We noticed with amusement Emperor Ken Henry’s statement that: “What people have called the global financial crisis, that has passed, I think it’s safe to say.”
It’s pretty easy to say that when you’re a career leach. Sorry, we mean public servant… No, actually, we do mean ‘leach’ after all.
On reading those words from Emperor Henry, it rather reminded us of this moment back in 2003:
“Major combat operations in Iraq have ended. In the battle of Iraq, the United States and our allies have prevailed… [Applause, whooping and hollering] And now our coalition is engaged in securing and reconstructing that country.”
At the time it did indeed appear as though the ’shock and awe’ military strike in Iraq had ‘worked.’ Seven years later and, erm, well, the last we heard there was still a bit of bother going on there.
The story is similar with the global economy. Thanks to the meddling of national governments and central bankers, there’s the impression – a false impression – that the worst is behind us.
But as you’ll know from reading Money Morning, the facts are different. The worst is yet to arrive. Although if you look at the news, there are signs beginning to show that the delayed effects of the global financial meltdown may only be just around the corner.
Like George ‘Dubya’, the bankers and governments believe they’ve got this thing licked. And that after saving the world they’re now determined to secure and reconstruct the global economy.
New regulations are proposed. New taxes are being invented. Government will take the driving seat instead of leaving things to so-called free markets.
But the real outcome of their meddling is plain for all to see. The dodgy situation in Greece is a perfect example. But we’ll have more on that tomorrow…
First, a look at those ‘amazing’ job numbers that sent the markets and commentators wild last week.
“What we particularly celebrate about these figures today is the thought that 52,700 Australians have told their families in January that they got a job.”
That was Treasurer Wayne Swan’s comment in Parliament last week after the release of the Australian Bureau of Statistics (ABS) employment data.
According to the ‘great’ news in the mainstream press last Thursday and Friday, “Australia’s jobless figure [fell] to 5.3 per cent from 5.5 per cent.”
Gee, wouldn’t that be nice if it was true. Wouldn’t it be nice if the unemployment rate really was 5.3%? And wouldn’t it be nice if 52,700 Australians really did tell their families they got a job.
Look, we’re sure plenty of people did get work in January. That’s the nature of the job market. Some people get a job and some people lose a job.
The problem is, in the world of statistics, what the press is actually reporting isn’t actual job numbers. What they are actually reporting is a statistic.
It may seem obvious, but it’s important to realise that a statistic is just that, it’s a number contrived by the ABS rather than an actual picture of job gains or losses.
It’s a bit like the home index numbers. It’s an index that’s based on real numbers, but which gets fed into a fancy computer programme, out of which comes a neat little number.
But if you look at the unemployment numbers there’s more than one way to interpret them. We’re not saying our interpretation is any more accurate than Wayne Swan’s, but what we will say is that if you look at the original numbers rather than the ‘trend’ or ’seasonally adjusted’ number, it tells a completely different story to what has been reported.
And furthermore, as we’ve seen many times over the years, the ability of the mainstream economists to make accurate forecasts based on economic data has been woeful.
As we pointed out with the misleading reporting of the ANZ Job Advertisements, the same misreporting has happened with the unemployment numbers.
In both instances, the press reports and analyst commentary has gone cock-a-hoop over the fantastic numbers that show Job advertisements rising and the unemployment rate falling.
When in fact the reverse is the case.
The mainstream press reporting of the December ANZ Job Ads chose to only look at the seasonally adjusted figures. In other words, they looked at a statistic rather than the raw data.
That was only the start of the deception because the January job ads were even worse.
According to the ANZ, total internet and newspaper job advertisements fell to 109,177 in January, a 25.8% decrease on the January 2009 number, and a 50.8% decrease on the January 2008 number.
In fact, get this, the January job ad number was the worst since at least November 2004.
Of course the argument could be that, “It’s bound to be lower because the Australian economy didn’t lose as many jobs, so employers don’t need to advertise.”
Well, you could argue that, and it could be true.
