‘give the kids a few Bob, After all sure it is Friday night. Ah, how could I tell her I was out of a job, from now on things were going to be tight’ -YESTERDAY’S MEN, CELTIC THUNDER
What was that thing about markets staying irrational longer than you can say solvent? Well, I’m no economist (and for that I don’t even do impressions. My advice on financial matters is officially worthless.) but as someone who really knows a little bit about fish, the state of the world looks like ‘interesting times’. That’s without any little details like war, or pestilence… maybe famine.
Anyway, the economic gurus have been telling us everything is sunshine, roses and unicorn-farts to power our new green cars. Which, um, I am finding a little hard to believe.
Personally, I believe we’re staring down the barrel of a hard recession, and possibly a new ‘great depression’. Too many things seem wildly out of kilter, and there are just too many things in what can only be called an entire bubble bath.
I live in Australia, so much of my perspective is skewed by this. Some of it may well make sense in other contexts. Australia’s economy is heavily dominated by raw materials, particularly iron ore export, coal and some agricultural produce a distant second and third. Australia once had its own manufacturing sector, making Australian products for Australians, and a little export, but really by us for us. Much of that is now dead. Our principal ‘in country’ business is selling houses to each other -at increasingly ludicrous prices. Much of that cost is ‘regulatory capture’ where government mandates mean a simple wooden frame house costs costs hundreds of thousands – at least half a million to build with all the regulations – whereas in terms of materials you could build precisely the same house for thirty thousand – the rest is creamed off by everything from suppliers (‘approved’ products) to tradesmen (licensed – it is very hard to do even simple jobs yourself without breaking the law, or paying extra levies) to a myriad of surveys – most of which add very little value and no one would pay a fraction of the price for, if it wasn’t for the law – but compliance puts hundreds of thousands on the cost for benefits in pennies, if any, and of a vast, intrusive very well-paid bureaucracy, which adds close to zero, or negative value, but they will tell you can’t live without – and prosecute you if you try.
At moment, with huge inflows from exporting commodities… we’re struggling to afford it. Most young ordinary working people in the major cities are priced out, and the WuFlu panics have seen that steadily spreading out to regional towns and rural Australia.
Our iron ore sales are in trouble because we really have one big customer, China. And China really has one big customer – the West, particularly the US. We’ve just been through the longest two weeks to flatten the curve in human history – and it shows no signs of abating, or of common sense in those in power – or anywhere else for that matter. Keeping the country afloat to keep on selling houses to each other – and keeping all the people -from suppliers to government parasites in funds has been vastly expensive. Governments being governments have paid for all this – particularly the bureaucrats salaries (where offices simply closed, they collected their paychecks and indeed nothing much changed (despite them being so vital that need to be well-paid) because none of it got done.)
But eventually all of that has to trickle through. There’s less commodity money coming in, and houses are so expensive that some people can just forget home-ownership. And of course, all that handout has been chasing less goods (inflation), both here and abroad… and when inflation hits the US or Europe or anywhere else that too comes back, because we don’t domestically produce much.
I’m of the opinion that we’re on the road to a lot of price inflation. Zimbabwe or Weimar? who knows? But certainly inflation in substantial figures… for essential goods – and accommodation. Now, the standard recipe for inflation is raising interest rates. You’ve spotted the flaw, have you? Because house selling is Australia’s main domestic business, and it’s very expensive and all most all mortgage funded… raising interest rates would be… interesting. Politically suicidal. They’ll rather allow rampant inflation – which targets the poor and prudent.
I suspect we’re in for a long, rocky period with government trying anything but the known effective methods – which would be raising those interest rates and massive deregulation – both of which would be hell on the housing market and the parasites/rent-seekers attached to it. I expect ‘infrastructure projects’, which cost way more than they stimulate and loads of ventures into socialist policies – and inflation of essentials running hot, jobs being less available, and wages stagnating.
