Carpe crisin:how seizing a crisis can fail

Coalition MPs are in for an uncomfortable weekend.

With the assistance of independents and Greens in the Senate, they have, effectively blocked the Rudd government’s $42 billion plan, that was designed to keep Australia out of recession. Senators will quiz government officials, on aspects of that plan, both today and early next week.

The stand-off has embarrassed the government. The Prime Minister had invited eight State and Territory leaders to Canberra yesterday. He wanted to set their timetables to putting his plan into effect quickly. But they had to leave the national capital before Federal parliament had even approved the plan. However that did not stop the Federal, State and Territory leaders jointly issuing a nine page document endorsing the plan and setting a detailed timetable for its implementation. Once it is approved, that is.

But, if there was an air of unreality about that, it was mild, when set against the storm of debate, set off by Malcolm Turnbull’s decision Wednesday to block the emergency plan.

The Opposition leader is backing his move by asking how much debt the government is prepared to leave to the next generation, to fund its deficit spending.

Kevin Rudd replied by pointing out that, on the latest estimates, the global economic crisis will wipe $115 from the Federal budget, over the next four years.

He then asked, rhetorically in parliament, what Mr Turnbull would have done i to set that right.  Cut government spending? Borrowed? Or raised taxes?

Those, indeed, are the options.

And, so far, Mr Turnbull has said nothing about any of them.

The government can hardly believe its luck.

It is urging  Coalition MPs to listen to their constituents, when they  go home for the weekend.

Family payments, of $950 or more, that would have been paid under the plan, won’t be, at least not until it is passed.

Schools that would have been upgraded will miss out on mostly necessary maintenance.

And, most seriously, thousands of ordinary Australians, who might have kept their jobs, in the face of the world’s most serious economic downturn since the Great Depression of the 1930s, might now lose their livelihoods, instead.

Malcolm Tuurnbull’s chances of becoming Australia’s next Prime Minister have fallen further this week, than global stock markets have, since September.

His attempt to seize the crisis, and turn it to his advantage, is looking very sick.

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Prime ratings agencies marked down

The big ratings agencies, Standard and Poor’s and Moody’s, have been widely criticised for their roles in precipitating the global economic crisis.

And now they will pay a stiff price.

They will come under much closer official watch, both in Australia and the United States.

They will also have to be licenced to operate, even in in Australia.

They will be required to submit regular reports on their operations to this country’s chief financial regularor, the Australian Securities and Invertment Commission, as well.

The new curbs are humiliating for agencies that have, themselves, proudly rated the financial performances not only of the world’s best financiers and companies, but those of sovreign nations as well, for so long.

These agencies, for example, regularly wrote the report cards of the high flying financiers that the novelist, Tom Wolfe, called the masters of the universe in his 1987 novel, The Bonfire of the Vanities. They still do.

But they also, sadly, missed the biggest financial scandal, that has occurred anywhere in the world, last year.

A senior US Democrat, Henry Waxman, last year blamed them for failing to flag the deep problems, then developing in the US sub-prime mortgage market.

Reckless mortgage providers, driven by greed, were hiding bad meat, in the complex financial sausages, that they were selling on US and global financial markets.

Although those sausages were stuffed with herbs, they still smelt bad.

However the major agencies continued to rate them as top quality products.

Or, as asenior US Democrat, Henry Waxman put it, the agencies “broke (their) bond of trust.

Representative Waxman also blamed US regulators, saying they had done nothing to protect the public.

Now officials, in both the US and Australia, are busily slamming stable doors, long after those rogue financiers have bolted.

The Federal Superannuation and Corporate Law Minister, Senator Nick Sherry, told the story, when he addressed the Insurance Council, in Sydney yesterday.

“The global financial crisis has prompted universal consensus for improved regulation of credit ratings agencies,” he said.

“Their role has come under scrutiny due to their involvement in providing inaccurate rates of structured financial products in the lead up to the US sub-prime crisis,” he added.

Better late than never, perhaps.

But not much, in this catastrophic case.

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Rudd’s predictions optimistic

There’s a rosy glow around the Federal government’s latest stimulus plan.

The Treasurer, Wayne Swan, says it will:-

• Sustain 90,000 jobs, over the coming two years
• Produce 1 per cent employment growth and
• See 1 per cent economic growth this financial year – and 0.75 per cent growth in 2009-10.

All that – and more – for just $42 billion.

And with a modest deficit of just $22.4 billion. That figure is, of course, very similar to the surplus – yes surplus – that the government promised in its budget only last May. But that, of course, was before last September’s crash. Everything is very different now.

Your – possibly curmudgeondly – correspondent can’t help testing the government’s latest predictions against:-

• The IMF’s warning last week that the Australian economy is heading for a 0.2 per cent contraction this year, on a no change basis.
• Wayne Swan’s admission that Australia’s growth, over the final three months of last year, may well be the lowest for years and
• The government’s admission that China’s economic growth has halved, from its peak level of 2007.

Seen in the light of these developments, the government’s predictions do appear to be optimistic.

They involve a great deal of spending, which some will see as madness.

But if it is, indeed, madness, there is still method in it.

Rudd’s spending this time, as in his pre-Christmas pensioners’ package, his support for credit strapped car sellers and, yes, even for commercial property developers, has all been targeted at one thing. That, of course, is early spending to support jobs. This time the government is targeting families, hard pressed farmers and mature age students, but not pensioners. It is offering bonuses of up to $950, which will be delivered through the tax system.

