Friday, October 3, 2008

But What If There IS A Recession?

EDITORIAL FRIDAY 03.10.08.
Lindsay Tanner says that talk of a recession is premature. But is it? What if there is a recession?

At the risk of sounding like a cracked record, the Global Financial Crisis, or GFC as it is apparently now known in Government circles, is far from over. Despite the efforts of authorities here in Australia to reassure us that our nation is in a stronger position than most, and the efforts in the United States to pump massive amounts of money into the collapsing markets, there are many indications that we are in for worse before we can expect better.

No matter how much the authorities try to talk up the market, or prop up the market, there are some fundamental realities that cannot be escaped. One is that the United States national Debt is now $10 Trillion and climbing. Whatever rescue package is put together by the U.S. Government will essentially be funded by borrowed money. While it is perfectly reasonable for governments to run deficit budgets during an economic downturn in order to ease the pain, the fact is that the United States has been running a deficit budget even during the good times. As a result, the capacity of the U.S. Government to bail out the economy is limited.

No matter what happens with the proposed bail out plan, it is now widely expected that the United States will experience a deep recession, and possibly a depression. And it’s not just the United States which is struggling. Reports indicate that nine out of Australia’s top ten trading partners are also sliding into recession. It’s not rocket science to work out that this will have a direct impact on our country’s fortunes. Chances are, if they all have recessions, Australia will also suffer a recession.

Here in Australia our Government has no debt, so is better placed to ride out the storm, as our politicians keep telling us. But that’s not the whole picture. Another fundamental reality which cannot be escaped is the reality that Australian household debt is at historic highs. Any economic slowdown has the potential to trigger an avalanche of defaults. In turn this will drive down Real Estate prices. In a scenario where average house prices are way out of step with average incomes, it is only a matter of time until there is a market driven correction. In fact we are already seeing that, although the extent of the potential downside is something that many people still have not recognized.

It is an irony that as things become worse, many people will blame the Rudd Government, when they have not been responsible for bringing these conditions about. They merely had the misfortune to be elected at a time when the inevitable started to unfold. Even so, many people will expect the Government to somehow miraculously prevent the problems ahead.

The real question is not whether our Government is able avert a recession, but whether it will be able to cushion the blow to ordinary Australians who become caught up in it, should it come to pass.

Thursday, October 2, 2008

If Sydney Is Struggling, Where Does That Leave The Rest Of The State?

EDITORIAL THURSDAY 02.10.08.
Today’s report that that the New South Wales Government can’t afford to keep the City of Sydney running might sound like a sensationalist tabloid headline, but the fact is that New South Wales is in real trouble. The growth of Sydney is just one of many factors weighing upon the Government, but is a factor which has apparently been underestimated. The Sydney Morning Herald reports that population growth due to immigration means that an additional 900 000 homes will be required in Sydney by 2031. That’s one third more than predicted just three years ago.

Of course the problem is not just finding the additional housing for all those people, but providing the health, transport, education, and utilities infrastructure to service them. Morris Iemma and Michael Costa could at least see the problem, but ultimately were powerless to fix it. The former Premier and his Treasurer promised a $140 billion infrastructure program, which certainly sounded good, but like so many other promises made by the New South Wales Labor Government over the past dozen years is turning out to be nothing more than hot air.

The new Premier Nathan Rees, confronted by the double whammy of inheriting the mess along with the international financial meltdown now unfolding, really hasn’t got a hope in hell of turning things around before he confronts an election in 2011. Nevertheless, the attempt to pick up the pieces is underway, with the first step to be the mini budget in five weeks time. The Herald report was prompted by the Premier’s remarks about the pointlessness of making promises that can’t be delivered, which would seem to indicate that a great deal of the previously announced infrastructure plans is likely to get the chop.

Now, while things might look grim for the City of Sydney, I wonder how much worse is the picture likely to be for the rest of the state. This government has been notorious for neglecting regional New South Wales in favour of Newcastle, Sydney and Wollongong. Given that local councils around the state have also been unable to fund infrastructure needs, and now have been revealed to have invested rate-payers funds in worthless Wall Street paper, it is likely that regional New South Wales will suffer even greater neglect.

The difference is that while the regional areas are often ignored, Sydney makes the front page.

Wednesday, October 1, 2008

The Torture Of Sleep Deprivation

EDITORIAL WEDNESDAY 01.10.08.
The report that high school kids are suffering from a lack of sleep has identified a number of issues. First, and most obviously, the research done by Professor Tim Olds, tells us that sleep deprived students perform less well at their school work. That might seem like common sense, but the study provides a clear picture of the extent of the impact. Second, and more intriguingly, the lack of sleep has been connected to the increase in child obesity. Those who sleep less, in general weigh more. Third, and of deeper concern, is the impact on mental wellbeing. Sleep deprivation has been shown to contribute to depression, anxiety, and susceptibility to physical illness.

All of these matters are cause for serious concern, and deserve to be examined. I wonder though just why it is that teenagers are not getting enough sleep. Are the demands placed upon them too great? Is there too much homework? Or are there other factors? Professor Olds points out that most children get up at around 7:00am. They have to in order to get to school on time. In order to get nine hours sleep they would have to go to bed around 10:00pm. So what’s keeping the kids up at night?

