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A Report Card on the Australian Labour Government – 2007-2011 – Part 1

June 9, 2011
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“A Report Card on the Australian Labour Government – Part 1 – 2007-2011 -“

… and to think that the these Leaders all believe they’re doing a good job …

Thought of the Day: …

There is evidence everywhere that supports the theory where people who are are overwhelmed by a crisis – seek to find and ask for help – not so in the Political arena – to admit error or strive to push a negative agenda or to pick a position that becomes indefensible – pushes the collective PARTY in Government to close ranks and try to figure a solution from within … this is the position the ALP finds itself – and to think that the Australian people decided to give them another go at the 2010 Election – does not lend a view that the then Opposition were ever considered as an alternative – that said – Australian Politics is in the worse shape it has even been in …

Declaration of Interest:

To declare this Authors position – I have never voter for any other party that the Australian Labour Party in all my years of voting – that is from 1973 onwards … I have voted informal several times when I have felt that the ALP has not been worthy. I treasurer my vote – and I believe that whoever I vote for has to earn my vote – it can never be taken for granted.  To that end and after the 2010 election – at which I was one of the 11.9% of eligible Australian voters who chose not to register a formal vote – I went to the task of trying to garner support for a ‘NONE OF THE ABOVE‘ ballot selection on all future election ballots. This led to a campaign submission to the Joint Standing Committee of Electoral Matters (JSCEM) – to have a ‘NONE OF THE ABOVE’ ballot choice inserted on all future ballot papers. This submission is still before the JSCEM and can be viewed at the  their website via this link.

The general JSCEM web site can be accessed here.

The Australian Labour Party:

The Australian Labour Party is a failing brand – Three years ago they Governed in every State – and had a Federal Leader who was unchallenged. The force 9 GFC then hit the world Financial Markets and forced Governments around the globe to scamper and design policies to suit their own economies.

The initial report card for Australian in its GFC response was a 90% success and the envy of the Globe. Two years on – a number of things are happening that might suggest that the initial response and its success rating was over stated. Some three years later and after the markets bottomed – some of the policies enacted at the time are now viewed as being ill-conceived and a chronic waste of public funds. The long term measure of these spending programs are being reassessed and the repercussions of these initial measures are now be openly questioned and the Government’s responses to this expose is not being received all that well by the Government.

As a collective perspective – Australia is still far ahead of the rest of the world in an assessment based on economic terms. The Australian Labour Party see this position as their claim to fame – they believe that it was their responses to the GFC crisis as why Australia survived the GFC relatively intact. It is a hollow boast – and they are spinning it for all its worth as ‘CROW’s’ atop a dungheap of self posturing that is all about to collapse around them. They are living in a glass house – and are throwing stones at all and sundry boasting of what they claim as their achievement.

The Reality of Australia’s post GFC position:

Let’s face the subject of Australia’s survival post GFC it as it really stands – China has given Australia a life-line via its insatiable demand for our mineral resources. The 2008 Olympics was China’s re-birth within the global community – and was also the trigger that starter the Post Olympic GFC crisis. To China – the Olympics was their gift to the world – and in so many ways the event confounded us all – how did they make all that polluted air disappear on the Opening Morning ceremony and keep it away for all the the two odd weeks of the Olympics?

They lived up to the global expectations of how a superpower should be – China is modernising – it is building infrastructure – and its population will insure this goes on for decades. Fortunately for Australia – our economy is the by-product of China’s boom. If China had not emerged through the GFC unscathed as opposed to Nth America and Europe – Australia would be in the same boat. So while the ALP claim their fame as saviours of the Australian Economy – most of us know the real truth of the matter – and in claiming the success as they – they only diminish their own creditability to the point of ‘laughing stock’ class of Government.

The Chinese are masters in diplomacy – their plea to have their currency fixed and attached to the US$ in the early 90’s providing them with external trade stability was a masterstroke. They knew at the time they had a labour force that would compete very well with America and the rest of the world – and within a decade their trade surplus and accumulated wealth was the highest in the world. China built its reserves and foreign capital and the world stood back believing that the poverty within China were to be the receipants of the new wealth and thus lead to the emergence of China to become the economic superpower that would fuel material expenditures and conform to the vision the West wanted for China..

Another decade on – China’s plan has been exposed for all to see – they did not conform or emerge as the West wanted them to – they are not part of the capitalist system that infected the rest of the Western World – they took the best Capitalism had to offer – and retained the human cost of cheap labour as their chief export.

