Kicking the can towards a global recession

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"...remarkable global response of co-ordinated fiscal and monetary action. It worked incredibly well."
If your claim is true, then why are we in the state we are? (Kicking the can towards a global recession, November 28.)
Printing presses running hot and all that has happened is that we have kicked the can down the road.
All healthy bushland needs a bushfire occasionally to clear the undergrowth. It is not nice, but it is necessary. 2008 was that chance, but Rudd and Gillard understandably did not want that happening on their watch so they did what Labor do - promise utopia, borrow and tax, all in denial of economic reality.
Ironically, it was Peter Garrett who famously sang "in the end the rain comes down".
"In 2008 the threat of a global economic catastrophe produced a remarkable global response of co-ordinated fiscal and monetary action.
It worked incredibly well,"
No it did not Alan, it did not work at all. It delayed the recession and will cause a depression (Kicking the can towards a global recession, November 28).
Next move is a vast print run of fiat currency busting proportions.
The RBA must hold its nerve. Interest rates are very low. Making them lower will not make the $A go down. They need to find another way. They will not because they are not smart enough to figure it out.
Alan, in the decades to come we will probably look back on this period as an 'on-set' stage of the first great depression of the 21st century (Kicking the can towards a global recession, November 28).
Debt-deflation, and private deleveraging en-masse, currency wars, trade wars and then, quite possibly, hot wars.
What does all this mean for Australia?
Continued deleveraging, accelerated falls in house prices, a currency that is forced down (one way or another), amidst a prolonged recession after 21 years of being immune.
Garnaut was on the money - many Australians are blissfully unaware of the shock that will ensue a big drop in living standards.
Its what we face.
I got giddy reading the contradictions in your story. One minute governments have to take action to reduce debt then they need to slow down budget consolidation? (Kicking the can towards a global recession, November 28.)
My preference is for governments to do as little as possible and just force the banks to take their medicine and let price signals transfer assets at low prices to make investment productive.
If taking medicine sends banks broke, then governments can nationalise them as punishment.
The current path in EU reminds me of an individual with excessive debt being told they cant apply for bankruptcy but must spend the rest of their life paying back debt – that is not capitalism.
@George P. With 5.3% unemployment and high wages Australia is clearly on the brink of collapse. Everyone I know is happily employed on over $100kpa. Sure the govt debt is a concern but simply abolishing the baby bonus and broadening the GST base should be adequate to balance the books. (Kicking the can towards a global recession, November 28).
Large fiscal and monetary stimulus was effective in restoring financial sector confidence. As a means of reinvigorating an economy however, it is ineffective; it does nothing other than drive speculation amongst those that have access as owners or custodians to large sums of money, and further stripping whatever wealth the populace has (Kicking the can towards a global recession, November 28).
I will say, if anything, over-stimulus is having a negative effect on economic recovery. Assets must be allowed to find their natural base, debt must be repaid. And yes, many of the very wealthy - mainly whose wealth is underpinned by idle financial assets, as opposed to those who have wealth tied up in 'real-economy' investments and are active in running and growing - will be caught with their hair cut short as the adjustment phase occurs.
The day will come; the sovereign bank account will run dry, the drug-like high of stimulus will lose any effect, and the day will come. Only when does come, it will be a train wreck, and the economic damage will be severe and the social dislocation will be serious.
This is clearly a stupid situation to be in - "It’'s perhaps more a lack of will, than a lack of agreement. As Jean-Claude Juncker, the Prime Minister of Luxembourg and Eurogroup president, explained recently: “We all know what to do; we just don'’t know how to get re-elected after we do it.”" – and shows a massive failure of the democratic process to solve difficult problems (Kicking the can towards a global recession, November 28).
On the issue of debt, I would reckon it's probably not as bad as people think. I would hazard a guess that there is so much cross ownership of debt across the world that you could probably make significant inroads if everyone got together, worked out who owes what to whom and extinguish debt where there is cross/duplicate ownership. Please can someone give me a database so we can sort this stupidity out!
Well said Geoffrey Morris, this wold have to be the best comment written for a long,long time. Me thinks you are slipping in your commentary Mr Kohler (Kicking the can towards a global recession, November 28).
You mean to tell we Austrian economics fans it's not possible for every Keynesian Govt around the world to stimulate their 'economies' by borrowing real physical output from each other? (Kicking the can towards a global recession, October 29.) Guns or butter to us but we did have wry smiles at all the attempts to play pass the parcel with all those central bank IOUs flying around. When will they ever learn?
