Reserve Bank of Australia - Effects on Australian Government - Coursework Example

Journal Article Analysis in Business Name of University Submitted by Names: Tutor: Date Article 1 Financial crisis bad for health: Suicides, disease outbreaks up after EU financial crisis By The Examiner (Australia), March 27 2013; Maria Cheng 26, March 2013 in Reuters (US) The ruthless expenditure cuts being initiated by European governments with a view to tackling their problems in debts have led the region into recession and also the rise in health problems and suicides. Since the onset of financial crisis in 2008, governments across Europe have reduced their spending in government run services like medications and medical facilities. According to analysts in The Examiner, measures of austerity have not solved any problem economically. They have only created a very big problem of austerity. The austerity has reduced employment and brought lack of social welfare services especially those funded by the government. These have been witnessed in those countries that slashed their spending because of austerity events. In Spain, for instance, patients have been grumbling about reducing medical care. Hjans Kluge of The World Health Organization’s at the European office, have given advices to the nations concerned against radical medical reforms. Effects on Australian Government Reserve Bank of Australia reports that the first sign of the financial market emerged in 2007 when some firms related to US corporation started experiencing stiff problems in their mortgage backed securities. The problems became too serious especially for those customers of subprime mortgages. The whole scenario spread to other financial firms that were offering the same services. The scenarios caused the banks to be very cautious in lending. What followed after that was hoarding their cash holdings. Because of this shortage of cash, interest rates started to skyrocket making the whole system to malfunction. Although equity market took long to be rattled, the stocks prices started declining later. Even though other developed countries have faced severe effects, Australian firms have done fairly well in this recession. The growth of Australian financial system however has slowed down while unemployment has risen. Australian dollar depreciated as the crisis intensified. After the Lehman's bankruptcy, Australian government was forced to intervene to enhance liquidity. By the timely action, the dollar recovered. Money and credit markets in this country have proven to be a bit resistant to the crisis than other developed countries. As it has come out, Australian banks are not holding any toxic securities. This means that the monetary and fiscal response of the government was timely and effective. The government also set up guarantee of credit. This was aimed at promoting stability in the financial business. As the Stubborn Mule states, with countries now practicing strict lending standards, weaker business and consumer confidence there is slow demand in Australia's commodities. This puts Australia at a point where it will not escape (2008). Effects to Domestic Firms According to Murray (2009), due the global financial crisis facing Europe and America, more than 30,000 small businesses vanished between the periods of 2007-2010.This loss of jobs occurred between 30,000- 126,000 employment opportunities. As reported in the, Sidney Morning Herald, since 2008 many small Australian businesses have been hit. Compared to bigger business, the impact of global crisis has been so severe on small businesses. Small businesses have been more reluctant to recover than bigger business. Small businesses have not been treated with specialty throughout this period. Bigger businesses are normally treated well because they have heavy tangible collateral to access credit. Banks lending traditions are so stringent on small businesses and therefore locking them out (Hutchens 2012). Effects on Multi National Firms Multinational firms especially those in Financial and Security markets have been forced to adapt risk avoidance mechanisms. More regulations have been put in place and no more loans are being issued easily. A number of firm executives especially through their public relations managers have become more open minded and humble in their communications with the public. This is with a reason to disseminate honest message and therefore instill public confidence in their work. Many firms worldwide especially in Europe are being forced by public outcry to reduce the paychecks of their executives. Firms are also now redefining their social responsibility. The initial budget outlay for the social and community development is being slashed. No more sponsorship in games and other social amenities are now being available. The multinationals have instead embarked on austerity in their cost cutting objectives. This has seen overseas subsidies being reduced. Firms are as well turning to their resources to