According to the study, it’s not television. Instead, those who sleep less are spending more time socializing, or listening to music. Now that has to be a clue. There might well be plenty of time to perform all the schoolwork and other duties, but time to unwind is also an issue. For all of us, not just teenagers, it’s important to have a work/life balance that gives us the opportunity to recharge the batteries.

At the same time, let’s not forget that school only runs from 9:00am till 3:00pm, for about 40 weeks of the year. Let’s ask this question: if the teenagers are battling to get enough sleep under those circumstances, what does that tell us about the demands placed on adults who are required to work long hours under stressful conditions to make ends meet? Sure, adults only need eight hours sleep compared to the kids nine or ten, but we have to work 48 weeks of the year! While many workers are employed under a 37 hour week, other studies have indicated that 31% of the Australian workforce is working 48 hours a week or more in the unceasing effort to get ahead.

While there might be a case to reconsider the workload on high school students, what about the stress and pressure their parents are forced to handle? If obesity, depression, anxiety, and poor performance are linked to a lack of sleep, is it any wonder that so many adult Australians are suffering from those afflictions? It’s not just the students who are suffering, but a significant number of the workforce as well.

Sleep deprivation is recognized by the Human Rights and Equal Opportunity Commission as a form of torture and its effects can be serious, so we owe it to ourselves to sleep on it.

Tuesday, September 30, 2008

Climate Challenge Bigger Than The Financial Crisis

EDITORIAL TUESDAY 30.09.08.
Finally the much anticipated Garnaut Report has been delivered. After upsetting the environmentalists with the earlier draft report by identifying an emissions reduction target of 10% by 2020, Professor Garnaut has now identified a range of possible targets depending upon the nature of whatever international agreement is reached. The most ambitious option is for a reduction of 25% by 2020 and 90% by 2050, well in excess of the Federal Government’s target of 60% by 2050. This very ambitious plan, described as the “strong mitigation” position, would be appropriate in the context of a global agreement to reduce atmospheric carbon concentration to 450 parts per million.

The fly in the ointment is that Professor Garnaut believes that the world will not reach such an agreement, and in that case he recommends a plan to reach 550 parts per million, involving the previously mentioned target of 10% reduction by 2020. The third scenario is one where there is no global agreement, and in those circumstances Professor Garnaut recommends a national target of 5% reduction by 2020.

While the report attempts to cover a range of eventualities, the fact is that the world is now confronting a massive distraction in the form of the financial crisis. This poses a number of problems. First, the United States economic collapse threatens its capacity to embrace a carbon trading scheme. Second, the international effect will be to prompt some nations to place economics ahead of environment, undermining the opportunity for genuine international cooperation. Third, the downturn in the economy could lead to business failures and job losses even here in Australia despite the repeated assurances that we are better placed than most to weather the storm.

The reason that job losses are important is quite simple. At the end of the day, it is the ordinary everyday people who will be asked to foot the bill for emissions trading. Already we have been told to expect to pay more for electricity, for fuel, and for goods and services exposed to those costs, which is almost everything. It is obvious that there are those who stand to make big money out of emissions trading, but there’s no guarantee that the benefits of such profits will filter through to the battlers. In fact, quite the opposite could well occur without proper regulation.

In such a scenario, it is likely that more and more people will begin to ask “Can we afford to fight climate change?” But the harsh reality is that we can’t afford not to. That’s why stabilizing the world’s financial systems, while important, is only part of the way forward. The next step is to abandon so called economic rationalism.

Monday, September 29, 2008

Investing In Our Own Future

EDITORIAL MONDAY 29.09.08.
I remember years ago reading about a London old age pensioner who lived in an industrial dumpster. After his death it was discovered that he owned shares worth almost 400 000 pounds, or more than a million dollars Australian. It turned out that he would read the financial pages of newspapers that other people threw away, and instead of spending his pension on rent or food, he would buy shares. Over the years he accumulated a fortune, and yet he continued to live in his dumpster, eating scraps, until his death.

More recently, I had a conversation with a doctor in which he observed the irony that the United States Government can find $1 Trillion to bail out Wall Street, but nobody can find the money to properly fund our hospitals. This I believe reflects the flawed philosophy which has created this mess in the first place. Having arrived at this point, the bailout is necessary to prevent an economic breakdown which would devastate ordinary everyday people around the world. But wouldn’t it have been cheaper to prevent the problem in the first place?

The flawed philosophy of bottom line thinking has placed cost cutting and productivity growth ahead of not only the community interest, but of the long term interests of the very companies and governments which have practiced this philosophy. It has been driven by a pyramid scheme mentality where the so called “masters of the universe” have profited handsomely by hollowing out otherwise healthy companies, and it now appears the entire economy. The Wall Street bankers who invented Sub Prime based securities have long since pocketed their enormous fees and dividends, leaving behind the wreckage for the rest of us to deal with.

So what does this have to do with that old age pensioner in London? Well, over the past dozen or so years, Australia has enjoyed unprecedented prosperity which has been directed to bigger corporate profits, bigger executive pay, bigger tax revenues, but no significant new investment into future infrastructure for health, water, or transport. We are just like the pensioner who had over a million dollars to his name, but refused to invest it in improving our circumstances. What was the point of that pensioner having all that money? And what has been the point of Australia’s prosperity if we haven’t invested it into a better way of life for all Australians?

It might look as if the credit crunch is the problem, but really it is the symptom. It is the scourge of short-sighted bottom line thinking, propelled by selfish interests who treat the rest of us as pawns in their game, which has robbed us of the benefits of prosperity.