Talk of recession as Swan fumbles the figures

[inrodwetrust]

As far as I know he's not an economist for a start. Does anyone know what skills he can claim to make him competent as Treasurer?

A career Labor politician? perhaps.. why he is the Treasurer, not so sure about the competent bit!

http://www.treasurer.gov.au/DisplayDocs.aspx?doc=biography.htm&PageID=090&min=wms

 

[numbercruncher]

If the Libs put up Costello it will all be over for Krudd.
I am sure they have no idea how bad this will be. 500 car yard closing up unable to get finance for people who don't want to buy a car.
Fully employed ( more than 2 hr a Week ) those on 38 hr are down and the latest figures are 6 mths old. Part time employment increasing but a few hrs a week will not go far.
More bad news to come each day.

Yes Labor are crap at handling this so far ....... But liberal got us in the position of all eggs in one basket, completely blinded by rising commodity prices and the China exhaggeration.

Yup early days yet, the real econmy has truckloads more pain bearing down on it ......

 

[Roo72]

Swan has a Bachelor of Arts Degree......my house cleaner has one of those.
Actually, I thought he was a train driver but good old Wikipedia set me straight

 

[rhen]

He is running scared because he knows Australia has the potential to be spanked harder than any other Western nation .....

Theyre addicted to a hole in the ground economy and thats going pear shaped at a pace they could never of even dreamed or nighmared about.

Seriously what do we have to offer the world other than stuff we dig up ? Previous Government has failed miserably in preparing us for a rainy day ..... I cant believe after a decade of ever increasing income we are so woefully unprepared and vulnerable.

Our bAnAnA republic' destiny awaits ??

I've already provided this link in another thread so apologies to those who have already visited same. However, I felt the following needed to be included herein:
Despite months of assurances by the Rudd government and the regulatory agencies that Australia's banks are sound--unlike their US and European counterparts--a prolonged credit freeze-up will have serious implications for the banks, which depend on the international money markets for up to 60 percent of their funding sources.

Since October 2006, the International Monetary Fund has issued several warnings about the fragility of the Australian banks. Just two weeks ago, the IMF said the global turmoil had "highlighted their vulnerability to rollover risk associated with short-term wholesale funding" and "the protracted loss of access to international short-term debt markets".

Last week a Freedom of Information request by the Australian revealed that the federal government's $64 billion Future Fund, set up in 2006 from accumulated budget surpluses and the privatisation of Telstra, secretly lent unknown amounts to three of the big four banks-Westpac, the ANZ and NAB-shortly after the global crisis intensified with the collapse of the US investment bank Bear Sterns on March 16.

While the total amount of these loans is unknown, they potentially expose the Future Fund to further losses. According to calculations by the Australian, the fund, which the previous Howard government claimed would "future-proof" the Australian economy, has already lost $2 billion through investments on stock exchanges and other money markets.
http://www.wsws.org/articles/2008/oct2008/econ-o08.shtml

If you read the article further, you may find that matters get worse!

 

[Smurf1976]

Swan has a Bachelor of Arts Degree......my house cleaner has one of those.
Actually, I thought he was a train driver but good old Wikipedia set me straight

Train drivers actually do something useful and have to know what's going on around them, otherwise we'd end up with a train wreck.

Politicians are far better at wrecking things than even the worst train driver.

 

[Julia]

I've already provided this link in another thread so apologies to those who have already visited same. However, I felt the following needed to be included herein:
Despite months of assurances by the Rudd government and the regulatory agencies that Australia's banks are sound--unlike their US and European counterparts--a prolonged credit freeze-up will have serious implications for the banks, which depend on the international money markets for up to 60 percent of their funding sources.

Since October 2006, the International Monetary Fund has issued several warnings about the fragility of the Australian banks. Just two weeks ago, the IMF said the global turmoil had "highlighted their vulnerability to rollover risk associated with short-term wholesale funding" and "the protracted loss of access to international short-term debt markets".

Last week a Freedom of Information request by the Australian revealed that the federal government's $64 billion Future Fund, set up in 2006 from accumulated budget surpluses and the privatisation of Telstra, secretly lent unknown amounts to three of the big four banks-Westpac, the ANZ and NAB-shortly after the global crisis intensified with the collapse of the US investment bank Bear Sterns on March 16.

While the total amount of these loans is unknown, they potentially expose the Future Fund to further losses. According to calculations by the Australian, the fund, which the previous Howard government claimed would "future-proof" the Australian economy, has already lost $2 billion through investments on stock exchanges and other money markets.
http://www.wsws.org/articles/2008/oct2008/econ-o08.shtml

If you read the article further, you may find that matters get worse!

Rhen, I heard David Murray, CEO of the Future Fund interviewed a couple of weeks ago. He stated that the Fund had made a profit (can't remember the amount now) which he considered more than reasonable under the current circumstances. So his statement doesn't seem to concur with the quote above.

