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 economy in the USA remains more or less moribund. The official unemployment rate has once again increased to 9.1%, but of course the hidden unemployed – those who are no longer looking for work – means that the unemployment rate is a lot higher than the 9.1%.
According to this report, Larry Kudlow has a few things to say about the state of the US economy as a result of the latest figures. It is anaemic. Kudlow actually identifies a few factors which were present in the 1970s when we went through a period of prolonged stagflation:
“We’re not creating jobs,” he said, adding that “the energy spike, the energy price shock and the commodity price shock is basically eating into the economy.” For this he blamed the Federal Reserve and stimulus spending.
Now for the latest in the Euro rescue saga. Portugal is next to last of the PIGS nations to need a financial rescue package. Spain is still on the cusp, but has not needed to be rescued so far. However, the Portugal package is on the line, the Greeks are revolting (again) and the Finns are becoming more and more anti-Euro zone.
The success of the TrueFinns means that the Portugal rescue package is not a sure thing, since the TrueFinns have vowed to vote against the supplying of any more funds for these failing economies.
Portugal has opened its doors to the IMF and the European Commission, who will need to evaluate the economy and make recommendations. It is expected that Portual requires a package worth about $70 million Euros.
However, just like Spain, Ireland, Greece, and yes, even the U.K. unless these countries are willing to evaluate their social welfare criteria these packagaes are truly a waste of time. All of these countries need to re-evaluate their socialist system, because long term welfare policies do not work.
Greece has been a prime example of what has gone wrong. The lazy Greeks simply do not want to understand that the changes are necessary if the economy is to survive. Those changes include reforming social welfare payments in order to cut the government debt. However, I doubt that the Greek government has the will to make the deep cuts, especially in the face of protests from the Greek anarchists. The Greeks have shown themselves to be lazy and selfish in that they are unwilling to make the necessary sacrifices for the good of the country.
For a different perspective on the same European economic woes, there is more here and here is a snippet to get a taste of what is in store if there is no change in a welfare system that is bankrupting countries left, right and centre:
Greece is now paying 19.7% on 2 year bonds and there is a real fear of government default. This will put even more pressure on the other PIIGS, who are either on or already over the edge. The question then becomes which economies are triaged. Greece, Iceland, and Ireland are all moribund. Portugal is in the middle of a political crisis, and Spain is teetering on the edge. We are seeing the slow motion destruction of the economic and social programs that helped these economies enter the 21st century. It is hard to believe where these countries ranked economically and demographically even 25 years ago.
Rowan Williams, the somewhat discredited Archbishop of Canterbury thinks that working for the dole is a bad idea. Like a good little Marxist, Rowan Williams believes that working for the dole is harmful.
However, personally, I disagree with the comments attributed to Rowan Williams, that requiring people to work for the dole would contribute to “a downward spiral of uncertainty or even despair”. To the contrary, working for the dole helps people to achieve a sense of self-worth, rather than leading to feelings of despair. The self-worth comes from having the dignity of being able to work.
The scheme which is about to be unveiled is designed to catch the cheats – those on long term unemployment that prefer to receive benefits rather than working full time. It is also designed to encourage some unemployed into the habit of a work day. It is being designed to help those who really do want to work, to have something on their resume.
Dealing with unemployment is a very thorny problem at the best of times. There are many who give up their search for work because there does not appear to be anything available for their particular skill sets. Most countries have schemes to help the unemployed find work. However, there are some drawbacks to those schemes, especially in the way that some people are excluded from receiving that help. (I know this from personal experience).
Whilst I disagree with the Archbishop of Canterbury, I can actually relate to the difficulties associated with being unemployed, especially during a period of high unemployment caused by Stagflation. My personal experience occurred in 1976 when I was a new graduate, landing in a situation where firms were not employing Commerce graduates. At the time the top five accounting firms were taking in very few graduates… the jobs were not there. My own experience was that it was very difficult having to deal with the Commonwealth Employment Service (the name in 1976) especially when their officers persisted in sending people to job interviews when the people did not meet the necessary criteria. My experience on that score was humiliating, but the CES officer was to blame because he lacked the ability to match up the clients to each other. Getting temporary work in a factory was far less humiliating than going for an interview where I was clearly not the right person for the job!! In this respect I think that the Archbishop of Canterbury has no real idea about what causes humiliation for job seekers.
