CEO super bear: Australia’s financial crisis is here

We always love the work of Freelance CEO Matt Barrie not least because he often uses MB charts:

Australia’s property market enjoyed a golden run for years on end — but according to one Aussie CEO, those days are now gone for good.

He said the combination of our weakened housing market coupled with global market trends meant we were entering a “new realm” of economic misery.

And he believes the impact could be even worse than the effect of the global financial crisis, which brought certain countries such as Spain and Ireland to their knees.

“The banking royal commission has been the catalyst that pulled the rug out of residential mortgages,” Mr Barrie said.

“Now applications are being knocked back tenfold, banks are becoming withdrawn and the easy credit that was available is gone.

“I don’t think lending will ever go back the way it was before, and it will change the housing landscape quite dramatically.”

He said a crackdown on Chinese buyers had also affected the housing market, and China’s trade war with the US was also affecting the economy.

…He said wage growth and construction were both “anaemic” in Australia at the moment, and the property market had gone into “free fall” as a result.

“We’re in crisis mode. Whoever wins the federal election will inherit an economy that is not in good shape at all.”

Mr Barrie said the looming crisis heading for Australia “may even be worse” than the impact of the GFC on other nations due to our burst housing bubble, scrutiny on the banks and the extreme simplicity of our economy.

“In the last decade our economy has basically been (based on) shipping iron ore and coal, building houses and bringing people in (from overseas) to buy those houses, and that’s it,” he said, noting our economic diversity was worse than developing countries such as Oman and Vietnam.

He said the key to turning things around was building up new and developing industries such as the technology industry and making innovation a national priority.

You can’t really argue with that.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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  1. I read this article this morning and it sounded so much like an MB post I thought you’d employed him.

    • proofreadersMEMBER

      But still probably on probation, as not yet swigging the kool-aid that getting the rates down fixes everything?

  2. And yet both parties are captive to business interests (labor less so) which make addressing the ponzi ecconomy by diversification impossible.

    This is why the more extreme outcomes (imploding land bubble and deep recession) are more likely. Housing to drop 40%…

  3. Still loads of foreign buyers buying good property in Brisbane best burbs. Eg chelmer ftp
    No let up at all. And agents lovin it

  4. “He said the key to turning things around was building up new and developing industries such as the technology industry and making innovation a national priority.”

    You mean just when Australia has become the “service economy” of neoliberal dreams he wants to ruin it all?

    After jettisoning much of our manufacturing capacity and technical training and shunting our university system into a degree mill cul-de-sac, Australia has lost the capacity to reform quickly. Management of important institutions is also rife with ideologically motivated wankers who oversaw the debt/mass immigration gravy train. Our federal public sector has been tamed to be a moth-eaten policy lion that jumps through political hoops. Nor would our current crop of politicians (LNP, ALP or Green) know what science and innovation is all about if they were beaten over the head with it. Our economic theory and modelling has chased its own tail so much that the tail fell off.

    We’re in deep poo. It’s far too expensive to prototype new products in Australia and no one will invest and take risk because after decades of our debt fuelled FIRE sector orgy and building concrete dog boxes, why would you?

    The inertia created by the pillage and rape of Australia’s productive culture over the last 2 decades will have significant inertia. Until the wanker class are replaced in key institutions (e.g. RBA, ABC, CSIRO, Science/Innovation departments, university and industry sector etc etc) we are doomed to circle the plughole. The stacked board-room wankerfest with public money has to end and the long run of the CEO fixation/delusion has to be shut down. Public interest has to get back into the driver’s seat and public policy must benefit the nation, not the rentier class and those selling off our amenity for a fast buck.

    Unfortunately with the new ALP government we will only swap wanker class and revert to unreconstructed neoliberals who’ve just turned the volume down a bit and repainted the shop front with a couple of neon light specials.

