The world according to Frank

by Frank 14. October 2012 06:10

I run a software company called Knowledgeone Corporation that builds an enterprise content management software solution called RecFind 6 and that sells to government and private corporations all around the world but mainly the western world. That is, Australia, New Zealand, the UK, the USA and Canada. Thankfully, I don’t sell much into mainland Europe so the imminent collapse of the Eurozone will have little short term impact on my business.

Whereas we are not immune, Australia has fared better than most but mainly due to our resources industry exports, not our self-congratulating politicians. Have you ever noticed how politicians are quick to claim credit for good times but never claim blame for bad times? When bad times arrive all we hear from our previously brilliant economic managers is that it is out of their control and due to external issues like the world slowdown. I wish I could get a job like that.

Because I have to guess what the future will bring I get up early every morning and watch the overseas news and business channels. I also watch the Australian business news when that comes on around 7:00am.  At work I subscribe to a number of business newsletters and I monitor the markets using a Bloomberg app on my iPad. In other words, in the limited time available (I do have a business to run), I try to get as much information as I can about ‘what is happening’.

In December 2011 I wrote a blog titled, “What will be the real impact of the meltdown in Europe? I have just read it again and today looks pretty much like I forecast. China has slowed down and Europe and the USA continue to talk rather than do.

Europe is still a mess, Greece will never repay its debts and we are still to face the fallout of bigger countries like Spain also not being able to repay its debts. Germany and France are now in a much worse state than they were in 2011. France is now under a socialist government that doesn’t believe in cutting wages or pensions and Germany is facing the real prospect of moving into a recession.

The UK lurches along with an incompetent government run buy upper-class university debaters and teeters on recession while the USA in election year is going backwards fast and may get much worse in 2013 if they don’t soon fix what they are calling the ‘Fiscal Cliff’ or the imposition of a much heavier tax burden on everyone starting in the new year.

I read an article in the Financial Review this morning where a pundit said no one should expect any improvements in Europe until around 2018. We should be so lucky.

I have listened to Gillard, Swan, Abbott, Bernanke, Obama, Romney, Draghi and countless experts and none have filled me with confidence. In fact, none have yet convinced me that they have any idea how to solve the world’s financial problems.  

It is obvious that we have not improved since December 2011; in fact, we have gone backwards since then.

The well-fed and pampered bureaucrats of the EU are now promoting what they call ‘closer fiscal union’ to solve the problems (and protect their jobs and extensive benefits). However, ‘closer fiscal union’ translates to “Give up your sovereignty and your right to self-determination and let us faceless bureaucrats in Brussels make all the decisions for you” and most ordinary people of Europe are smart enough to know this. This is a solution proposed by the elite for the benefit of the elite and ordinary Europeans would be crazy to accept it.

The alternative of course is the breakup of the Eurozone and the loss of tens of thousands of cushy jobs for the useless paper pushers and senseless legislators now protected within the walls of the EU monolith. It is their jobs they are worried about, not the jobs of ordinary people in Greece and Spain and Portugal and Italy and France, etc.

However, I am now going to forecast that the Eurozone will break up and that all the extended, protracted negotiations and procrastinating going on in Europe is just to delay the inevitable.  It is to give the elite and the banks time to get their houses in order and to minimize the impact of the break-up when it comes. I think we will see the first fall-outs in 2013. Greece is the best bet closely followed by Spain, Portugal and Ireland but an even bigger danger is that the German taxpayers will get tired of paying extravagant southern European pensions and will revolt and force Germany to leave the AU.

In a way the procrastination of the European leaders has been good for Australia because it has given our banks and financial institutions the time they so badly needed to do as much as possible to isolate themselves from the inevitable European collapse. As far as our major banks are concerned the longer the talks go on the better because it allows them to withdraw from Europe and minimize the inevitable impact.

China is slowing and this is to be expected given that since the beginning of modern economies we have moved through economic cycles and that natural cyclic rhythm isn’t likely to change. Ups and downs are part and parcel of the game. However, when you consider the growing demands of the Chinese middle class and the fact that China adds twenty to thirty million new job seekers to its economy each year it doesn’t take a rocket scientist to figure out that China will continue to grow for many years to come and will continue to buy our food and resources. In fact, China’s insatiable appetite for resources and food, especially food, will become even more so.

India is also growing but India is so corrupt and so inept at the top that it won’t keep pace with China’s much better managed economy. However, the future demand from Asian powerhouses like China and India and even from lesser economies like Indonesia will continue to power western economies like Australia albeit at a lesser intensity than a few years ago. We in Australia may have to downgrade our expectations and manage our money a little better but we are not yet facing the prospect of a recession, just slower growth and higher unemployment. Worst case is you may have to buy a Toyota instead of a BMW (if you still have a job).

The real and most painful impact in Australia will be in the loss of jobs particularly in the manufacturing and services industries. I think my industry, IT, will be hard hit as our big banks and financial institutions continue or even accelerate their cost cutting programs as they prepare for the mini Armageddon of a Eurozone collapse and of the USA also sliding into recession because of the gross ineptitude of its government. I believe that it probably won’t be until around mid-2013 that we will all become aware of the real extent of job losses in Australia. This coming bad news is also probably why we may see an early federal election called. The current federal government is cunning enough to want to go to the polls on the basis of promises and a good news story, not the unpalatable facts.

Let’s see if I am right.

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