The welfare state, whether it is in the U.K., Australia or elsewhere needs to be curbed. There are simply too many people dependent upon the state. This dependency causes a drain upon the public purse. If people are cheating the system by finding ways to stay unemployed, and even working on the side whilst claiming benefits, then they deserve to be flushed out of the system.
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The current debt crisis in Europe continues to be a problem. The real problem in the crisis is Greece. They are now waiting for a billion dollar bailout from the IMF and the European zone. Wow!!
The Greek government said Thursday it would hold “systematic negotiations” on the standby loan package with other members of Europe’s currency union at the two-day meeting in Madrid.
But arriving at the Madrid conference center Friday, Jean-Claude Juncker, head of the eurozone finance ministers, said, “There are no indications that Greece will ask for help today.”
The Greek government said its request for more details on bailout loans was not a signal that the country would seek aid. Officials from the European Commission, the European Central Bank and the IMF will visit Athens on Monday to fix details of a standby loan offer that aims to reassure markets that Greece won’t default on its mounting debt.
“Today is not the day for a decision on Greece,” Spanish Economy Minister Elena Salgado told reporters before going into the meeting. “A decision on Greece was taken some days ago.”
Investors are demanding high interest rates for Greek bonds because they believe Greece could be unable to repay debt despite recent efforts to cut a massive budget gap.
Finance ministers from the 16 nations that use the euro agreed Sunday to give Greece some €30 billion in individual loans if the country can no longer borrow on the market.
The announcement initially calmed markets — and saw the interest rate gap, or spread, between Greek 10-year government bonds and their benchmark German equivalent fall.
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According to the Telegraph, the secret plan is to cut the health budget by at least $20billion and this will be achieved by closing hospitals, sacking staff and scrapping those hip replacements. It would seem that if such a plan was implemented that it is the elderly who will bear the brunt of these cuts. The Telegraph reported:
“In Wednesday’s Budget, Alistair Darling, the Chancellor, repeated that the £20 billion would come through “efficiency savings” and not key services.
Documents produced by several of the SHAs show how the cuts are, in fact, expected to fall on hospital services.
In the South East Coast region, which covers Surrey, Kent and Sussex, up to £1.6 billion must be saved.
A document marked “restricted” and circulated among SHA board members suggests 10,000 of the region’s 100,000 NHS workers may lose their jobs. “The new financial environment demands that the trend in workforce growth must be reversed,” it said, adding bosses must reduce employee numbers by 10 per cent “or further”.
The document said staffing in the acute sector, covering hospitals, “can be expected to decline faster and further” than elsewhere.
Job losses will be “starting in the coming year”, it states. Mr Brown has repeatedly promised Labour will not start making significant cuts to public spending until 2011. A spokesman for the South East Coast SHA said the document was a discussion paper and not a final plan.”
When one sees a story like this regarding the NHS, one has to wonder how this could happen in the first place. Is it a matter of mismanagement? Is it because people are constantly running to their GP for the slightest thing? Is it caused by new technology? Or maybe it is because of the high level of immigrants within a certain immigrant population that eschews having productive employment so that they will be able to help bring down the economy of the U.K. in order to force a revolution from within, and then introduce sharia law.
If the government in the U.K. requires what looks like really harsh measures then the country is screwed. The present government is not able to cope with the demands that are being placed upon the welfare system. Of course, one possible solution to the problem would be to enforce stricter immigration laws. The U.K. can do without immigrants that have no intention to work because they want to suck off the government welfare teat. It is time that the U.K. government actually began to turn off the welfare benefits to the immigrant population. This is an action that needs to be taken against all immigration populations rather than singling out a class of immigrants.
There is no real excuse for allowing the budget deficit to get so far out of hand. It is because of PC attitudes that the British government has failed to act in order to weed out the welfare cheats, or those who manage to live off welfare without ever having contributed to the U.K. economy. It is as if the exponential growth in the U.K. immigration has been hand-in-hand with the growth in demand upon school and health services. Perhaps a case could be made for people being asked to pay more towards health and education in Great Britain, yet I can imagine the stink that would be created by those same welfare moochers.
The unchecked growth in the welfare state in the United Kingdom is definitely cause for concern. If the U.K. goes ahead with such deep cuts then the growth in umemployment could push the U.K. economy over the edge. As it is the U.K. will spemd a long time getting over the spendthrift policies of both Tony Blair and Gordon Brown.
