APEC:Some still hope

The early messages, emerging from the APEC leaders meeting in Lima are hardly encouraging.

It’s communique, for example, convinces very few with its assertion that the global economic crisis will be over in 18 months.

That was inserted, apparently, at the insistence of the Peruvian President Alan GARCIA Perez, who hosted the meeting.

While Australia’s Prime Minister, Kevin Rudd, would not comment on that directly, afterwards, he is clearly sceptical.

“I feel that next year is going to be tougher and harder,” he said.

“…we’re in this for the long haul,” Mr Rudd said later.

The leaders who attended did accept, though, that free trade is the best path out of the present crisis.

They also instructed their trade ministers to meet next month, to pursue that objective through the now stalled Doha round of free trade talks.

That seems astonishing.

The Doha round has been bogged down, now, for a very long time.

So long that it is hard not to regard those talks as a sad joke.

Those talks, held under the banner of the World Trade Organisations, started in November 2001, in the Qatar city of Doha.

Their aim is to promote global trade, by lowering barriers, such as tariffs, subsidies and import quotas.

The talks, among 121 countries, have bogged down over agricultural protection, industrial tariffs and non-tariff barriers.

The most recent meeting,  in July this year, broke down amid disagreements over proposed rules for agricultural trade.

But the ever-optimistic Kevin Rudd still sees room for hope.

“Where we got to in July was actually quite a narrow band of disagreement, involving a limited number of countries,” he said.

“What’s required now is a huge political heave to get it across the line.”

APEC leaders, backed by the global economic crisis, might be enough to give those talks the  necessary push.

But few would be prepared to bet on that, at this stage.

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Deficits:a shortage of truth

Budget deficits are dynamite in Australian politics.
So Australian politicians are particularly economical with the truth, when it comes to talking about them.

Labor MPs, for example, are simply not openly admitting that next year’s Federal budget might go into deficit.

The closest that the Prime Minister, Kevin Rudd, has come to doing so is his often repeated statement that the budget will be kept in surplus, over the course of the business cycle.

Yes, technically, that does admit the possibility of a deficit in 2008-09.

But it keeps the risk well hidden.

Meanwhile Opposition politicians have been trumpeting a new report, by Access Economics,  which warns, flatly, that there might well be a deficit  in the new financial year.

Speaking on the Rudd government’s first birthday yesterday, Mr Turnbull said  a budget deficit would be an admission that Mr Rudd could not maintain a strong economy and could not live within his means.

“Given the strong public finances Mr Rudd has inherited, and the growth forecasts we’re relying on for next year, Australians rightly regard the prospect of a deficit budget next year as a failure in economic management,” Mr Turnbull told reporters at the National Press club, in Canberra.

His criticism echoed another warning that the Coalition’s Senate Leader, Nick Minchin, had given earlier in the day.

The risk of a deficit, in 08-09, has arisen as a direct result of the global economic crisis.

And the Access report was quite blunt on that point.

It said Australians should not be scared of a deficit over the next year or so.

“The lessons of history are very clear,” Access said.

“Recessions lead to large increases in unemployment, which then linger.

“Recessions, therefore, are to be avoided if at all possible,” it added.

But the Coalition is not mentioning that.

Nor is it mentioning the sharp criticism the Access report made of the Howard government, saying that it had spent recklessly throughout the good times.

Politically, these were sins of omission.

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Amid encircling gloom

Australia’s immediate future is not looking good.

House prices are down.

So is the share market.

And home buyers are still not rushing into the market.

The combined effect of all this has been a sharp fall in household wealth.

Australians, mostly. are not as rich now as they were, even at the start of this year.

There have been recent signs that we are now starting to save more.

And that could promote a mid term recovery.

But that is not the only possibility.

In the mid term, that could make things even worse than they are now.

The temptation is to save, not spend, when black clouds appear on the economic horizon.

And, if too many do that, the downturn gets worse.

That’s what economists call “the paradox of thrift.”

As the Reserve Bank noted this week:”The recent falls in house prices and on equity markets led to a decline in household net worth of about 8 per cent, since the start of this year.”

That is definitely not what Australians expect.

The fact that Americans are having it much worse isn’t much comfort.

Especially as US bankers caused the global economic crisis, which is at the heart of all this, by reckless, commission-driven lending.

The Reserve Bank admits that “there are few precedents” for what is happening in Australia right now.

No-one is quarreling with that assessment.

Super:Warren Buffet’s advice

Labor politicians quoting the super-rich?

Well, the Federal Superannuation Minister, Nick Sherry did just that, this week.

He reminded reporters, at the National Press Club in Canberra, of the wise words of Warren Buffet, on the subject of long term investment strategy.

