’s because they don’t source their funding primarily from the Reserve Bank; they’ve sourced a lot of it from overseas.
If this report is correct, and there is yet another hike in mortgage interest rates, because Australian banks are sourcing gap funds from overseas, and having to pay higher interest for those funds, then this will be yet another sign that we are hitting a period of stagflation.
The measures taken in 2008 are now starting to come home to roost. This is because the Government borrowings have increased and the Government budget is in deficit instead of surplus. This is due to the wasteful spending which is still not being brought under control. Giving $900 tax rebate to people who do not pay taxes was not going to help a non-existent problem in Australia. The schools building program is well over budget due to the misappropriation of money (what has been built for the money expended is very small i.e. the builders were overcharging for their services). The Insulation program was a total disaster and a bungle and there was a lot of waste – there has been some clawback on the money expended. The Solar panel installation program is also a debacle and with some of the same problems associated with the insuatlion program – unscrupulous people cashing in on the free money. The NBN network rollout is another disaster in the making, especially when it is more than likely that there will be a very slow uptake for the services (the pricing so far is very high).
The end result of these disasters and bungles happens to be that we Australians will be paying for the Government waste through our taxes, but we will be paying a much higher price as stagflation begins to take hold.
This is further evidence that the mistakes of the Whitlam government have been repeated with steroids, and that as a result of these mistakes Australia is about to enter a period of prolonged stagflation. Once the increase in interest rates begins to hit, one can expect further increases in prices leading to higher inflation, followed by an increase in strikes and demands for higher wages, as more and more Australians will find themselves floundering because they are being squeezed.
None of this would have been necessary if the government had been one that was committed to a balanced budget. However with the ALP in charge, and a Marxist as Prime Minister, the aim of a balance budget is nothing but a pipe dream.
Prior to the election of the Rudd Government and the usurping of the Gillard government, the Australian economy was doing reasonably ok. The Howard government had delivered a budget surplus. It has taken a very short time to see a complete reversal of this situation. Specifically, Andrew Robb points to the billions that have been wasted on a “stimulus” that was not needed in the Australian economy.
Andrew Robb, the Opposition Finance spokesman predicts that the budget deficit will be a lot higher than suggested by the incumbent ALP government Treasurer, Wayne Swan. From Swan we can expect to hear the tired old and lame excuses as to why it is necessary to impose a draconian budget. From Robb, you will hear that it is the government waste that is the cause of the problem, and not the excuses offered by Wayne Swan.
My point however, is that given the state of the economy when the Howard government was defeated, any downturn is the responsibility of the treasurer Wayne Swan, as well as Kevin Rudd and the Marxist Julia Gillard. The money that has been wasted on the school hall BER is staggering, as is the money that has been wasted on a number of other projects that were nominated in the name looking like a green frog.
When I began this blog, it was with the purpose of looking at world-wide situations that was leading me to the conclusion that what we are witnessing is a repeat of the conditions that led to the prolongation of the stagflation that hit in the 1970s. I have been looking at the prevailing conditions, and attempting to compare these conditions with those that existed just prior to the period when stagflation was initially recognized by economists in the 1970s. There are many similarities that can be considered in this comparison. In particular I am concentrating on the impact of government spending wastage upon the economy as a whole. I have looked the ongoing crises in a number of countries in Europe. The most moribund of those countries is Greece, where the people have a very real attitude problem and seem unwilling to accept the necessity of austerity measures. I have not covered the problems in the USA, and have touched on a few of the problems in Australia. My perspective is actually an Australian one, and I am specifically wanting to compare the spending excesses of the Whitlam government to that of the KRUDD/Gillard governments. At the same I want to recognize that these difficulties are indeed world-wide, just as they were in the 1970s.
At this point in time there is still one indicator that is missing when it comes to comparing the situation that existed in the 1970s to situation that we are experiencing right now – it is high wages driven by inflation. Otherwise, there are similar indicators in 2011 that we had in the 1970s. Here is a little bit of a checklist:
Socialist government – check.
Out of control spending – check.
Increasing inflation – check.
Oil shock – check.
Increasing interest rates – check.
The uncertainty that is being experienced by business at the current time is based upon things like the threat of a mining tax as well as a most unnecessary carbon tax. Fancy having to pay a tax on breathing!! The uncertainty has led to a downturn in the economy.
Australia has experienced a very difficult year with all of the flood disasters around the country. In fact the last time that Brisbane was flooded as severly as this year was in the 1970s!! All the same we Australians should not be hit by an extra tax to pay for the Queensland government not having insurance for flood and cyclone hit regions. The Federal government should have been able to find the funds via what is collected from the GST. The funds should have been found by diverting away from the expensive and wasteful NBN project.