Geoffrey Morris has it spot on. Excessive asset price rises well above value added, on excessive borrowing over the past twenty five years, means that only asset deflation will work (Kicking the can towards a global recession, November 28).
My comment is that probably there is nothing that can be done except kick the can down the road (Kicking the can towards a global recession, November 28). I believe the current problem is demographic (similar to Alan's recent article blaming the ageing population). I believe the cause of the downturn is a ripple from wartime disruption. As a hint, subtract 1865 (the end of the American Civil war) from 1929, and then subtract 1945 from 2008. If I am right then there is probably nothing that can be done except wait for the demographic perturbation to pass. I guess this will take 10-20 years.
Geof the problem for governments when banks go belly up is twofold (Kicking the can towards a global recession, November 28):
1. The depositors in the bank lose their deposit money. Then businesses go broke without their money so voters lose their jobs.
2. Those depositors blame the politicians in power SO the politicians in power lose the next election.
That scenarion is exactly what happened in Iceland when the banks went broke due to US Sub Prime Loans.
Hence why the can gets kicked further down the road because all politicians #1 plan is re-election.
The statement by Jean-Claude Juncker “We all know what to do; we just don’t know how to get re-elected after we do it” is true.
Now consider if you have money in any bank are you going to be happy if you lose it all.
As much as banks become political blame targets for politicians we all need them to continue. And unfortunately they know it they are indispensible to a society - therefore they tend to be slightly somewhat reckless.
Since banks caused the USA, Spanish, Irish financial crisis why do we need private banks at all?. Maybe banks should be government operated.
Lending money to a bankrupt is pointless (Kicking the can towards a global recession, November 28). Greece needs to have a moritorium placed on their debt repayments for 5 years, not to wipe the original debt. What has been lent since the Germans became involved should be wiped from the books.
As to Australia scrapping the baby bonus and broardening the GST base to balance the budget, a perfectly good idea. Only problem is, give a politican more money and they will spend it. The old saying applies. The more you get, the more you spend, the more you spend, the more you want. Government spending should be restricted to current revenue, borrowings only cost the people much more in the long run
"Unsurprisingly, Greece is expected to be the worst performer on its books," (Kicking the can towards a global recession, November 28).
I would make a contrarian bet that Greece will actually be one of the best performers as it bounces from an extremely depressed state. Perhaps Germany will be one of the worst as it struggles to cover its growing obligations to the stragglers of the Eurozone, who are increasingly "competitive" thanks to the brutal austerity Germany has encouraged.
Alan, in 2008 none of the leadership in western countries understood what was happening – they simply assumed it was a short term crisis that would eventually resolve itself with a bit of monetary stimulus….. this was and is not the case. The great sucking sound heard around the world is the sound of wealth being sucked out of developed economies and into developing economies. This is not a statistical blip….this is the new reality…..and western leaders are at a complete loss in terms of response.
In effect the underlying conditions that enabled western countries to turn a profit with their manufactured goods have disappeared and what we are left with are comatose economies that can no longer afford to pay the benefits (medical, pension, unemployment and social services) that their citizens took for granted.
In 2008 nothing was solved except to prevent an immediate crash by extending the western credit card limit. It reminds me of those early chess computers in the 1980’s …they exhibited what was known as the ‘Horizon Effect’. This is where the computer sees its about to be checkmated and then proceeds to sacrifice every piece it can in order to keep the game going for another move. Does this sound familiar?
Start by looking at how we got here (Kicking the can towards a global recession, November 28).
While Australia has done very well since 2008, the Great Recession has ended the unsustainable global debt-driven asset-price bubble.
In Australia, that binge was facilitated by Hawke and Howard Laberals (as "Financial deregulation") from 1983, to serve the interests of transnational capital, which in the post-war period had not enjoyed the disproportionate income and wealth to which it had for centuries been accustomed. Their public justification for pursuing economic and social deregulation was to make the aspirationals rich; their private aim being to exploit the aspirationals' greed to advance the transnational capitalist agenda.
It was not to be expected that people intoxicated with greed would heed Marx's point that the devaluation of such wealth during capitalism's periodic economic crises was an inevitable outcome of that process of wealth creation.