The US$ is about to go into free fall – and that fall has most to do with China – as the US$ falls – China’s exports became cheaper to all the other Global trading partners. Americans will not work for the same labour cost’s of the Chinese – and that then makes America’s workforce unemployable. Yet – Americas efforts are about trying to create employment – if one was to take out the Federal and State public service employment – and lets face it – these employees contribute nothing to the growth of American real commerce – their real employment – of people paying real taxes – as opposed to employees receiving taxpayer funded salaries – is probably much less than 40% – perhaps as low as 20%. That translates to 20-40% of the population having to pay the salaries of all the public servants and to cover the cost and repayment of the $14.25 Trillion dollar debt. Simply can’t be done …

Returning to China and their masterstroke of economic Management – and the continued need to import the raw materials to modernise their infrastructure and commercial developments – the raw materials are being devalued in real terms of trade with the weakening US$ – and that means Australia is selling these precious resources at 50% of what they were receiving in the worst of the GFC … The mean average of the A$ value to the US$ over the last 40 odd years is around A$.75c – it is currently trading at $1.07c and that is an appreciation od around 35% – during the GFC – the currency dropped to A$.60c and from that point – the appreciation has been 80% or so.

This appreciation in the A$ has knocked the export revenues into the ‘Crazy Clark’s’ fire sale realms. Mr Wayne Swan – the Australian Treasurer presented his 2011-12 Budget a few weeks ago and claimed that the reduced tax revenues of $8 billion in were a factor of the GFC – he was misleading the Australian Public – whether it was deliberately so – or whether he has still not made the connection in how the A$ appreciation caused the revenue crash – is still an unknown – but it does give clear warning just how out of touch he is with the reality of the GFC – China’s intent to take advantage of their advantage in the US$ weakness – and the stupidity of imposing a Mining Rent Resource Tax on top of the reduced export revenues these miners are suffering. The same scenario applies to all Australian exporters including agriculture.

This Columbus type moment of a fumble by the Australian Labour Party – and at a time where right decisions had to be made at the right time – has led to a need to issue the following REPORT CARD on their performance since the Federal election in 2007.

Economic Management –

Report Card Assessment on the ECONOMY – “GOT LUCKY”

Currency:

There was complete failure on the Governments part to manage or respond to the appreciating A$ value and its impact on export revenues during the whole of the GFC crisis. The Treasury could have introduced many forms of tariff and excise relief against the appreciating currency to compensate against revenue erosion cause by the currencies appreciation – yet – the Government stood by and did nothing.

Some of the measures that could have been undertaken – [and this is not to say that they did not try or think of any of these options]- but what is clear is that they failed even if they did try …

  • Wharf fees and tariffs –
  • Export tariffs and excise duties to be paid by the importer on Australian exports to protect the trade value of the goods shipped –
  • Direct Trade levy via a ‘royalty’ tax similar to the State Royalty levy on all exported raw materials – both mineral and agriculture –
  • Direct trade negotiations with China and other trade partners to negotiate set-off structures to compensate Australian Exporters for the reduced A$ returns for goods shipped – all in the interests of the Australian economy and to compensate exporters for China’s and the other pegged currency Nations windfall – and to address their own reluctance to let their own currencies respond to a free market economy. In particular – China has held a gun to the world on its currency tie with the US$ – and Australia like the rest of the World have been unable to use diplomacy to entice China to change or address the trade imbalances this currency pegging brings – this is a failing of all Governments – but particularly Australia because this continuing export trade with China is the only thing holding the Australian economy above water – and while that currency imbalance remains – Australia are exporting its precious resources at cheaper than ‘Crazy Clark’ type prices.
  • Australia could also have looked into many domestic options – creating employment options to do what China is doing with our raw materials – developing and boosting subsidies to existing steel manufacturers to create the steel product domestically – this would have created a new steel export market to China’s customers and to China itself – and at whatever the subsidy would have cost – it would have only been a fraction of the export revenue lost to the A$’s appreciation. This action – or threat of action would have keep all the added value from the raw materials and its commerce within Australia – and created direct competition with China – thus diminishing their export revenues and perhaps force them to the negotiating table to compensate Australia for the A$ appreciation. I bet you Treasury never thought of this option ...