Naturally, Mr Buffet wasn’t speaking directly about Australian style superannuation.

But that is, definitely,  a long term investment.

And that was  enough for Senator Sherry.

He noted that Mr Buffet had said:”Stocks are things to hold over time.

“Productivity will increase and stocks with it.

“There are only a few things you can do wrong.

“One is to buy or sell at the wrong time..

“Paying high fees is the other way to get killed

“The best way to avoid both of these is to buy a low cost index fund and buy it over time.

“Very few people  should be active investors.”

Senator Sherry believes these wise words contain strong messages for Australians.

Especially those who have been discouraged by the 6.4 per cent fall in earnings that Australian superannuation funds have suffered this year, as share prices fell.

If Senator Sherry really believes that, though, why has the government been urging those funds to look at investing in property, rather than the share market?

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There’s still a silver lining:RBA chief

“We should go forward with some quiet confidence in our own abilities.

“And in the opportunities that are on offer.”

The systemic collapses, that would have had massive repercussions throughout the world, have been averted.

There are still tough times ahead.

But “the biggest mistake we could make, would be to talk ourselves into unnecessary economic weakness.

“Yes, the situation is serious.”

But our long term prospects are not as bad as some of the gloomy talk that is around would suggest.”

These are comforting thoughts.

Realistic,too.

And they come from no less a figure than the Governor of the Reserve Bank, Glenn Stevens.

Mr Stevens told members of the Committee for the Economic Development of Australia, in Melbourne last night, that the measures world governments have already taken, to revive their economies, are working.

“Markets are beginning to thaw,” he said.

“Spreads between central bank policy rates and term funding costs have come in from the extraordinary levels, seen in September and October.”

Even though they remain high by historical standards.

Tough words.

But they do contain some hope.

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Rumourtrage to be curbed

The Federal government has ordered a review of four practices that can destabilise share trading.

These are rumourtrage, the impact of directors’ margin lending arrangements, blackout trading and the disclosure of price sensitive information at closed company briefings.

Superannuation and Corporate Law minister Nick Sherry said there had been some shocking examples of rumourtrage, or share trading based on false rumours, over recent months.

But, speaking at the National Press Club, he refused to give specific examples, saying that might interfere with possible consequences of these abuses.

Senator Sherry said he had asked the government’s Corporations and Markets Advisory Committee to review these market practices.

“The Rudd government places a premium on a well functioning and transparent financial market that keeps Australia in the forefront of global best practice,” Senator Sherry said.

But he admitted his latest announcement, along with other measures announced recently, would have brought cries of interference in less troubled times.

Blackout trading occurs, when company directors trade in their own company’s stock, when its own rules prohibit trading at that time.

These periods usually occur before the release of annual or half yearly reports.

“Research has found a very significant lack of compliance with regard to rules around trading in the blackout period,” Senator Sherry said.

“This is unacceptable,” he added.

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Family wealth hit hard

How big a hit has your family’s wealth taken this year?

If you can confidently say 8 per cent, or even less, you are doing relatively well.

The Reserve Bank calculates that this – roughly – is the damage that a typical Australian family has suffered.

“The recent falls in house prices and on equity markets had led to a decline in household net worth of about 8 per cent since the start of the year,” the bank reported.

But that was the evidence that its staff economists put to the bank last month.

Things have got worse since then.

“The falls in equity prices thus far in the December quarter meant that the fall was now larger,” the bank said.

The bank also said its board  had noted that “there were few precedents for the current developments in household wealth.”

It noted, too, that even last month, the bank was starting to see signs of capital spending being cut back.

And that was not all.

“Looking forward, job advertisements and information from business surveys were both suggesting that demand for labour was slowing,” the bank said.

So no-one should have been too surprised, in view of all this, that the bank cut Australia’s marker interest rate by 75 basis points last month.

And the rate cuts aren’t over yet.

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Retailers face a bleak Christmas

Australia’s retailers could well be facing a bleak Christmas.

New figures, that the Australian Bureau of Statistics has just released, tell the story.

They show that, in volume terms, retail sales rose by just 0.1 per cent, in the September quarter.

The timing here is important.

Remember that the full force of the global economic crisis did not become apparent until mid-September.

So the economy was already slowing, before it arrived.

Australia’s most heavily populated State, New South Wales, is also showing clear signs of being the weakest.

In trend terms, retail sales in that State fell by 0.8 per cent in the quarter.

The fat cats, in the ACT, aren’t spending, either.

Retail sales in Canberra also fell, by 0.3 per cent, on the same measure during the quarter.

Sales rose in all other parts of Australia.

The biggest rise, of 2.5 per cent, was chalked up in the Northern Territory.

But the weeks ahead are not looking good.

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