Terry McCrann: Get ready for the recession we can’t avoid
Just as we are getting the virus we can’t avoid, we are almost certainly headed for the recession we can’t avoid, writes Terry McCrann.
Terry McCrann
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The economy and the virus are tracking down the same irresistible course and for exactly the same – shared – reason.
Just as we are getting the virus we can’t avoid, we are almost certainly headed for the recession we can’t avoid.
It will be the first since Paul Keating’s recession we – in his, deliberately chosen words – “had to have”, all the way back in 1991.
That will bring to an end the boast of PMs and treasurers – both Coalition and Labor, but mostly Coalition, as they’ve been on the so-called “treasury benches” longer since 1991 (18 years to 11) – of all those (now, up to 28) world record-setting years of unbroken growth in the economy.
That’s a claim which had been looking very dodgy over the last few years anyway, as overall growth in the economy had been propped up by ridiculously high immigration-driven population growth and ever-bigger property and construction bubbles.
Not so much a case of “build it and they will come” – in those once famous words of Kevin Costner in Field of Dreams; but instead “bring them in and we will have to build it”.
On a per capita basis – the only basis that can deliver real wage increases and sustainable rising living standards – we’ve actually been struggling to grow much at all for most of the years since the GFC. It’s all been an economic Ponzi scheme.
Now the virus is destroying it and there is nothing that either the government or the Reserve Bank can do to stop it. That is exactly also the case with the virus itself.
On both fronts, policy can only be directed at slowing the slide and easing the pain. We basically have to “sit out” the virus until it burns out or we get a vaccine. And because of that, any attempt to “spend our way” out of the consequent economic slowdown would be completely ineffective.
There’s been a very silly argument over whether our economic problem is “supply-driven” – we’re running out of stuff from China; or “demand driven” – consumers and business aren’t spending. As if identifying which one it was would enable the “right” policies.
This completely misses both the basic economic point and the virus reality which should be right there before everyone’s eyes.
Handing money to people – whether through cash handouts, tax cuts, or suspending superannuation contributions and leaving it instead in wages and salaries – won’t be spent, because people are either in chosen or mandatory lockdown.
Take the obvious example: giving people money is not going to send them rushing out to restaurants. All they would do is buy yet more toilet paper – and pour more money into property, one way or another.
By recession, I do not mean the utterly silly – and plain wrong – so-called “technical recession” – two successive quarters of negative GDP growth. Although we are all-but certainly going to get that anyway, in the March and June quarters.
A real recession is when you get a significant downturn in the economy which leads to sharply rising unemployment and widespread business collapses.
In the same vein, the upturn is in the hands of the virus (and any vaccine).
At the start of this, so-called experts were talking of a V-shaped downturn – mostly around the whack to the economy from the bushfires and which we would spring back quickly from.
As the virus reality grew, those experts have switched to predicting a U-shaped recovery.
That’s a little more realistic but only just – as it assumes we will quickly bottom out, track along that relatively shallow bottom for a while, and then shoot back up.
We really don’t know. We are in the hands of the virus. There are no policies – medical or otherwise – that can “end it” on our choosing.
Equally, there are no policies that can offset the economic and financial consequences of the virus. Indeed, the very policies used to tackle the virus – like travel bans and closing down events – directly hurt the economy.
That is why the government’s “stimulus” package is mis-named. Well, the naming doesn’t matter; it’s what is in it that counts. And that needs to be measures specifically to help businesses and people ride through both the virus and the downturn.
We are well and truly hostage to the virus on both fronts.
FANTASIES OF WALL ST IDIOTS
Our share market is in the hands of Wall St and Wall St is in the hands of hysterical utterly parochial full-of-it idiots.
For the first six weeks of the year as the virus built in China, those idiots took Wall St – and derivatively, also our market – to a record high.
Surely that virus couldn’t become our problem; it was happening ‘over there’? As if dozens of planes didn’t fly into the US – and Europe – from China every day;and indeed hundreds more indirectly ‘from’ China in our 21st century totally connected world.
Then suddenly they woke up and went straight to panic. And now they are jumping at shadows and even more at fantasies.
That “somebody” – the Fed, the president – can “do something”.
So we get a big surge on Wall St. And then the penny drops: well, they actually can’t. And the market promptly plunges again.
So this week, we’ve already had that mammoth 2000-point plunge; the thumping 1100-point comeback; and futures on Wednesday eveningpointing to an 800-point fall – and we aren’t yet even at the week’s mid-point.
Adding Wall St idiocy to Fed and administration policy impotence does not encourage, well, confidence.