ABC Learning Centres Run Out of Lifelines

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“The British are utterly doomed,” we told ASI editor (and British expat) Kris Sayce.

“Correct.”

“Why utterly?” asked D&D editor Al Robinson.

“Well,”we replied, “they have the same bad bank problem as America. They have even more debt as a percentage of GDP. And the housing bubble there was worse. Plus, the weather is awful. We’re all doomed. But they’re utterly doomed. It rains all the time.”

“Oh.”

Here in Australia, ABC Learning Centres ran out of lifelines yesterday. The company owes creditors over $2.2 billion. People want their money back now (ANZ on the hook for $182 million, Westpac for $200 million). ABC Learning Centres don’t have it.

What happens now? Will all those kids in the day care centres be kicked to the curb? Thrown out with their stuffed animals, runny noses, and Matchbox cars? This first world depression (WDI, to use Bill’s shorthand) doesn’t discriminate on the basis of age, race, gender or the ability to tie ones shoes. It is an equal opportunity unemployer.

With state-subsidised child care in Australia, you’d think day care would be a good franchise to own. It’s government-guaranteed money. You just need to learn how to change a few nappies and deal with burp stains. But if no one rushes into the marketplace to take up ABC Learning Centre’s work, we’re sure the uh…Nanny State…will come up with something.

All joking aside, perhaps we are moving toward a more corporatist phase in the uneasy relationship between markets and government regulators. Markets and governments exist alongside one another to allocate capital and resources in the economy. But it looks a backlash against markets is forming on the political Left.

The trouble is, the State struggles (sucks) at delivering even basic services these days. If you thought the government had trouble getting you your mail on time, wait until it gets into the mortgage business. But it probably WILL get into the mortgage business—and a lot of other businesses besides. Wait…wasn’t it already in the mortgage business with Fannie and Freddie? Oh yeah…

As investors, we’re going to have to be careful that the businesses we own aren’t blindsided by new government forays into the market. However in a corporatist world, the State acknowledges the limits of its own operational competence. It subcontracts key services out to capable, for-profit businesses. There may be opportunity in that.

Not got get too far off the beaten track, but it’s quite possible we’re totally wrong about the decline of the fiscal welfare/warfare State. If anything, the State seems to be getting more powerful. More people vote. And there’s a lot of staying power in an institution that can command its revenues (taxes) through coercion (guns, jail). What you can’t take you have to borrow (bonds), but there are guns for that sort of thing too (nuclear weapons).

“Are the markets still crashing Dan?,” asked our friend Adam at the coffee shop.

“It looks like it. But it’s a slow-motion crash.”

“Nooooooooooooo!”

“Yep.”

“I read in the paper that they reckon unemployment is gonna hit nine percent. It’ll be like the last recession in 1992. Maybe worse.”

“You’re an Aussie. How’d that one go?”

“Sat on the couch a lot. Watched a lot of Donahue and Bert Newton on the telly. Got to the beach a fair bit.”

“That doesn’t sound so bad.”

“Wasn’t all bad. Life was a bit slower. Simpler. Didn’t pay very well though.”

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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4 Comments on "ABC Learning Centres Run Out of Lifelines"

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beyondtool
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Yeah tell me about it, straight out of school and the only opportunity was study or fight for a low paid hospitality job. At least centerlink paid well back then. It’s going to be a tough time for our spoilt youth..

charles
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Funny isn’t it, the state underwrites the mortgage business and you carry on like this, not that I don’t agree that the government would have trouble, but it’s funny isn’t it. The most successful bank in Australia is an ex government one (funny they are no in the list above). Doesn’t it pull you up a little and cause you to wonder if something has been missed. Perhaps the big advantage of capitalism is the ability to default on debt without effecting the sovereign debt. The child care centers have been built, they are not going away just because a… Read more »
govt employee
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Quote. “The trouble is, the State struggles (sucks) at delivering even basic services these days.” Yes it does. Because the general population still thinks that its wasting tax payer dollars and that they’re all slack leaning on shovels etc. The result is the govt keeps reducing its spending in an effort to buy votes. Its about time the public realised a few things. The govt provide the best cheapest services in the world. Its staff are under paid and over worked. Give us break, start supporting us, the govt may inject some money where its needed and you’ll get better… Read more »
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