Emperor's clothes
Stock markets around the world appear to be on a bungee jump - huge plunges and some rebound, but a rebound only lightly modifying a crashing descent.
Stock markets revealed the answer to the question that no one wanted to ask:
"How solid are credit and its providers?"
The USA has been funding extravagant lifestyle and government policy on credit subsidised by sovereign funds, other states and foreign investors.
The revealed nakedness of the emperor, that is the US economy, causes it to shiver and sneeze, and as per the old axiom – “the rest of the world catches cold”.
The invisible hand passes the baton to a dead one
Terrified by the crash presaged by Wall Street, the outgoing administration of George W. Bush abandoned its doctrine of non interference in the economy, and encouraged by the UK and the rest of the EU, waded in, not only to shore up but also to buy up. It is enough to make John Maynard Keynes rise from the grave to say:
"I told you so."
The irony is that this intervention by the US government contrary to strong ideological beliefs was in fact available because this intervention was taken by a lame duck president, very much on the right side of these beliefs, and who does not have to worry about re-election. Could a newly elected president, and especially a Democrat, have pushed through with this?
Cash is king? No credit is
The real issue is not the survival of banks as such, but the willingness of banks to lend, first and foremost to each other, with consequent availability of credit.
It is hoped that government underwriting of banks and participation in them will encourage lenders to see them as credit worthy and loosen the flow of funds required to keep business going.
Save or spend?
Kevin Rudd's response has been even more adventurous. It has underwritten banks that are solid, but thereby enables them to compete in the international market for funds with other banks that may be less solid but have their government's backing.
This package also provides funds to immediate spenders - pensioners and others who will be likely to stimulate economic activity through expanded acquisition of daily essentials and increased consumer goods.
Are Marx and Lenin rolling in their graves?
The stalling of the liberal laissez-faire model does not mean looking back to an essentially Eurocentric 19th century ideology for guidance.
Marx is as dead as the command economy he espoused and if Lenin rolled over he would crash through his glass case.
Intervention through regulation
As lawyers we talk of and use regulation all the time. It is this system of laws and the rule of law that allow society to function.
Why should the economy be immune from or any the worse for regulation? The current crisis forces governments to realise the effects of globalisation, the interdependence of their economies and the need for collective and effective regulation.
Watch this space!
Nobel Prize and Kevin Rudd
Interestingly Paul Krugman (recently awarded the Nobel Prize for Economics) espouses a solution similar to Kevin Rudd’s, extending it to advocate stimulation through increased investment by government in infrastructure at federal, state and local levels.
Thomas Friedman (author of the paen to capitalism, “the Lexus and the Olive Tree”) goes along with this and looks to increase in credit and stimulation of economic activity through government encouragement of and investment in alternative energy sources
(for both authors and articles check out New York Times www.nytimes.com).
Paying the piper
The Asian economies, particularly China, have been working and saving. They have accumulated over $4,000 billion in reserves of foreign currency, financing credit in the US and Europe.
These countries, together with energy producers who have also built up reserves used to fund the West, may now well be entitled to a greater say in policy and regulation formulation. In this regard it is worth noticing that the Benelux countries (Belgium, Netherlands and Luxembourg) hold a bigger share of voting rights at the IMF than China.
The G7 which led the charge on the redress to the crisis, which we are told is the worst since the Crash of 1929, does not include the world's 3rd economy - China.
Expect a BRIC through the window
Those economies which are anticipated to be up there as leaders in 20+ years (Brazil, Russia, India and China "BRIC") are also being looked to as stimulators of economic growth now, as well as investors, although
Russia is looking a bit "iffy”.
The moral and financial authority that the West will have in what has to be a new order will be, in itself, an interesting question. The more than 200 years of economic, political and cultural hegemony exercised by the US and Europe may well be up for grabs.
Maybe we should stay at home
Australia is a relatively small player, influenced by others but unable to influence them. While the Australian economy has all the essentials required to ride out the crisis, it can only do so for a limited time. If our trading partners do not hold or revive then we go with them.
The head of the IMF, Dominique Strauss-Kahn, talks of a 2 year recession with at least 0% growth for developed countries.
In the land of the blind the one-eyed man is king
China's growth and consequent demand for Australian resources continue at high but reducing levels, due to contraction of Chinese exports to US and Europe. Even so, China is looking at 9% growth.
IMF’s estimate for Australia is at 2%.
I guess that this is Canberra's policy - spend at home and rely on Chinese growth, and above all hope that the world economies recover before the spending and reliance are exhausted.
Crisis = stress
Coming down to the smaller picture crisis engendered stress may see growth in sales of real estate, inability to meet contractual obligations, insolvency issues, and breakdown in relationships.
Debt collection / protection
In anticipation of freeing up of credit, pressure will be on business to call in debts on the one hand and to stave off creditors on the other.
These are issues that may require intervention by lawyers, and it goes without saying that Hillman Laxon Tobias is one law firm there to assist. Feel free to contact any one of our lawyers for advice.
Always look on the bright side of life
Of course "the Life of Brian" has always been an inspiration to the author, and just to share the bright side ...
More mouths to feed
Australia is seen as a more and more attractive destination for temporary and permanent residence.
Immigration is up, with a likely annual increase of workers, including temporary work sponsored, students working up to 20 hours a week, and incoming permanent residents, all estimated at one million.
This creates demand for immigration services (which of course Hillman Laxon Tobias is happy to provide), accommodation, education and training, as well as other goods and services across the board (which our clients and others can provide).
Greeks bearing gifts
At Hillman Laxon Tobias we welcome a new lawyer - Alex Maroulis.
Alex is a good Greek boy, originally from Adelaide, who works like a Trojan.
Alex's formative experience has been 11+ years as a prosecutor at the Director of Public Prosecutions ("DPP"). Turning the tables on his DPP training and experience, Alex has
successfully applied his ability to defending private clients in every avenue of criminal law, from drink driving up.
At your service
Alex’s contribution enables us at Hillman Laxon Tobias to offer a full range of services in many areas of the law, including, administration and government requirements, business generally (negotiation and agreements), employment and dismissal, immigration, litigation, personal matters (enduring guardianships, wills and relationship agreements), and property (leases and conveyancing).
When the Saints come marching in
For those who have visited our office on top of the Verona Cinema no explanation of our location is necessary. For those who have not, including clients and couriers, it is more problematic. We are at the end of Darlinghurst and the beginning of Paddington. Potential visitors often end up lost at either end of Oxford Street – Hyde Park or Centennial Park, and then directed to the intersection of Oxford Street at St Vincent’s Hospital.
Due community action by local residents, businesses and institutions, and with the support of Sydney and Woollahra councils, this unnamed precinct is no more. The name chosen by the community for the intersection of Victoria, South Dowling and Oxford Streets, and Barcom Avenue is “Three Saints Square”, identifying with 3 local landmarks – St Vincent’s Hospital and Notre Dame University at the intersection itself, and the church of St Sophia on South Dowling Street.
All of us here rest much easier now under the cover of 3 Saints.
Brian Hillman
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