Yesterday I was asked what question I could put before political candidates in the federal election. I sent this.
The next Global Financial Crisis
Last Friday the US 1-10 year yield curve inverted, meaning that people are now willing to accept a lower return on ten year bonds than on immediate 1 year lending, the reverse of what we would naturally expect and what is normal. This is an indication of gross market angst. Over the last 50 years, such an inversion has always been followed by a US recession within the next 24 months or so.
Such a recession could trigger global debt defaults and since debt levels are much higher now than they were at the time of the last financial crisis we can expect that the impacts will be more severe – significantly on employment, on inflation and on house prices. Whatever triggers it, we can expect that there will be another global financial crisis.
Mistakes we made last time
In the last financial crisis we attempted to control the worst effects by investing in infrastructure and construction packages, but fast tracking infrastructure led to gross wastage through hasty and poor decisions being made, and the Government later scrambled to claw back the money it had spent by reducing operations and maintenance funding – leading to further losses. We did come out of the last GFC reasonably well, but at a significant cost.
So my question for political candidates, particularly any who aspire to the position of Treasurer, is:
” What do you plan to do to stabilise the Australian dollar in the event of the next financial crisis?”
Infrastructure is more than a collection of projects
When we are faced with a GFC, the sooner we intervene, the smaller the intervention needs to be. So anything with a sizeable gestation period – like infrastructure – is a poor answer. It is often suggested that we hold a stock of ‘shovel ready’ projects (to use the American term). This is easy, but we don’t do it. And I would argue, nor should we!
Thinking in terms of ‘projects’ rather than ‘infrastructure systems’ is wasteful and unproductive. Wise infrastructure decision making is not about roads, it is about our transport systems; it is not about a hospital, but about our health systems. Infrastructure decision making requires careful planning and time to ensure that the correct integrations are made.
All of which suggests that infrastructure is NOT a good answer to short-term, stop gap, financial crises – of the local or the global variety.
So what is? Almost anything else! Anything that gets more government money into circulation and received directly by those most disadvantaged, who need to spend it straight away. Teacher’s Aides or similar would be good, for little training or equipment would be needed to get them into work, and recovery money would not be siphoned off into exports.