Inflation

[over9k]

My point was that aus's economy has been in the doldrums for quite some time and is showing no sign of improving. If this is how well (poorly) it has done when U.S markets went full steam ahead then it doesn't take much to imagine how bad things will be if U.S markets stagnate.

And that's before we even think about china being toast and the pivot over to india being... limited.

There's very little that makes me feel positive about aus's future at all. In fact the fact that things are so dire may only contribute to the immigration/housing ponzi problem as it'll be the only thing to stop the economy falling over completely.

 

[divs4ever]

immigration/housing ponzi problem

and how long can that last ?
in past decades i would laugh and say we have hundreds of thousands of square miles of land that is barely inhabited , but regulatory hurdles and insurance premium gouging brings that down markedly even before our crumbling infrastructure threatens to trap us into about ten 'mega-cities ' surely those gullible migrants are going to see Australia as a less attractive destination in the coming years ( especially if robotics and technology sucks up most of the non-government jobs )

 

[over9k]

and how long can that last ?
in past decades i would laugh and say we have hundreds of thousands of square miles of land that is barely inhabited , but regulatory hurdles and insurance premium gouging brings that down markedly even before our crumbling infrastructure threatens to trap us into about ten 'mega-cities ' surely those gullible migrants are going to see Australia as a less attractive destination in the coming years ( especially if robotics and technology sucks up most of the non-government jobs )

Even if they removed all the red tape, aus's immigration policy is, per capita, the highest in the world. We're talking the equivalent of building the entire city of canberra (or the gold coast) every year.

It's not a supply side problem.

 

[divs4ever]

it would be a demand side issue if the infrastructure can't cope with the population density rather quickly .

rolling black-outs/brown-outs certainly take the sparkle out of doing business ( i remember working during those periods in the past , it would be even worse if the climate crazies win out on 'fossil fuels )

 

[sptrawler]

well the markets SHOULD be a reflection of the economy , after all they do represent a selection of businesses and better yet still smaller shareholders own a piece of that business a guide to the sentiment on that business , a solid business SHOULD get good investor interest , and a badly run business should get little shareholder interest until it shapes up

now sure some business have increased their share price over 10 times in the last 12 years ( TNE for example ) while others have dropped more than half their share price ( AMP for example ) so the question must be is the underlying Australian economy travelling all that well

as mentioned by some earlier in this thread without rising house prices and mineral exports maybe not , in earlier times Australia used to ride on the sheep's back and yet today we barely mention our wool and cotton industries

My daughter in laws father had a woolpressing business until very recently, he said the wool industry these days is a cottage industry compared to what it was 40 years ago, but back then we had wool mills etc and synthetics were in their infancy.
It is hard to fathom where Australia is going to get a viable industry up and running, input costs are just ridiculously high.

 

[Dona Ferentes]

My daughter in laws father had a woolpressing business until very recently, he said the wool industry these days is a cottage industry compared to what it was 40 years ago, but back then we had wool mills etc and synthetics were in their infancy..

only 1 mill still going

Our Story

For 150 years, Waverley Mills has been crafting Australia’s finest textiles at our historic weaving mill situated on the idyllic banks of Distillery Creek in Launceston. We are the last mill of our kind in Australia and are proud to spin, weave and finish each textile here onsite. Watch the...

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.
.... though what this has to do with the topic of inflation is moot.

 

[sptrawler]

Yes good point.
Maybe inflation was easier to get under control, when we had value adding industries, rather than most of the workforce working in the service sector or public sector.
Which leads to an economy that passes the inflation down the line, until it reaches someone who can't pass it on, probably those on welfare and or renting.
Then the Govt pumps in more money, to prop it up and off the cycle goes again.
Maybe a different approach needs to be taken, to make our tax system, more in line with our current economy?
No point in being mainly dependent on income tax, when jobs are diminishing and only using interest rates to dampen demand, when not everyone has a loan and even then only the ones who can't pass the interest rise down the line suffer.
Seems to me that the system is too clunky, for a very basic economy, that really only exports one commodity.

 

[wayneL]

...

And if I want to do in weekly installments $4160. C***s

Not a bad rort for the council when people are struggling. 19.5% "penalty interest" simple, which is substantively more if you calculating on a reducing interest basis.

 

[JohnDe]

I think that people are looking at inflation the wrong way. Today’s economy is very different to the 90’s and even the early 2000s.

Australia is increasing its manufacturing industry, check out the figures and go for a drive in the industrial areas.

Our exports are sent to many more countries, which helps reduce our dependence on a few. Take China’s example, they tried to cripple us by banning some of our biggest exports but failed because we found new markets.

People are concerned about the US dollar and debt, that’s been the case for 30 years. The US is still one of the strongest economies in the world, it’s also one of the most innovative. Anyone know how much gold and oil they have in reserve?

The biggest problem in the world is not inflation, even though that is a big issue, the biggest problem is all the negative energy, the doom and gloom that we’re constantly being bombarded with.