raise money. This means that they are now liquidating their capital assets including securities. Many multinational firms especially those that the nation has stake in it have been assisted financially. Downsizing of the workforce has been the main serious problem in the whole world. Unemployment is rising in most of the firms affected. Demand in supplies has declined. This is because the employees’ salaries in those firms have been reduced and some employees laid off. Most stores both domestic and abroad have experienced low sales which is even threatening their closure. Revenues of most Multinational firms have gone down. Analysts show that show that Most Europeans have cut their spending and are holding their purchases because of economic uncertainties. This reluctance has caused corporate revenues to go down. For instance in 2012 GM lost $361 million in European market in its second quarter. The leading appliances maker in the world, Whirlpool fell 7 percent. In the same year, Ford announced a fall of 57 percent in its profit (Marchex, 2013). Article 2 US Oil Output To Surpass Imports For First Time Since 1995. Courier Mail (Australia) March 21, 2013, and Reuters March, 20, 2013(US) It is being reported that US has started drilling its oil for domestic consumption, However, other sources say that US want to start drilling oil for imports. Therefore, drilled crude oil on monthly basis is set to surpass its oil imports this year. This will result in falling of pump price. Before, US carbon fuel imports has been causing price of gases and gasoline to go up in the overseas markets. If latest news stand to be true in future, and US start producing oil for export, this will lead to reduced oil prices. Implications on Australia Australia’s fuel prices have been pushed up. Australian Companies normally buy and sell products using US dollars as Mc Mahon notes. This implies that the value of the Australian dollar will be weakened since it will have to export more. Right now, economists believe that with rising oil prices, prospects of business to recover and redeem consumers’ sentiment are attainable. Moreover, they anticipate that the outcome can be worse if the Australian dollar is not stable. Shane Oliver chief economist at AMP cautions that this will be another drag on the retailers who will hold back their money to reduce their spending power. They expect that the recovering up of the US economy has boosted demand for oil. This has been raising the prices. Merril Lynch warns that rising prices could affect inflation if care is not taken now. However, if US start drilling oil, it will be a favorable condition for Australia. US are world’s top importer of crude oil and this has always led to rise of oil prices. Once it starts generating its oil, the prices of petroleum products will slide. Price reduction in Australia will result. The dollar of Australia is likely to be strong and gain momentum on the international Market scene. Thus, the inflation always predicted by economists can be easily avoided. Effects on Domestic Industries According to Morrison (2006), Additional fuel prices on automobile industries will reduce their competiveness and hence their profitability. Due to harsh competition in this industry, the manufactures will do very little to pass the cost to the local consumers. At present, the automobile industries have under capacity exploitation and for that reason this will be accelerated. As a consequence of inability to compete with far-off companies, the local manufacturers are likely to source components from aboard (PWC 2011) .The industry will also undergo many innovations to avoid high costs. Researchers warn that innovation in this industry is very expensive though, when carbon prices lowers, the innovation will be cheaper and then automotive industries will be secured. Now that most economic experts feature that what is pushing Australian prices is the volatility of oil, firms will be relieved to find decreased prices. Fuel prices for instance, have been pushing domestic Australian firms not to attain a competitive gain over other firms on the global market. However, since other automobile manufacturers from Japan and elsewhere are likely to benefit from the same, the scenario may continue depending on how Australian firm get favorable sources of resources to their businesses than other competing from other countries. Effects on Multi National Corporations Most multinational companies enter into hedging contracts with oil drilling firms that allow them to have fixed prices of oil throughout the year. This is intended to reduce the effect of harsh prices. For instance, Southwest Airline is one of the firms that consume huge portion of oil. Such industries normally enter this kind of kind of contracts to avoid harsh effects of volatility of fuel prices. As other firms in on global scene, upon such production of crude oil by US, will mean that, the gap between oil supply and demand of those firms has been