MAKE AUSTRALIA WORK
The crisis is just beginning
Up until about a week ago Australia was sleepwalking towards recession, in denial that the global recession would affect us.
That's why we've been working on this 'Make Australia Work' series. We thought of calling it “Wake Up Australia!”, but actually most people can see what's going on: it's just the politicians who have been asleep, or perhaps pretending to be.
So we have focused on jobs, on ideas to 'Make Australia Work' - not because Australians don't want to work (far from it) but because we are heading into another recession during which too many people won't be able to work.
We have asked a wide range of Australian leaders and thinkers, including our own writers and bloggers, to think about what Australia needs to do avoid the worst of this recession, to keep as many people employed as possible and to try to make sure this doesn't happen again.
We think it is not true that there's nothing we can do – that this is a purely global crisis. And it certainly is not true that it won't affect us.
Up until just the past few days the general proposition from politicians and many economists has seemed to be that it hasn't affected us so far, so it won't.
Or that our banks are in good shape, so we'll be okay.
Or China will save us.
Or our house prices are not like those in the UK and the US and won't decline because there is a shortage of them here.
Or there's nothing we can do anyway.
It has been a curious mixture of complacency and fatalism: Australia is the rabbit in the headlights of the global financial crisis, convinced that the car won't hit us.
Our politicians have been, and to some extent remain, in the grip of the usual tired rhetorical opportunism, unable to admit the obvious and unable to agree on anything.
A case in point is opposition leader Malcolm Turnbull's reaction to the Rudd government's modest and worthwhile proposal to put some money into a fund with the banks to lend to commercial property operators who can't refinance their loans with foreign banks. He says it's simply to maintain property values and won't save jobs. That really is a poor effort from a man who is supposed to know something about finance.
Yes, it will save some commercial property jobs, but there's nothing wrong with preventing a flood of property onto the market, which would decimate not only the property sector but also retailing and banking as well.
Australia is headed for a recession of indeterminate length and depth.
It's true, as John Edwards of HSBC wrote yesterday, that “after the global gale of the fourth quarter, to be still upright is some sort of distinction”. But that is no guarantee about the future. Unemployment will rise in 2009 and 2010, and household incomes will decline – possibly a lot.
Worse still we are badly unprepared. We harvested a resources boom and spent the lot. Now China is heading into its own version of recession and the boom is over; it won't return for many years, and the employment that has been based on it won't either.
Thanks to the wealth provided by that now-ended resources boom, house prices in this country are the most unaffordable in the world and must decline.
This was confirmed over the weekend by the US-based policy group, Demographia, which has just completed its Fifth Annual International Housing Affordability survey.
The most “severely unaffordable” housing market in the world, based on the multiple of median price to median household income, is Australia's Gold Coast. Australia has 24 markets among the 60 classified as severely unaffordable (that is, where the median price is more than five times household income).
With house prices still high and unemployment still low, the only way in which the global financial crisis has affected us so far is through the sharemarket, but that's been dramatic: it has fallen 50 per cent – more than the US and more than the rest of the world as a whole.
That is a wake-up call in itself. The market is telling us that Australia is far from immune from the crisis and, in fact, is likely to be harder hit than the US, where it all started.
So as they wait to see what will happen to the value of their houses, Australians have seen their other main asset – super – collapse.
In this they have been badly let down by the combination of mandatory retirement saving, the shift of market risk from institutions to individuals and a financial system that is dysfunctional and conflicted.
During the bull market, all vestiges of “defined benefit” superannuation were removed. Twenty years ago it was the most common form of retirement benefit, providing retirees with certainty.
But companies and governments have used the opportunity of the bull market to shed the risks inherent in that and moved their employees onto accumulation-style super, where the retiree gets the benefit of the market but also takes the risk.
It was great while the boom lasted, and those who cashed out before November 2007 did well. But most did not. Even those who retired before that date kept their money in the market through private pension plans, usually sold by financial planners skimming off exhorbitant fees.
Now the sharemarket has fallen 50 per cent and retirement incomes and savings have vaporised. From the industry that sold the investment products that government policy forced everyone to buy, it's “all care, no responsibility”.
At best, this will mean the delay of retirement plans and/or saying goodbye to dreams of a comfortable retirement without resort to the old age pension.
At worst, many thousands of Australians have lost everything because they accepted the advice of advisers to invest in shares with borrowed money.
The sharemarket almost certainly has further to fall, and in any case won't recover in a hurry, so we have to get used the new reality of retirement – deferred and deprived.
It's another reason why unemployment is going to rise, because the baby-boomers will have to work longer.
Over the next week Business Spectator will be examining all aspects of the coming recession and what might be done to alleviate the pain. And we invite our readers to join in through The Conversation.
We need a national conversation about this crisis. Realising that there is a crisis is a good start; now it's time for ideas.