    • Good summary of the situation but you missed out on one critical problem.
      I have a friend building one-off prototype specialty robotic systems in Australia, he confided in me the other day that his main problem was part acquisition. He basically had to take whatever components he could get as and when they were available. Now that’s not a huge problem (just an expense issue) but what is a huge problem is the purchase lot to purchase lot variation in these components. So while all components might meet certain max/min specifications they were all over the place wrt centering of the distributions and this created unnecessary problems wrt design assembly automation.
      Another major issue was the mislabeling and fraudulent labeling of components. I know he uses a lot of Stainless Steel screws and have heard horror stories in the past about 316 SS screws actually being 304 or even that really cheap South African stuff (can’t remember what they call it) If your building equipment for hazardous / corrosive environments then the composition and reactivity of the components makes a heck of a difference yet what he can buy is not necessarily what he wanted.
      These sorts of materials sourcing problems are just not tolerable in any advanced economy. Traditionally your suppliers were contractually and socially obligated to supply the requested components or suffer both Financial and Reputational damage these days what you buy on Alibaba might be what you wanted or it might be just some left over 5hite that someone wants to dump on an unsuspecting customer.
      In the end you can’t run a business with all these uncertainties as a result he is in the process of packing up and leaving.

      • Good points. This is all part of a culture that we have lost. The reason that neoliberal innovation wankerism drives me nuts is that it has never valued this sort of thing. Online ordering and a Fedex delivery seems so efficient, but the hidden cost is the lack of true support or relationships built. You must get your hands on components and know the people who build and supply them. Often they will tell you about the problems and fixes.

        A fully integrated R&D and innovation culture must value all the nuts and bolts people as well as the community that builds up to enable other quite unanticipated opportunities and ideas. Innovation hubs often spring up in parts of the world because they are places that are cheap enough for people with a diversity of skills and interests to make a living – and for low value services to exist. Australia priced its cities out of this game – you can’t do this in Australian cities any longer. Truly new innovation and ideas often grow in back shed. Now we don’t even have the back shed – it got sold as an asset. What Americans call “water cooler talk” can be the basis for important innovation. There days we should all work from home as the neoliberal decided that it was better for their bottom line…and on it goes.

        Managerialism and economic rationalism has shredded much of the unique aspects of our culture that made it possible to respond to change. Our economy has been designed by lawyers and bean counters, not by people who understand science and technology and the cultural support that fosters it. The CEO-based leadership and board room management mantra is a pile of crap. It is talent, technical capacity and an integrated culture of innovation at the grass roots and far more important. The German model has much to be admired – yet far from perfect. We could do better, but the psychological hangups and momentum generated by the wanker class and the Game of Mates is a drag on our nation that will not simply go away because it has sucked enough from us. Nope, it’s a parasite that’s going to kill the host.

      • I once replied to a post by a guy called China-Bob in which I mentioned that…

        In the old days some of the top men in the railways were the chief civil engineer, the chief electrical engineer and the chief signals engineer.
        In the old days those men had worked their way up through the ranks and were familiar with the technology, the processes, the culture, the people and the history of the railway.
        Now the top dogs are accountants and some ex-lawyer CEO who goosed the stock of some airline by sacking staff then jumped-ship to do the same for her new political masters in the railway (for example).
        I prefer the old system.

    • nexus789MEMBER

      They (Barrie included) don’t actually realise that a fundamental change and mental shift is required to create new outcomes. The means to do this exists but the country’s political and other institutions, as your point out, are infested with the lots of neoliberal economic wankers. Given this we will do nothing and watch our incomes collapse as we try to compete with Asia via a low skill and low cost economy.

    • Snotty Millenial

      Couldn’t agree more Clive, good to see other people with their finger on the pulse. If only more people who thought along those lines were in politics, alas we’re left with a sad bunch of under achieving asswipes who are quite happy with the current status quo of selling rocks to Asians and swapping houses to each other for more and more debt and thinking this is a sustainable econmic model in the 21st century.

      I’m close to graduating in Mech Engineering and the industry is basically a laughing joke. Practically nothing is designed, let alone made here, so most graduates go into something akin to a sales engineer or project management, the more technical stuff being done overseas and simply imported for the local engineers here to read the user manual and make sense of. After 5-10 years, those graduates get sick of it because it’s boring and nothing like what they were sold on in the glossy University brochures, and head into our wonderfully productive and world beating FIRE sector where they are better renumerated for doing half as much work using half as many brain cells.

      For anyone whose truly interested in this field, the best thing to do after you get the piece of paper is to book tickets to Europe or the US and not come back. For anyone in STEM, Australia went to the dogs a long time ago.

