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Published in The Drum 15 February 2012

There is an air of unreality in the Australian political discourse.

We are cruising, locked in a time bubble, with captain, crew and many of the stateroom passengers, purposefully pursuing pleasure, wilfully oblivious to land based realities. Incessant loudspeaker announcements assure us that all is OK, China will sustain our cruising and should pirates appear on the horizon the US will see them off.

European leaders appear as clones of Neville Chamberlain, waving bits of useless paper ,known as government bonds, saying ‘Peace in our time’. There will not be. Feel sorry for the Greeks, their problem is not monetary it is political and social; a phenomenal lack of leadership and a fostered culture of corruption. Take note fellow Australians your leadership is little better.

Pacing the bridge Captain Gillard, with senior officers, Swan, Abbott and Hockey are uneasy. They can’t read charts and they can’t understand the radar readings. They bluster and trust that officers in Treasury and the Reserve Bank know what they are doing.

But not all on the cruise are happy, the First Australians and Refugees do not like cruising and the bulk of the rest of the passengers have stopped spending. They are sending their spare cash home to pay off the cruise, other debts and the mortgage. They do not believe a word coming from the bridge, they want out, but they are trapped and uneasy on a cruise that they feel might end badly.

From 1996 – 2007, the household debt as a percentage of disposable income went from 65% to 148%. Australians have amongst the highest debt to income ratio in the world. They feel exposed and vulnerable, they feel they have been conned by banks and government which encouraged the spending spree. Over the twelve months to July 2011, savings increased by 8.5% or $39 billion. They are looking at the world through different eyes to their political leaders.

The talk at dinner is that Greece has had it. It is a fiction to maintain that it is not bankrupt, that further EU loans will somehow stave off what has already happened. All that is being saved is EU face and unity and the latter is only months away from collapsing. And when reality dawns, will the officially recognised collapse of Greece trigger the Great Economic War?

Most likely, because our cruising has been done on borrowed money; the banks are worried having grown fat on greed, fed by easy credit.

Extraordinary bank profits have been made with great cheek at the expense of customers. Bank CEO’s and senior staff are payed obscene salaries that do not reflect talent and ability. Shareholders collect significant dividends when greater prudence might dictate that the banks repatriate some of their shaky overseas debt from earnings. But that would mean being straight with shareholders and customers concerning the conduct of bank business.

The major banks have defied the Reserve Bank’s attempts to regulate the cash flow, through its ‘pin the tail on the donkey’ mechanism of adjusting what it says is the official interest rate, but which the banks have now hijacked. The major banks operate on the basis of squeeze the customer first, leave the shareholder alone, which when you are a senior bank official is no doubt sound if you have a shareholding in the bank.

Bank greed is pushing the pace for eventual regulation of the Australian financial system through a banking act. Self interest and greed cannot be relied to act in the public interest.

The former head of the Commonwealth Bank and current Future Fund chairman, David Murray, recently said bank bashing should cease because it would adversely affect the economy. He was reported as saying, “Attacking their (the banks) returns is the same as attacking credit availability, which would be felt most noticeably in the small to medium enterprise sector.”

We live in a democracy; well directed criticism is part of the cement which keeps the social order together. Murray’s exceptionalism is indicative of the mindset of Australian bankers who see themselves and their institutions as somehow different to the banks which caused the GFC.

The atmosphere of denial that is stifling enquiry and debate does not allow for planning on how Australia might prepare and respond to a significant world recession. Without substantial receipts from China what are our options?

If China’s markets collapse, what would China do to stave off internal unrest? What are its strategies to maintain a measure of growth – enough growth to maintain social cohesion?

At other points in history nations faced with a need to maintain growth in wealth and employment opportunities have resorted to arms manufacture. Worried about protecting trade routes and with only a small navy, perhaps amongst its growth strategies China might seek rapid and significant expansion of its Navy.

America and Japan would be hard pressed to match a naval arms race. Talk of finding improvement in the US economy with a rise in the rate of employment are delusionary; the US debt, at $15 trillion, is too large to pay off, it now stands at 100% of GDP, interest payments alone were $454 billion in 2011. At best America might find relief in defaulting on debt, but at incalculable cost to its own and the world financial system.

To this volatile financial climate add the politics of the Middle East and 2012 starts to look far less certain and stable than the senior cruse officers appear to have grasped and understood.

Bruce Haigh is a political commentator.