In Australia it is Federal Budget season again. Our illustrious Federal Treasurer, the Right Honorable Wayne Swan has ‘handed down’ the results of his feverish efforts at fiduciary juggling, and with an air of forced calm he has told us that we are still in debt. Who would have guessed? Not long ago our political overlords in the national capitol were smugly predicting that the Federal Budget would be in surplus by 2012. Now it will be 2013. Apparently our economic recovery has suffered a relapse of recession. In fact, economic recovery has been the catch-cry of politicians around the world and yet the unemployment figures, highly inflated petrol prices and skyrocketing commodities prices would seem to indicate that their prognostications of a return to the good times are a bit premature, at best. All of this is pretty much what I had expected but it did prompt me to ask; “When was the economy good?”
As I went about researching an answer to this question I found that, at least in Australia, the economy has always been relatively unsound. Right from the day that Captain Arthur Phillip landed at Botany Bay the Australian economy has always been poorly run or deceitfully represented and for over two centuries it has lurched from one disaster to the next with worrying regularity. The First Fleet arrived in 1788 without any currency and soon a barter based system of exchange was supplanted by a rum economy. Rum had become the first currency in the colony and when the British Governor, Bligh, tried to suppress its use the New South Wales Corps mutinied. So successful was their uprising that Bligh was replaced and the new Governor, MacQuarie resorted to the rum economy until he could make new provisions for supplying the colony with currency. Historians tend to point to this period of Australia’s economic history as a period of prosperity but a closer examination belies the facts. The colonists used the legal fiction of ‘Terra Nullius’ to occupy the land at no cost and the British Government supplied the colony with free labor in the form of transported convicts. Given these circumstances it is hardly surprising that the colony thrived initially. After 1840 when transportation stopped and free labor diminished the economy suffered its first recession, led by a proliferation of fractional reserve banks and their worthless fiat moneys, and it was only saved from total collapse by the gold rush of 1851.
The gold rush economy was something of a repeat of Australia’s first period of expansion with a high influx of free laborers arriving to buy miner’s rights to lands that the Crown had acquired for free. In addition, these immigrants came at their own expense, funded themselves when they arrived and, initially at least, employed themselves as gold miners. Very few of the gold rushers actually made very much money and as soon as the alluvial gold that was easy to collect was depleted the gold boom ended. Twenty years later the money was gone and the Australian economy was in poor shape once again, only saved from complete ruin by the constant discovery of new mineral resources to be exploited for free, or at a small initial cost. Even so, the economy plunged into a deep recession in the 1890s along with the rest of the Western World due to the collapse of the fractional reserve bankers here and around the world at that time.
From the 1870s until Federation in 1901 the boom and bust cycle of the Australian economy, fuelled in most part by the fraudulent fractional reserve banks with wads of valueless fiat money, was anything but stable and more often than not, in recession. Even as the new nation of the Commonwealth of Australia was beginning the economy was faltering and, in spite of a general restructuring of banking regulations and the issue of a new Australian currency, it was in reality only the First World War that brought the economy to life once again. Of course this war economy had to come to an end and, being an agricultural based commodity economy, when the Great Depression of the 1930s crashed the world economy (again) Australia suffered too. In fact, the Australian economy’s crash preceded the run on the banks in Wall Street and was only revived by a return to a war economy in the 1940s.
If there is any period in Australian history that could be classed as economically successful it would be the post-war years in the 1950s and 60s when Europe and Asia were being rebuilt with materials bought from the vast supplies found or grown on the southern continent. During the war years the banks had returned to high levels of government regulation (including the restriction of the amount of currency in circulation) and soon after the war ended the push for banks to be released from these restrictions led to a fringe banking sector of finance companies, mainly offshoots of the main banks, that focused on more speculative personal and business loans rather than mortgages as had been the traditional practice to that point. In 1959 the Reserve Bank of Australia was established and Australia joined the growing number of countries that began to operate a central bank. As the demand for manufactured goods and commodities from Australia declined in the 1970s and 80s the financial emphasis shifted to speculation and the increasingly deregulated banks used the fractional reserve practices to generate more wads of cash on the back of many unsound loans leading to securities collapse in the late 1970s.
In order to prop up the faltering economy and to allow greater access to foreign funding, the then Treasurer Paul Keating deregulated the Australian banks and floated the Australian dollar, actions that the incumbent Labor money gurus saw as the only salvation for a continually failing economy, only to usher in the “recession that we had to have”! Still the fiscal slide continued as bad speculative investments made by a swag of dubious entrepreneurs tanked and billions of dollars disappeared from the economy overnight. Of course the banks were not prepared to shoulder the costs of their bad investment choices and passed their losses on to their customers in the form of RBA sanctioned interest rate rises, the stiffest in Australian history, with some mortgage rates going as high as 18%.
Throughout the 1990s the Liberal Party governments touted their grand plan to repair the Australian economy mostly by selling off the government (and therefore public owned) utilities such as the national telephone carrier Telecom and the Commonwealth Bank. Of course the wholesale liquidation of the nation’s assets made the country’s balance sheet look good in the short term but they did nothing to curb unemployment or inflation and once the government ran out of properties to monetize in their fire sales the economy quickly returned to its usual state. During this period the average house price in Australia from 2 or 3 times the average yearly income to 6 or 7 times the median salary. In a frenzy of fiat money production the almost fully deregulated banks issued a greater number of poorly secured loans, mirroring similar practices abroad until, in 2009, to avert a looming economic crash, the newly elected Labor government spent the country’s savings that had been garnered from the sale of the national assets in a series of handouts designed to stave off the disaster. Of course these “stimulus packages” represented another short term solution to the long term problem of an insolvent national economy, and whilst the government has been quick to tell us that due to their foresight the Labor money gurus have deftly avoided economic disasters such as we have seen abroad, especially in the USA, the time is fast approaching when we will need to pay the piper and, this time, there will be no money in the bank to do it with.