Australia faces worse crisis than America

[wayneL]

While Aussies have been soothing themselves that it will not be as bad in Oz as elsewhere, folks looking from the outside have a different view:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/30/cnoz130.xml

SNIP:

It is now clear that the Antipodes are tipping into a serious downturn. Australia's NAB business confidence index fell to its lowest level in seventeen years in June. New Zealand's central bank began to cut interest rates last week on fears that the economy may have contracted in the second quarter, and is now entering recession. Housing starts slumped 20pc in June to the lowest since 1986.
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Gabriel Stein, from Lombard Street Research, said Australia could prove vulnerable once the global commodity cycle turns down. It has racked up a current account deficit of 6.2pc of GDP despite enjoying a coal, wheat, and metals boom, effectively spending its resources bonanza in advance. Household debt has reached 177pc of GDP, almost a world record.

"It is amazing that in the midst of the biggest commodity boom ever seen they have still been unable to get a current account surplus. They have been living beyond their means for 10 years. What worries me is that productivity growth has been very low: they have coasting after their reforms in the 1990s," he said.

Australia's Reserve Bank has had to grapple with vast inflows of Asian capital, especially Japanese money fleeing near zero rates at home. Short of imposing currency controls, it would have been almost impossible to stop the inflows.

"The easy money went straight into real estate," said Hans Redeker, currency chief at BNP Paribas.

"Australia will now have to generate 4pc of GDP to meet payments to foreign holders of its assets," he said. This is twice as high as the burden faced by the US.

 

[Sean K]

We better start lowering interest rates FAST!

More baby bonusses and first home buyer grants too!!

And more no interest free loans from Harvey Norman so I can get that second plazma!

 

[prawn_86]

I have to agree. Im no economist, and i dont know much about govermental finance, current accounts, GDP and the like, but if we cant turn a 'profit' in the last 5 years, what hope do we have if commodity prices fall (which some already have).

Once again, absolutely useless governments, lacking a long term vision.

I just hope that i will be able to earn/make enough money to ensure that i and my family are shielded from pathetic politicians and their short term decisons...

 

[doogie_goes_off]

Yes true, however the chances are low due to inflation staying in the higher end of the reserve bank 'preferred operatring band'. I'd say a .25% cut in October at earliest. Will be interesting to see car sales etc for the previous quarter, I'M GUESSING that it will be down as peoples belts tighten. I have noticed a blitz in car advertising - I reckon sales are slipping.

 

[nioka]

This article echoes my thoughts and worries 100%. I have just copied the article and will post it to my local (Labor) member.

 

[wayneL]

This article echoes my thoughts and worries 100%. I have just copied the article and will post it to my local (Labor) member.

Ambrose is never far off the mark, one of the very few economic journalists worth reading; a paragon in a sea of sh!te!

 

[Uncle Festivus]

Australia's Reserve Bank has had to grapple with vast inflows of Asian capital, especially Japanese money fleeing near zero rates at home. Short of imposing currency controls, it would have been almost impossible to stop the inflows.

The dreaded Yen carry trade rears it's ugly head a bit closer to home this time - importing another countries product of mismanagement to compound our own! Are we any better off with the so called commodity boom? Should our living standards get lowered so that Chinese can live like us, or are we all denegrating to the lowest cost provider while the rich get richer?

If the Aussie dollar can't make it to parity with the US dollar under these conditions it never will; in fact a dramatic downward re-rating is not far off I think?

 

[Sean K]

Wayne, while we're in for a downturn, do the stats above add up to 'worse crisis than America'. ??

 

[wayneL]

Wayne, while we're in for a downturn, do the stats above add up to 'worse crisis than America'. ??

I think for the middle classes it does. Oz's battlers will do better than Yankee or Pommie battlers, but the middle classes worse. The well healed I'm not too sure about at this stage.

 

[It's Snake Pliskin]

I think for the middle classes it does. Oz's battlers will do better than Yankee or Pommie battlers, but the middle classes worse. The well healed I'm not too sure about at this stage.

Why do you say that Wayne? What sets us apart from the Poms or Yanks?

 

[Bushman]

Australia has chronically under supplied on its infrastructure requirements over the last twenty years. While a current high inflationary environment means that infrastructure projects are on hold, Qld and WA state governments are cashed up and waiting on the sidelines. Could this be a rainy day industry to tide us over any commodity bubble bursting?

Housing definitely does not have the same speculative pressure as America. We are also only now catching up to the under supply of commercial buildings in Australia. The credit crunch will just delay that process as well, meaning that the next property cycle will be stronger, for longer.

I don't see it I'm afraid. To me we are on for +10 years of nation building as we decouple from the US and become the resource/service providers of choice for Asia.

