The Current Economic Crisis in Australia - Essay Example

the current economic crisis in australia Introduction The slowing of economic growth and turmoil in the financial markets has filled headlines in both advance and developing countries. Yearend of 2008, the leading indices in France, Germany, Britain, US and Australia each fell about 40% and the International Monetary Fund (BBC News, 2008) predicted that by 2009, advance economies will contract by .3%. Australia's economy all of a sudden shrank (Business Times, 2009) for the first time in eight (8) years final quarter as chastened consumers selected to save rather than spend. This paper highlights the key reasons for the current economic crisis in Australia and discusses the likely effects to the country. Australia on Brink of Recession The Australian dollar slid whereas bill futures rush forward as investors risked the Reserve Bank of Australia or RBA might come to feel sorry about its decision not to cut rates this week and would have to execute so in April. Similarly, the head of National Australia Bank Ltd. said that, the UK and US are really going to have a hard time while global economy is directed towards a recession. The severity of the growth turn down will depend upon what happens to China (Tehran Times, 2008). In addition, the Australian federal government has been alleged of being a government in no power to control the big banks as well as corporations. The huge institutions have apprehensive words of the Federal Treasurer. It seems that the banks are no longer ready to be restrained by the Reserve Bank or federal government (The Guardian, 2008). The 5th Annual Demographia International Housing Affordability Survey: 2009 (Byrne, 2009) revealed that Australia has the worst case of housing property. Reasons and Impacts of Financial Crisis The road to crisis in today's economic crisis can be linked to the drastic privatization in Australia, to name some include: airports, port facilities, railways power, water, telecommunications (Telstra), which was handed over, Qantas and the Commonwealth Bank were also privatized, the same with other vital industries and services that have been wholly or partly privatized. Conversely, economic crisis may lead to loss of homes or eviction from it. Millions of investors' savings can also be lost and their investments can go to the wall. Banks may be unable to reconstruct for the huge losses which have rooted or incurred by borrowers, default on interest as well as principle repayments. Another impact if investors and banks will not be able to make for the losses would be the increase credit card rates as well as other bank charges to make consumers compensate for the irresponsibility of the financial institutions and other banks. ABC News (2009) reported that, the economic meltdown will result to political instability. The impact of rigorously declined economic activity will spectacularly impact on Australia due to the fact that, narrow economic base, latent as it does on mining as well as agriculture, the former reliant on sales to China while the latter on the wheat sales, wool and meat. The Australian Business (2009) reported that, National Australia Bank warned regarding bad debts which were on the rise; the global economic catastrophe was hurting all its businesses. The economic crisis that Australia is now suffering may be the outcome of the credit expansion. This present crisis is the unavoidable development to a boom that necessarily follows each boom spawned by the effort to decline the "natural rate of interest" by escalating the fiduciary media. The unprofitability of numerous branches of production as well as the unemployment of a substantial portion of the workers can apparently not be owed to the deceleration in business single-handedly. Both the unprofitability and the being without a job are quite intensified by the general depression. Nonetheless, the populations are confronted with a new problem which is not yet fully answered by principles of cyclical changes alone (Ludwig Von Misses Institute, 2006). Coping the Crisis There is one way out of economic crisis: Forgo each attempt to avoid the impact of market prices towards production. Give up the tracking down of policies which seek to launch wage rates, interest rates, and commodity prices unusual from those the market specified. This may disagree with the prevailing view. It without doubt, that it is not popular. Today all governments as well as political parties have jam-packed confidence in interventionism; it is not likely that the program will be abandoned. However, it is probably not too optimistic to presuppose that those governments as well as parties whose policies have reached to this crisis will disappear one day from the stage and also make way for those whose economic program leads, not to create chaotic scenes or destruction, but to economic development or progress. It is about time that Australian federal government restores some control over the economic direction since it is more essential than any further privatization. Therefore, too much privatization must be stopped immediately while key industries and institutions should take the full responsibility to public ownership be it in the field of telecommunications, transport, main resources, water, electricity supplies, education, and hospitals. It will also be a good idea that the government will set up a new public bank in order to provide low-cost home loans. An immense injection of funds for public housing will create more jobs and reasonably priced public rental housing as well as housing for private sale. The two mechanisms will compel private banking institutions as well as landlords to significantly lower profit gouging margins so that they can compete in the market. The billions of dollars which are being spent on the military contribute to the distortion of the economy. It would be better that the bulk of the said funds be used to strengthen education, health, and other essentially important services for the public. Conclusion The Federal Government of Australia is in a dilemma. If it directs policy in order to keep up the property market, possibly, it will just prolong the problem. On the other hand, if it lets the market to come down, householders might suffer from losses of their in wealth and more toxic debt will bounce back on the banks. Instead, the government must focus on keeping strategic industries and get off their hands on relying on foreign capital and ownership from countries such as China. REFERENCES ABCNEWS. 2009. Is Australia prepared for economic crisis Retrieved March 24, 2009 from http://www.abc.net.au/news/stories/2009/02/11/2488519.htm Business Times ,2009. Australia on brink of recession. Retrieved March 24, 2009 from http://www.btimes.com.my/Current_News/BTIMES/articles/aeco4f/Article/ Ludwig Von Mises Institute. 2006. The causes of the economic crisis and other essays and after the great depression. Alabama 36832. The Guardian (Australia). 2009. Australia: Economic crisis begins to bite Retrieved March 24, 2009 from http://www.politicalaffairs.net/article/articleview/6395/1/311/ Tehran Times, 2008. Global economy heading into recession: National Australia. Retrieved March 24, 2009 from http://www.tehrantimes.com/index_View.aspcode=180980 The Australian Business. 2009. NAB bad debts hit $824m in Q1, economic crisis hurting all operations. Retrieved March 24, 2009 from http://www.theaustralian.news.com.au/story/0,,25015710-643,00.htmlfrom=boardroom+radio_rss Read More