Cross-posted from Paul Wallbank.
“The Golden Era of Credit is Now Over” writes Maximillian Walsh in the Australian Financial Review today.
Max’s story relies mainly on the April edition of Bill Goss’ monthly newsletter where the founder of investment firm PIMCO writes about the talents of today’s market wizards;
All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience.
The credit boom of the last fifty years created many winners – investment bankers, property owners and those who sell things funded by easy finance.
One of the best examples of a fortune made through easy credit is Australia’s Gerry Harvey. Here’s one of Gerry’s ads from 1979.
Hurry into Norman Ross. You can use Bankcard or our easy credit system. You can even use cash!
Three years later Gerry was sacked from the business he founded and he set up Harvey Norman, promising John Walton and Alan Bond “I’m going to beat you.” By the end of the 1980s he had.
Gerry’s success is built on easy credit and the rise of the consumerist economy. From the hire purchase plans of the 1960s, the introduction of credit cards in the 1970s and the banking deregulations of the 1980s, Gerry was able to sell goods to eager consumers who could worry about paying later.
In the 1990s and 2000s a happy coincidence of easy credit and cheap Asian manufacturing – note the prices of electrical goods in that 1979 commercial – saw businesses like Harvey Norman grow exponentially.
Mao promised the Chinese a chicken in every pot, Gerry delivered a plasma TV in every Australian bedroom.
Today, as Bill Goss says, the credit party is over. Last drinks were called with the failure of Lehman Brothers on September 16th, 2008.
However this hasn’t stopped the Aussie economy, as the Sydney Morning Herald reports today Sales growth cheers Gerry Harvey.
In the same edition the SMH reports the government science organisation, the CSIRO, is cutting hundreds of staff. Notable in that article is a comment from the organisation’s CEO;
Dr Clark said more than 2000 companies collaborated with CSIRO but that industries were reducing the amount spent on research.
So at a time when the Australian economy is struggling with the effects of a high currency and exhibiting all the symptoms of the Dutch Disease, consumers are spending more on TVs and sofas while business cuts investment in research and development.
Karl Marx famously predicted that the last capitalist will be hanged with the rope they sold, Australians have a bunch of Harvey Norman branded credit cards for their financial seppuku.