In fact, if you look at the employment numbers from the ABS it tells you in January there were 10.85 million employed persons in Australia compared to just 10.61 million employed persons two years earlier.
So, during the global financial meltdown Australian businesses maintained total workforce numbers.
But the not-so-rosy number is the number of unemployed people. That’s increased by 150,000 during the same time.
And in fact, according to the ABS, a net 196,961 people told their families they’d lost their job in January alone.
That’s because the total number of employed people dropped from 11.047 million in December, to just 10.850 million in January.
Look, we’re aware of the reasons behind the use of ’seasonally adjusted’ and ‘trend’ numbers. It helps to smooth out seasonality and give a bigger picture view.
However, although it may smooth the numbers, it also hides the real story.
What the numbers likely tell you is that thanks to the stimulus spending and government bail-outs, many businesses recognised they could afford to maintain staff numbers.
Of course, that’s only the net employment position. Some industries will have fared better than others. Especially those in the construction sector and allied industries.
Over this time many businesses have been able to maintain their pricing levels and their staff numbers. If they’d had to cut prices, odds are more businesses would have fired workers to try and cut costs.
The stimulus programmes and bail-outs prevented that from happening.
The consequence is that prices didn’t fall. The proof of that is in the consumer price index (CPI) numbers which indicated rising prices during the last year.
And contrary to mainstream opinion, that’s bad news.
Because the biggest fear now is that what should have happened in 2008 could very well now happen in 2010, only it’ll be worse.
It’s easy to think that a stable employment number is good. That the stimulus programmes prevented these people from losing their jobs. The reality is different. It certainly helped those in some industries, but it has punished those in other industries that didn’t receive the benefit of the bail-outs.
Besides, look at where many of those jobs have gone. Crazy government funded projects such as the Green Loans scheme and wasteful school building projects.
But even worse than that is the fact that those stimulus programmes need to be paid for at some point. The only way the government can do that is to pay for it through the tax system.
Right now, according to the Australian Office of Financial Management, there is $124 billion of taxpayer subsidised government debt outstanding. $117 billion in Australian dollars, and nearly $7 billion in foreign currency denominated debt:
That works out to around 11% of Australia’s GDP.
But that’s not all. Add in the private sector debt and as we’ve noted recently, Australia’s debt position is well above 100% of its total income.
The problem for the economy now is what will happen over the next year when we assume there won’t be any further stimulus packages? That’s billions of dollars worth of spending that was in the economy last year but which won’t be there this year.
We’ve already seen that the retailers have produced revenue and profit numbers below market expectations.
And this year the economy faces the prospect of increasing interest rates and higher taxes.
One alternative is for the government to follow the Greek, US and UK example to the next level. And that’s to keep spending, and then borrowing more money to cover it.
You only have to look at Greece to see the mess it’s in. Yet it would be a mistake to think that Greece is a basket case, and that Australia is so much better off.
In nominal terms, the Greek public sector debt is €294 billion. That’s around AUD$449 billion, or about four times the Australian public debt.
But then compare household debt. According to Barron’s: “Greek consumers are relatively frugal, with household debt equal to just 61% of GDP.”
Which puts Greek household debt at around the equivalent of AUD$313 billion, compared to Australian household debt which is over AUD$1 trillion – or nearly four times as much.
So, all up, the nation that’s been roundly scoffed at as an economic disaster, is not much more indebted than Australia. Certainly in terms of its GDP, the Greek position is worse, but in simple dollar terms Australia’s debt levels are far in excess of the Greeks.
And this is where the real problem for Australia is. Rising interest rates. Even without the impact of a Greek debt default, interest rates are pointing towards going higher.
Domestically, the Reserve Bank of Australia looks certain to raise interest rates to at least 5% by the end of this year. And considering the reliance of Australia’s banks on foreign debt, odds are that investors will demand higher interest rates in order to offset the risks of default.
And that will be the case regardless of how safe domestic commentators believe Australia’s debt position to be. If risk premiums are rising globally, whether we like it or not, there will be a flow on effect to Australia.