 

[Julia]

Colin Twiggs usually has a rational view, viz his newsletter today:

he task of the new government will be to restore confidence in the financial system, in the business community, and amongst consumers. A significant obstacle that needs to be overcome is the inordinate influence that well-funded special interest lobbies exercise over Congress: big banks, big oil, drug companies and the health care sector, to name but a few.

Restoring confidence in the financial system will require strong regulation of financial markets and enforcement of conservative capital-asset ratios. Re-capitalizing banks is already making a difference, with a substantial drop in the price of credit default swaps. Establishing a formal market for the more than $62 trillion in credit default swaps would provide additional comfort.

The business community desperately needs two things: a stable interest rate so that they can accurately determine their cost of capital when evaluating new investment projects; and stable consumption patterns so that they rely on continued demand for new products. Unfortunately stimulatory monetary policy distorts both interest rates and consumption patterns, causing a rash of failures when interest rates are later raised and consumption falls ”” the foundation for the next recession. Government spending programs may have a similar affect: reducing new private (business) investment in productive assets by shrinking the surplus of income over consumption; and artificially stimulating consumption ”” which leaves a hole when expenditure is later discontinued.

Consumers need to have confidence in a fair and stable tax regime, confidence that their jobs are secure, and confidence in a stable financial system. The government has direct influence over the tax regime and indirect influence over the latter two. If they refrain from stimulatory monetary policy and are careful in their choice of stimulus measures they should be able to achieve a stable business and financial environment.

Taxation
Taxation is a politically sensitive instrument and creating a level-playing field is critical. It encourages a "we are all in this together" attitude. A two-tier system, with tax cuts for the poor and increased taxes for the rich will not necessarily raise more taxes. It encourages avoidance. The very wealthy can afford good tax advice and the higher you raise their taxes the more likely they are to opt out of the system, paying little or no tax at all.

It is also important that the new government be exceptionally frugal with tax dollars collected. If you want to be trusted, you need to be even more careful when spending other peoples money than you would when spending your own.

Rate Cuts
Fed rate cuts not only cause long term pain, but deliver little short-term gain. The corporate and banking sector, now highly risk averse, are de-leveraging. They will liquidate assets in order to remove debt from their balance sheets, thereby forcing prices even lower. In the present climate, lower interest rates are unlikely to entice them to resume borrowing.

Infrastructure Spending ”” Tuesday
My newsletter earlier this week may not have been clear, judging from readers responses. I support infrastructure spending. Without a strong infrastructure, economic growth would be stifled. And not all infrastructure projects are suited to private sector investment.

What I am against is spending programs where the primary aim is to create jobs, not productive capacity. And a centrally planned economy ”” that is the road to socialism. While central planning offers the appeal of efficient allocation of resources, results over the last century prove otherwise. The most effective mechanism for allocating resources is a free market, despite its decentralized nature.

Killing Two Birds With One Stone
It is fine for me to say that the government should stimulate investment, not consumption, but how can this be achieved when demand is falling? If the manufacturer cannot sell his goods, he is unlikely to invest in new plant and equipment, no matter how good the incentives.

At the same time the government is under intense pressure to reduce dependence on oil imports and reduce carbon emmissions. This is commonly opposed by dirty industries, arguing that greater penalties or restrictions would cause job losses.

Giving money to manufacturers to develop new energy efficient products would also be likely to lead to excessive waste of taxpayer money. I am sure that projects like the East German Trabant seemed like a good idea at the time.

Offering rebates to consumers, however, would ensure that funds are allocated efficiently through the market. Rebates for electric or alternative energy vehicles, rebates for solar panels and wind-powered electricity generators, rebates for more effective home insulation and appliances, and rebates for use of public transport systems ”” all would stimulate demand while encouraging lower carbon emissions. And increased demand would lead to investment in new technologies, creating jobs in supply, manufacturing and support services. A win-win outcome.

Who Has Failed Us ”” Tuesday
Thank you to Shane and Jan for pointing out that I had omitted rating agencies from my list of offendors. These agencies were instrumental in spreading the contagion. Blinded by fat fees, they failed to adequately assess the risk of a major correction in the housing market. I like Richard Koo's suggestion that all rating agencies be required to display the following disclaimer on all announcements:

Warning: Subprime crisis has proven that ratings produced by this agency are sometimes worthless. Investors are therefore advised not to rely entirely on ratings produced by this agency in making investment decisions.
Another industry caught up in the orgy of greed and ignorance were mortgage insurers, raking in fees without adequately assessing the attached risks. Audit firms, however, were only indirectly responsible where they lobbied the FASB, on behalf of their clients, to relax standards.

