What a difference a month makes. In mid-October, Kevin Rudd was the toast of corporate Australia. But now no one is confident that Australia will avoid recession.
His decision to guarantee bank deposits restored some confidence in the banking system. And his $10.4 billion stimulus package was seen as a bold move to maintain consumer demand and to prevent a collapse in house prices.
Even the Liberals came out immediately to back the stimulus package.
On the day of its announcement, the stock exchange surged nearly 4 per cent. That was then. Six weeks later, share prices had fallen 15 per cent and were less than half those of a year ago.
The people who really run the capitalist system have little confidence that profits will be restored in the near future.
Of course, the $8.7 billion that will go to pensioners, families and carers in early December is welcome. It will relieve a little of the financial stress that so many people are facing.
But it won’t save jobs.
The anecdotal evidence is that a lot of that money will be used to pay off debts-—mortgages and credit cards. The stimulus will be minimal. We will then be left to face the gathering forces of recession.
Slump in demand
Already we can see the effects on the real economy.
Housing finance peaked in January and has since fallen 24 per cent to be nearly $50 billion a year lower.
Sales of new cars have fallen dramatically, by over 10 per cent. In Queensland the fall is 15 per cent.
This is the main reason behind the crisis in the car industry.
These are the two areas targetted by Rudd. But it would take far more government money than Rudd will spend to make up for the collapse in demand.
Retail sales are stagnant, and sales of major home appliances have fallen.
Harvey Norman, one of the country’s most profitable retail giants, is planning to close stores, not open them. The largest private child care group in the world, ABC Learning, has collapsed.
Qantas is sacking workers, cutting routes and mothballing planes.
Commodity prices—of coal and metals—have halved this year. The fantasy of Rudd and corporate Australia, that a continuing boom in China would keep commodity prices high, has exploded.
Projects that once were profitable are now being shelved. The largest corporate merger in the world, proposed between Rio Tinto and BHP Billiton, has collapsed as a result of falling prices and Rio’s $42 billion in debt.
In Melbourne, The Age newspaper reports that $10 billion in proposed commercial property developments have been delayed or cancelled.
According to Tony Crabb, investment director with property strategists Savill, “Anything that is not already coming out of the ground is extremely unlikely to happen at all.”
The paper listed seven projects worth more than $400 million each that are on the brink of collapse.
The car industry sums up the crazy priorities of the Rudd government. They have launched a $6.2 billion scheme to help the car industry survive lower tariffs, and produce the green cars of tomorrow. Sounds good.
But back home in the US, Ford and General Motors are on the brink of bankruptcy. Last time the car giants were in trouble, in the mid-1970s, they sucked as much capital out of their global subsidiaries as possible.
The former boss of Mitsubishi Australia, Graham Spurling, argues that this will happen again.
Of course, the money could and should be used to move Australia away from dependence on cars. It could and should be used to fund public transport development.
But public transport isn’t on Canberra’s agenda despite the rhetoric about climate change.
A real policy to resist recession needs to starts with protecting living standards, jobs and conditions, and people’s right to live in their homes.
The collapse of ABC Learning gives us a taste of what’s required (see article p6).
Rudd and Gillard could solve this problem at the stroke of a pen–by taking over ABC Learning at a fraction of the money they’ve handed to the banks and the car industry.
But federal and state governments are still dominated by neoliberal ideas that dictate that services have to be run for profit.
The ruling class internationally has promoted the frantic attempts by governments to spend their way out of the crisis, because they fear economic collapse. But it is highly unlikely that severe recession will be avoided globally.
Their priority however will be to maintain their privileges, their profits. Our priority needs to the fight to defend ordinary people, and to put an end to the system that created this mess.
By Phil Griffiths