Yesterday the Australian Government released details of a second stimulus package to the tune of A$42 billion dollars.
Summary:
• $14.7b for schools - $200,000 each
• $6.6b for 20,000 new homes
• $3.9b to insulate 2.7m homes
• $890m for road repairs and infrastructure
• $2.7b small business tax break
• $12.7b for cash bonuses of up to $950
Kevin Rudd – the human ATM
First there was FuelWatch, then FoodWatch - now introducing... ATM-Watch!
Kevin's criteria to stimulate the economy:
Criteria #1: You must be an Australian Citizen
* REWARD: $950 per person (cause you should feel good about being an Aussie!)
Cost: A$12.7 billion
Criteria #2: All Australian citizens must stay warm
* REWARD: here's some pink batts to put in your ceiling (just what I intended to get for Xmas!)
Cost: A$3.9 billion
Criteria #3: All schools must spend $200,000 on maintenance
* OPTIONS: repair holes in Detention Room doors and walls; remove graffiti; service vending machines.
Cost: A$1.9 billion
Wow, I never knew spending money could be this hard! Really is there any skill required to announce a $42 billion spending spree in one day? An ATM could have handed out the money in a more thoughtful way to passes by. If the ATM runs out of money, just fill it up with more printed cash (from the Government's blank check book...).
$42 billion to support 90,000 jobs
The package is supposed to support jobs - 90,000 of them. Lets see, 42bn divided by 90K = $466,666.67. Nearly half a million dollars per job to "support" insulation installers, builders, and of course Armaguard security officers (need more people to keep those ATMs full).
A lot of money to sort out the winners from the losers (losers of cause being the working taxpayer).
I was hoping there would be a few billion handed out to "support" the Australian wine industry. It's just been through its worst export year in 15 years (by value and volume). If only every working taxpayer was given a dozen of bottles of shiraz in the mail. Maybe it will come out in the budget :). Maybe he will introduce a "wine-o tax" (alla "alco-pop" tax) for the industry instead.
Temporary Deficit
Despite the Prime Minister, Kevin Rudd, saying it would be a "temporary deficit'', today's mini-budget reveals the nation's finances will be in the red for at least the next four years with the accumulated deficit of $118 billion (almost identical to the $115 billion that has been wiped from expected tax collections from companies, individuals and the GST).
The Australian Government will now be deep in the red for at least the next four years with an accumulated deficit of $118 billion.
The Prime Minister and Treasurer claim the deficit will be temporary. It’s all rhetoric. Circumstances will get worse. The stimulus packages are short-sighted and will only provide short-term economic “activity”.
There is no plan for long-term job creation.
There is no exit strategy to get out of deficit (there are no large assets left to sell (like Telstra) to repay debts).
Expect a third attempt to stimulate the economy come the budget on 5 May 2009. Least there might be some money which will be thrown at productive assets (bail out State obligations to upgrade ports, railway hubs etc)
Chart 1: From a $20 bn surplus to a $20 bn deficit in two year.
source: ABC news 2/2/09Chart 2: Put it on the credit card please
source: ABC news 3/2/09The deficit projections will blow out more as the year progresses. Even more worrying, how much will the Government devalue the purchasing power of the Australian Dollar by the end of 2009?
The Opposition
The opposition isn't much better than the Government. To date, I would give the Rudd Government ½ star out of 10, and the opposition 1 star. They are reading the same book but on a different page. They are both viewing the world from the book of Keynesian economics.
Opposition comments on the $42 billion package:
Malcolm Turnbull:
So far, the Opposition Leader, Malcolm Turnbull appears to be more interested in wedge politics.
He responded this morning and explained why the Coalition will block the $42 billion economic stimulus package. Turnbull proclaimed that the package was so big "it looked like panic".
Turnbull still, however, supports the need for a type of stimulus. He wants tax cuts, rather than targeted one off hand outs. In my opinion, tax cuts will not fix the structural problems of Australia and the world monetary system.
Turnbull quotes from today:
"Someone has to stand up for fiscal discipline."
The Federal Government's plan would mean borrowing $70 billion over the next four years, an act that would increase national debt to $200 billion.
"That is a $9500 debt for every Australian, a debt our children will have to pay off years into the future"
"It is an insult to taxpayers"
Peter Costello:
(Tuesday 3/2/09 on Lateline)
"It's poor quality spending"
"Spending should create long term production, create long term new jobs"
"The budget has gone from a $20 bn surplus to a deficit. Not because revenues have fallen. This deficit is driven by policy decisions. $28 billion of policy decisions."
One former politician has actually given this some thought...
Paul Keating:
On Monday night, just before the Prime Minister released the $42 billion stimulus package, former ALP Prime Minister, Paul Keating gave a frank interview on ABC's Lateline program >here<.
Keating appears to be the only political figure in Australia which has actually put some thought into the problems we face from the financial crisis. He cites some major strucutural reforms must be persued, and that the United States no longer has any economic bargaining power to bring to the table.
Here is some of what Keating discussed:
"Expansion of credit running for 60 years. This is the first time 2008, 2009 where we've had a contraction of credit.
What we need is a completely new global political and economic settlement.
Be rid of the old IMF.
Be rid of the old G7.
Bring the surplus countries into the political framework. G7 is made up of all debtor nations. There are no surplus countries.
We need a totally new Bretton Woods Agreement.
The United States cannot reflate the world. .. but they will try to reflate their way out.
You will start to see in the price of gold, if this goes on for a couple more years, the serious question of an American default. A default by the United States treasury.
Until we get a true settlement, where the great states like India and China, and their big economies and the surplus countries like Russia, the oil countries in the middle east, get a greater say…Until we get to a representative world structural of power. That is global political and global financial power, then that’s the only way confidence will really return to the system. This can't be done by the Americans.
On Kev's 7000 word "social capitalism" essay:
We should not get too ideological about it. In the end rational policy is always good.
On Kev's attack on Neo-Liberals:
When Keating was pressed if he identified himself as a neo-liberal, his answer was
"Absolutely".
Future for both major parties
The days for soaring popularity for both major political parties are numbered. We will hit recession. Unemployment will rise. Housing prices will fall. All debts must be accounted for. Inflation will start hitting food and rents more. M0 money supply will increase sharply, while M3 money supply will contract (as property prices fall in Australia).
The political party which wakes up first and stops reading from the book of Keynesian economics and realises that a new monetary framework is required, will do better in the long-run. Perhaps a new political force will come before either party reinvents themselves.
Invest your $950
The best thing you can do (in my opinion only), is either use the handout to repay high interest bearing debts (credit cards, car loans) or save it.
Through the saving option – avoid saving cash. The Australian dollar will continue to diminish in purchasing power (vs tangible items). ie. $950 in Australian dollars might have $850 purchasing power by years end.
On the flip side if $950 were saved for real money, that is, gold and silver, your savings will increase in purchasing power going forward. I will be investing in the shadow monetary system. Think long term. The more citizens with gold and silver, the less capacity government will have in the future to try and print its way out of the black whole. Governments cannot print a nation into great wealth, just ask Zimbabwe.
Cheers
Scott
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