Interbank Lending
The 1-month NYFR-OIS spread has declined to 150 basis points. While this is encouraging, the spread reflects continuing concern over defaults in the inter-bank market. The ICAP New York Funding Rate is an alternative to LIBOR that is less open to manipulation and indicates the rate at which banks are prepared to lend to each other in the open market. The Overnight Index swap rate reflects traders' best estimates of the effective fed funds rate.


The Fed announced that the rate payable on excess reserves held with Federal Reserve Banks will increase: the discount of 0.35 percent below the target rate being reduced to zero. This means that the Fed will now act as intermediary in short-term interbank lending without any compensation for default risk ”” indicating the level of desperation to restore credit flows in interbank markets.



Read More....

Treasury Yields Failed Swing The Shadow Banking System Unravels Mortgage Spreads Rise

M2 Money Stock Threatens Blowout Fed Support At Unprecedented Levels


A more instructive analogy is between inflation and alcoholism. When the alcoholic starts drinking, the good effects come first; the bad effects only come the next morning when he wakes up with a hangover ”” and often cannot resist easing the hangover by taking "the hair of the dog that bit him".

~ Milton Friedman: Free To Choose

 

[Julia]

I'm really over hearing Mr Swan mispronounce "deteriorate".

Here is an email I have sent to him, though I'm not optimistic it will engender any change.

Dear Mr Swan

May I respectfully suggest that it would greatly increase your credibility if you were to pronounce "deteriorate" correctly.

It is not 'deteriate'. You are omitting a whole syllable.

This is forgivable in uneducated people who hold no public office. But for the Treasurer of Australia it is not.

Yours sincerely

 

[MrBurns]

I'm really over hearing Mr Swan mispronounce "deteriorate".

Here is an email I have sent to him, though I'm not optimistic it will engender any change.

Wel done Juilia, hope it works we'll all listen with interest.

If it does work perhaps follow it up with a "please resign" email ?

 

[Julia]

W
If it does work perhaps follow it up with a "please resign" email ?

LOL! Big difference between the two requests. But I don't disagree with your sentiments. Did you see him on the 7.30 Report this evening? Trying to sound in charge and failing utterly. Lindsay Tanner has a thousand times more credibility. He at least listens to and responds to questions. Swan appears to have a little player in his voice box which responds to questions by setting itself off automatically to deliver the same old non-answers every time.

Ken Henry, amongst the excerpts I heard of his speech to the Press Club today, nominated confidence as being at the basis of our current woes, given that governments everywhere have provided the stimulus to get the credit markets moving again. He indicated (paraphrasing) that the current situation will be self-fulfilling as long as confidence is not instilled in the population. Sounds pretty right to me. Swan and Rudd, with their constant emphasis on how bad things are may well be making everything worse. They could do well to take some advice from Dr Henry.

 

[MrBurns]

LOL! Big difference between the two requests. But I don't disagree with your sentiments. Did you see him on the 7.30 Report this evening? Trying to sound in charge and failing utterly. Lindsay Tanner has a thousand times more credibility. He at least listens to and responds to questions. Swan appears to have a little player in his voice box which responds to questions by setting itself off automatically to deliver the same old non-answers every time.

Ken Henry, amongst the excerpts I heard of his speech to the Press Club today, nominated confidence as being at the basis of our current woes, given that governments everywhere have provided the stimulus to get the credit markets moving again. He indicated (paraphrasing) that the current situation will be self-fulfilling as long as confidence is not instilled in the population. Sounds pretty right to me. Swan and Rudd, with their constant emphasis on how bad things are may well be making everything worse. They could do well to take some advice from Dr Henry.

No didn't see him tonight , saw a bit of Henry today, seems like he knows whats what but he looks so dour, not a hint of humor very serious guy.

I agree that confidence is important to get things going again .....eventually ........but I don't agree that confidence is at the root of the present problem far from it.

If the banks arent willing to lend to each other how do they expect anyone else to feel upbeat.

 

[Glen48]

Maybe Wayne wants to buy a Bowel as his copping a hiding each day when he get more bad news about Australia economy heading South?

 

[MrBurns]

LOL! Big difference between the two requests. But I don't disagree with your sentiments. Did you see him on the 7.30 Report this evening? Trying to sound in charge and failing utterly. Lindsay Tanner has a thousand times more credibility. He at least listens to and responds to questions. Swan appears to have a little player in his voice box which responds to questions by setting itself off automatically to deliver the same old non-answers every time.

Ken Henry, amongst the excerpts I heard of his speech to the Press Club today, nominated confidence as being at the basis of our current woes, given that governments everywhere have provided the stimulus to get the credit markets moving again. He indicated (paraphrasing) that the current situation will be self-fulfilling as long as confidence is not instilled in the population. Sounds pretty right to me. Swan and Rudd, with their constant emphasis on how bad things are may well be making everything worse. They could do well to take some advice from Dr Henry.

I forgot to mention Henry was on about changing/simplifing the Tax system I wish he or someone would just get on with it, it's a basket case at present.