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Be prepared for the recession we might have avoided.

Posted by Greg Atkinson on Dec 14th, 2008

Although Rudd stated some weeks ago that Australia would not slide into a recession it seems another one of his forecasts has exposed just what an economic dunce he is. Possibly only Swan can make worse assessments of the state of the Australian economy with Glen “I raised rates too far” Stevens (the Reserve Bank Governor) finishing of a trio of people who are best ignored. As I wrote a while back…we would be better served by getting a hobbit and wizard into government economic team as soon as possible. (see The RBA,Swan and a Hobbit)

Australia is not better positioned than most other countries to ride out the downturn in the global economy, in fact Australia is in a particularly nasty position since the key driver for our economy, mining, has entered a nasty period of falling demand and falling prices. I touched upon this subject back in August (The Reserve Bank,rate cuts and a possible nasty turn) and sadly things have unfolded worse than I expected.

Higher oil prices for much of the year spooked central banks around the world and everybody seemed to be talking about Peak Oil. To make matters worse we had Rudd’s “war on inflation” which must have influenced the decision of the Reserve Bank Board to raise interest rates earlier this year (even if this influence was subconscious in nature) and also undermined business confidence. So we in had a situation in the first part of 2008 where the global economy showed signs of slowing, credit was getting harder to get and yet our “brains trust” economic team decide decided to slow down the Australian economy…truly brilliant if you like self inflicted wounds.

Australia had a golden opportunity earlier this year to take steps that could have cushioned the economy from the fallout of the credit crisis and global slowdown. Instead the Reserve Bank and the Rudd Government not only made sure we had no cushions, but the also decided to give the economy a few head kicks as well just to make sure it went down for the count. Perhaps readers of this blog I am being too harsh…but what most Australians have failed to realise is that people will lose their jobs because of policy mistakes and not only because of global events.

Just imagine if Rudd and Swan kept their mouths shut until they actually knew what they were talking about. Neither of them posses any economic credentials and so perhaps they could have been a little more cautious and not run around the country saying inflation was out of control, then delivering a very average budget. (see The Fluffy Duck and Teflon Man Budget) To finish off some sound economic management the Reserve Bank could have held off raising rates and let higher oil prices take a little heat out of the economy, as opposed to trying to deliberately slow things down. As a result households would have been better off and we might have avoided driving the property market into the ground. In fact maybe the Reserve Bank could have been a little pro-active and been ready to cut rates at the first signs of trouble?

Of course just to make sure Australia has a rough 2009 the Government will mess around with the labour laws and see if they can get makes things more difficult for business owners and companies …just what you need in a recession. Some people who voted out the Liberal’s because of Work Choices are going to wake up sometime and realise the Labor version is “No Work No Choices”. You tend to have less workplace rights after your workplace vanishes or you are laid off.

Surely it the role of the Government and the Reserve Bank to be on the ball and manage the economy during tough times. Is it too much to expect our national economic managers to be alert and take proactive measures to help the economy rather than just go “oops” when they mess things up and start cutting rates. Sadly even when rates are cut they are not cut aggressively enough; rates will need to come down at least by another 1% so what is the RBA waiting for? Haven’t they seen the economic figures coming out of the US, China, Japan and Europe? Inflation is dead for the time being Mr Stevens, so please wake up and cut the rates in January for goodness sake.

One Comment to “Be prepared for the recession we might have avoided.”

on 04 Mar 2009 at 9:26 pm1Daniel Cameron

Not sure i think this is true! I think Australia will ride out this economy better then your call.

The resources has slowed back but still i don;t see that it will be anywhere near dramatic.

I think Australia will drag through and get tough into mid 2009 and toward the end of 2009 and start to come through the worst of it in the first quarter of 2010 then another year of slow recovery. Not huge increases but stabilized.

Since we’re onto this discussion and for the record i predict Australia to be in the height of it’s next property boom 6 months either way of 2016.

Daniel
forpropertyinvestors.com