PRIME Minister Kevin Rudd has warned that economic conditions will rapidly worsen this year - and blamed "a culture of greed" for the looming crisis.

Fresh from a holiday, Mr Rudd returned to work on Monday with the economy on his mind.

He told an Australia Day reception at Kirribilli House that 2009 was going to be tough.

"Things will get worse before they get better," he said.

"The magnitude of the global financial crisis almost beggars belief."

The economic turmoil was the worst the world had seen since the Great Depression of 1931, Mr Rudd said.

He promised to be tough himself.

"We will govern with a combination of steely economic management and compassion for those who need support."

Mr Rudd blamed greed for the crisis.

"A culture of excessive risk taking - a culture of greed - a culture of excess has brought massive economic disruption to global financial markets and the global economy."

Those markets had been inadequately supervised and the world had to develop warning systems to prevent it all happening again, Mr Rudd said.

He asked bosses to do everything they could to avoid sacking workers.

And he asked workers not to ask for big pay rises.

"We are all in this together: business, unions, governments, the community sector and every nation in the world."

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Well supplies supplies. Everybody has bought enough Chinese junk.

Howard was a complete tightass with infrastructure when things were booming. And his "false boom" was only fueled by ridiculous overspending and overborrowing whilst simultaneously strangling working conditions. What a twit he was.

$10 billion in the bank now is worth substantially more than it was last year.

TWO days after the Prime Minister asked workers to hold off wage demands, it has emerged two of his highest-paid advisers have been awarded secret bonus payments.

Kevin Rudd personally intervened to pay a salary bonus to 29-year-old chief of staff Alister Jordan, his long-serving confidant.

Rudd attacks 'culture of greed'

Another senior adviser has also breached the Government's official salary cap, with his "principal adviser" salary boosted beyond the top level of $192,000.

Mr Jordan, who has worked side-by-side with Mr Rudd for six years, is one of four Government advisers paid at the top "principal adviser" level.

With superannuation and overtime added to salaries, principal advisers earn close to $250,000 a year............

ALTHOUGH the details of the Government's proposed lending facility for commercial property are not yet known, it is fair to say that what is known raises more questions than answers.

At its simplest, why would supporting loans to developers of shopping centres and other forms of commercial property be a particular priority of policy? The vast bulk of loans relate to assets that already exist or are at advanced stages of development. When commercial property prices fall, the owners of those assets take a loss, while the purchasers of the assets, and the assets' users (that is, tenants) make a gain. As revenues from the buildings almost invariably continue to exceed the buildings' operating costs, the assets continue to be operated, so the real flow of services to the economy is unchanged.

Obviously, reductions in commercial property prices force banks to write down the value of their property investments. In practice, the impacts are likely to be very small, as most of the banks' commercial property loans have been securitised and are no longer on the banks' books.

But even putting that aside, any such impacts are no different from those that occur when prices fall for the many other asset classes that banks have invested in or relied upon as collateral. Should the result threaten the adequacy of banks' capital base, the right policy response is to facilitate the banks' recapitalisation, rather than artificially propping up the price of one particular kind of asset. Directly facilitating recapitalisation would be far more transparent and far less distorting of the pattern of asset prices in the economy as a whole.

With commercial property accounting for some 12 per cent of the investments made by Australian super funds, reductions in commercial property prices would also have an impact on the funds and especially on those that have been negligent or tardy in writing down the value of their property investments. It is understandable that the Government would be concerned about the resulting write-downs. But moving to a policy of trying to control asset prices is a very big call; and it seems foolish to get into that game by targeting the prices of one and only one class of asset, and a relatively minor one at that, for the purpose of protecting funds that are so poorly managed that they have failed to properly disclose the deteriorating quality of their balance sheet.

All this is not to deny that credit restrictions will result in some development projects for commercial property being cancelled or deferred. But the projects at risk are those that are most marginal and whose value to the economy has in fact diminished as growth has slowed. It makes no sense for the Government to prevent those cancellations and deferrals from occurring, all the more so as our economy, whatever its defects, is hardly short of office blocks.

