We are all old enough to remember recessions past, particularly the early 1990s when Paul Keating famously said “this is a recession that Australia had to have” and Singapore Prime Minister Lee Kuan Yew predicted Australia would become the white trash of Asia.
The State Bank of Victoria, the State Bank of South Australia, the Teachers Credit Union of Western Australia, the Pyramid Building Society, Estate Mortgage managers and several merchant banks and a friendly society all collapsed, taking retirees money with them.
History can repeat itself so it is worth discussing what many experts are saying: we may be in a recession already.
Retirees living on interest rate returns have seen their income cut by 50 per cent in the past 18 months and this can only get worse, not better, in the foreseeable future.
Some key facts according to the Economics Editor for The Age (and former Treasury official),Peter Martin, reported on 28 May.
Confidence in the economy is faltering. A Bureau of Statistics survey of Chief Financial Officers reveals mining firms expect to cut business investment over the next 12 months by 34 per cent, manufacturing firms expect to cut by 24 per cent and other firms by 6.1 per cent – or a 21 per cent average across the country. They are not confident of future sales and cash flow.
Martin quotes UBS economist George Tharenou telling clients the outlook has switched from ‘bleak to recessionary’.
Differing perspectives
Last month’s budget forecast economic growth at 2.75 per cent this year and 3.25 per cent next year but the UBS economist said that his already pessimistic forecast of 2.2 per cent to 2.8 per cent is going to be tough to achieve.
He continued: “This data is so bad it would worry the Reserve Bank and raises the risk that they will cut rates again”.
The Reserve Bank has ordered the cash rate down to 2 per cent. Can it go lower?
Retirees living on interest rate returns have seen their income cut by 50 per cent in the past 18 months and this can only get worse, not better, in the foreseeable future.
A recession will mean lower corporate profits and lower share dividends, also striking retirees and people cashing out of their super funds.
Now is not the time to be keeping your savings in slightly unusual financial institutions either.
What do you think?