And being a commodity economy, that will add a further risk premium – especially as Australia doesn’t have much to offer the world apart from commodities.
So, while Australia’s ‘miracle’ economy may have escaped without much damage so far, it has only been due to China and excessive debt.
And right now, any investor will be very wary of relying on either of those coming to the rescue of any economy.
Cheers.
Kris.
{ 24 comments… read them below or add one }
According to Alan Kohler at BusSpec, government continues to spend. If he’s right 2010 will be just as stimulating, at least until election.
“One alternative is for the government to follow the Greek, US and UK example to the next level. And that’s to keep spending, and then borrowing more money to cover it.” – This is exactly the stupidity that will happen, politics is all about the next election not benefiting the country which is why short term fixes are preferred over long term actual policy. Pity these clowns got the reigns just as every thing is collapsing (worse to come), in good times they can do less damage.
“Certainly in terms of its GDP, the Greek position is worse, but in simple dollar terms Australia’s debt levels are far in excess of the Greeks.”
What an incredible mis appropriation of statistics. For a while through your post I was agreeing with your view that the GFC was far from over, and then you go and spoil all your good work with an absolute bare faced rubbery truth like that. Gee – why don’t you go the whole hog and put it in terms of Fiji’s debt levels. then you can say we are X times more worse off than Fiji because we owe more. In fact really James Packer is far worse off than me because he probably owes more than me, wow aren’t I lucky I’m not James Packer – poor bastard.
James I’ll send you a food package later this week.
I saw Ken Henry the other day wearing a ‘Mission Accomplished’ T-shirt
Michael – Was that for real, or a send-up of that other idiot, George Bush?
CB
It was a send up. When the economy finally goes belly up, I’m sure Ken Henry’s resignation speech will be about ‘known unknowns and things we know we don’t know’.
cb – looks like the vampire squid GS has been up to no good with the greek government – it was on DR
rolling debt over to hide it and in return getting airport and lottery revenue – good way to suck a country dry!!!
I say a default is in order under the condition that when the bankers are told they aren’t going to get paid a photo must taken because i want to see the look on their faces
http://www.nytimes.com/2010/02/14/business/global/14debt.html
Thanks, GB. That is a pearl of a find. You know, part of the uncertainty and the volatility we are seeing is due to these sorts of off balance sheet obligations. For example, there have been reports and hints that our very own big 4 have hundreds of billions of dollars in off balance sheet derivatives, or something like that, and nobody seems to have come out with the detail of just what these are supposed to be. Plus, we know that GS has a large hand with the NBN, and only goodness knows what sort of stitch up job they are doing with the politicians and the company in the shadows.
One thing we can be sure of though: whatever they are cooking up, we are going to pay for it dearly, and chances are that our super savings will be syphoned off one way or another, with or without our consent, to be spent on the NBN and goodness knows what other mad white elephant scam that they will hang around our collective neck.
Kris – On the one hand, you said: “Domestically, the Reserve Bank of Australia looks certain to raise interest rates to at least 5% by the end of this year.”
At the same time you are also arguing that the recovery numbers are fake and that the economy is nowhere nearly in the shape it is presented to be.
I find those two positions to be in serious tension at the very least. If you are right about the economy, then it is simply not plausible that the RBA’s rate will go to 5% by the end of the year. And if it does, then you would have to assume that the recovery is real and it has legs for the medium term. So, which one is it going to be? Asserting both is implausible.
We have had a discussion recently about the plight of palestinians in their their ancestral homeland. This is a brief, no BS account by one fairminded Jewish visitor to Israel and some parts of the occupied territories. The question once again arises: Why does the world, and especially Washington, condone and facilitate what is happening here?
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=4824
PF, instead of the “misappropriation (misallocation) of statistics,” what is the explanation behind our whopping private debt? Surely, our economy is more robust than that of Greece’s, but why do we have these horrendous private debt levels after the greatest economic expansion in our history? What happens if our economy turns sour and export receipts recede? Will private debt explode even more?
I think we are better off not to explain our superiority by looking at our relative position, but we should be looking at our relative position to give us greater perspective into our problems.
