The Global Financial Crisis is hitting everyone, and with each passing day it would appear that it is hitting more and more people directly. With the unemployment rate hitting 5.2% back in March the figures do support that idea, with many economic forecasters saying that it could hit as high as 10% next year. Primarily this will hit the Blue Collar workers first as companies seek to reduce output in order to keep themselves afloat. Whilst it is a valid business strategy in time like these I often wonder what would happen if we simply forgot that this was happening.
Australia as a whole is in a strong position in terms of weathering the storm. Our economy is based strongly on resources (rather than services) and with our main export being coal for power generation and heating, which people will still want during a recession, we are well placed to continue on as per normal. However, economic growth was down 0.5% for the December quarter with the great decline shown in non farm GDP (whilst Farm GDP grew a whopping 10%!). Could it be that companies and consumers are cutting back just because of the threat of the economic downturn, and not because they are actually feeling the hardship?
Up until around September last year interest rates had been steadily rising in order to combat the extrodinarily high inflation that Australia was experiencing. It seemed that no amount of interest rate hikes could reel in consumers, even with fuel and transportation costs soaring at the same time. However, once people were told of dark economic times ahead suddenly that all changes, and the Reserve Bank is forced to try and spur the economy on by cutting interest rates in quick succession for months on end. Did everyone really lose all their spending power in under a month?
All the stimulus packages are based around the same thing, trying to inject cash into the consumers and corporations so that they’ll spend it, hopefully spurring the markets on so they’ll recover through normal means. How is this so different from having the media say to everyone “The economic crisis is over, we’ve done X and changed our policies Y… etc etc” and then have everyone return to their normal ways of spending? The average Joe has already been manipulated by the media to believe that the world is coming to an end, what’s stopping the media from telling them that everything is ok?
There is of course, a happy middle ground between what the government is doing now and blatantly lying to everyone about the current economic situation. Large government owned and funded projects like say, a light rail system for Canberra (We’ll have it one day folks!!!!) will create jobs and provide that first step into repairing the market, tempting private companies back in. I say government owned and funded mostly because of the recent catastrophe that occurred with BrisConnections, a privately owned but government subsidised project.
So I’d recommend a two pronged approach. Cease the constant reporting on the GFC and have the government start up a large number of projects in order to create some sustainable jobs for the battlers out there. It’s not the easy route and if a change of government happens next election Kevin Rudd will be hard pressed to take credit for his work. However, should he do it and ge re-elected he will be remembered as the herald of the new economic good times, something that people like me will find hard to forget.