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The Economy an Impending Train Wreck

If you were on a fast moving train and someone came through the carriage and told you that the train had no brakes and only a brick wall would stop it, how would you feel? What would you do?

Right now, Australians are heading at full speed into an economic brick wall and the government won’t do what’s needed to stop it.

We boarded the train in the late 90s and early 2000s when mining was the buzz word and Peter Costello started producing surplus budgets. Everyone gave him a big pat on the back and told him what a great job he was doing.

Peter probably felt justifiably proud and continued doing what he thought was the right thing, i.e. producing more surplus budgets. Mind you, he was receiving shiploads of money from the mining sector, so it wasn’t all that difficult.

Unfortunately, only a select few at the time realised that Peter’s surpluses were sucking money out of the economy. He thought he was deploying it to pay down the Hawke/Keating government debt, which had grown to 18.1% of GDP by 1996.

But in doing that actually, he was forcing the private sector (you, me and the corporates), to replace that debt reduction with debt of our own using the credit card, the mortgage and corporate loans. The train had pulled out of the station.

Nobody played much attention to that though. Everyone thought Peter was a genius and by 2007, he had paid down all net debt although, in gross terms, $58 billion of government debt remained.

All the while he was doing that, Newton’s Third Law of Motion was kicking in and private debt was on the rise.

Then, those nasty Labor people were elected once more. Just 12 months later the greatest economic upheaval since the 1930s depression exploded in our faces.

Banks collapsed along with the stock market and property values. Demand fell sharply as unemployment soared into the tens of millions across the OECD world.

A brief period of stimulus in Australia proved to be a masterstroke. Labor’s economic management was hailed worldwide. Yet internal bickering became its undoing despite maintaining the nation’s unique record of continuous economic growth.

By this stage, however, private debt had reached record levels as Australians continued leveraging up on inflated housing prices, buying up anything and everything they could get on their credit cards.

By September 2013, Government gross debt was a miserable $278 billion, just 25% of GDP. The new conservative Coalition government won office through a compliant media who convinced people that Labor’s debt would send us broke. Austerity was the new buzz word.

The new government promised a return to surplus budgets. Despite a fall in demand, rising unemployment and low wage growth, the government assured us they were on the right path.

More than six years later, none of their promises have produced the slightest indication of improvement. Unemployment, low wage growth crippled by a continued fall in demand is sending our fast moving train closer and closer to that brick wall.

The national government debt has skyrocketed to $465 billion, something the Coalition once thought would send us broke and our debt to GDP ratio has risen to above 36%.

The first negative quarter of growth (September -0.5%) was unexpected. The next quarter (December 2016) won’t be known until March 2017 and all the economists are saying it will bounce back to positive territory. That is Bollocks!

The train won’t slow down just because they say so. By March it will already be obvious to the private sector that demand has not improved. They will begin laying off people in February and Australia will be in recession.

Even if the March quarter produced a small albeit unlikely amount of growth (say, 0.2%), the 12 month figure will still show growth at a miserable 1.7% for the year 2016.

This follows 2015’s result of 2.6% and 2014’s of 2.3% and 2013’s of 2.8%. This is the reason unemployment won’t come down, why underutilisation of the work force is close to 2 million people.

None of this needs to happen. The economy is tanking. It is being starved of money that should be coming from the government, that doesn’t need to be borrowed, that should be spent on nation building infrastructure projects, on interim stimulus injections and a job guarantee.

Yet what do we hear and read about daily via the media? The Health Minister, Sussan Ley tells us she didn’t plan on spending nearly $800,000 on a Gold Coast apartment while on an official trip paid by the government, Senator David Leyonhjelm scolds pensioners for being pensioners and now Centrelink, using a suspect algorithm, is advising people traumatised by demands for the reimbursement of welfare payments, to call Lifeline.

That train crash is getting closer and closer. What will the media say when it happens?

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24 comments

  1. stephentardrew

    Unfortunately there is no stopping recession with these ideologues. Steve Keen said 2017 and he looks on the money. Bill Mitchell has been warning us for ages. Meanwhile we have to sit back and watch the noose tightening. When it hits the conservatives will be dust however the low income, poorest and most marginalised amongst us will suffer most of the burden of recession. Never forget the role of the media and economic illiterate journalists who never for a moment challenged the absurdity of austerity until too late.

