Do you remember the last global financial crisis (GFC)?
It was a lot like the current one but it had more of a flavour of hamburger than souvlaki.
The Europeans are now trying to navigate a way through the choppy waters with a range of initiatives including a recent announcement from the German Chancellor that they wish to ban naked short selling.
One Greek commentator suspected that they would also have to implement some serious financial austerity measures to demonstrate their levels of fiscal responsibility and were discussing the introduction of a beach ban on naked short Germans.
Set alone from the collateral financial damage suffered in the US and Europe is the world's biggest quarry, otherwise known as Australia. The Australian economy has been quietly trading through both GFC's in positive GDP territory thanks largely to the voracious appetite of the Chinese economy for iron ore, coal and other raw materials.
In common with other countries the 'Ozzie Gov' responded to GFC 1.0 by having a meeting, looking at each other nervously and then deciding that, "well, we have to do something, let's throw money at it - "not sure it will help but it'll sure make us popular".
The subsequent course of actions is in fact very instructive for those countries facing GFC 2.0. as the "act first and think later" approach has some serious implications for all citizens, materials folks and those of us who like to see taxpayer dollars being well spent on viable schemes that provide a good return on investment.
One of the first stimulus ideas to come out of the Australian Government in Canberra was to hand out $900 to all Australians on low and middle income.
The Australian Tax Office officials who were administering the scheme at the time had a clunky database running like ACT on windows 95, so it wasn't surprising that the Tax Office missed the target on a few occasions and as reported by the Sydney Morning Herald ;
The Australian Tax Office has confirmed that tax bonus payments were made to 16,000 dead people, at a cost of $14 million, while another $25 million has been sent to about 25,000 Australians living overseas.
Of course, in addition to the probably pointless financial stimulation of the deceased, there was also the issue that large chunks of this form of stimulus didn't really find its way into the Australian economy, rather, it was very successful in bringing in large numbers of big screen TV's from manufacturing plants in China.
But hey something had to be done quickly.
This was followed by what initially appeared to be a more targeted stimulus measure, a grand plan to insulate all the houses in Australia that required ceiling insulation - a total budget spend of A$2.45 Billion - hairy chested big boy stimulus stuff this one for a country of 22 million.
You'd be churlish if you didn't think this was a laudable, energy-saving, job creating scheme that was great news for the manufacturers of silicate-based fibre, aluminium foil insulation, the insulation installation contractors and the economy.
Unfortunately, things didn't quite work out as planned.
No one really checked at the start to see how much insulation was hanging around the warehouses in Sydney and Melbourne, so naturally, you guessed it, Chinese manufacturers were more than willing to pick up the slack.
The quick money on offer (A$1200 for each house insulated) also became an overnight attraction to an army of loosely qualified tele-marketers and unqualified labourers who quickly became "insulation installers".
Shortly afterwards it became apparent that several "installers" using aluminium foil forgot that aluminium in contact with a live circuit conducts electricity and several houses went up in smoke and tragically 4 installers died.
The Minister in Charge of the scheme, Mr Peter Garrett, an ageing rock star who, although a massive bonus for the "Cool Politician" movement in his early days in charge, was found out somewhat when it transpired his knowledge of D to A minor chord transitions was much greater than his skills with thermal and electrical conductivity calculations and he was duly relegated from the lead singer role to tom-tom duties.
Even though the scheme was closed down after the first A$1.45 B had been spent, it wasn't a total disaster as it led to a follow on stimulus scheme with introduction of the "insulation checking stimulus scheme to fix the first insulation stimulus scheme".
Although it has to be accepted that the Government did learn from the first one and the "fixit" scheme has a drastically reduced budget of only $500m.
Not surprisingly, following these splurges over the last 18 months or so, the attention of the Ozzie Government is now turning to the minor issue of - how to pay for all of this largesse?
Governments are not fans of raising taxes as it is never a popular activity as is evidenced by the rioting on the streets in Greece now that the average Greek has been asked to transition from paying "zero taxes" to "just a little bit of tax please".
In Australia, the current attempt to square the circle of botched tax payer stimulus spending with revenue raising has recently led to the introduction of a tax that has a massive impact on the raw materials industry worldwide, the Resource Super Profits Tax (RSPT) for the mining industry.
Although there is an ongoing debate about the actual costs of the tax, with the mining industry indicating it's 58%, while the Government reckons it's 13-17%, interestingly, according to the Minerals Council of Australia, the Government used a University of South Carolina graduate research paper to arrive at their figures rather than trusting their own tax office - well you have to give it to them on that one, why would you trust a tax office that taxes the living to give to the dead.
Whatever the correct figure may be, the fact of the matter is that mining projects usually need international investors with deep pockets and a long term vision and the introduction of this tax has led to many companies placing billions of dollars of projects on hold or under review .
