Many Australians will explain today’s market fall as being simply a reaction to what happened on Wall Street over the weekend. While Wall Street is a major driver, our decline since December 31 is more than double the American fall because the situation is more serious for Australia.
On Wall Street, the 10,000 level for the Dow has an American confidence level implication that is – for Australians – hard fathom, but it is real. And on the fundamentals, apart from the European banking problems, America has still not worked its way through its housing disaster as I pointed out when the Dow fell below 10,000 last month.
In Australia, we are under more pressure from the European banking problem because our banks rely on overseas lending institutions to fund about 40 to 50 per cent of Australian bank lending. But we are also in the front line of the China slow down, which over the weekend saw copper and other metals fall again. All that would have been manageable, but we have substantially lifted our wage rates at the lower end by lifting the minium wage at a time of global downturn and added to that more extensive shift allowances and penalty rates. Accordingly, we will keep interest rates high and boost unemployment because the timing could not be worse.
And then, of course, we have announced the Rudd-Swan RSPT mining tax which triggered a bear raid on the Australian dollar and shares and has caused $300 billion worth of mining projects to be suspended because they cannot obtain bank finance and/or are no longer economic. It’s true that many of these would not have gone ahead because of global conditions, but there were a substantial number that were moving quickly down the detailed planning process. No other country in the world, at a time of great global uncertainty, has even contemplated carefully loading two guns and shooting itself in both feet as a deliberate strategy.
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Prime Minister Kevin Rudd and his Treasurer Wayne Swan are the architects of the most damaging of the bullets – their mining tax. The latest Nielsen opinion poll shows they would be swept from office if the election were held now. Morgan polling shows they could lose all seats in WA and all marginal seats in Queensland look lost unless there is a major re-think.
Repairing feet shattered by bullets is a long process, which is why we have seen a wall of selling from overseas investors who are also vulnerable to the currency which naturally has fallen faster than Canada.
But the good news is that the opinion polls show that ordinary Australians once again have seen through government advertisements and understand what is happening. Democracy works and in time that will help markets.
This article first appeared on Business Spectator.