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1. When Germany joined the euro it joined with 1Euro=1 DeutchMark, whn Greece joined the Euro it had to devaluate Drahma by 100% down to 340 drahmas/euro
2. Portugal with more deficit and weaker economy than Greece borrows money with 125 points spread, whereas Greece borrows these days with 350-400 points spread!!!Is this really normal?
3. If Greece and Portugal and Germany are “equal members” in the EU and the Eurozone, then why they should borrow money from the same bank with different interest rates? If they are afraid that maybe Greece will default why they lend Greece money after all? If not why then borrow on different rates? Where is European solidarity? Or maybe solidarity is only when we want it and when we make loads of money (by lending Greece with 7% rate on 10 year bond) then we are not “equal members”?
4. Greece pays 4,3% of its annual GDP (about 250 billion Euros) in Defence!!!! That is more than 12 billion Euros per year in guns!!!! And of course Greece buys guns from its Allies (USA, UK, France, Germany, Holland, Italy etc). How much do these countries spend for their defence industry? Who is the main threat of Greece, ,so that it has to pay that much for Defence? Is it Turkey? What does EU to help Greece to solve political problems with Turkey in order to cut defence spending and of course its public deficit? Or do they want to keep up these problems so that they continue sell guns to Greece? What is Greece’s political gain from EU,NATO membership as far as problems with Turkey in Aegean and Cyprus are concerned?
5. Is Greece the only EU member that does not comply with EU stability pact? Is Greece only the EU member that has public deficit over 3%?
It is common sense in Greece that previous governements did not do enough to cut spending and improve public finances and also reforms are very late.
But these things should be left to Greek people to deal with. Common feeling in Greece is that patience is exhausted by its citizens to its politicians. There is no more time to be lost, and there is no government that can delay reforms.
It is also common sense that Greece is attacked by hedge funds who want to profit from Euro/Dollar flunctuation and we also know some of them (Polson,Soros etc)
Since EU does not really care about political problems of its members and only cares about widening its market, then Greeks sohould really makes a choice right now:
A. If EU wants to help Greece borrow with less interest and provides bailout plan, then continue as it is with scepticism and of course pay the money back to its lendors
B. If EU does not want to help Greece then be it!!! Possible consequences? Well….
1. Greece DEFAULTS and decides to exit EU (not only euro zone) and domino effect comes to other EU countries (to avoid domino effect then the bailout Germans and French will pay will be 10 times bigger).
2. Greek companies take all their money from balkans (Greece is the main FDInvestor in Balkans having spent billions of euros supporting these economies so far). This will destabilise the whole region again and new conflict is most probable.
3. Greece will borrow money from China (as US does until now with no consequences whatsoever), and why not give the Chinese some more investment opportunities in Greece (by establishing strategic alliance with China).
4. Stop buying guns from allies but only from Russia and China
5. Stop buying European Union products, and give space to other products from Asia (cheaper for the Greek default nation)
etch, you understate it by a country mile by ommitting the unfunded liabilities. Greece is 800% v gdp. Gone mate. Greeks need to learn some humility, work harder and longer on one side and if they earn money they have to pay their taxes (only 15000 stating they earn more the EUR100K) on the other side. Politics is where both sides get militant and point fingers at each other while their country goes to hell in a handbasket. The silver bodgey could even get a gong if they keep going at it long enough to fight to a stanstill.
wow Etch! thanks for this most interesting write…
will make me appreciate your shorter interjections even more now ;p
etch – good points there. Greece is a victim of the robber barrons, who now want their pound of flesh, and not just today, but into perpetuity, taking a big chunk of the national income year in, year out, and with no end to it. What can you say? It is a tragedy. And, I, for one, agree that Greece should start taking a stand in the manner of Iceland, and tell the robber barrons to either do the right thing, or p!ss off and feel free to write down their bad debts because they had just gone sour.
Getting back to the job figures, we all know they are rubbishy sample survey projections. What makes me wonder is why they dont use the REAL figure that is out there available and which (I believe) would be 100% accurate.
