Wednesday, October 01, 2008

Why the US financial package should be rejected

In a post on my Management Perspectives blog, Why the US financial package should be rejected - and why Australia will ride out the storm, I have tried to extend my analysis of the current financial crisis.

I suppose the key point that has been evolving in my mind is that the crisis provides Australia an opportunity to do new things. I would be interested in your comments.

Postscript

I wrote this post last night for publication this morning. Listening to all this morning's coverage, there is a strong smell of continuing panic. The Sydney Morning Herald's headline Fortress Australia describes local reactions.

I am grateful to Bruce MacEwen for his post How Big & Bad Is It?

To begin with the following graphic from Bruce. Over the last thirty two years, the finance sector's share of total US wages and salaries has risen from just over 5 per cent to 9.8 per cent. During that same period, its share of US corporate profits has risen from around 17 per cent to 27.4 per cent.

These numbers indicate the direct size of the US finance sector relative to the rest of the economy. It's big.

Turning now to the relative size of the proposed rescue package, I am again grateful to Bruce for the following information from the New York Times.

The key components of the $US3.13-trillion 2009 US federal budget are:

  • National security: $738 billion
  • Social Security: $651 billion
  • Medicare/medicaid: $632 billion
  • Everything else: $1,112 trillion
  • Treasury rescue plan (estim.): $700 billion

You can see just how big the package is relative to the overall size of spending.

2 comments:

Small Business USA said...

Yet to hear our Wall Street, Journalists and Washington friends this is a drop in the bucket when we are waisting so much money on social programs...

Jim Belshaw said...

Hi David. Depressing, isn't it? One of the reasons I have firmed up against the rescue plan is that, as I understand the structure,it is so big relative to the size of the US budget as to cripple the country's capacity to do other things.