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Opinion: Double Crises and a Conspiracy Theory?

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James Tsolakis BEC

We are right in the middle of the world’s largest ever economic disaster. History will record these events as a global collapse and a global pandemic. We cannot compare this with the GFC, nor the 1987 Stock Market crash, nor the Great Depression. We are witnessing the greatest economic collapse in the history of capitalism. A collapse happening in every nation around the world at the same time. Governments scrambling to cushion the fall of their economies, while trying to deal with a global Pandemic. A double crisis, a double edge sword.

It could all, very well, be over faster than it all began. A rapid cure for the COVID-19 virus could resurrect businesses and jobs, but the economies of every nation will be different forevermore. The economic rationale will be different. Globalisation will no longer be a business buzz world. 

We should separate the events. There are two distinct events here. The COVID-19 Pandemic is one. The economic collapse is another. Are they related? Yes and No. Did the COVID-19 pandemic cause the economic collapse or did it just bring it forward?

Make no mistake, the world was heading for an economic collapse.  Assets were over-priced and over-valued. Nations were burdened with huge debt. Taxes were too high. Consumer debt was too high. Rents were too high.  Wages growth had stagnated. Our liberty was under attack. Politicians had too much power. Life was becoming hard and stressful. Technology started culling millions of jobs. 

Living beyond our means was an understatement. The people kept things moving. Borrowing, buying, and working harder than ever before. The Government solution was immigration. Bring in more people, build more houses, tax everything, privatise government assets. It was the only way to keep the economy moving, because there was nothing else. It was the only way to keep the asset Ponzi Schemes alive. 

There is no question that in the past 30 years, the west has facilitated the greatest wealth transition in history, to the east. Australian manufacturing has almost disappeared and with-it millions of jobs and significant wealth creating businesses. Many were the migrants that came here after WWII to get Australia moving.   

We then invented the services sector and created millions of jobs dealing with customers over the telephone.  Customer care and call centres for the emerging era of new technology. It was not long before we started “offshoring” these jobs to the east, to the Asian countries. Annoying as it was, and is, we tolerated it. Even the Government offshored customer service centres. Again, millions of Australian jobs lost to the east.  

Then came Malcolm Turnbull’s smart country, the “Innovation Economy”. But without Start-Up cash, it went nowhere. Those involved in creating new technology, in creating innovations, also left to go to the venture epicentres around the world such as Silicon Valley and Israel. It was a massive fail and a blow to Australia’s up and coming entrepreneurs. 

Australians felt the pain. Corporate and Government greed took over. We got lazy. We got entitled. The only thing left to help us keep up appearances was housing. This was far too speculative, because history shows us assets that go up, will, at some point come down. When that started happening in late 2018, we saw the beginning of what was going to be a global recession, but no one was paying attention.

All these things conspired to make our economy fragile. China stepped in and started investing in Australia by buying up businesses, infrastructure assets and agricultural businesses. Many had no choice but to sell, because the banks would not lend, or their biggest customer was China. But their investing was different to that from the historical US and the UK investors. Those investors play by the rule book. Chinese investors do not. They have their own agenda, and sinister it is. The People’s Republic plans and sanctions everything that happens.

The big question now becomes: are we going to learn something from these events? How do we intend to protect our nation, our citizens and our way of life when we have lost control of the levers of commerce, the price of capital and the means of production? 

This is not like any ordinary recession, where demand slows and people lose their jobs, unemployment rises, some businesses disappear, and the government does little to assist. This has been almost like an execution, where the collapse of private demand for goods and services has seen the almost immediate closure of viable businesses with no warning. Everyday people, who were minding their business and getting on with working, raising a family, with a paying job, or a small business, and ensuring their superannuation was geared for retirement, have had their lives turned upside down in a matter of a few weeks. Many have never seen a recession, let alone this complete breakdown of the economy. Most cannot understand it. 

The Government response has been to insulate people and businesses as much as possible by throwing over $200 billion into the economy. There are grants and loans and welfare payments available for most. The banks have come forth with mortgage repayments holidays, but these are just deferred capitalised interest, which will be added to your loan in 6 months’ time. The Reserve Bank of Australian dropped the cash rate to 0.25% and many retail mortgage rates, particularly the fixed rates, have dropped considerably. Many other measures are expected as the economic fallout continues to worsen.  

We expect rent relief of some form to become a part of the Government effort, for both commercial and residential tenants. Landlords need to be proactive and work with tenants to cushion the blow. Better to have a tenant paying half the rent, then no tenant at all. The residential market is awash with empty apartments as a result of the huge decrease in overseas students not having arrived into the country. 

The question now remains, where to from here. The COVID-19 Pandemic must be brought under control. Only in this way can we resurrect the economy. We use the word “resurrect” because that is what it will be. We will see a “reset” of the economy, almost like a company coming out of voluntary administration. The Government handouts will not save many businesses, and many will close forever. But the biggest single concern is what psychological impact will this economic disaster have on people and on businesses? Will they go back to the way they were? Will private demand for goods and services come back, or will we see a continuation into a long-term recession? 

Whatever the outcome, right now we are all in this together and we must work together to ensure our communities stay focused, that we help the needy, that we follow the “stay home” requirement and that we ensure we spend our money on Australian made goods and services. 

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