We noticed with amusement Emperor Ken Henry’s statement that: “What people have called the global financial crisis, that has passed, I think it’s safe to say.”

It’s pretty easy to say that when you’re a career leach. Sorry, we mean public servant… No, actually, we do mean ‘leach’ after all.

On reading those words from Emperor Henry, it rather reminded us of this moment back in 2003:

“Major combat operations in Iraq have ended. In the battle of Iraq, the United States and our allies have prevailed… [Applause, whooping and hollering] And now our coalition is engaged in securing and reconstructing that country.”

At the time it did indeed appear as though the ’shock and awe’ military strike in Iraq had ‘worked.’ Seven years later and, erm, well, the last we heard there was still a bit of bother going on there.

The story is similar with the global economy. Thanks to the meddling of national governments and central bankers, there’s the impression – a false impression – that the worst is behind us.

But as you’ll know from reading Money Morning, the facts are different. The worst is yet to arrive. Although if you look at the news, there are signs beginning to show that the delayed effects of the global financial meltdown may only be just around the corner.

Like George ‘Dubya’, the bankers and governments believe they’ve got this thing licked. And that after saving the world they’re now determined to secure and reconstruct the global economy.

New regulations are proposed. New taxes are being invented. Government will take the driving seat instead of leaving things to so-called free markets.

But the real outcome of their meddling is plain for all to see. The dodgy situation in Greece is a perfect example. But we’ll have more on that tomorrow…

First, a look at those ‘amazing’ job numbers that sent the markets and commentators wild last week.

“What we particularly celebrate about these figures today is the thought that 52,700 Australians have told their families in January that they got a job.”

That was Treasurer Wayne Swan’s comment in Parliament last week after the release of the Australian Bureau of Statistics (ABS) employment data.

According to the ‘great’ news in the mainstream press last Thursday and Friday, “Australia’s jobless figure [fell] to 5.3 per cent from 5.5 per cent.”

Gee, wouldn’t that be nice if it was true. Wouldn’t it be nice if the unemployment rate really was 5.3%? And wouldn’t it be nice if 52,700 Australians really did tell their families they got a job.

Look, we’re sure plenty of people did get work in January. That’s the nature of the job market. Some people get a job and some people lose a job.

The problem is, in the world of statistics, what the press is actually reporting isn’t actual job numbers. What they are actually reporting is a statistic.

It may seem obvious, but it’s important to realise that a statistic is just that, it’s a number contrived by the ABS rather than an actual picture of job gains or losses.

It’s a bit like the home index numbers. It’s an index that’s based on real numbers, but which gets fed into a fancy computer programme, out of which comes a neat little number.

But if you look at the unemployment numbers there’s more than one way to interpret them. We’re not saying our interpretation is any more accurate than Wayne Swan’s, but what we will say is that if you look at the original numbers rather than the ‘trend’ or ’seasonally adjusted’ number, it tells a completely different story to what has been reported.

And furthermore, as we’ve seen many times over the years, the ability of the mainstream economists to make accurate forecasts based on economic data has been woeful.

As we pointed out with the misleading reporting of the ANZ Job Advertisements, the same misreporting has happened with the unemployment numbers.

In both instances, the press reports and analyst commentary has gone cock-a-hoop over the fantastic numbers that show Job advertisements rising and the unemployment rate falling.

When in fact the reverse is the case.

The mainstream press reporting of the December ANZ Job Ads chose to only look at the seasonally adjusted figures. In other words, they looked at a statistic rather than the raw data.

That was only the start of the deception because the January job ads were even worse.

According to the ANZ, total internet and newspaper job advertisements fell to 109,177 in January, a 25.8% decrease on the January 2009 number, and a 50.8% decrease on the January 2008 number.

In fact, get this, the January job ad number was the worst since at least November 2004.

Of course the argument could be that, “It’s bound to be lower because the Australian economy didn’t lose as many jobs, so employers don’t need to advertise.”

Well, you could argue that, and it could be true.

In fact, if you look at the employment numbers from the ABS it tells you in January there were 10.85 million employed persons in Australia compared to just 10.61 million employed persons two years earlier.

So, during the global financial meltdown Australian businesses maintained total workforce numbers.