Some charts to prove the real cost of the A$ appreciation are presented below:

Chart courtesy of:

As can be seen from this chart – the second and most severe of the GFC fallout happened after the 2008 Olympics – and continued through to Mar 2009.

The chart underneath is the AOI for the same period – and as can be seen – the recovery from the lows has not been a match to the DJIA recovery –

Chart courtesy of:

There is only one real reason why the AOI has not matched the DJIA in chart value terms – and that is the appreciating value of the A$ – when the appreciation of the A$ is taken into account – the true value of the AOI as measured against the DJIA is reflected. The A$ chart below gives visual proof of this fact –

I don’t have a chart reflecting the AOI in US$ terms – but it would show a similar chart to the DJIA chart above.

Chart courtesy of:

The Australia dollar is seen as a commodities currency – and the CRB index chart appearing below gives a perception of how commodity prices have fared throughout the GFC crisis.

Chart courtesy of:

This chart shows the Fibonacci retracement of .618% having been attained an April 2011 – and the price action since then has seen the Index weaken – you might recall the A$ v US$ value peaked in April at the A$1.10 level as well [see above chart] – and has traded off those highs in sympathy with the CRB index.  The two are ‘bed buddies’ and the result is US$ trade denominated deals hurt Australian exporters.

A flip to this is that the A$ per/litre for petrol in this country has not reflected this A$ appreciation and as previously reported at this blog site – the current per/litre price is a good A$0.20 -30c above where it should be if all factors before the GFC were still the variants that determined the A$ price of petrol in this country. 

The ACCC does not include petrol in its list of watched price fluctuations any more – it was struck off during Mr Costello’s time as Treasurer and since then – it’s only the RACQ and NRMA type bodies that report on how petro prices in this Nation are being manipulated to the advantage of the Oil refiners … another failing of Government to rein in big business from ripping off motorists – and that is linked to the monopoly of Woolworth’s and Coles and their influence on petrol prices.

Back to the chart pack – and for the same 4 year period as the previous charts – it can be seen clearly that the rise in commodity prices since the GFC bottom – and when compared with the A$ v US$ value for the same period – the appreciation in the A$ is matched by the rise in the CRB Index …

Further to this – the next chart is the CRB Index since 1988 – and you can see just how volatile the Commodities Index has become relative to the period post late 2003 –

Chart courtesy of:

Interest Rates:

For the first time in a very long time – if ever – the RBA lifted Interest Rates during the 2007 election campaign. The first signs of the GFC were emerging and stock markets had given a glimpse of what was just around the corner. The charts above show this clearly – and provide a time line on the equity meltdown of the DJIA and the AOI and how the GFC unfolded – pay attention to the late 2007 Interest rises and how long it took before the RBA reduced official Interest Rates in response – it would be fair to say that Treasury were asleep at the wheel and really not that aware of what was happening around then until it was far too late:

Chart courtesy of:

Please refer to the A$ v US$ chart shown previously and take note when the A$ value appreciated after the initial Risk Commodity trades were unwound – this was when the A$ sold off to $A.60c from highs near parity. From Feb ’09 when the RBA first moved Interest Rates up from the 3.0% lows – the A$ has appreciated from just above A$0.65c to its current levels. At every release of economic data – the twist and turn indication has been that the RBA was always wanting to lift Interest Rates higher – this has underpinned the A$ appreciation more than anything else all through this period –

Commodity price increases have been more a product of the US$ depreciation than any genuine price rises in real terms for the A$ – there are some abnormalities to this statement – but by and large – the context is that any real increase in commodities during the late 2009 – current period – have been offset to a large degree by the appreciation of the A$ and the TWI index.

One ponders what the A$ value might be if the RBA’s rhetoric had been more direct at finding a reason to reduce Interest Rates – on this score – the RBA and the Treasury Department get a monster fail mark – Australian home mortgage owners are desperate for Interest Rate relief – there is a Housing bubble in this Nation equal to the US bubble pre GFC – our bubble has not been pricked as yet – because Banks are deferring their delinquencies as accumulated interest – all in the hope that the Australian economy will turn around.

Its a pipe dream …

This concludes Part 1 of this special Report Card on the Australian Labour Party’s handling of the economy. In Part 2 – a review of some of the GFC policies will be undertaken and performance assessments of Ministers and their Parliamentary staff will be offered.

________________________________________

The EYE-BALL …

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