WHAT IS Gunns management thinking? What do the responses of our governments mean? What does the future hold? Where is this ‘financial crisis’ going?
The answers to these questions appear to be increasingly dependent upon global factors that seem well out of Australia’s control, although each of us can protect ourselves from some of the problems to a degree.
‘Globalisation’ has linked many of the world’s economies in such a way that when a few suffer problems – everyone suffers. This is particularly true when so many of the world’s economies are mired in substantial debt. The resulting losses of control over each country’s sovereignty have led to synchronisation of problems between countries – the same things happen everywhere at the same time.
The major Western economies have stagnated (1) and are starting look ‘burned out’, their growth stunted by debt and bogus ‘assets’, while their capacity to recover and gain control over their own destinies is crippled by their lack of manufacturing capacity and access to resources.
The Asian group (e.g. Shanghai Cooperation Organisation (2)) controls large land areas with vast resources, is carrying little debt and has the manufacturing capacity to improve their own capabilities.
They are now in the catbird seat.
The result is a major power shift…and it’s a shift from Western to Asian dominance.
We haven’t needed a war to destroy each country’s productive capacities to bring it to its knees. We’ve done it to ourselves with short sighted economic policies and self interested political dogma.
Quite the achievement.
Some have speculated that their culture is mired in colonialism which basically relies on pillage to enrich one’s own country. Such cultures continue to justify using other people’s wealth to enrich oneself even after the colonial period is over. Hence the current situation.
Whatever the case, it’s instructive to review the foreign debts that countries have accumulated over the last few decades. The more a country owes to external interests, the more exposed it is financially and the less it controls its own affairs. Debt is an indicator of dependence.
Because a larger country with more resources has a greater capacity to repay, debt per capita is a useful indicator - that is the total foreign debt divided by the population, which helps to compensate for the different sizes of the countries involved.
By searching the jolly old CIA World Factbook (3), we can see how much each population member contributes to the Gross Domestic Product (GDP) of each country (GDP/population) and thus obtain an idea of how long it would take to repay the foreign debt if everyone worked full time to repay it. This is one simple indicator of debt exposure or affordability.
The results are both surprising and alarming.
Australia, with a debt of over US$1 trillion has loaded about $49,000 onto each member of the population. It would take us 1 ¼ years to pay it off if we used all of our money for nothing else.
European Union countries are more exposed with France at $68,500 per capita debt and a pay off period of 2.1 years, Germany’s payout period is 2.2 years, Belgium 3.3 years, UK at a frightening $171,000 debt per person would take 4.6 years to pay off while Ireland, Europe’s economic ‘powerhouse’ has a crushing $443,000 debt per person that will take 9.27 years to repay!!
Mission impossible – especially if you factor in the effects of compound interest.
At the other end of the scale, both China and India have contained their debts to between $143 per person (India) and $316 per person (China), while Russia, with its vast resources has debts of $3,700 per person which would take 3 months to pay off.
The United States is a special case, with $12 trillion of debts equalling about $40,000 per person but, as the world’s reserve currency all debts are recorded in US$, so the US can print money and pay their debts off without any exchange issues to worry about.
Looking at the overall results, the global debt stands at about $52 trillion, $12 trillion of which is the USA, $10 trillion the UK and another $20 trillion for the rest of the EU combined. Switzerland accounts for another $4 trillion.
This shows that those countries that previously held sway in world affairs, are now mired in potentially debt.
The conversion of banks in the US into ‘investment banks’ who gamble with other people’s money, led to the creation of ‘financial instruments’ based on debt with their notional values being puffed up well beyond the ability of many of the indebted to repay. Some of these assets were reported to be overvalued by between 35 and 80 times!
The effect of this was to have banks and other ‘investors’ write these ‘instruments’ into their books as if they were assets. Many are now discovering that their assets are close to worthless and whole companies are collapsing as it is discovered that their ‘assets’ are well below their liabilities.
The Western countries are now finding that they can no longer trust each other to repay their debts. Whole countries are in deep trouble and businesses are likewise finding themselves mired in debt as their asset base is shown to be near worthless. As each struggles to wipe debt off their books, so bogus assets are also turning into debts as other companies and groups show that they cannot repay their debts either.
With global debt at around $52 trillion (million million), it’s disconcerting to know that up to $600 trillion of bogus assets have been identified. The actual figure is anyone’s guess but sprinkling this lot over a group of Western countries already mired in debt is a recipe for disaster.
The process of ‘deleveraging’ (4) has only just started. No-one knows where it will end.
Another Bretton Woods?
At the end of WW2, the 44 Allied countries got together and reached an agreement (5) on how they would handle their economic situation given the war and the previous depression. They reached an agreement which basically normalised the terms of trade between nations and created the opportunity for new expansion.
Some authors are already calling for a similar agreement to be reached an an attempt to end the current ‘financial crisis’ that is now unfolding around us.
How this can be achieved given the massive disparity in debt and exposure (e.g. bogus assets) that exists is difficult to say but is seems clear that some form of co-ordinated approach is required.
Green collar work
CSIRO and others have now confirmed that shifting to a more environmentally friendly economy will create jobs and can continue to improve our living standards. (6, 7)
To achieve this result, the authors say there are 5 key elements which are:
•incentives and policy settings for environmental performance;
•green skills and training;
•performance assessment and accreditation to inform action;
•access to appropriate business inputs and components; and
•promotion of a stronger innovation culture.
Just allowing that the current powers behind government were to allow politicians to make such changes, there are still huge problems ahead because we don’t have most of the skills, resources or infrastructures to allow ourselves to succeed in this way.
Governments’ ‘regulomania’ culture is the antithesis of innovation, and our forest policy hardly indicative of a ‘green’ approach.
What’s wrong is our ‘political’ approach which avoids evidence and science based decisions so that decisions can be made to advantage particular industries or groups.
The CSIRO Green Collar paper should give heart to environmentalists because Tasmania is perhaps a perfect place to develop the ideas that it sets forth. It changes the colour of Tasmania’s future to opportunity writ large.
We have the forests, the arable land, the isolation (e.g. from GMOs) and many other factors that would make Tasmania a perfect global laboratory for a Green revolution.
Such a move would attract global attention and investment.
We’d start to promote and demonstrate the cost benefits of a reduced carbon footprint.
Instead of a ‘cargo cult’ attitude to the rest of the world, the world could look to Tasmania for practical answers.
As I suggested recently (8) our thinking is mired in two conflicting poles. What we really need to do is to recognise the real challenges that we, and the rest of the world, face and find opportunities within that picture for ourselves and for Tasmania.
The CSIRO paper is an excellent start.
Now we need popular and industry pressure, possibly with a new crop of politicians if this lot demonstrates that they’re incapable of making the transition.
What will the future hold? Read the report (link 7) and see for yourselves.
Now it’s up to us.
Watch this space.
Mike is a complex systems consultant, change facilitator and executive/management coach.
7. Download report http://www.csiro.au/files/files/plej.pdf
Note. The author welcomes constructive criticism and new information that adds to our understanding of these matters.
The result is a major power shift…and it’s a shift from Western to Asian dominance. We haven’t needed a war to destroy each country’s productive capacities to bring it to its knees. We’ve done it to ourselves with short sighted economic policies and self interested political dogma.