This is especially the case as commercial property values are notoriously cyclical. Developers know this, and most developers hedge their position by securing anchor tenants (such as large supermarket chains in the case of shopping centres) to underpin their revenue base and their ability to secure finance. By intervening to prop up the market, the Government sends all the wrong signals, both in the short run and in the longer term.

In the short run, the scheme seems likely to induce developers to play off their existing foreign lenders against the safety net the scheme provides. This could accelerate the very withdrawal of foreign lenders the scheme is intended to guard against, while allowing developers to secure some free kicks on the basis of what amounts to taxpayer-funded insurance.

As for the longer run, the risk is that of protecting precisely those developers who did not take adequate precautions, while signalling to others the likelihood of government bailouts. The result will be to make property markets more, rather than less, cyclical.

What about the impact on jobs? This seems a furphy. To begin with, changes in the value of existing assets in no way directly alter employment prospects. Indeed, were rents to fall, business costs would be reduced and that might improve conditions across a wide range of sectors. True, the development projects that would otherwise not occur may create some jobs. But why would those jobs be any more valuable than the jobs that could be created by using the $2 billion for other purposes, including cutting economically distorting taxes? .........

NOTHING beats a relaxing summer holiday with a couple of good novels: a time to wander lazily in the world of imagination and fantasy.

But while the rest of the nation chilled out over the festive season with a light and breezy summer read, the midnight oil was burning at Kirribilli House.

There, a lonely figure sat hunched over his laptop constructing a political fantasy of his own. The Prime Minister was having great fun. Imagining himself once more in a heroic pose.

Last year he was Churchill defending us all from "the economic equivalent of a rolling national security crisis". But during the summer, in his essay on the "the ideological causes of the financial crisis", he has cast himself as a great socialist hero, carrying the banner of social democracy and striking out against the wickedness of neo-liberalism, 30 years of which, he assures, is the root cause of the global financial crisis.

Neo-liberalism's central thrust, he writes, is "that government activity should be constrained, and ultimately replaced, by market forces".

He says these "unchecked market forces have brought capitalism to the precipice". Only the intervention of social democracy -- a euphemism for socialism -- can "save capitalism from itself" and protect us from the perils of "the extreme Left and the nationalist Right".

Phew! While the rest of us were relaxing during the summer, perhaps reading some fiction, our Prime Minister was tapping away, imagining himself battling off communists to the Left, fascists to the Right, clad only in a suit of shining ideological purity.

All of us remember Kevin07, shiny faced and earnest, proclaiming himself an economic conservative. In one television advertisement after another his message to Australians was clear: there wasn't a cigarette paper's difference between him and John Howard on economic policy.

Free markets? He loved them. Surpluses? The bigger, the better. Tax? Well, of course it should be lower.

Well, all of that is cast away now. Instead, he preaches social democracy. It is important to remember that social democrat was a term created by avowedly socialist political parties in Europe who wanted to emphasise that they were (unlike their communist comrades) committed to achieving a socialist society through democratic means as opposed to violent revolution.

So in little more than a year, the economic conservative has become a socialist. The essay in The Monthly is such a poor piece of work and has been so widely ridiculed and debunked, it is difficult to believe he imagined it would be regarded as a serious contribution to the debate about the global financial crisis.

It is above all a political document designed to ensure that Australians accord no responsibility to Rudd for our present economic problems. Everything is the fault of the global financial crisis. Nothing is to be blamed on St Kevin.

We saw a good example of this strategy this week. The gross domestic product numbers for the December quarter showed growth was negative. It was perfectly plain that the $10 billion December cash splash had been almost entirely saved: household savings were higher than they had been for many years.

So the cash splash had failed as an economic stimulus. What was Rudd's response? "We cannot swim against the tide."

As usual he is deliberately confusing impotence with incompetence. Just because our Government is bungling its economic response does not mean it is powerless. Rudd has chosen to borrow tens of billions of dollars to spend in ways that simply will not deliver an effective boost to the economy: too little bang for too much buck.

These borrowings will undoubtedly result in higher taxes and higher interest rates in years ahead. .....

skippy - people I know are quite disenchanted with ruddy.
Did you notice his wife gave herself a $1 million bonus ?


turnbull writes well. logical correct discussion