reduced. Multinational firms especially those in manufacturing industry will have to benefit as the nation’s economic expansion is likely to augment (The Insider, 2010). Article 1 Financial crisis bad for health: Suicides, disease outbreaks up after EU financial crisis Globalization Globalization can be explained as process whereby economies are becoming integrated and interdependent. Companies are taking advantages of it to expand. For instance there are several banks in Australia and many Australians who trade on the global scene. On the world scene, it is important to note that Australia trades in US dollars. It is also important to note Global Financial Crisis began in US. The financial crisis began nearly in 2006 whereby the value of securities became tied to house mortgages. When real estates started plummeting, financial organizations were damaged internationally. The crisis began by poor policies of financial institutions that encouraged lenders to own homes, hence easier access to loans with no substantial regulations (IMF 2011). Bank solvency began causing panic in America. Since US is the major importer and exporter having subsidiaries almost globally, for most countries including Australia who trades in US dollars, it was imminent that the impact would go globally. As a result of solvency problems at the stock exchange, investors ' confidence to trade at stock markets was damaged. The same impact was felt in Euro zone and Australia was not an exception (William 2012). There have been dramatic happenings in financial institutions especially bank crunches in Australia. This has caused mortgage awards to be very few. Globalization means that nations are interdependent. Australian factories that were reliant on European and Japanese buyers and US collapsed. Australia, which exports a lot of raw materials abroad, saw their stocks in the mines accumulating and therefore mines were to close. Economies of various country towns, which depended heavily on these mines, were ruined. The car industries have been hit, with thousands losing their jobs and some faced the danger of being closed. Article 2 US oil output to surpass imports for first time since 1995. International Trade In International Trade, business is normally characterized by free trade Agreements. In 2005, the accord involving United States and Australia came into force. Australia mostly supplies US with agricultural supplies and it upholds free areas that are consistent with WTO. When US produce oil that surpasses its own consumption, Australia will be found with more sources of the same especially from others members of GATT. It will be advantageous to some Australian Industries for instance in automobile industries and logistics over other firms in international market and hence trade in this is likely to boom. Reynold asserts that cheap oil in 1970s increased industrial growth, mainly in US. When prices cartel of OPEC was formed, price rises followed. When US implement the plan, price on the global market would come down. This will be gracious to Euro zone that heavily depends on Oil from Asia. Some automobile had started manufacturing motor vehicles that use less energy. They may have to rethink again. Logistic firms of Australia are likely to benefit a lot from this fall in price (IMF 2011). It will trigger manufacturing industries since it is a very sensitive component in industrial production. However, who knows, because of comparative advantage, those nations that incur high per unit cost in producing oil may have to drop out. This is because those that will produce at lower cost per unit will be the one to remain stable and their products selling because of cheapness. In any case, what is valuable to Australian firms is to gain from that competition. References Cheng, M 2013, “Financial Crisis Bad for Health: Suicides, Disease Outbreaks Up After EU Financial Crisis”, Associate Press, viewed 4 April 2013, . European Austerity Bad for Everyone's Health, 2013, The Examiner, viewed 4 April 2013, . Hutchens, G (2012), “Small business hurt by tighter lending since 2008, says RBA”, Sydney Morning Herald, viewed 4 April 2013, < http://www.smh.com.au/small-business/small-business-hurt-by-tighter-lending-since-2008-says-rba-20120603-1zq37.html>. International Monetary Fund, 2011, Oil Demand Price and Income Elasticity, The Oil Drum. Mc Mahon S, 2012, “Petrol to Surge, Threatens the Australian Economy”,News.com, viewed 4 April 2013,. Morrison, J 2006, The Impact of Oil on World Trade, Palgrave: The International Business Environment. Murray, P 2009, “The Economic crisis in Australia”, Global Research, viewed 4 April 2013, . PWC.2011.Potential Impact of Carbon Price on the Australian Automotive Industry, PWC. Reynold, A 2005, Prices Cause and Effect, CATO Institute. Reuters.2013, Oil Output To Surpass Imports For 1st Time Since 1995 – EIA, viewed 4 April 2013, . Stubborn Mule, 2008, Australia and the Global Financial Crisis, viewed 4 April 2013, Read More