Nicole Pedersen-McKinnon certainly has the right credentials to author a column titled “Five Reasons Aussies Should Feel Smug”.
Consider her bio, at her website No Mumbo Jumbo.
As you can see, Nicole has much to be smug about.
Little wonder then, that she prefers to look on the bright side, and to ignore evidence that might cast a shadow.
Nicole’s article is actually a wonderful example of why Aussies should feel conned.
By only looking on the bright side, and failing to inform the public of all relevant information – “good” and “bad” – charismatic financial “experts” like Nicole treat the public like mushrooms.
Let’s take a look at her reasons for advocating national smugness, and consider additional information for a more balanced perspective:
1. Government debt and deficit
As a proportion of gross domestic product, the IMF says we owe 24 per cent. The US has racked up 100 per cent, Italy 120 per cent and Greece 152 per cent.
Yes we have a deficit – tiny by world standards. The IMF says it was minus 2.8 per cent in 2011 and the government has crossed its heart and hoped to (ahem) die that it will be a surplus by 2012-2013.
France’s comparable figure was minus 5.7 per cent, Spain’s minus 8 per cent and the US’s – tut tut – minus 9.5 per cent. Greece’s is ratcheting up so fast it will be wrong before I type it: the 2012 forecast is 6.7 per cent.
That country is now widely expected to default and Fitch’s credit rating of ”C” reflects it. Ours is ”AAA”.
The standard argument. And a meaningless smokescreen. “GDP” essentially only measures the total value of transactions within the economy. It has very little practical relevance to the only two factors that matter when it comes to debt:
(1) Total debt, versus
(2) Total tax revenue.
Comparing meaningless measures here to meaningless measures “over there”, is meaningless. All that really matters is this nation’s capacity to repay its debts. In other words, can the government raise taxes enough to (a) pay for all their annual spending, and (b) pay off their debts too?
According to the government MYEFO 2011-12 budget update, Australia will pay nearly $41 billion in interest over just 3 years, 2011-2014. And yet, under the World’s Greatest Treasurer, they have to cook the books just to manufacture an announced-but-not-realised $1.5 billion “estimated” surplus for one year?!
A not particularly bold prediction: Australia will never pay off the debts already accumulated under this government.
We live in a globalised, intertwined, interdependent world economy. To base your #1 argument for national smugness on comparing our debt ratio to other nations – and especially to those that are widely affirmed to be essentially bankrupt – is no different to telling yourself “She’ll be right mate” while comfortably esconced in a First Class cabin on the Titanic.
2. Resources and economy
Remember we were the only Western nation that didn’t go into recession during the global financial crisis. One of the reasons was mining.
An embarrassment of riches from resources means we can feed the insatiable industrialisation of developing Asia. Indeed, the governor of the Reserve Bank, Glenn Stevens, told Friday’s parliamentary economics committee the boom is ”still building” and ”will take the share of business investment in GDP to its highest level for 50 years”.
The mining tax – whatever you think of it – is designed to spread the proceeds.
Meanwhile, most commentators believe the EU is back in recession and Greece never climbed out of it.
“Insatiable industrialisation of developing Asia”? It seems that Nicole has overlooked all the evidences that the China Miracle is in fact a China bubble heading for a bust. Even if one disagrees with the more catastrophic predictions, there is now the view expressed by the World Bank that China faces economic crisis over the next 20 years, and predicts China’s economic growth will fall by more than one-third.
And the mining tax? As we have seen (“GilSwan Conned – Mining Tax The Greens’ Pit Of Despair”), the mining tax is a disaster waiting to happen. It is unlikely to generate any tax revenue for the government for years. If ever. And there are many commentators eminently more qualified than your humble blogger who have asserted this reality. Including Fortescue’s Andrew Forrest.
3. Interest rates
Here they are relatively high on a world scale, precisely because our economy is strong and needs to be kept in check, but they’re also far lower than they were in the 1980s.
As a consolation to mortgage holders, the RBA has a loaded gun if it needs to shoot its way out of another crisis. And if you are cashed up, you are laughing all the way to the proverbial.
Interest rates may indeed be “far lower than they were in the 1980’s”. But household debt is far higher. Throughout the 1980’s, household debt-to-income never exceeded 49%. Today, it is over 150%.
When the RBA cuts rates, it is a signal that the economy is on the slide. Ergo, it will hardly be “a consolation to mortgage holders” to see interest rates cut, if they subsequently lose their job.
There is also the small matter of the banks not cutting interest rates along with the RBA. Indeed, earlier this month the banks proved their willingness to increase rates in the absence of any move by the RBA. We could also go into all the details about our banks’ dangerously high reliance on wholesale funding, their credit ratings already being threatened and cut by the ratings agencies, warnings from overseas authorities that Aussie banks are the world’s most exposed to the EU debt crisis … but naaah, we won’t do that. That would be really looking on the dark side. And we can’t have that, now can we.
