When we look back at the economic crisis this year, (and I am hoping at some point we are looking backwards) any reasonable appraisal of how events unfolded should include a scathing attack on the economic blunders made by the Australian government and in particular by the Prime Minister Kevin Rudd and the Treasurer, Wayne Swan.
Quite simply Rudd and Swan appear to have made a bad situation even worse and have caused a lot of pain and stress for many Australians because frankly, they are out of their depth. I can only hope they realize this now and stop making populist decisions on the run.
The first blunder made by the bumbling duo was to run around for the early part of the year saying the economy had been badly managed by the previous government and that inflation was out of control. Of course they are politicians and like management consultants, the first thing they do is to blame the previous management. But they should have been aware of the worsening global economic situation and taken steps to build up confidence in the Australian economy.
As I wrote in March this year “The Rudd and Swan show will finally realise they are not suppose to keep talking down the economy but it will be a little too late as the damage will have been done by the RBA interest rate hikes and the slowing global economy.
Sometime later this year I suspect the RBA will cut rates when they go “oops we went too far”. Thanks to Rudd, Swan and the Reserve Bank the Australian economy was able to self inflict a number of wounds even before the global economy gave Australia a thorough beating.
The next blunder was the follow other countries in banning short selling. It is pretty obvious this move has done nothing to stablise the stock market and I think it will be argued in the future, that this move actually made things worse. It certainly has not helped the hedge funds and for me it is like changing the rules halfway through the game.
To be fair I cannot really lay the blame for this squarely on Rudd an Swan, but I do feel a more confident government might have resisted the urge to just follow other markets and thought things through a little more. For more on my views on the subject please read Short selling stocks: the case for and against.
Now onto a blunder I think will be talked about for years to come, and that is the move by Rudd and Swan to guarantee bank deposits. This blunder to me illustrates just how inexperienced the bumbling duo are because some months before, they were talking about how robust our banking system was and then suddenly they decided our banking system needed a government guarantee!? (this is sort of like the captain of a ship saying everything is okay but handing you a life jacket!)
Not only did this start to make people think something might be wrong with Australian banks,but it also made a whole range of cash management trusts, investments trusts and even stocks effectively second class investments. We all know now the chaos this has caused with many investment funds freezing redemptions and this has further undermined confidence in the economy. (see Investor funds frozen overnight.) Well done Rudd and Swan.
To add insult to injury, I read yesterday how Rudd and the government were now more popular than ever because of the way they have handled the economic crisis. I was shocked of course and it means either the people whom were polled have been living under a rock, or people are easily fooled by populist measures and side issues like attacking executive pay. (I would prefer to see a debate on politicians pay, allowances and pensions) But even George W. Bush was very popular once and even re-elected, so maybe I am the one that needs a reality check!
I just hope things get sorted before we end up like Iceland! (no offense intended to Iceland or it’s wonderful glaciers)