Batten The Hatches

16 Mar

From the Sydney Morning Herald:

The ominous word ”boom” appeared last week, in large type, on the front page of the local newspaper. Given the nature of this paper, the word could only refer to one thing: property. While the signals from the property market are mixed, it appears we are springing back to normalcy without absorbing the reality: the global financial crisis is far from over. All the elements are in place for a second crash.

The world has become an economically unstable place, with enormous unresolved issues. Australia’s economy is fundamentally sound, but the global economy is fundamentally unsound. Even a good boat can be swamped by a bad sea and Australia, as a middling economy, will be buffeted by forces beyond its control unfolding in the United States, the European Community and Asia.

The Bank for International Settlements, the central bank for central banks, is warning of ”unstable dynamics”. Ominous language. The International Monetary Fund estimates the world’s 20 largest economies, the G20, will have a combined debt equal to 118 per cent of their combined gross domestic product by 2014, meaning debt will have exploded by 50 per cent in just seven years. To fund what? In Australia, debt is being used for expansion of the mining sector, which is good, but also for the ill-disciplined spending of the Rudd government and the chronically overpriced housing sector. As a result, Australia’s economy is more vulnerable to economic stress from abroad…

While the obvious and prudent response of government in a financial crisis is to provide social and economic shock absorbers by increased spending and borrowing, it is also important not to overreact. If you believe the global financial crisis is still unfolding, the key is not to overshoot, but to conserve resources and policy options.

The Rudd government, as it has proved in every area of major policy, overspent. It threw money around with undisciplined panic when faced with the global economic crisis.

A must read article.

Perhaps Mr Sheehan might like to point all this out to the overpaid, short-sighted, know-it-all idiots in the Treasury department, and at the Reserve Bank of Australia.

They all failed to see and forewarn of the GFC.  So, thanks to their incompetence, millions of Australian citizens lost literally billions in retirement savings and investments during late 2007 through to early 2009.

Now they are saying that the GFC is “over”, and that we are set for a multi-decade China-fueled mining boom that will provide a “period of unprecedented prosperity”.

Sack Ken Henry. Sack Glenn Stevens.

And abolish the RBA.

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