Superannuation is compulsory in this country right? When I got made redundant (March09 – my employer bank could only manage a $65m profit for the 1/2year so 10% had to go) my letter of separation advised me that they, my employer, had written to my super fund advising them not to expect any more monies. Since then (in December 09) I have received a letter from my super fund saying they hadnt received a payment and advising me they were going to write to my empoyer…… the lights obviously arent on at my fund HQ.
Sooooooooo the painfully obvious question why isnt the government just getting figures from all the super funds on the number of letters advising of no more payments and the number of advices of new accounts or additions to existing accounts (for those getting employed). Surely that would be more accurate then the present lottery(even if the self funded “contributors” have to be accounted for with separate arrangements). What am I missing. Or (cynically) true figures arent what are wanted. One other point, in October09 I managed to get casual work due to the Christmas rush as a nightfill at BigW along with a number of others who were actually getting the position as secondary income. How are they (secondary jobbers) counted in the stats as far as improved employment figures go? Since Christmas I have had one 5hr shift and am not registered as unemployed or claiming any benefits. Luckily the wife works but we are about to hit the wall due to debt and increasing bills. So we have managed to survive for 12months and I am sure there are a lot of hidden unemployed out there like me who will only now start to be impacted and therefore start to affect the economy eg mortgage, credit card, health insurance defaulters etc etc. But dont worry the employment figures tell a different story.
Cheers
Thanks for that, Earl. I am sure that you are right many times over. On the self-employed front, there is no figure on how much underemployment there exists. I would not be surprised if a good chunk of small businesses have had substantial income drops over the past couple of years. Many mom and pop businesses probably struggle to make ends meet, and if things do not improve, they will slowly, one by one, start throwing in the towel.
I continue to believe that our economy is balanced on a fine knife edge, and that it would not take much to push us over. And current policies, of raising rates and more debt at the same time, all but guarantee that we are going to go down in a mighty crash at some point in the future. I just wish I knew when, but the 12 months following the election will probably be a very high risk period.
“Many mom and pop businesses probably struggle to make ends meet”?
Are you writing from America? Last time I went to school it was Mum and Dad businesses we had in Australia.
lol, Dave, I happily stand corrected. It must have been one of those hidden American influences lurking in my blindspot. As you say, Mums and Dads they are.
Dave:
Mom and pop are quite English actually. If Americans use it extensively that’s of no consequence.
Given Australia’s “multiculturism” you’d better be prepared for a extensive “mutation” of Her Majesty’s English in the years to come…
so-called “American English” will seem pretty pure by comparison
I just had to respond to your reference to ABS statistics (CPI). The actual truth is possibly far worse than you
can imagine (or maybe not). I joined the ABS as I majored in IT with a minor in statistics. I thought it was interesting and thought I would like to be involved. little did I know the ugly truth of how “statistics” are generated here. The whole process is fraught with errors and downright dishonesty … we have directives from the Pollies, saying “oh dont collect figures from unemployed persons if they are doing a course (redployment or ‘upskilling’), or have part time work” (even though the person may want full time work). so they rule out individuals that dont have the kind of work they need, in order to pay their bills. then we have the data collection process where someone who is supposed to (for instance) collect the price of a chicken in various supermarkets (which contributes to the CPI figure). they go to a supermarket only to find it doesnt have a complete chicken to price… so they ‘build’ one from legs, breasts, wings, etc and price that. then there is the sample selection and extrapolation formulas which are complete rubbish, then when the actual statistic gets computed, some ’senior person’ has a look at the statistic and determines whether it is correct! if they FEEL its not right they change it… this is ’seasonal corrections’
I know you guys hate us (ex) ‘pubes’ and this only gives you more reason to do so. but the truth of the matter is with power comes corruption, no matter whether its a public or private enterprise. you got example dodgy stats producers in the private sector via rismark!! so no real excuses all round
nice response pube
non of the politicians knows anything about supply and demand and guess what DO NOT LEND TO PEOPLE WITH NO ASSETS
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