The crisis is just beginning
Up until about a week ago Australia was sleepwalking towards recession, in denial that the global recession would affect us.
That's why we've been working on this 'Make Australia Work' series. We thought of calling it “Wake Up Australia!”, but actually most people can see what's going on: it's just the politicians who have been asleep, or perhaps pretending to be.
So we have focused on jobs, on ideas to 'Make Australia Work' - not because Australians don't want to work (far from it) but because we are heading into another recession during which too many people won't be able to work.
We have asked a wide range of Australian leaders and thinkers, including our own writers and bloggers, to think about what Australia needs to do avoid the worst of this recession, to keep as many people employed as possible and to try to make sure this doesn't happen again.
We think it is not true that there's nothing we can do – that this is a purely global crisis. And it certainly is not true that it won't affect us.
Up until just the past few days the general proposition from politicians and many economists has seemed to be that it hasn't affected us so far, so it won't.
Or that our banks are in good shape, so we'll be okay.
Or China will save us.
Or our house prices are not like those in the UK and the US and won't decline because there is a shortage of them here.
Or there's nothing we can do anyway.
It has been a curious mixture of complacency and fatalism: Australia is the rabbit in the headlights of the global financial crisis, convinced that the car won't hit us.
Our politicians have been, and to some extent remain, in the grip of the usual tired rhetorical opportunism, unable to admit the obvious and unable to agree on anything.
A case in point is opposition leader Malcolm Turnbull's reaction to the Rudd government's modest and worthwhile proposal to put some money into a fund with the banks to lend to commercial property operators who can't refinance their loans with foreign banks. He says it's simply to maintain property values and won't save jobs. That really is a poor effort from a man who is supposed to know something about finance.
Yes, it will save some commercial property jobs, but there's nothing wrong with preventing a flood of property onto the market, which would decimate not only the property sector but also retailing and banking as well.
Australia is headed for a recession of indeterminate length and depth.
It's true, as John Edwards of HSBC wrote yesterday, that “after the global gale of the fourth quarter, to be still upright is some sort of distinction”. But that is no guarantee about the future. Unemployment will rise in 2009 and 2010, and household incomes will decline – possibly a lot.
Worse still we are badly unprepared. We harvested a resources boom and spent the lot. Now China is heading into its own version of recession and the boom is over; it won't return for many years, and the employment that has been based on it won't either.
Thanks to the wealth provided by that now-ended resources boom, house prices in this country are the most unaffordable in the world and must decline.
This was confirmed over the weekend by the US-based policy group, Demographia, which has just completed its Fifth Annual International Housing Affordability survey.
The most “severely unaffordable” housing market in the world, based on the multiple of median price to median household income, is Australia's Gold Coast. Australia has 24 markets among the 60 classified as severely unaffordable (that is, where the median price is more than five times household income).
With house prices still high and unemployment still low, the only way in which the global financial crisis has affected us so far is through the sharemarket, but that's been dramatic: it has fallen 50 per cent – more than the US and more than the rest of the world as a whole.
That is a wake-up call in itself. The market is telling us that Australia is far from immune from the crisis and, in fact, is likely to be harder hit than the US, where it all started.
So as they wait to see what will happen to the value of their houses, Australians have seen their other main asset – super – collapse.
In this they have been badly let down by the combination of mandatory retirement saving, the shift of market risk from institutions to individuals and a financial system that is dysfunctional and conflicted.
During the bull market, all vestiges of “defined benefit” superannuation were removed. Twenty years ago it was the most common form of retirement benefit, providing retirees with certainty.
But companies and governments have used the opportunity of the bull market to shed the risks inherent in that and moved their employees onto accumulation-style super, where the retiree gets the benefit of the market but also takes the risk.
It was great while the boom lasted, and those who cashed out before November 2007 did well. But most did not. Even those who retired before that date kept their money in the market through private pension plans, usually sold by financial planners skimming off exhorbitant fees.
Now the sharemarket has fallen 50 per cent and retirement incomes and savings have vaporised. From the industry that sold the investment products that government policy forced everyone to buy, it's “all care, no responsibility”.
At best, this will mean the delay of retirement plans and/or saying goodbye to dreams of a comfortable retirement without resort to the old age pension.
At worst, many thousands of Australians have lost everything because they accepted the advice of advisers to invest in shares with borrowed money.
The sharemarket almost certainly has further to fall, and in any case won't recover in a hurry, so we have to get used the new reality of retirement – deferred and deprived.
It's another reason why unemployment is going to rise, because the baby-boomers will have to work longer.
Over the next week Business Spectator will be examining all aspects of the coming recession and what might be done to alleviate the pain. And we invite our readers to join in through The Conversation.
We need a national conversation about this crisis. Realising that there is a crisis is a good start; now it's time for ideas.