    So we watch and await the inevitable.

  2. Ella Miller

    A very informative and interesting read.
    As much as the LNP carry on about Labor’s school halls and pink batts etc. did not these investments keep the economy going and out of recession?
    So, if these policies did, then, why can’t this government invest in public housing and other such programmes that would create activity
    and hopefully employment.
    Cutting education…when we have to use overseas workers to fill skills shortages make no sense to me.
    Cutting health to me means that at a later stage you will have to spend more as the overall health of the population deteriorates.
    A basic wage that is pitiful means to me that people have no spare cash to spend forcing consumer demand further down than it already is.
    Where is this government going..what are they thinking.?..oh I forgot trickle – down economics… BUNKUM

  3. David Bruce

    We have the Inauguration in USA on the 20th and Australia Day on the 26th January. Should we expect another 9/11 event?

    The gathering storm will hit more than the Australian economy. Word just in from a colleague spells out a 100% increase in public service fees, licences and registrations for the Republic of Indonesia, this week.

    Did Malcolm recently arrange a loan of $100 billion each year for 3 years with the IMF or World Bank?

  4. Keitha Granville

    How do we, the people, do anything ? We have elected representatives to our parliament to do just that – represent us. They seem to be doing anything but.
    We can write, we can read AIMN, but we can’t make anything happen until the train actually crashes. And even then, we can only pick through the rubble looking for survivors.And the dead will be those on the bottom, with the middle struggling with mountains of personal debt so they sink to the bottom next. The ones in First class will be whisked away to recover in comfort and luxury not accepting any responsibility for the rest.
    I’d say God help us – but I don’t think he’s there, and if he is well he’s not listening.

  5. Judith W

    The abc have reported that Susan Ley has a mortgage on her new unit. So how did Susan Ley have the finance to buy at auction if she wasn’t planning to buy a property? Just thinking…

  6. John Kelly

    David Bruce, no Australia does not borrow from the IMF. We actually contribute to it. Australia only borrows back its own currency.

  7. Steve Laing - makeourvoiceheard.com

    Completely correct John. The economic train crash, just like the environmental one, is on its way and chances are there is nothing to stop the impact from occurring. I always used to feel that with my EU passport, at least I had an escape route, but given Brexit and an equally stupid and cruel government in the UK, that escape route doesn’t seem particularly attractive either.

  8. paulwalter

    Hmmm..ripper, off to chew over this.

  9. Gangey1959

    Shame I’ve got a dodgy back.
    Doing a turdbullshitartist, and sticking my head up my arse like the rest of his ”mates” isn’t going to save me either then.
    Plan B involves Rule 303. Is that allowable yet, MT ?
    Happy New Year everyone.
    Or should that be ”Viva la Revolucion” ?
    Or maybe ”Hasta la Vista, Baby” ? Or even ”Yippy Kiyea Mutthafukka”.
    I guess I’ll have to see which pollie I run into in the street first.

  10. Jason

    Ella, pink batts means a million homes have insulation and lower power bills for the rest of the buildings lives. School halls mean much needed infrastructure for generations and generations of our future populations education. These are amazingly good things yet labor lost the framing of it against the liberals.

    Labor needs to take control of framing these issues properly and should be reframing them for the positives they are at every opportunity. The fact they saved us from the greedy recession the rest of the world is still essentially stuck in just makes these things so much more powerfully positive.

    Ignore the bullshit narrative that these things aren’t good and realise how much more good things aren’t being done now for the insane and totally unnecessary austerity our countries being forced to live under. We can’t get back this period it’s a permanent waste of labour and resources available now and over the years and is the real theft from future generations.

  11. wam

    John, the rabbott gave his daughters tertiary set free access to government cash. The result is almost every student undertaking TAFE, VET has incurred a debt, up to $96000 with no evaluation. Future debtors from 1/1/17 have VET Student Loans, a name change that in view of this government past record will do little more than cost to change the stationery.
    That debt affects all workers undertaking any qualifications, How many are being seduced by universities and institutions to join ‘free’ courses?
    How many have ever heard of compound interest much less understand it? But the pynenut will remember the 2014 budget. Notice the number of company owners go bankrupt with everything in the wfe’s name. Wonder why there is no such a rort for workers’ debt?
    ps
    A quick loan company calculates interest daily and charges it monthly

  12. thebustopher

    John, I’ve been doing posts like this since 2014. ANYONE who has the slightest inkling about economics can see this coming a mile off, and hitting hardest for “savings” at those on low incomes is the WORST thing you can do.