Inflation is bad for some, good for others. Just ask the investors of property.

And politicians have been the biggest source of the problem, causing negative effects and poorly designed taxation. They have been hijacked by every minor group with a complaint and a grievance, and tried to impose every single action that those groups have come up with. It’s taken 20 years but what we see now is the result.

 

[sptrawler]

I think that people are looking at inflation the wrong way. Today’s economy is very different to the 90’s and even the early 2000s.

Australia is increasing its manufacturing industry, check out the figures and go for a drive in the industrial areas.

Our exports are sent to many more countries, which helps reduce our dependence on a few. Take China’s example, they tried to cripple us by banning some of our biggest exports but failed because we found new markets.

People are concerned about the US dollar and debt, that’s been the case for 30 years. The US is still one of the strongest economies in the world, it’s also one of the most innovative. Anyone know how much gold and oil they have in reserve?

The biggest problem in the world is not inflation, even though that is a big issue, the biggest problem is all the negative energy, the doom and gloom that we’re constantly being bombarded with.

Inflation is bad for some, good for others. Just ask the investors of property.

And politicians have been the biggest source of the problem, causing negative effects and poorly designed taxation. They have been hijacked by every minor group with a complaint and a grievance, and tried to impose every single action that those groups have come up with. It’s taken 20 years but what we see now is the result.

Manufacturing in industrial areas aren't usually for export, which would improves our balance of payments, it is usuall manufacturing something that someone else in the area wants a shed, patio, etc.
Which when the input cost go up, the price for the article goes up, then the public servant, or teacher wants a payrise to pay for it.
There is no net income coming into circulation, just money being printed and shuffled around.
Inflation makes doing business in Australia more expensive, it is a big problem, because sooner or later it affects our lifestyle and ability to fund our services.
Doom and gloom always surfaces when times become hard, the big issue is trying to paint a positive picture, that is believable.
You're right about the politicians, neither side inspire confidence.

 

[qldfrog]

My daughter in laws father had a woolpressing business until very recently, he said the wool industry these days is a cottage industry compared to what it was 40 years ago, but back then we had wool mills etc and synthetics were in their infancy.
It is hard to fathom where Australia is going to get a viable industry up and running, input costs are just ridiculously high.

40y ago, in 1984, I would dare to say that synthetics were well past their infancy..what you see is a technological business collapse of a country, not a technological revolution change over

 

[JohnDe]

Manufacturing in industrial areas aren't usually for export, which would improves our balance of payments, it is usuall manufacturing something that someone else in the area wants a shed, patio, etc.

You might want to check the current figures, and future orders.

 

[sptrawler]

You might want to check the current figures, and future orders.

Well it will be good if we can turn it around, but the ABS trend does show quite a long term trend, I'm all for us manufacturing again even if only for our national security.
With regard inflation, well we need a broader tax base and jobs base, having the majority employed in the service and public sector makes us very exposed to external influences.
What future industries are picking up, if you don't mind me asking? I do like to follow Australian success stories, recently I've been burnt on a few e.g Potash, clean energy technologies, battery technology, hydrogen production.

 

[Smurf1976]

though what this has to do with the topic of inflation is moot.

Where it's a problem is when inflation itself becomes the barrier to manufacturing.

https://www.heraldsun.com.au/news/tasmania/100m-hobart-nyrstar-zinc-works-upgrade-on-hold/news-story/56a418e7d2c1996a1e77898f19fa084c

The $400m modernisation of Nyrstar’s Hobart zinc smelter has been put on hold as global economic conditions deteriorate and costs rise.

In short the cost of the project has increased by about $100 million and for an industry that exports almost its entire production in competition with countless others that's a problem.

Bearing in mind this isn't some small operation. It's the third largest such plant in the world, at least it was a few years ago, and is by far the largest industrial business in Tasmania in terms of the value of production which at present prices is a bit over $1 billion a year. But that's revenue not profit, and a $100 million cost blowout on the upgrade is a problem given Australia's a relatively expensive place to make anything due to input costs.

I'm told various other industrial projects are running into the same problem. Cost of construction blowing out and either exceeding available finance or making them unviable.

Same with existing manufacturing, like this:

 

[Smurf1976]

View attachment 182009

The "resources" category is heavily dominated by three commodities all of which are mined and two of which have a very uncertain future.

Iron ore is the largest one.

Coal second largest and has a very questionable future. Volume won't die out overnight but it's not hard to see an oversupply and price decline scenario occurring.

Gas third largest and we just don't have the resources to sustain production rates in the absence of major new discoveries. Being the world's largest gas exporter, when you've only got 1.3% of the world's gas, has obvious limits.

Manufacturing, services, agriculture and other random products (eg artistic and intellectual exports) are all inherently far more sustainable.

 

[sptrawler]

The "resources" category is heavily dominated by three commodities all of which are mined and two of which have a very uncertain future.