Once again, of course, the government is targeting people who will, most likely, spend their unexpected money quickly. That, it calculates, will produce and sustain jobs, as soon as possible.

There is more to yesterday’s package than that, of course. An extra $28.8 billion for example is to be invested,  for  ezxample,  directly, in schools, housing , energy infrrastructure, new houses, roads and small businesss.

Mr Rudd also hopes to keep Australia’s unemployment rate to no more than 7 per cemt. at its peak, despite the global economic crisis.

Kevin Rudd has remembered one thing that John Howard  forgot, many years ago, when the former  Prime Minister was still  a young Treasurer.

That is that the unemployed hit the Federal budget two ways.

Firstly, they stop paying taxes, because they are out of work, .

Then , while they are unemployed, they are, mostly eligible for unemployment benefits.

But while Wayne Swan’s latest mini-budget is also likely to miss its targets, it will, probably, curb the worst of the ill-effects of the global economic crisis in Australia.

And that is valuable.

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Government splashes cash to support jobs

The Federal government has just announced a $42 billion package designed to sustain 90,000 jobs over two years,

Its Nation Building and Jobs Plan, involves payments of up to $950, for families and hard pressed farmers, who can be expected to spend the money quickly.

Five groups, in all, will be eligible for bonuses, mostly paid through the tax system.

There will also be a $950 per child back to school bonus to support 2.8 million children from low to middle income families and a similar bonues for students outside the workforce.

Spending on primary schools and other infrastructure projects will also be boosted.

The plan also includes free ceiling insulation for about 2.7 million Australian homes and the construction of 20,000 new homes mainly for people in the defence forces.

The government hopes this package, along with other measures already announced, will keep Australia out of recession.

It is now predicting 1 per cent economic growth this financial year and 0.75 per cent growth next financial year.

But the Treasurer, Wayne Swan, warned that Australia’s economic growth, in the December quarter, is likely to be the worst the country has seen for years.

Mr Swan said, too, that he expects China’s growth to fall to half the level it achieved at its peak in 2007.

The Prime Minister, Kevin Rudd, is planning to hold a news conference, with Mr Swan, later today.

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Big rate cut expected today

Expect a rate cut of 100 to 150 basis points today.

The announcement will be made at 2.30pm.

The cut will be big.

New figures – on house prices and skilled vacancies – both show that the advancing recession is biting deeply.

Estate agents were once fond of putting pictures of an old, bearded man in their office windows. The caption would describe him as “the young man who waited for house prices to fall.”

That joke doesn’t work, any more.

The Statistician reported yesterday that house prices fell in all but two Australian capitals last year, with Perth, Sydney and Canberra taking the biggest hits.

The weighted average fall, for all Australian capitals last year was 3.3 per cent, over the year.

This is not an all-out collapse, like that which has hit the US housing market.

But it’s bad enough.

Especially as the Federal Department of Employment Education and Workplace Relations is also reporting sharp falls in the previously high demand for skilled workers in Australia.

These indicators – along with other all- too -evident signs of deterioration – point to one thing.

This is not the time for the Reserve Bank Board, or anyone else, to be making timid decisions.

At 3.7 per cent, Australia’s headline inflation rate is still above the Reserve Bank’s 2-3 per cent target rate.

But with prices falling by 0.3 per cent in the final three months of last year, largely as a result of the global economic crisis, inflation is no longer a prime concern.

We can confidently expect a major announcement of new Federal spending measures this week.

In fact, most reporters in Parliament House, Canberra, expected it yesterday, when Kevin Rudd called a news conference, on short notice.

That was not to be.

But the big announcement has been delayed, not cancelled.

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Expect a big rate cut – and more spending – but no more tax cuts

Interest rates will be cut this week – and the Federal government will announce extra spending – to boost Australia’s flagging economy.

But there will be no new tax cuts.

Both the Prime Minister Kevin Rudd and his Treasurer Wayne Swan again ruled out  that idea  over the weekend, saying tax cuts take too long to work.

The immediate outlook is bleak.  The International Monetary Fund predicted at the weekend that the Australian economy would contract by 0.2 per cent this year.

While that suggests a relatively shallow recession, by world standards,  it would still not be a bad result. And  thousands of Australians would lose their jobs, if it  proves to be right.

As Mr Swan noted, in an interview yesterday, the world now faces “a marked contraction in global demand, the likes of which (neither) the country or the globe has seen since the Great Depression.”

But the grim outlook, that Australia now faces, is presenting the opposition, as well as the government, with big political challenges.

The public, undoubtedly, expects all of Australia’s  politicians to the opposition to do what they can, to fight the global recession.  Even though that might not be much.

But Malcolm Turnbull’s talk of the Rudd Government “channeling  the Whitlam government” with big reckless spending and big deficits was not positive.

Mr Turnbull sounded more like the merchant banker, he once was, than a leader who knows that his help is needed, too, at this critical time.

The Reserve Bank board meets tomorrow, to review Australia’s interest rates.

With the overnight cash rate still at 4.25 per cent, it has plenty of room to announce a big rate cut.

A cut of 100 basis points is quite likely.

The board will make its decision just one day after the Australian Bureau of Statistics releases its latest house price figures, for the nation’s capitals.

These will not show a US style collapse in Australia’s housing markets.

However, they will, quite certainly, show some significant easing.

And that will disturb the nation’s home owners.

So they are quite likely  to curb their spending at the worst possible time.

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