But the not-so-rosy number is the number of unemployed people. That’s increased by 150,000 during the same time.

And in fact, according to the ABS, a net 196,961 people told their families they’d lost their job in January alone.

That’s because the total number of employed people dropped from 11.047 million in December, to just 10.850 million in January.

Look, we’re aware of the reasons behind the use of ’seasonally adjusted’ and ‘trend’ numbers. It helps to smooth out seasonality and give a bigger picture view.

However, although it may smooth the numbers, it also hides the real story.

What the numbers likely tell you is that thanks to the stimulus spending and government bail-outs, many businesses recognised they could afford to maintain staff numbers.

Of course, that’s only the net employment position. Some industries will have fared better than others. Especially those in the construction sector and allied industries.

Over this time many businesses have been able to maintain their pricing levels and their staff numbers. If they’d had to cut prices, odds are more businesses would have fired workers to try and cut costs.

The stimulus programmes and bail-outs prevented that from happening.

The consequence is that prices didn’t fall. The proof of that is in the consumer price index (CPI) numbers which indicated rising prices during the last year.

And contrary to mainstream opinion, that’s bad news.

Because the biggest fear now is that what should have happened in 2008 could very well now happen in 2010, only it’ll be worse.

It’s easy to think that a stable employment number is good. That the stimulus programmes prevented these people from losing their jobs. The reality is different. It certainly helped those in some industries, but it has punished those in other industries that didn’t receive the benefit of the bail-outs.

Besides, look at where many of those jobs have gone. Crazy government funded projects such as the Green Loans scheme and wasteful school building projects.

But even worse than that is the fact that those stimulus programmes need to be paid for at some point. The only way the government can do that is to pay for it through the tax system.

Right now, according to the Australian Office of Financial Management, there is $124 billion of taxpayer subsidised government debt outstanding. $117 billion in Australian dollars, and nearly $7 billion in foreign currency denominated debt:

$124 Billion of Taxpayer Subsidised Government Debt Outstanding

That works out to around 11% of Australia’s GDP.

But that’s not all. Add in the private sector debt and as we’ve noted recently, Australia’s debt position is well above 100% of its total income.

The problem for the economy now is what will happen over the next year when we assume there won’t be any further stimulus packages? That’s billions of dollars worth of spending that was in the economy last year but which won’t be there this year.

We’ve already seen that the retailers have produced revenue and profit numbers below market expectations.

And this year the economy faces the prospect of increasing interest rates and higher taxes.

One alternative is for the government to follow the Greek, US and UK example to the next level. And that’s to keep spending, and then borrowing more money to cover it.

You only have to look at Greece to see the mess it’s in. Yet it would be a mistake to think that Greece is a basket case, and that Australia is so much better off.

In nominal terms, the Greek public sector debt is €294 billion. That’s around AUD$449 billion, or about four times the Australian public debt.

But then compare household debt. According to Barron’s: “Greek consumers are relatively frugal, with household debt equal to just 61% of GDP.”

Which puts Greek household debt at around the equivalent of AUD$313 billion, compared to Australian household debt which is over AUD$1 trillion – or nearly four times as much.

So, all up, the nation that’s been roundly scoffed at as an economic disaster, is not much more indebted than Australia. Certainly in terms of its GDP, the Greek position is worse, but in simple dollar terms Australia’s debt levels are far in excess of the Greeks.

And this is where the real problem for Australia is. Rising interest rates. Even without the impact of a Greek debt default, interest rates are pointing towards going higher.

Domestically, the Reserve Bank of Australia looks certain to raise interest rates to at least 5% by the end of this year. And considering the reliance of Australia’s banks on foreign debt, odds are that investors will demand higher interest rates in order to offset the risks of default.

And that will be the case regardless of how safe domestic commentators believe Australia’s debt position to be. If risk premiums are rising globally, whether we like it or not, there will be a flow on effect to Australia.

And being a commodity economy, that will add a further risk premium – especially as Australia doesn’t have much to offer the world apart from commodities.

So, while Australia’s ‘miracle’ economy may have escaped without much damage so far, it has only been due to China and excessive debt.

And right now, any investor will be very wary of relying on either of those coming to the rescue of any economy.

Cheers.
Kris.