Iron ore is the largest one.

Coal second largest and has a very questionable future. Volume won't die out overnight but it's not hard to see an oversupply and price decline scenario occurring.

Gas third largest and we just don't have the resources to sustain production rates in the absence of major new discoveries. Being the world's largest gas exporter, when you've only got 1.3% of the world's gas, has obvious limits.

Manufacturing, services, agriculture and other random products (eg artistic and intellectual exports) are all inherently far more sustainable.

Which leads to the question how do we maintain the current lifestyle, without printing money, which in itself is inflationary without a proportional increase in output.
IMO sooner or later hard decisions are going to have to be made, either subsidies the establishment of industries where we have at least the resources available to source here, devalue the currency, or increase the taxes IMO.
But no doubt all have inflationary ramifications, one way or another.

 

[IFocus]

Construction spending in the US on manufacturing plants.

 

[over9k]

Construction spending in the US on manufacturing plants.

View attachment 182014

Yep this was set in motion quite some time ago. A huge part of it is semiconductor (microchip) manufacture.

This is what I was talking about previously re: war requiring a restructuring of the economy. In this case, when chips are so prevalent in absolutely everything, military hardware no exception, you can see how some thinking at the strategic level very quickly exposes a major strategic vulnerability to anyone's modern war machine if they cannot access microchips. This means you either secure your supply of it (and doing that with taiwan would, shall we say, not be easy) or if it's something like chips that can be manufactured onshore, you onshore it.

Once this process is complete taiwan is in an extremely vulnerable position. Whether china will try to take it or not remains an active question and whether other countries, not least of all the united states, go to war to stop them if they do is also another open question.

Allying with the united states and cancelling all those sub contracts with france and buying american ones instead (along with F35's and a few other toys) was one of the very few very good decisions our elites have made lately. I'd like to think there was some kind of reciprocal economic arrangement in place to sell the yanks lithium or cobalt or copper or whatever they need for both microchips and batteries and thus at least some of china's iron ore demand will be offset by a pivot in both what will be mined and who it will be sold to but I think only time is going to tell on this.

Should something happen to the world's chip supply then obviously the price of what can be manufactured will soar, only exacerbating inflation problems further. Ironically, if war does break out, those factories will, until the war is over, be used for military hardware manufacture, only reducing the civilian supply even more, only exacerbating the inflation problem even more.

 

[over9k]

40y ago, in 1984, I would dare to say that synthetics were well past their infancy..what you see is a technological business collapse of a country, not a technological revolution change over

Bingo from frog. This country moved to the bottom of the supply chain. Dug up and sold raw materials for the rest of the world to turn into things to sell back to it.

If something happens to that supply then it can't be replaced by increasing onshore production. Ergo, inflation.

More significantly, supply side inflation, inflation that cannot be fixed with some interest rate rises.

 

[over9k]

Where it's a problem is when inflation itself becomes the barrier to manufacturing.

https://www.heraldsun.com.au/news/tasmania/100m-hobart-nyrstar-zinc-works-upgrade-on-hold/news-story/56a418e7d2c1996a1e77898f19fa084c

In short the cost of the project has increased by about $100 million and for an industry that exports almost its entire production in competition with countless others that's a problem.

Bearing in mind this isn't some small operation. It's the third largest such plant in the world, at least it was a few years ago, and is by far the largest industrial business in Tasmania in terms of the value of production which at present prices is a bit over $1 billion a year. But that's revenue not profit, and a $100 million cost blowout on the upgrade is a problem given Australia's a relatively expensive place to make anything due to input costs.

I'm told various other industrial projects are running into the same problem. Cost of construction blowing out and either exceeding available finance or making them unviable.

Same with existing manufacturing, like this:

For clarification, this is an excellent example of my previous posts re: interest rate rises being a very blunt instrument and actually reducing supply somewhat as well.

Previously, if you could borrow the money at, say, 1%, then if you had an investment in zinc that was going to yield you, say, 5%, then the investment makes sense and would go ahead and thus increase the supply of zinc.

But if you can yield 6% just sticking the money in the bank then investing it in a zinc factory would be moronic. Even if the yield was the same, the return in a savings account (so to speak) is risk free, so you still wouldn't do it.

It's in this way that while a rate rise will reduce demand for stuff, it also makes at least some supply side investments no longer viable even if we assumed demand for the product remained the same.

It's in this way that you can see how a supply side restriction is basically the nightmare scenario for policy makers because the only way to improve it via monetary policy is to keep interest rates low enough for, say, a new zinc factory to be viable, and that means that your demand side remains too high.

The only way to fix it is with some kind of subsidisation and that money has to come from the tax pool, so either taxes increase and everybody gets pinched that way or they're diverted from something else the government is funding and that goes (or has to be paid for out of your own pocket) instead.

The only other option is for the government to borrow the money to fund the subsidies (like it's been doing for 15 years) and that particular piper must be paid eventually.