August 2008 Newsletter

How Are The Economies Faring Down Under?
Not Very Well

It remains an absolute fact that when the United States sneezes, the rest of the world catches pneumonia. In a nutshell, that is where the economies of Aussie and Kiwiland are in relation to Uncle Sam. For instance, in New Zealand during the past six months, nearly half of the finance companies (who all borrowed short from the public to lend long) have gone out of business. They have left the investors (not the greedy owners) holding the bag for $billions. Where was most of the money “invested?” In real estate deals that are now nearly worthless. Sounds familiar?

Australia is a little better off due to the huge prices China is currently paying for minerals which Australia has in spades. I say currently, because I predict that within six months, China will implode because of a huge exodus of manufacturing. This is known as “Reverse Globalization” and it will be helped along by the world-wide recession. Once the shine is taken off the Australian mineral boom, the Australian economy will sink to the same level as New Zealand. The citizens “down under” are feeling the pinch just as are Americans with declining property values, higher fuel costs and banks reluctant to lend money to anyone with less than Triple A credit.

Every day, the Australian and New Zealand media are reporting job retrenchments across all sectors of their economies and increases in the cost of living.

No country will be immune to the effects of the current recession. Last month, the latest round of GATT talks reached an impasse which suggests to me the industrial revolution of the economically advanced nations of the world in outsourcing its manufacturing is heading for a rapid reversal. Industry is returning to its roots. Nationalism will fuel future trade deals along with a return of the first world doing business with its traditional trading partners. Australia, and New Zealand—once that nation is freed from that lesbian prime minister Helen Clark’s Labor government, can rely on the United States taking its traditional role as a huge ally to continue developing trade with one another. Hello Oceania, European Union, Central & South America and good bye and good riddance to Asia!

Prosperous times for the United States, Australia and New Zealand are not that distant. Prosperity can be speeded up once America pulls out of Iraq and its $1 trillion burden on the U.S. economy. Also, if this disgusting, debilitating disease known as political correctness and sucking up to dictators can be eradicated from international diplomacy, that also will help.

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Crandall Takes On Airline Woes

Bob Crandall, former board chairman of American Airlines, raised a great many eyebrows in aviation and government circles when he called for partial reregulation of the U.S. airline industry. Crandall, one of the most successfull and innovative executives in airline history (he created the frequent flier mileage program which today is one of the most important promotional tools in the airlines’ marketing arsenal), is unbothered by going against the grain of idealogues who believe in unrestricted free markets now and forever. Speaking recently at the Wings Club in New York, Crandall pointed out that unlike many industries that flourish in a free market atmosphere, airlines are not one of them.

Crandall makes a lot of sense. Full deregulation does not work because airlines, like electric companies, are more of a public utility than organizations operating wholly in a free marketplace.

Look what happened to the electric power industry when it was deregulated in many states. Hustlers like Enron entered the industry and began manipulating the markets and rates. Service went down and rates went up. Who can argue with a straight face that airline service is better today than thirty years ago when the CAB supervised civil aviation. At that time, under government regulation, passenger fares and cargo rates were far more rational. The CAB allowed reasonable profits for both passenger and cargo operations.

"Crandall pointed out that
unlike many industries that
flourish in a free market
atmosphere, airlines are not
one of them."

Crandall shares my view that unfettered market forces have distorted pricing systems. Although he focused primarily on passenger fares, Crandall noted that cargo rates have become ridiculously cheap. They actually are often lower than when the CAB set rates thirty years ago!

When fuel charges are higher than the cargo rate itself, rational pricing has gone out the window.

Perhaps most importantly, the U.S. has lost its will to make basic changes in a system that simply isn’t working. The FAA has been “reviewing” proposals made ten years ago to improve its services, without taking any action.

Hopefully, the next Administration, whether Democratic or Republican, will create and implement a national transportation program under which the airline industry can find its way back to financial health while providing passenger and cargo services to satisfy the customer.

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Julian Keeling