Last November the Daily Reckoning retold a brief conversation between your editor and Dan Denning about the UK economy. It went something like this:
“The British are utterly doomed,” we told ASI editor (and British expat) Kris Sayce.
“Correct” said Kris.
“Why utterly?” asked D&D editor Al Robinson.
“Well,”we replied, “they have the same bad bank problem as America. They have even more debt as a percentage of GDP. And the housing
bubble there was worse. Plus, the weather is awful. We’re all doomed. But they’re utterly doomed. It rains all the time.”
“Oh.”
All we can say is that we are glad we are here in Australia. Don’t get me wrong, the politicians aren’t any brighter and they are just as likely to do even more dumb things. But at least we have the benefit of being able to prepare for it.
Before the Australian government copy everything else they are doing in the UK and the US.
For the poor Poms it is too late. Strap yourself in before you read the following quote from the BBC website:
“BBC business editor Robert Peston says that if the deal is completed, it will take the total support by British taxpayers to the banks to £1.3tn. That figure, made up of loans, guarantees, insurance and investments, is equivalent to the entire annual output of the UK economy.”
Got that? The UK bank bailout plan involves a guarantee by the taxpayer that is equal to the UK GDP.
It almost doesn’t need a metaphor to compare it to. All we can think of is that it would be the same as you or I putting aside our entire annual income, taking it down to the casino and putting it all on black… or red, whichever takes your fancy.
So, are we lucky? Well, so far none of the Australian banks have had to receive a direct injection of capital unlike those in the US or the UK.
But don’t forget that the Australian government has kindly volunteered to prop up the banks if things do go a little pear-shaped. And how much is that?
If you recall, when the government introduced the guarantee late last year the figure put on the potential cost if all the banks went under was $700 billion. That, for the record is about 70% of Australia’s GDP.
When you see a big number like $700 billion, a smaller big number almost seems irrelevant. And there lays the danger. Taxpayer money is continuing to be grabbed by the government and then handed out like lollies.
The latest ruse is $300 million to be given out through the ‘Job Network.’ This latest handout will be for anyone who is retrenched so that they don’t have to wait three months before getting benefits. Based on the $225 per week that Tim Colebatch of The Age newspaper tells us that the unemployed receive, the government is anticipating that around 110,000 people will lose their job.
Presumably they won’t be part of the 75,000 people who will have a job ‘created’ by the government as a result of the December stimulus package. And surely they won’t comprise any of the 90,000 people whose job the PM will ’save’ as a result of the latest stimulus package.
By now Fairy Godfather Rudd’s arm must be getting very tired from all the wand waving he’s doing – creating jobs here, saving jobs there, spending money everywhere.
But a wonderful irony comes from one of the government’s own agencies. It is on ASIC’s FIDO website. FIDO is the financial consumer alert service warning investors about scams and the like.
Written in July 2006, the web page advises consumers to “Use your tax cut gain to ease financial strain.”
It goes on to quote Ms. Delia Rickard from ASIC who says, “‘Putting this extra money, no matter how small the amount, to good use before you’ve spent it can make a big difference to your financial position over the long term.”
Among the tips are: Make extra contributions into your super; Combine your super funds, Increase your loan repayments; Start saving now, no matter how little; Do your budget; Starting to invest.
At no point – not once – does it suggest spending the money on household insulation or to go and spend a lot of money because of the good it will do to the economy and therefore the good it will do to you.
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Other Stuff on the Markets
The US market adds over 3% overnight. Is everything fine again? Probably not quite yet. Obama addresses a joint sitting of the US Congress today. Seeing as every other time he or his Treasury Secretary Tim Geithner have opened their mouths the market has plummeted, we won’t hold out too much hope.
Gold eased back. That’s only to be expected when the stock market is bullish. More likely than not it is a knee-jerk reaction to the positive stock market movement. The case for gold remains strong.
Macquarie Bank shares closed below $20 yesterday. That’s the lowest level in seven years.