For non-Australian mining investors and indeed Australian miners who can exploit other projects in more favourable tax regimes e.g. Canada, the cat is out of the bag. They are not interested in reading the finer detail of the RSPT tax - they have now made their mind up as they have the editorial provided by the Wall Street Journal etched into their psyche;
"This economic thinking runs counter to everything that made Australia rich over the last three decades: namely, the embrace of competition and capitalism, which rewards high risk with high returns . . . The truth is that all windfall taxes, however they are dressed up and sold by politicians, are arbitrary and economically damaging."
Or the summary version, be very careful about investing in Australian mining, it's starting to look a bit Venezuelan.
Before the accusation can be levelled that this blog is a political rant against the governing Labor part in Australia, can I say it is very much an apolitical rant, but it is a rant against the misdirected use of taxpayer stimulus funds, poor management and the shoddy execution of stimulus measures in any country, by any political party of any colour.
The US Government which is of a similar political flavour to the Ozzie Gov is demonstrating a much more positive and effective approach to such industry stimulus issues.
Take for example the last 4 press releases from the US Dept of Energy.
DOE Offers $72 Million Conditional Loan Guarantee to SAGE Electrochromics
March 5, 2010
Project will create over 200 jobs and significantly reduce heating, lighting and cooling costs
> Read More
Secretary Chu Offers $117 Million Conditional Commitment for Hawaii Wind Power Project
March 5, 2010
Project will create 200 jobs, power 7,700 homes and reduce dependence on oil
> Read More
DOE Announces Nearly $1.4 billion in Conditional Loan Guarantees for BrightSource Energy
February 22, 2010
Energy Secretary Steven Chu today announced conditional commitments for more than $1.37 billion in loan guarantees under the American Recovery and Reinvestment Act to BrightSource Energy, Inc. to support the construction and start-up of three utility-scale concentrated solar power plants. The new plants will generate approximately 400 megawatts (MW) of electricity using the company's innovative, proprietary technology. This would nearly double the existing generation capacity of this type of renewable energy in the U.S.
> Read More
Obama Administration Announces Loan Guarantees to Construct New Nuclear Power Reactors in Georgia
February 16, 2010
Underscoring his Administration's commitment to jump starting the nation's nuclear power industry, President Obama today announced that the Department of Energy has offered conditional commitments for a total of $8.33 billion in loan guarantees for the construction and operation of two new nuclear reactors at a plant in Burke, Georgia. The project is scheduled to be the first U.S. nuclear power plant to break ground in nearly three decades.
> Read More
The point about the US Dep. of Energy Loan Guarantee Programme is that it's directed, targeted, specific investment into companies active in key technologies that have significant potential for long term national benefits.
Sure some of the projects above will fail, but there's likely to be more winners to come out of that pack than there is by handing out Plasma TV vouchers to Uncle Tom Cobley and his dead brother.
To be fair to the 'Ozzie Gov' there are elements of their recent strategy which mirror the US models on Cleantech stimulus measures with a recent announcements of a A$652m Renewable Energy Future Fund.
However, the quoted A$652m is very close to the A$500 million that has to go to the "insulation fix it scheme", so the real costs of poor programme execution are thrown into very sharp relief.
The ABC reports that Dr Ray Wills, of the WA Renewable Energy Association takes a relatively dim view on the initiative and the relative size;
"Nations around the world are spending billions of dollars building renewable energy each year. Australia is yet to go into that space. ...... "We need to see substantial increases in programs rights around the country, not just flagships that build one or two things."
Can the rest of the world learn anything from this selective and potted history of Australian efforts to hit the GFC stimulus spots?
Governments are probably much better suited to following the US example of priming the pump for key technology sectors as illustrated by the DOE programmes, then getting the hell out of Dodge to let industry run the show.
Schemes where Government departments are inextricably entwined in the initialisation, running and delivery of technology stimulus programmes are more likely to fail for a host of reasons, but primarily, a lack of available management skills and the mind numbing incompetence that often follows when you are not spending your own money.
It's also probably not a good idea to encourage your most successful industrial sector to migrate by taxing it to the hilt - not a good look around the world. Whack the bankers instead, can't go wrong with that one.
For those of you out there trying to earn a living in the world of materials related goods and services the takeaway bullet points would be along the lines of;
- Be very careful about making investment decisions on markets or schemes run by Governments, there will be no loyalty to the scheme if its popularity changes.
- If you're in the business of digging minerals out of the ground, it's probably best to do it in Canada or Russia for the next few years.
- China is going to be the industrial winner for a long time to come and that's even before I mention their stranglehold on rare earths - where do you sit in the Chinese value chain?
Energy and Resource security is going to drive investment for even longer than the China story - are you heading in that direction?