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One of the inevitable consequences of the expansion of government is that eventually, the point is reached where there is not enough money to pay employees because of funding cutbacks. The Australian experience under the Hawke-Keating government was a severe cutback in public service jobs during the 1980s. (I will write about that experience later.) Therefore it is no surprise to learn that the British system of councils is now contemplating having to cut thousands of council jobs as funding dries up.
It has been estimated that as many as 100,000 jobs could be cut from the councils over the next three years as Government spending cuts start to bite.
Tony Travers, and expert from the LSE said that the actual estimate from the councils of a 25,000 jobs cut was on the cautious side. He stated:
“Nothing like this has happened for a generation. For myself I’d be amazed if it was that low. I think it’ll be much higher. It could be as high as 100,000.”
The Telegraph reports the grim findings for council workers in this way:
A number of councils indicated that they will cut jobs more than 1,000 posts, as funding from central Government is cut back.
Eight authorities – Kirklees, Leeds, City of Bradford, Sheffield, Stoke-on-Trent, Nottinghamshire, Lincolnshire and Surrey – said 1,000 or more posts might be lost within five years.
Birmingham City Council, which did not respond to the survey, is planning savings of £69m in the next financial year, which could mean the loss of up to 2,000 jobs.
Shropshire Council has also said it is planning to cut more than 1,000 posts over the coming years.
There are fears that key local services such as libraries, nurseries, arts and leisure services are now at serious risk. Seven in 10 councils predicted they will have to cut spending by up to 20 per cent over the next three to five years
However, Mr Denham, the local government Secretary argues that this will not be the case, and that the front line services will not be cut if efficiencies are to be found elsewhere. Read the rest here.
Exactly how these councils will obtain those effeciencies could be very open to debate. As I stated it is in fact inevitable that when Government becomes bloated there is a point where those bloated jobs have to be shed. John Denham does not seem to have the experience with regard to finding these other things that can be cut. In times of austerity it is true that the government has to seek areas that can be cut. Personally, I think a good place to start is welfare spending, especially in relation to the provision of housing for welfare recipients. By this I do not mean that there should be no housing available. Rather, I mean that eligibility for welfare housing could be tightened. Another area that could be tightened is that of immigration. If they cannot or will not find a job, do not give them welfare, send them back to their own country and let their own governments provide for them. The immigrant British population places a great strain on welfare spending, and it is helping to cause the present crisis.
However, it is my own experience in Australia that I also want to highlight, since I was working for one of the departments in the Australian Public Service that was subjected to a massive shedding of jobs during the 1980s. The particular department was Administrative Services. It served as an umbrella to a variety of groups such as Removals (for military families), Comcar (the provision of motor vehicles for politicians and top public servants), Australian Archives, AGAL etc. The department itself led the way when it came to the introduction of accrual accountin in the Public Service. However, there were a lot of jobs that could be performed better by the private sector. The Department itself was somewhat bloated at the time due to the provision of all of these services for military families, as well as for government politicians. The push started not long after I joined the department, or rather after two departments were merged together. The whole time that I worked in the department there was uncertainty because of the constant rounds of redundancies being offered. A very seamy side to these offers was the way in which people were treated, being given the cold shoulder etc. in an effort to force them out. By the time I left the APS the department had shed thousands of jobs… although to be fair some jobs were shed because the units were sold off to private enterprise. Some of these old units continue to thrive in the private sector more than 10 years later. The actual department disappeared after the 1996 elction of the Howard Government and of course many more people lost their jobs as a result of the change as some areas were merged into other departments. What Australia did get was a slimmer and less bloated government for a time – and then it started to expand again……
This kind of experience does in fact impact upon services that are offered to the public. It is inevitable that there is some kind of impact because there are simply no longer the number of employees available to serve the interests of the public. If you look at the kind of jobs that could be under threat in the U.K, then I would say that there is room for the private sector to take over the service e.g. nurseries, as well as arts and leisure.
Whilst the news is grim because of the inevitable reduction in employees that comes from a tightening of the budget, there should be room in the future for those same services to be provided by the private sector, rather than by government. However, in the current economic climate there does not seem to be the funding available for the private sector to take over those functions.
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