Don’t kid yourself, the iron ore crash is the end of the great Australia boom and the beginning of the great Australian bust.
Australia’s terms of trade are being put to the sword and worse is ahead. Iron ore will be at $30 by year end and the two coals will fall in sympathy though much less so. This is 40% of the terms of trade in outright and permanent collapse and by the time prices work they way through the quarterly and longer term contact system it will look something like this:
This means a reversal of the pro-cyclical Australian economic growth machine. Normally we see a flow of commodity income into higher wages, higher stock prices and tax takes supporting offshore borrowing by the banks to fulfill bottomless demand for mortgages which raises the housing transactions that drive state government revenue and house prices that underpin much of the spending in the giant services economy.