Since the bust of the boom cycle the moneybags have naturally sought to save themselves by impoverishing the less rich, as they will have planned from the time that they began the cycle some thirty years ago. In the US, despite 18 years of paper wealth being destroyed in 3 years (2007-2010), the top 10% income-earners enjoyed a slight increase in wealth while all the rest lost severely. In Europe we see brutal austerity, again to preserve the loot of the moneybags for as long as possible. Here, we see the determination of the tax-subsidy rent-seekers to protect their utterly undeserved benefits.
We need to go Forward with Frugality but Fairness.
A very old statement: you'll never miss the water till the well runs dry. Australia's day of reckoning approaches (Kicking the can towards a global recession, November 28).
If you broaden the GST base you cause more inequality as then the cost of education and fresh produce goes up (Kicking the can towards a global recession, November 28). We need the price of fresh food to go down and a higher tax put on crap food so the cost burden on the health system caused by obesity is not so great. And we need education to be cheaper, not more inaccessible by the poor. Inequality is one of the greatest scourges and Australia is right up there with the U.S. While not a fan of the way Campbell Newman is wielding the hatchet in Qld, he is probably on the right track. One of the main problems for Greece was the number of public servants,166,000 for a population of 10mil. The other was shipping magnates not paying tax. Also, money that went into bailing out banks stayed in the banks instead of going out to finance innovation and businesses which would have created jobs. Should have left the banks to sort out their own problems. Trading derivatives and currencies is not productive and should not be a function of banks. Maybe the west needs to get some lessons from the Chinese.
I like your thinking Richard McNaught (Kicking the can towards a global recession, November 28).
This is no doubt simplistic but perhaps legislation to freeze the gross debt levels of Commonwealth and State Governments,subject to say a 75% majority(of both Houses)to increase the debt ceiling, would be a worthwhile policy objective. Debts guaranteed by governments would also have to be covered to close that obvious loophole.
Since our politicians are wedded to buying votes to try to maintain or gain power, if we do get some debt control mechanism like this in place in the near future, we will be well down the same track as the hapless bankrupt or near bankrupt Europeans.
Adam M and others that did not agree with Alan’s assertion that the response to the economic catastrophe was “remarkable” and “worked incredibly well” (Kicking the can towards a global recession, November 28) appear to advocate that a recession in Australia would have been better despite the fact that Australia has the lowest Debt to GDP ratio worldwide. It’s the equivalent of saying it’s better for your child to catch pneumonia instead of borrowing some money for warm clothes, money that is affordably repayable when the weather improves. The risk of such strategy is apparent to any sensible parent.
As clearly understood by Mr Jean-Claude Juncker, the problem is that politicians that do the right thing risk not to be re-elected.
This problem could be avoided if electors were properly informed, the media critically analysed issues and stopped reporting on issues that have no impact whatsoever on our lives, e.g. AWU saga.
Over the past 40 years we have assisted to media concentrations and a growing body of professional contrarians on all issues of importance. These merchants of doubts have poisoned public debate and parties of all persuasions, both here and in most developed countries, have avoided consensus with the obvious result of confusion and fears.
Intelligent electors should punish those parties that have placed their own thirst for power above good government, and tactics adopted by the Libs under Abbott are classic wedge politics with no other aim than getting into the Lodge.
Credit brings forward consumption. For the walking man the head goes faster than the feet, and he slopes forward (Kicking the can towards a global recession, November 28). A phase of grossly increased credit, like preGFC, grossly exaggerates that. He can only straighten up and not fall flat if for a time the feet go faster than the head. That's now. The idea we can magically escape that, and by some clever device otherwise get vertical seems unlikely. In short, maybe we're in for a tough time and it's too bad. The lesson of the GFC - like the 1920's before - is don't do it again!
Countries like the US, EU and possibly Japan are facing debt collapse. There has been a hugh increase in Public Sector contribution to GDP dynamics versus the Private Sector. This has resulted in insufficent tax revenue to finance Government spending. Hence the unsustainable deficits. The world will split into two groups. Those not debasing their currencies and those that are. A flight to quality will occur with both Canada & Australia benfitting from this change.Currency & stocks are set to surge ( Kicking the can towards a global recession, November 28).
No offence to you Alan, my view is the comments above seem to have a better handle on what you and most finance commentaters say (Kicking the can towards a global recession, November 28). I am amazed at the comments I hear about putting off these problems. If a business or individual is ineffecient it goes broke and starts again. Its the law of the jungle and manipulation is unfair and useless.