      • St JacquesMEMBER

        Half as many brain cells? I’d be surprised if FIRE work required a tenth as much. It’s glorified basically form processing.

      • SM – of course you can always get a job as a management consultant with the handmaidens of the FIRE sector i.e. Price Waterhouse or KPMG etc and advise government how to make the situation worse by reading from the neoliberal prayer sheet and maintaining the feedback loop.

        Engineers are almost a barometer of what has gone wrong in Australia. When engineers can’t find fulfilling work it means that not much of interest is being made or done. And when engineers are listed on the skilled migration system and not made in Australia we are stacking the profession with people who water down standards and the professional culture. Communication of complex problems in English has become a global standard almost as important as the language of maths.

        But don’t get too down about it. If you graduate in engineering you are a bright person with a bright future, but you will need to be inventive in your early career and see the writing on the wall – as you have done. You’ve already seen that a trip might be in order (helpful even when we used to do things in Australia) and this is not a bad way to begin. It’s not just the USA and Europe but large projects being run in developing countries and middle power nations and those that have politicians who value IP and know-how (Finland, Sweden etc). It can be a bloody good way to develop your career. Prior to the 1960s this is what many engineers from Australia and NZ had to do anyway. Our pack of brain dead bean counters and lawyers in parliament and politically correct yap dogs have taken us back 50 years, yet crap-on about “innovation”. Innovation in a bullshit economy based upon the FIRE sector?

        Don’t get angry, get even. The worm will turn eventually. Eventually we must have a high tech industry or we will die as a nation. That realisation is not far away. Run against the pack mate.

  5. I do like Mr Barrie’s arguments except when he mentions wage growth. is hardly the bastion of high wages. It’s a race to the bottom.. He is part of the problem in his sector..

    • You cannot stop the advance of these sort of developments. All you can do is stop corruption as much as you can which can put some sort of floor under wages online as well. If freelancer didn’t exist you’d have countless other options. I know plenty of people who use these platforms and are not paid terrible wages at all.

    • Agreed, it’s a bit rich for the CEO of to say that Australia needs more high-tech when he runs an online sweatshop.

      Another Aussie high tech darling is 99designs which plays a similar game of exploiting desperate third world designers to do free spec work in hopes that they might be paid if they win the “contest”.

      Maybe Shoes of Prey will be the breakout Aussie startup hit? Hang on, looks like they’ve just gone bankrupt…

      • Agree John, so much freelance work these days is about the “opportunity” to submit your work for consideration.. In the olden days you used to have pay someone to create goods for you..

      • It’s an auction system, numbnuts.

        Best design wins. What’s the issue? Pay some local $2 or $3,000 and arrive at an unsatisfactory conclusion or pay $100 for something you actually want and like. Take it from someone who’s been on the wrong end of that equation.

  6. Too many snouts in the trough – too many aspire to the cult of management entitlement. I agree that science, tech etc. is the future but not one CEO in this country wants to pay for a local resident science/engineering/tech graduate on full pay. But they are happy to outsource it to an offshore hothouse.

  7. What happens if/(when?) the “inner city dwellers” ban coal exports as well? Then what?

    • Nice work! Albeit I don’t think Chinese or Indians are big FW drinkers so that’s hardly going to move the dial!

      At least not at the price currently being charged.

  8. plebngineerMEMBER

    I’ve been looking around to see if there are other places worth renting with rents supposedly dropping… Nope, there’s even less available, all crappy places and at the same or higher prices. Can’t win.

  9. How about we stop importing people?

    It takes the pressure off housing prices and will there will be less competition for jobs and wages will go up.

    People will spend less on housing and have more disposable income to spend on retail businesses like mine.

    Is it simplistic? Yes. Would it work? Yes.

    (gently bangs head on wall because it’s as useful as suggesting this at 5.30 pm on internet)

    • Yeah, but what part of your plan makes the rich richer, and reduces big business costs?

      Banging head against the wall is more productive than making that suggestion anywhere in australia i think.

    • Rent Seeking Missile

      ‘People’ is one of the basic inputs into the Strayan economic model.
      Alongside ‘cheap money’.

  10. Pumping in hundreds of thousands of toilet cleaners from the 3rd world every year is only going to accelerate the pain.