It is my contention that the reason that the stagflation of the 1970s was prolonged was the wastage of government expenditure at that time. It is also my contention that should Australia slip into a situation of stagflation again, then it will be the same kind of government expenditure wastage that will be responsible.
This post is not directly about the economic crisis, but indirectly will have a link to a growing world wide situation. No I am not talking about Egypt. I will attempt to cover that situation when I learn more facts (without anything from Al Jazzera). This is about the economic consequences of the floods in Queensland.
I have covered the floods in posts on my other blogs, so I am not talking about the stupidity of the watermelons or that of the SEQ water authority. The purpose of this post is to discuss the daring of Julia-the-Marxist Gillard to push up taxes and implement wealth distribution by stealth.
I have written elsewhere about how the KRUDD-Gillard the Marxist Government is the worst since Gough Whitlam came to power. In fact with Gillard in control it is much worse than the Whitlam government. I have also written elsewhere that I believe that we are heading towards a period of Stagflation, just like we experienced in the 1970s. Not all of the indicators are in place at this present time, but there is a feel about what is happening that is so reminiscent of the 1970s.
My research into the 1970s, which is really a refresher for me, has shown me that there is good reason to believe that high government spending has consequences and that one particular reason that we had prolonged Stagflation was the prolifigate spending over a very short period of time that took place after Whitlam won the election in December 1972. Since KRUDD became Prime Minister and Gillard his Deputy and then after stabbing KRUDD in the back, Gillard as Prime Minister the Australian Government has been at the forefront of wasteful spending.
Australia was relatively unaffected by the Global Financial Crisis. There was no need to send out $900 cheques to taxpayers on low incomes (no one in a higher bracket received the $900). Besides the money was wasted on items that are imported from overseas. This action depleted the budget surplus that had been set in place by the outgoing Howard Government. However, the waste did not stop there because Australia then had its own version of Porkulus complete with wasteful pork projects in ALP and marginal electorates that was supposed to shore up the government. It did not really work, yet we are stuck with Gillard as Prime Minister.
The wasteful programs set in place included the solar hot water subsidies, the pink batts debacle (this caused house fires and several deaths), as well as the extremely wasteful BER (Building Education Reform?) which has led to overpriced buildings that have feathered the nests of the builders involved in the program. Australia was also set to have its version of cash for clunkers but thankfully that program has been scrapped. Then there is the white elephant NBN roll out which is estimated to cost more than $40 billion for fibre optics to go to every house even though this is old technology and there are better Internet options available.
This brings me to the floods that have been experienced throughout most of Australia – Queensland, NSW, Victoria and Tasmania. The most devasting floods have been in Queensland, where there was extensive damage in Brisbane because of the incompetence of the South East Queensland Water Authority. The cost or rebuilding will be billions of dollars. This will hit the insurance industry.
However, the Federal Government believes it is necessary to get in on the act, to provide funds for the rebuilding that is required in Queensland. There is no mention of helping anyone in Tasmania or Victoria. This is where Gillard has been extremely devious. Instead of delaying the white elephant NBN in order to provide the necessary funds, Gillard has proposed a levy that will be placed on top of the Medicare levy. However, unlike the Medicare levy, anyone earning more than $50k will be the ones paying and if you earn more than $100k then you will pay double.
This levy is not equitable. Gillard calls it progressive. I would dare to state that rather than progressive this is very much a regressive tax because it takes a larger slice of income away from households already struggling with mortgages, high utility costs, high food prices and high land taxes plus water and council rates. It is like the straw that breaks the camel’s back and it is very much an unnecessary tax.
So let’s look at some factors as to why Gillard the Marxist was leaping for joy when these floods struck:
1. Gillard promised to bring the budget back to surplus, but by continuing with the white elephant NBN this goal was not going to be met.
2. The floods have provided an opportunity to slug “the rich” who are not in fact rich, but the envious Marxist believe that anyone earning more than $50k deserve to be slugged.
3. Gillard saw this as an opportunity for wealth redistribution by stealth.
We do not know, as yet, the impact of this proposal. What is most likely is that this proposed tax will impact in such a way that when the Stagflation hits, it will be prolonged, just like in the 1970s when Stagflation was identified for the first time, and then it was prolonged well into the 1980s.
What can we expect in the future? First of all, we will probably continue to see the rise in interest rates. Second, as interest rates rise, there will be less money available for investment. Third, as investment dries up then employment opportunities will also dry up. Fourth, we can expect higher supermarket commodity prices for fresh meat and vegetables. Fifth as a result of the crisis in Egypt we can expect higher fuel prices. Sixth, if the watermelons continue to hold sway we can expect further increases in our utility bills. Seventh, with this kind of pressure, there will be an increased demand for higher wages to cover the impact of the higher commodity prices. Eight, we will see cost-push inflation start to spiral… Then we will head into Stagflation once again.