4. Employment and wages
This is what’s really making us uneasy. And it is hard to ignore headlines about mass redundancies in industries struggling due to factors like the high Australian dollar – for example, manufacturing – as they scramble to stay viable. Others – think retail and media – are under pressure because they’re at the pointy end of dramatic consumption shifts.
But it’s important to keep it in context. Unemployment last month actually fell slightly to 5.1 per cent, which boffins consider close to full employment. Although that is expected to tick up as global growth slows, some industries, like tourism and mining, are even reporting worker shortages.
Perhaps it’s our comparatively cushy existence in Australia that causes us to fixate instead on cost-of-living pressures, however it seems we should stop our whinging. CommSec research using The Sydney Morning Herald archives shows we have far more purchasing power for goods – wages relative to prices – than our parents and grandparents 30, 40 or 50 years ago. Housing is another story.
Want a little more perspective? In Greece they’re contending with unemployment of more than 20 per cent and a 22 per cent cut to the minimum wage.
“It’s important to keep it in context”, you say?
Good idea. Here is some context on unemployment, and the official ABS unemployment numbers.
According to Roy Morgan Research, the actual unemployment rate is 10.3%. And a further 7.5% are underemployed. The worst unemployment for a decade. Unlike the ABS, Roy Morgan does not ignore people who worked 1 hour or more in the last month, or did some unpaid work for family.
In other employment realities, there was a 48% increase in small business bankruptcies in 2011. Small business is only the largest employer in Australia, so I guess that is not something we want to talk about. Let’s stick with pumping up false “con-fidence” instead, by quoting only the official statistics, and parroting the party line from the government, the illustrious RBA, and “Treasury supremo” Martin ‘Mini-me’ Parkinson.
“Housing is another story” … indeed it is. A story that should be told, and not brushed under the carpet. Because it is a story that debunks the entire preceding paragraph about “more purchasing power”. Around 40% of Aussie households have owner-occupier mortgages, and our house prices are recognised worldwide as being the highest and “most unaffordable” in the world after Hong Kong. It is frankly lazy, if not outright dishonest, to essentially argue that we’ve never had it so good thanks to an over-valued dollar and unsustainably high wages allowing us to buy $500 imported flatscreens for every room, while deliberately ignoring the elephant in the room … record high housing-related household debt.
God bless super. As controversial as its introduction was – and however inadequate it ends up being – it’s a salvation for our sunset years. What’s more, it’s in our names and our control. Many Greeks are instead getting 12 per cent wiped off their pensions.
So it seems Australians’ confidence – which a global Nielsen survey of 56 markets has just found is the highest in the developed world – is justified.
Let’s just ignore the reality that most folks’ super was hammered by the GFC and never recovered, shall we?
And to say “what’s more, it’s in our names and our control” suggests that our erstwhile and aesthetically pleasing economic expert has no clue whatsoever about what governments around the globe – and on both sides of politics here in Australia – are doing, and are planning to do, with their citizens’ super.
In summary then:
1. Government Debt and Deficit
We are passengers on the global economic Titanic, telling ourselves “She’ll be right mate” from the “relative” safety of the First Class cabins.
2. Resources and economy
Our government, RBA, Treasury, and cheerleading “experts” are betting the national house on a 50 year China Miracle that is actually a bursting bubble.
3. Interest rates
Our household debt levels are 3x higher than they were in the 80’s, so tiny movements in interest rates have a bigger effect on household budgets; if the RBA cuts rates it really means the economy is sliding and your job is at risk; and the banks are ignoring the RBA and setting interest rates as they please.
4. Employment and wages
Real unemployment is double what the ABS claims, because the ABS uses methodology deliberately designed to keep “official” reported unemployment as low as possible; small business bankruptcies are skyrocketing; and the world’s most unaffordable housing with record high household debt means that Australia is the last Western housing bubble just waiting to burst.
Most Aussies’ super has been hammered by the GFC, and there is a global wave of government confiscations of citizens’ super that has already reached our shores, with both sides of politics having plans and policies already in place to wrest control of Aussies’ retirement savings.
There we have it, Nicole.
Your Five Reasons Aussies Should Feel Smug are in reality, Five Reasons Aussies Should Feel Conned.
Instead of treating Aussies like mushrooms, how about feeding them a little honesty?
And (contrary to your website title) not just more of the same Mumbo Jumbo:
According to the Concise Oxford English Dictionary, Mumbo Jumbo is a noun and is the name of a grotesque idol said to have been worshipped by some tribes. In its figurative sense, Mumbo Jumbo is an object of senseless veneration or a meaningless ritual.