    That first sentence of mine is not even really an opinion – it’s the way it works. And even government members must know this.

    Hockey and Morrison have been disasters of treasurers, and I cannot accept the fact that they are stupid. They’ve risen to be treasurer in a Federal government – you can’t do that if you’re a moron (although you can apparently be Federal Nationals leader).

    They HAVE to be getting kickbacks from the large corporations who want the politicians to implement their own agendas for them and inflict them on our country

  13. Ella Miller

    Jason, I think I was saying that pink batts and school halls were good policies.
    It was not the ALP Government’s fault that unscrupulous ..get rich quick contractors turned it into what then an opportunistic LNP then could claim as a disaster, because of the accidents. etc.

  14. jim

    “Yet internal bickering became Labors undoing despite maintaining the nation’s unique record of continuous economic growth”.
    As Mrabbit and co cheered on and most likely had a lot to do with it, IMOO.

  15. Rossleigh

    Economies CAN be managed. This doesn’t suit the LNP mantra of letting “the market” decide, but markets don’t decide anything; they’re a combination of the decisions of all sorts of people.

    The pink batts thing has always been one of those amazing pieces of hypocricy from the Liberal Party. They blamed the Rudd government for a lack of oversight at the same time as arguing that the country has too much government interference and red tape stopping people just getting on with it.

  16. Rossleigh

    Great quote from “Debt: The First 5,000 Years” by Dave Graeber

    ‘This is actually why Smith’s (Adam) work is so important. He created the vision of an imaginary world almost entirely free of debt and credit, and therefore, free of guilt and sin; a world where men and women were free to simply calculate their interests in full knowledge that everything had been prearranged by God to ensure that it will serve the greater good. Such imaginary constructs are of course what scientists refer to as “models,” and there’s nothing intrinsically wrong with them. Actually, I think a fair case can be made that we cannot think without them. The problem with such models—at least, it always seems to happen when we model something called “the market”—is that, once created, we have a tendency to treat them as objective realities, or even fall down before them and start worshipping them as gods. “We must obey the dictates of the market!”’

  17. Ella Miller

    Jim, can’t help but think that K.Rudd has a lot to answer for…..he did a lot of damage to the Gillard Government by backgrounding the media,
    and needless to say the factions within the party did not help.
    Just as the factions within the LNP are cannibilising each other now.

  18. Andreas Bimba

    The stupid conservative voter blames Labor and the cross bench for blocking most of the ‘needed” spending cuts and that this is the reason for the large deficits. They believe the ‘huge’ federal government debt will burden future generations with crippling interest payments especially when our credit rating is downgraded. This is the main reason the stupid conservative voter hates Malcolm Turnbull – because he isn’t as tough as Tony Abbott in regard to ‘fiscal responsibility’ and if we can’t live within our means then we will indeed head towards an economic train wreck.

    In reality as unemployment explodes due to federal government austerity, suppressed consumption demand, private sector contraction and retrenchments, government services cutbacks, the forced exit of the remainder of the car industry in late 2017, excessively free trade which will destroy most of the rest of our manufacturing sector, the collapse of the property price bubble at some point and no plans for any form of job creation apart from mismanaged defence projects; we are indeed hurtling towards an economic train wreck, as well as a global warming train wreck.

    The stupid conservative voter will indeed soon experience the impending economic train wreck but rather than realising that they are responsible will blame Malcolm Turnbull and his team of ‘weak pragmatists’ for not standing up to Labor and the cross bench and for not implementing Tony’s plan.

    The stupid conservative voter will forever remain stupid and move further to the right, insist that Tony regains the Liberal leadership and many will vote for One Nation or other hard right parties and will forever try to increase the concentration of their of economic poison.

