Shock therapy
Today a massive "stimulus package" was announced to "kickstart" the economy.
Yesterday we heard there was a $115bn anticipated shortfall in government revenue over the forward estimates taking into account previous projections. This was attributed to the slowing of foreign economies, most notably China's, and how this would feed into lower Australian company revenues and hence lower company tax revenue for the government.
So if the problem is largely due to factors offshore and beyond our control, is there really an onshore solution available, or is this stimulus in fact more about life support than resurrection? I think the government will just be burning its cash shocking the local economy into a semblance of walking death until some hoped-for turnaround in the global economy.
I'm increasingly ambivalent about measures to protect the financial sector. The situation in the UK, already worse than it is here but perhaps reflecting Australia's economic future, is dire. Over there the Guardian is running a series of investigative articles about the level of corporate tax evasion, rightly pointing out the bitter irony of citizens' tax contributions going to prop up corporations and financial institutions that have themselves systematically avoided their tax responsibilities.
Meanwhile the RBA has announced another 100 basis point cut in the cash rate, taking it to 3.x percent. To put it in perspective, the rate cuts to date are already saving me about $500/month in mortgage repayments, I guess this one will make for an extra $100-200 off per month if it is passed on.
As this ramble devolves further, I'd like to note that I've discovered a neat shorthand for my rants about the lack of accountability of finance industry decision-makers with short-term performance incentives during the bubble: moral hazard."Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions."
Continuing, Paul Keating was on Lateline last night talking about the need for the international bodies involved in the global aspects of "rescuing" all of our economies to grant more influence to "surplus countries" such as China and India, at the expense of "debtor countries" such as, well, more or less everyone in the OECD. Currently the massive debtors of the US and the EU have 51% of the vote at the IMF, meaning that China is unwilling to engage with the body politically. Keating's solution to the world crisis: completely reshuffle the G7, IMF and related international groupings, people in surplus countries need to spend more and save less, and people in debtor countries need to spend less and save more. I found his comments quite incisive compared to many I've read.
Lastly, it seems as if the public discontent that will build as this recession deepens will be valuable capital for some sort of new political movement. I wonder what shape that will take?
Yesterday we heard there was a $115bn anticipated shortfall in government revenue over the forward estimates taking into account previous projections. This was attributed to the slowing of foreign economies, most notably China's, and how this would feed into lower Australian company revenues and hence lower company tax revenue for the government.
So if the problem is largely due to factors offshore and beyond our control, is there really an onshore solution available, or is this stimulus in fact more about life support than resurrection? I think the government will just be burning its cash shocking the local economy into a semblance of walking death until some hoped-for turnaround in the global economy.
I'm increasingly ambivalent about measures to protect the financial sector. The situation in the UK, already worse than it is here but perhaps reflecting Australia's economic future, is dire. Over there the Guardian is running a series of investigative articles about the level of corporate tax evasion, rightly pointing out the bitter irony of citizens' tax contributions going to prop up corporations and financial institutions that have themselves systematically avoided their tax responsibilities.
Meanwhile the RBA has announced another 100 basis point cut in the cash rate, taking it to 3.x percent. To put it in perspective, the rate cuts to date are already saving me about $500/month in mortgage repayments, I guess this one will make for an extra $100-200 off per month if it is passed on.
As this ramble devolves further, I'd like to note that I've discovered a neat shorthand for my rants about the lack of accountability of finance industry decision-makers with short-term performance incentives during the bubble: moral hazard."Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions."
Continuing, Paul Keating was on Lateline last night talking about the need for the international bodies involved in the global aspects of "rescuing" all of our economies to grant more influence to "surplus countries" such as China and India, at the expense of "debtor countries" such as, well, more or less everyone in the OECD. Currently the massive debtors of the US and the EU have 51% of the vote at the IMF, meaning that China is unwilling to engage with the body politically. Keating's solution to the world crisis: completely reshuffle the G7, IMF and related international groupings, people in surplus countries need to spend more and save less, and people in debtor countries need to spend less and save more. I found his comments quite incisive compared to many I've read.
Lastly, it seems as if the public discontent that will build as this recession deepens will be valuable capital for some sort of new political movement. I wonder what shape that will take?