While on informal leave at Kirribilli House last week, Prime Minister Kevin Rudd crafted his essay titled “The Building Decade: The Long, Hard Road to Sustainable Economic Recovery” due to be published in the Herald today. While it impressively demonstrates a solid understanding of the causes, it does raise some questions as to if anything has been deliberately left out.

The essay begins with Rudd’s indication the current recession is the worst since the Great Depression.

WHEN Australia last experienced a global recession worse than the current crisis, Jim Scullin and Joe Lyons were prime ministers of Australia, Don Bradman had just begun his Test cricketing career and Charles Kingsford Smith had just made his first flight across the Pacific.

He attributes the cause of this global financial crisis to a decade of excess where many consumers lived beyond their means.

Australian consumers also spent up big. Between 1996 and 2007, there was a 460 per cent increase in credit card debt, a 340 per cent increase in household debt, a 450 per cent increase in corporate debt and a 200 per cent increase in net foreign debt.

These comments lead to a discussion of asset prices, but Rudd carefully distances himself from confirming skyrocking housing asset prices in Australia, using the phrase “in several countries.”

Second, these debts were racked up on the back of skyrocketing asset prices. In several countries, stock prices and house values soared far above their true long-term worth, creating paper wealth that millions of households used as collateral for their growing debts.

This crisis has shown we have reached the limits of a purely debt-fuelled global growth strategy.

With the causes documented and out of the way, there is comment about the quick and decisive action taken and what lies ahead for us all now there are “green shoots” appearing.

As the crisis took hold, responsible governments around the world were forced to step in to stabilise fractured financial markets and to support growth and jobs through unprecedented fiscal stimulus.

He indicates the truth, however, is the world is still a long way from recovery.

Mountains of global public and private debt, global imbalances, and a weakened global financial system will drag on global growth for a long time.
As world-renowned financial columnist Martin Wolf has written: “Those who expect a swift return to the business-as-usual of 2006 are fantasists. A slow and difficult recovery, dominated by de-leveraging and deflationary risks, is the most likely prospect.”

With phase one, the unprecedented economic stimulus all but complete, Rudd then talks about the withdrawal.

We must begin to plan for a properly globally co-ordinated withdrawal of the extraordinary interventions we implemented in the first phase of the crisis.

But it is a delicate balancing act. An early withdrawal of stimulus can endanger confidence and economic recovery.

Preparation for phase two is primarily focused on increased productivity with regulatory and competition reform, infrastructure, innovation, skills, tax, health and aging, climate change and water also gaining worthy mention.

Rudd indicates phase two will also see unemployment continuing to rise, even after growth returns. Over the next 18 months, rising growth will inevitably cause interest rates to rise off their record lows and as the global economy improves, demand for commodities will pick up, causing prices to rise. Remember this will be a slow recovery.

Fourth, the Government’s strategy to return the budget to surplus will involve some painful and unpopular decisions that will affect many Australians.

The question remains, if we were spending more than we earn, and after reaching the limits of a purely debt-fuelled global growth strategy and the government applies an unprecedented fiscal stimulus, how can you have a withdrawal that doesn’t endanger confidence and economic recovery?

One thing Kevin Rudd surely has right :

The economic recovery, however, will be a long, tough and bumpy road with many twists and turns.

Only time will tell what the many twists and turns will be. Just don’t mention housing.

» Rudd’s recipe for recovery - The Sydney Morning Herald, 25th July 2009.

» The road to recovery - Business day, 25th July 2009.

Last night, any hope of a recovery was dashed in the U.S. with the latest release of unemployment data. June saw 467,000 jobs axed and the unemployment rate hitting 9.5%. The New York Times wrote it was “a sobering indication that the longest recession since the 1930s had yet to release its hold.”

Back home in Australia, the Government continues to revise up unemployment forecasts. Some economists forecast about a million Australians will be unemployed by the end of 2010. No doubt, all eyes will be on the labour force statistics for June 2009, due out from the ABS on Thursday.

But what will unemployment do to crime rates and should Australians be preparing for this coming wave?

The relationship between unemployment and crime rates is complicated and the predictions from criminologists mixed. Some studies on the last recession found crime rates actually went down – not up.

Crime is a young person’s game. To be precise - males aged 15 to 34. They are also not likely to offend immediately after they loose their jobs. As unemployment takes it toll and it becomes harder to find work the longer they are on the dole queue, individuals may turn to crime to generate an income or if they feel the system or sociality has failed them.

For this reason, the increase in crime lags the unemployment rate. The strength of the link between crime and unemployment rates appears to depend greatly upon the length and depth of the recession. The longer and deeper it is, the worst the crime rate will be.

This link doesn’t stand too favourably for our current recession. It’s going to be one long and deep recession. The level of debt and the size of the asset bubbles is not something that will past us by quickly. It will take years to unwind.

The National Institute of Economic and Industry Research have recently released a report titled “The global financial crisis: Projections of property crime rates”. It attempts to make forecasts for robbery, break and enters and larceny rates from data going back to 1979. The results are scary.

Based on unemployment spiking just over 10% in 2011, we can be expected to see crime rates accelerate at an alarming pace and peak during 2014/15. Break and enters are forecast to increase by just under 40%, and larceny rates increase to just under 60%.

But while these predictions are based on historic data, advances in electronic security and the reduction of prices may act to counter such a surge in property crime this time around.

While burglar alarms have been a common fixture in many homes for years now, many owners relied on the ear piercing screamers and the neighbours to herd off the intruders, rather than pay the recurring costs of monitoring.

Today, we have never been more connected. Most houses and businesses have always on internet access and many of us carry internet enabled phones. While 24/7 monitoring will always be the preferred choice, IP (Internet Protocol) enabled burglar alarms and mobile phone diallers allow the money tight scrooge (during a recession) to monitor the alarm ourselves, and with the flexibility to turn on the alarm remotely after forgetting in the panic to get to work on time.

Surveillance Cameras and Digital Video Recorders were once only the domain of high security facilities, but thanks to China they are now a real option in both the budget tight home and small business. Not only do they act as a deterrent, record and help identify intruders or vandals, they can be used to check on your home remotely using your video enabled phone. Ideal for when your alarm phones you to say a zone has been tripped.

During the recession of ’91 many apartment blocks had little to no security on common areas. While today, you can still find some multi story apartment blocks built before the ‘90s where visitors can walk straight into common areas, jump into the lift and onto any floor, most new apartments have access controlled by proximity cards. Cards are difficult to copy and can be cancelled at a key stroke, reducing the chances old tenants have copied keys or still hold them. Advances in apartment intercoms to include full colour video can also help to assist residents from letting Willy nilly into common areas.

Taking a leaf out of a Real Estate agent’s books, if you don’t have security “now is never a better time” to get some installed. It is best to take a preventative approach now, than wait and fall a victim.

» A complex link between recession and crime - Sydney Morning Herald, 13th April 2009.

» Joblessness Hits 9.5%, Deflating Recovery Hopes - The New York Times, 2nd July 2009.

The Standard & Poor’s/Case-Shiller Home Price Index show house prices in the U.S. are continuing to fall. Prices for the 12 months to April ‘09 fell 18.1%, only slightly slower than the 18.7% year on year fall to March ‘09.

From the dizzy peak three years ago, U.S. house prices have fallen 32.6% with no relief in sight. The slightly moderating fall has called on some to believe the housing crash is almost over, but it’s hard to believe this when you look at forward estimated loan resets. Credit Suisse suggests peak resets will occur in mid 2010 and not slow down until 2012.

» Pace of home price declines slows in April - The Washington Post, 30th June 2009.