Continuing free fall
Following Alice in her seemingly endless tumble through the white rabbit's tunnel, the International Monetary Fund (IMF) has revised its pessimistic forecast for economic growth from October 2008 to the more pessimistic figures of January 2009.
In October 2008 the IMF anticipated the world economy would grow at 2.2% as against the 5% in 2007. The revised figure for the world economy by the IMF is now at 0.5%. It is conventional wisdom that recession is growth of anything less than 3%.
The figures for Australia’s growth have been revised from 2.2% to -0.2%, while the US is projected to contract by -2%, the UK by -2.8%, Japan by -2.6% and the Eurozone by -1.6%.
Napoleon Bonaparte
Napoleon Bonaparte once famously said - "China is a sleeping dragon and when it awakes, the whole world will tremble".
Until recently, Napoleon (not for the first time) was proved wrong. The world revelled in China's awakening and consequent exponential economic growth. In 2007 China's GDP grew by 13%. In 2008 this had slipped to 11%, still an impressive figure.
This growth, among other things, provided the powerhouse for Australia's growth in export of raw materials to supply China's expanding and hungry industries.
China now states that it is hoping for an 8% growth in GDP, but the IMF forecast is 6.7% for 2009.
This helps explain the downward revision of Australia's growth.
Castles of sand built on the BRIC
As reported in the last Bugle, the hope of the IMF and developed countries for minimising the impact of the global downturn was the continued growth of the emerging economies of Brazil, Russia, India and China (BRIC).
The revised figures of the IMF of 2009 show that this is a pious hope and an illusion.
The fall in commodity prices have damaged the Brazilian and Russian economies, and India's growth is down from the October 2008 forecast of 6.5% to 5.1%.
The retraction of China’s growth does not augur well for the USA. Not only is China the largest trading partner of the US, as it is for Australia, but it is the largest provider of credit to the US and now holds US$653 billion in US treasury bonds.
Keynes is King
The unbridled capitalism of the neo-liberals has been condemned as bankrupt by Kevin Rudd and other Western leaders.
All countries are pumping money into their economies, resurrecting the theories of John Maynard Keynes to get out of the then Great Depression.
President Obama has presented a US$819 billion package of a mixture of incentives to spend and grand projects of public works to be funded by the Federal government.
The Australian government has released its package of $42 billion with about 1/3 to stimulate spending and the rest for capital works.
Interest rates
The central banks of all countries are dropping interest rates with the view to facilitate credit and encourage spending. The Reserve Bank of Australia has announced a further 1% drop in interest rates.
Globalisation
The savings of burgeoning Chinese industrial workers were invested to finance home loans to poor Americans. The collapse of these home loans, followed by that of the complex financial products into which they were engineered, has pushed us into the mess where we now are.
Never has the reality of globalisation been more apparent.
Beggar thy Neighbour
If the mess is global then the solution must also be global. There is serious risk of a knee jerk reaction of protectionism by various countries. The Obama administration has already been challenged on this.
While protectionist measures may provide short term employment benefits and shore up inefficient industries, their consequences would be a contraction of economies around the world.
"What's the G20?"
This is the question that George W Bush reputedly asked of Kevin Rudd last year.
The G20 includes the Finance Ministers and Central Bank Governors of 19 countries -
Argentina
Australia
Brazil
Canada
China
France
Germany
India
Indonesia
Italy
Japan
Mexico
Russia
Saudi Arabia
South Africa
South Korea
Turkey
United Kingdom
United States
plus a representative of the European Union
G20 meetings are joined by representatives of the International Monetary Fund, World Bank, International Monetary and Financial Committee and the Development Committee of the IMF and the World Bank.
Together they represent 86% of the world's economy.
This is now seen as a more relevant forum than the G7, which is Canada, France, Germany, Italy, Japan, United Kingdom and the United States.
Role of the G20
It is to this grouping that the world looks for the development of regulations and policies to move on from the financial crisis.
The next meeting of the G20 is scheduled for London in April 2009.
That meeting will look to:
- coordinated macro-economic actions to revive the global economy, stimulate growth and employment, review measures taken and possible further steps;
- reform and improve financial sector and systems;
- reform international financial institutions.
I still call Australia home
All the economic measures that Australia takes can have little impact except as palliative care until the global economy picks up.
Australia, as a major exporter of commodities for the manufacturing by others, especially India and China, has a vested interest in encouraging its partners in the G20 to regulate and promote global economic growth.
The bright side
Globally, fast food chains are growing and increasing their employment.
Sales by Woolworths in Australia are up 7.1% as against the previous year.
Retail sales generally in Australia have moved up 3.8%.
It appears from this and other figures that people are spending cheaper but buying more.
Keep your powder dry and your lipstick wet
The flow of government funds to constipated banks has not yet had the flow on of credit hoped for.
However, businesses need to produce products and services that the market wants and can be paid for easily, without suppliers of goods and services providing credit themselves.
We are there to help
Many businesses find themselves in a bind because they are unable to access credit themselves but are forced to provide it to customers through slow payment or bad debts.
It is obvious that businesses need to be able to ensure their sales and the recovery of debts, and we are able to assist in the recoveries of those debts.
Employment
The great financial crisis (GFC) puts pressure on employment for both employers and employees with the legal issues that arise from that.
This firm has built up a strong reputation in employment matters.
These services are available to you.
Insolvency
Following on from credit and debt collection, clients are encouraged not to wait until it's too late.
Specific advice on matters of insolvency is available through our network of consultants.
All lawyers are sharks
The GFC has encouraged many businesses to examine their costs.
One of the consistent complaints is of lawyers' "billable hours". This system has been around at least since the 1960s. This is where lawyers charge at an hourly rate, dividing each hour into 10 x 6 minute units, which are billed, to clients.
There is an argument that lawyers are therefore encouraged to protract the need for legal services in particular matters and in this way clock up maximum billable hours.
Some lawyers’ clients complain about the ever haemorrhaging and never ending bill.
Hillman Laxon Tobias estimate of costs
Readers can be assured that we always give an estimate of costs to be incurred before any matter is undertaken for clients and deliver at or below that estimate.
If a matter becomes more complex or instructions are changed, clients are advised and revised estimates are given which are open to be accepted or not by clients.
In this way, you know what you are getting and you know what you are paying for.
It is emphasised that when you consult us, an estimate of costs is given and no work is done until you accept that estimate.
Brian Hillman
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