>>Keeping the bubble inflated seems to be the agreed strategy. I
>>wonder what the long term strategy is?
>
>Not exactly. Keeping the real economy, where goods are produced and
>jobs are provided, from imploding is the strategy. What's your idea?
>Just let it all go down?
The Bartlett household has just received its share of the second round of the Australian government's stimulus. A bit over $1,800 this time, cash payment. On top of about the same just before Xmas.
Nice.
That's not counting the $900 that appeared in my teenage daughter's bank account just before Xmas. And the $950 each her and my 16 year old son will get in a few months as a back to school bonus. My other daughter, a public servant, and my eldest son will get theirs as a tax refund.
All very nice. The kids have spent/will spend it of course. Mom and dad are a bit more wary, but as poor as churchmice, so that will get spent as the need arises.
Frankly though, it doesn't seem the ideal way to go. Some of it makes sense, like the big subsidies for home insulation, rainwater tanks and grey water recycling system. That's a good investment in infrastructure, which will provide employment. Money well invested.
But handing out wads of cash, much as I appreciate it personally, is simply designed to keep the consumer spending bubble inflated. Helping people get by in tough times is a good idea, but that would be better achieved by increasing weekly pensions and benefits rates by $20. Rather than handing out $1,000 lump sums like a drunken sailor. So, the idea is not to help people get by in tough times, but to give them a windfall which they will go out and spend, so the retail industry can keep importing cheap junk from China. It is still collapsing, but the cash means it is coming down a steep slide, rather than falling off a cliff.
Or in the case of the $21,000 home buyers grant, to try to stave off a correction in house prices. This subsidy doesn't actually help new home-buyers, it is just helping investors get out of the market without taking the loss they would otherwise have to take. And leaving young homebuyers to carry the can, when prices collapse later instead of now. They are the only ones buying at the moment and even the real estate industry is expressing some worry about the implications of these new buyers being stampeded into buying before the cut-off point for the subsidy (July 1st this year.)
What happens when the subsidy ends? And unemployment gets worse? And interest rates go back up again? All at once? Elementary my dear Watson, house prices will then collapse of course. Then what? The point is that these house prices are unsustainable, even in the best of times and we are headed into very worst of times.
Its no use trying to pretend that that house prices which the average person can't possibly afford are sustainable. Its a bubble. Bubbles have to be burst, not kept inflated as long as possible with all kinds of artificial shenanigans. That was what got us into this mess remember.
Hair of the dog?
Help the real economy, sure. Spend money on infrastructure that will have a long term benefit, certainly. Help people get through the crisis, definitely.
But spend vast sums on trying to keep speculative bubbles inflated? That isn't helping the real economy, that is simply denying reality, trying to disguise the fact that it is a bubble.
So don't try to make out that I'm advocating that people be left to suffer without social help. Or even that I want to see the economy collapse. But you have to be realistic about what can be done.
The longer you try to prop up the mythical economy, the longer the adjustment will take. That will only help the speculators get their money out in time to avoid taking as big a loss. And their gain will inevitably be someone else's loss.
The real economy's loss.
Bill Bartlett Bracknell Tas