Last year Australians watched in disbelief as the financial markets of Europe and America faltered and collapsed. What started as a credit crunch on Wall Street spread round the world, plunging economies into recession, destroying trillions of dollars of wealth and putting millions of people out of work. Now it's finally hit home in Australia.
For months we were told it couldn't happen here, that China's hunger for our coal, iron ore and nickel would shield us from the worst of the financial storm. But now we know that China's economy is in deep trouble too — its steel industry cutting back, its factories closing. And our resources boom has gone bust. In the last six months, prices for the metals Australia exports to the world have fallen by half. Suddenly, being linked to China looks like a minus not a plus.
Against this backdrop, business reporter and author, Paul Barry travels to Queensland, a state which has been growing as fast as the Asian Tiger economies, to see what's happening at the coal face.
His report will shock you.
The state's biggest regional centre, Townsville, is being rocked by layoffs of hundreds of workers, as resource companies cut costs and production or close down mines. The knock-on effects are already being felt as companies that supply the mines also start shedding staff. Local businessman Allan Pike believes unemployment will double within months, to 8 or 9 per cent or more.
Business finance is drying up as companies scramble to secure funds from banks that no longer want to lend. Having lost their shareholders’ money in risky margin loans and subprime mortgages, our banks are now starving enterprises that employ ordinary Australians.
Carey Ramm, principal economist with the AEC Group tells Four Corners, "Productive enterprises that employ thousands of people are struggling to refinance. And you know that's really the crux of the matter. We've got banks behaving very badly."
Property companies and builders are being forced to liquidate assets or go under. Big names in retail are shutting stores to cut costs or simply closing down. Big investors are getting margins calls again as the stock market heads south once more. And mum-and-dad investors are losing too.
Another collapse — of Townsville's Storm Financial — threatens to wreck the lives of thousands of average Australians who took the company's advice and borrowed millions of dollars to invest in the share market. With prices down nearly 50 per cent from the peak, many have lost their homes and life savings, because they believed the boom would go on for ever.
Gary Dietrich is a Storm investor: "I knew there was a risk with the stock market but they kept assuring us it would have to be a devastating loss for a long time before we were even in any sort of trouble."
Gary and his wife, Pauline, now live in a caravan parked in their son's front yard.
It's a mess and it's only just the beginning.
In Four Corners' first program of 2009, Paul Barry talks to … business giant, Gerry Harvey, Risk Analyst guru, Satyajit Das and the businesses and people in the eye of this financial storm. The way we got here is no longer so important – the pressing question for those being battered is – how and when are we going to get out of it?
"The Perfect Storm", reported by Paul Barry when Four Corners returns on Monday 9th February 2009 at 8.30 p.m. on ABC1. This program will be repeated at 11.35pm on Tuesday.
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