The US is running another wonderful experiment in economics to prove that folk are always delighted to be a seller when the buyer has more money than sense. The idea is simple. Drive to your local auto dealer and trade in your old car for a brand new one and also collect several thousand dollars in cash, generously provided by taxpayers. The gloriously named Cash for Clunkers program whistled through the first $1bn of public money in a just a few days. Now the decision makers, pleased to have found a scheme that is popular and eager to buy the votes of those who were slow to grasp the attractions of the trade and pitched up too late for the first tranche, have now tossed a further $2bn into the pot. Until the money runs out, this scheme nurtures the illusion that the car industry is recovering.
I tried hard to understand just what was decided at Wednesday’s meeting of very important politicians. Certainly, the press interpretation of events usually adds a further layer of confusion to events but I still could not discern, what, if anything the government plans to do beyond convening yet more meetings to talk about how they will fix “the crisis” Apparently much the same people who were in charge when “the crisis” began, now have the skills to make it end.
It was not even clearly stated what “the crisis” was. There is a sort of sulky suspicion that developments are being orchestrated by elements in the public sector who in addition to laying off staff are also colluding to overcharge for their products while avoiding tax. The response is to forbid them from firing anyone, investigate them for anti-competitive practices and send the tax police in to kick down their doors. Economic slow down is not a concept grasped quickly by those on a government payroll and pension scheme.
The bald truth is that the whole world is now facing payback time for spending money it did not have on things it probably did not need. For most people the value of their largest asset (their home) has fallen substantially, the banks want their money back and their job is uncertain. Prices of many things are going down and anyone who is contemplating a purchase is intrigued by the idea that possibly even lower prices are on the way. The Federal Reserve’s worst nightmare of deflation is a galloping stallion.
So-called stimulus packages serve only to disguise and postpone the inevitable and also provide the extra annoyance of seeing the smug grins on the faces of the few who got their paws on the handouts. It has helped enormously if your business is one that is deemed “too big to fail”. In this country, that soubriquet is desperately sought by anyone with anything to do with hosting next year’s soccer world cup tournament and this is undoubtedly delaying the roosting of some very dishevelled chickens.
In marked contrast to the fuzzy waffling of the alleged rulers of the country I was privileged to listen to two CEOs explain in clear and unambiguous terms what their companies did, what the problems were (not a “challenge” in sight) and what they had planned for the future. Their intimate knowledge of the costs, prices and drivers of their total businesses was awe inspiring and their pragmatic approach to the future was devoid of anything but an appreciation that there is always competition trying to steal your customers. Keep an eye on both Tongaat and Metmar.
Challenge is also not a word to be used when considering tomorrow’s match against the Wallabies.
James Greener
7/8/9