Now if someone could just figure out a feasible value adding industry for our resources then imagine the profits - LNG, ore benefication, green diesel, fertilizer etc. That is where we fail IMO- we dig it up and ship it out with value adding anywhere along the chain. High dollar is the major impediment at the moment which is quite the irony.

Let fly. I know that negative sentiment is di rigueur at the moment.

 

[prawn_86]

While i agree with you in theory Bushman, why is it that the nation/government has not been able to post a surplus/profit and keeps racking up debt?

Now should be the time to be paying off debt, not increasing it...

 

[Bushman]

While i agree with you in theory Bushman, why is it that the nation/government has not been able to post a surplus/profit and keeps racking up debt?

Now should be the time to be paying off debt, not increasing it...

The royalties are all at the state government level. Should be at a Federal level IMO. That would help with debt reduction. Liberals also loved tax cuts and big spending programs (Collins Class submarines anyone) and the like. Plus border protection, Iraq, baby bonus, first home owners grant and other such soma for the indebted classes.

If Kevin07 does prove to be a real inflation fighter then maybe debt can be reduced? Who knows.

I think we should adopt Federalism, get rid of the cash hoarding states and thus truely build up our nation to profit from our unique assets base and geographic location. Sydney/Melbourne should be the conduits of finance between east and west. Qld/WA should set up real industries rather than just open pit mining. Keep immigration flowing (even though it will be inflationary in the short to medium term). Get rid of all the bullsh*t tax cuts. My 2c

 

[son of baglimit]

hasnt it been said many times that the high commodity prices are due to shortages, part caused by the inability of australian ports to get the ore etc onto the waiting ships quick enough. plenty of stories of bottlenecks, and only recently those problems being fixed with expansion of those ports.

 

[chops_a_must]

The royalties are all at the state government level.

That's crap.

Many a project has been canned here because the feds have made it not worth the cost.

You only have to look at the Northbridge link plan being held over for another 10 years because there isn't the money to put into it. Reinvestment isn't possible when royalties are going straight to parasites like SA.

 

[aleckara]

The royalties are all at the state government level. Should be at a Federal level IMO. That would help with debt reduction. Liberals also loved tax cuts and big spending programs (Collins Class submarines anyone) and the like. Plus border protection, Iraq, baby bonus, first home owners grant and other such soma for the indebted classes.

If Kevin07 does prove to be a real inflation fighter then maybe debt can be reduced? Who knows.

I think we should adopt Federalism, get rid of the cash hoarding states and thus truely build up our nation to profit from our unique assets base and geographic location. Sydney/Melbourne should be the conduits of finance between east and west. Qld/WA should set up real industries rather than just open pit mining. Keep immigration flowing (even though it will be inflationary in the short to medium term). Get rid of all the bullsh*t tax cuts. My 2c

I actually think the opposite. Everything I see the government doing for me I see the states provide. The train services, the hospitals, the roads, police, bascially any government service that costs money.

Now I live in NSW where they are talking about 'borrowing' money to fund transport projects. I would state that most of the tax that people in NSW pay goes to the Federal Government. Why is my tax going there and they have a surplus while the state government have to borrow money and pay interest. That interest seems like a very large bureaucratic cost to me.

I agree with the article. Australia is like a mini America living past its means.

 

[gfresh]

Not like the poms to pay us out is it ? touch of jealousy perhaps?

 

[nioka]

I actually think the opposite. Everything I see the government doing for me I see the states provide. The train services, the hospitals, the roads, police, bascially any government service that costs money.

Now I live in NSW where they are talking about 'borrowing' money to fund transport projects. I would state that most of the tax that people in NSW pay goes to the Federal Government. Why is my tax going there and they have a surplus while the state government have to borrow money and pay interest. That interest seems like a very large bureaucratic cost to me.

I agree with the article. Australia is like a mini America living past its means.

As another new south welshman I agree with you and would like to add "and they are selling OUR electricity, claiming that they need the money".

 

[doogie_goes_off]

They have every right to pay out on us after the liberals current accout deficit has been up the kyber for 10+ years. Our value adding industries are few and far between and every time a project is put up some nay-sayer NIMBY knob says no way, when all that is really required is for governments to facilitate the environmental and social considerations necessary to make capital projects fit into misguided self serving welfare sucking communities.

 

[pepperoni]

I agree with the article. Australia is like a mini America living past its means.

We are carrying on like a mini america, but we dont have the industry or critical mass of the US to back it up.

When it comes to the crunch we will go down harder and faster than most unless the forever commodities boom eventuates.

Howard came in at an opportune time and fooled everyone ... including himself toward the end.