Can we survive the ‘recovery’? by Graham Matthews

Business economists and their paid media scribblers are frantically keen to announce the end of the financial crisis. Their aim is to return confidence in the market and to encourage working people to take on more debt.

The message is clear. If you’re still in trouble — unable to find work or get enough hours — it’s your problem. It’s not the market’s fault — because that’s in “recovery”.

However, the economy, particularly the world economy, is not always so simple to tame. Certain economic indicators (for Australia) are pointing to a slow renewal of growth, but this doesn’t mean that the economic crisis — in Australia or elsewhere — is over.

National accounts figures released by the Australian Bureau of Statistics (ABS) on September 2, showed that the Australian economy grew by 0.6% in the three months ending in June.

The biggest contributors to this growth were spending on new business machinery and equipment, and household consumption, which together made up 1% of national growth.

Neither factor should be seen as heralding a renewal of sustainable growth in the economy. Both are largely due to the federal government’s stimulus spending.

In December, the federal government introduced the “business tax break”, which means businesses “can claim an additional tax deduction when they buy certain assets, and when they spend money to improve existing assets, for a limited time”, said the Australian Taxation Office website.

For small businesses (with a turnover of less than $2 million a year) this means a tax-dodge of 50% for that new company car, forklift or backhoe.

It’s hardly a wonder that, as the end of the financial year approached, these businesses boosted their spending on such things.

As for the household consumption figures, this also can be explained by the government’s $900 tax-free handout in April and May.

The ABS said retail turnover increased by $160 million in the June quarter on the back of this handout.

Another group of businesses to do well out of the federal government’s response to the international financial meltdown is Australia’s big four banks.

The September 2 Sydney Morning Herald reported that, using the government’s loan guarantee (which allows the banks to use the government’s AAA credit rating when accessing overseas loans), the banks have forced smaller lenders out of the domestic home loans market.

The big four stand to make $15 billion profit this year.

Some sections of business are prospering on the back of the Rudd government’s stimulus payments, but for working people the story is less rosy.

The ANZ job ads series, which measures changes in the number of jobs advertised in newspapers and on the internet every month, has reported declining job advertisements throughout the year.

Its data for July, released on August 3, showed that there were 51.9% fewer jobs advertised than a year before.

ANZ argues that the pace of the decline in advertised jobs may be slowing, but it says: “The data provides further evidence that demand for labour in the Australian economy is still wallowing at recessionary levels.”

More than 45 million fewer hours were worked in Australia between July 2008 and July 2009, the ABS said. This is a decrease of 2.9%, meaning lost wages for thousands of workers.

In a statement explaining the Reserve Bank of Australia’s decision to leave its official interest rate unchanged at 3% on September 1, the bank’s governor, Glen Stevens, was upbeat.

“With considerable economic policy stimulus in train around the world, the global economy is resuming growth”, he said. “Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets. The major economies appear to be approaching a turning point”, he said.

Stevens’ confidence in strong and renewed growth seems bold. In the US, where dodgy mortgage practices sparked the global financial crisis in 2007, the number of banks threatened with failure is growing.

“Eighty-four banks have failed already this year and today’s Wall Street Journal reported the Federal Deposit Insurance Corporation, which guarantees deposits, has 416 banks on its problem list — an increase of 109 troubled banks from three months earlier”, ABC radio’s AM reporter John Shovelan said on September 2.

Only US$1.5 trillion of the US$4 trillion estimated in “toxic assets” created by the sub-prime crisis had been accounted for in the world’s bank balance sheets, the August 31 7.30 Report said. A further $2.5 trillion remains unaccounted for.

Bank shares fell heavily in the US and Australia on September 1 and 2 as speculators digested the new threat to the shaky finance industry, failing to heed the hype about recovery.

Talk of a “recovery” for working people who are being asked to pay for the crisis with fewer hours and smaller wage rises, is simply a smokescreen. For the big end of town, however, the party has already begun — but it may not last.


From: Comment & Analysis, Green Left Weekly issue #809 9 September 2009.