    The really stupid thing is that for a potentially almost totally self sufficient nation like Australia we could very easily have full employment, high wages, a strong, dynamic and environmentally sustainable economy, comprehensive government services and a generous system of social support and indeed the best standard of living in the world. We have sufficient raw materials and agricultural exports as well as tourism potential to fund our moderate needs for imports.

  19. Graeme Henchel

    “It’s all Labor’s fault” has become the defining joke of this joke of a government however in regard to this obsession with the need to balance the budget labor must also accept part of the blame. Labor has played along with this Neo conservative paradigm. Wayne Swan needlessly and stupidly promised a return to surplus only to constantly fail to deliver. In fact there was never any need to try and produce a surplus and making promises based on forward projections is stupid. It played right into the hands of the economically and morally deficient LNP.

    Will Labor ever be brave enough to reject the prevailing “surplus good, deficit bad” orthodoxy?

    The slogan “Budget repair that is fair” suggests they have not yet distanced themselves from using the budget position as a measure of success.
    What labor needs to do is change the language of economic success to be about employment, inequality, environmental responsibility and social cohesion and not about the budget position. The debate is arse about.
    A balanced budget will not produce a more productive and fairer society, rather a more productive and fairer society will lead to a better budget position.

  20. Andreas Bimba

    In our two party system the stupid conservative voter also comprises the bulk of the critically important swinging voters and fed exclusively on a diet of neoliberal propaganda from the complicit commercial mass media and the ‘establishment’ ABC, leads to an unprincipled Labor Party being led by the nose down the neoliberal path as well. All the corporate lobbying, millions of electoral donations, corporate funded advertising campaigns, neoliberal think tanks, lucrative corporate job opportunities and strategic placements in the bureaucracy and academia finish the job of controlling the agenda of the duopoly.

    If Labor were to adopt a progressive economic stimulus and full employment platform like Bernie Sanders in the U.S. would the Australian electorate under its current neoliberal mindset join Labor or shift further to the right?

    Personally I think if Labor sticks to the ‘balanced budget’ neoliberal path they will further weaken their electoral prospects and now is the time for a bold full employment and environmentally sustainable policy platform.

  21. David1

    Loyal as I am to the Labor Party, I tire of beating my wall beaten cranium every time since 2013, Labor in Opposition has gone toddling up to Govt with cap in hand promising co-operation, consensus, non partisan politics.
    Admirable? yes. Dumb yes and yes again. The Govt’s supporters see it as a win for the Govt, Labor’s as a weak kneed, indecisive capitulation.

    i wouldn’t mind a dollar for every time a contributor or respondent has written on these pages, ‘Opposition means oppose’. In the rare moments of Tory enlightenment a piece of legislation is for the common good sure, agree but no song and dance about how wonderfully generous it is to not oppose it.

  22. michael lacey

    The global economy is running out of options not just Australia!

    The underlying problem over the last 30 years and continuing after the crash the gap between rich and poor is much worse, this is extremely important because the more wealth that is concentrated in rich people the less is available to the mass. The Mass of people takes the money they earn and spend it. The very rich earn a great deal of money that they do not spend. The more money you put in rich people hands the less is spent on goods and services. We have been doing this for 4 or 5 decades you have created a situation where the mass of people cannot consume what the economy has built itself up to be able to produce!

    We had the problem in the 1970’s but solved it by making everyone borrowing and filling up their credit card.
    If you want to see this happening look at China the government is pressuring the population to use its credit cards more like Americans because they are trying to shift their economy which is dependent on exports to become an economy dependent on its own people, but its own people cannot afford to buy it but on credit they could, they are now going down that path.

    The mass of people can’t borrow anymore! The government has to come in and spend which freaks out the business community as they want the money borrowed to be paid back to them.

    To do that the government has to lay off teachers, firefighters, police and public servants. This is already happening Porta Rico! What is it called Austerity!

    We are in a time of major global capitalist crises! Easy money has come back to bite the system!

  23. jag37777

    Ella Miller, Kevin Rudd did not force Gillard and Swann to launch the biggest fiscal retrenchment in Australia’s history in the search for kudos from the big end of town.

    That was all their own doing.

  24. Pingback: The Economy an Impending Train Wreck | THE VIEW FROM MY GARDEN

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