And yes, a generation of ‘yesterday’s men’ – we don’t have that many factories (and those like the rest of us will suffer), but I expect a lot of those who have got very fat off the housing business to find themselves on a forced diet. I actually expect serious deflation – in the prices of things people don’t need, or simply can’t afford. (biflation – happens in fragile economies, where essential prices go up and non-essentials go down) Take the various government mandated documents – take the bushfire risk assessment. It’ll cost you a thousand dollars. Or $1400 if you live on my remote island. It’s a simple, non-situation flexible (so requiring no judgement, skill or common sense) tick the boxes, apply a very coarse formula process. You have to have various ‘credentials’ but a Gender Studies graduate would probably only find it marginally too challenging. Most of it is copy-paste. Four hours is putting it too generously. At the moment they have all the work they want because you have to have it (its value, to anyone with common sense, is negligible) They carry no liability – which if it was worthwhile and effective would be no problem. I expect, when the work dries up, they’ll first put their prices up at far higher than the rate of inflation – they had 20 days of work a month at $2000 a day or $40K a month…. they now have 5 days work and still want (and to pay their bills, need) $40K. (This follows precisely what traditional publishing did in the face of declining revenue – put up the price, cut payments to authors. Which made revenue decline further.) Then when this fails, they either go looking for the now scarce $25 an hour jobs they may have the skills for if they can find one, or cut their expenses to the bone, claim the dole, and take what little work they can get (they can take a few without losing the dole) at what the market will pay. There will be a handful of moderately expensive operators left, but they’ll actually provide something bespoke and problem solving, which will add some value.
My expectation for the rest of society tend more towards stagflation, with the cost of essentials rising and wages either not going up or not increasing at the pace of inflation. Some areas will be much worse than others: if you produce the essentials, you’ve got some chance. Historically we know job security (or a job at all, especially one that keeps up roughly with inflation in wages) will be precious. We’ll likely see a reversion to the historical norms of the great depression. Government (public service) jobs were precious. They were also moderately badly paid, but secure, with various perks. As things improved in the private sector, and wages there were better, the best (or those who could) left government service for harder work, higher risk but far better pay. So the public service boosted their pay rates ‘to retain talent’ – well, most of the bureaucrats who stayed had no talent, but it was very well paid, very secure, not hard work and loads of perks, and certainly at the bottom end paying way better than the private sector. That almost certainly will go. They’ll still have jobs. Far too many outside .gov won’t.
So: what comes for the rest of us? Who knows? Not me, that is for sure. I can say it probably won’t be good, because the politicians will be affecting it, and their drive is self-preservation and they’re not known for critical long-sighted behavior, or learning from history. I think the Australian govt. already very fond of playing nanny and micromanaging things they can’t do as well as the people they micromanage will try hard to inject cash into first home grants etc. to ‘boost’ the vast housing bubble. No, it won’t work. (I could explain why, but perhaps another post). They’ll prolong the recession/depression. Inflation will destroy savings, and government will find ways to loot the Australian ‘super’ retirement funds. It’s going to be grim. Some groups will escape the worst (fur coats and luxury cars still sold in the great Depression. Just not to you and I).
I’m not, frankly, sure what to do to minimize the impact. One has no idea how long it will last or even how bad it will be. I believe very bad, but then I’m a pessimist by preparation. The end results will have to be what they should have done in the first place: let the bad banks and propped up business fail, reduce the regulatory burden, Let the housing bubble pop to get prices back into affordable country (biflation – food prices and to some extent incomes go up, house prices don’t – or not at the same rate), get bureaucrats back to smaller numbers and far lower incomes (it would be nice if the rest of us did not have to suffer inflation to make this happen -but I can’t see that happening. It’ll just have to be the hard way – paper-pushers safe jobs wages not rising quite as fast as real inflation – because .gov will lie about that figure.)
My own steps: prevent myself being unable to service debt, and thus losing things to repossession – don’t owe on ‘hire purchase’. Buying non-perishable essentials that I use/need anyway – that in a pinch can be bartered or sold, or allow me to produce things that can be. Be as food and shelter self-sufficient as possible. I can’t afford to go particularly far, but I am doing my best.