Australian Economy

The “miracle” Australian economy (with its famous run of 24 years without a recession) is an amalgam of pre-modern and post-modern industries with very little in between.

Most economies run at least partially upon the productivity gains produced out of manufacturing and ‘making things’ but in Australia productive investment is supplanted with commodity exports (which make up half of exports) and the recycling of the resultant income is deployed as cash flow for borrowings offshore to pump house prices.

The former step is basically the selling of dirt, a pre-modern activity. The second step is managed via the sophisticated use of derivative markets and is essentially a post-modern activity.

Not that GDP cares given it is only the mindless measure of whirring widgets.

However, both of these activities systematically reduce economic competitiveness by inflating both input costs and the currency. “Dutch disease” by another name. This continuous “hollowing out” of productive activity means the broader economy relies heavily upon the non-stop import of capital, either in the form of debt or in the form of assets sold to foreigners, to generate ongoing income growth.

So long as the underlying income from dirt keeps flowing then the leveraging into house prices that supports consumption can continue, supported by both tax distortions and government spending.

If, however, the dirt income flow halts the hollowing out of modern industry will leave the Australian economy very exposed to a current account adjustment. We saw this in the global financial crisis but the flow of dirt income was restored sufficiently quickly to prevent any deep adjustment.

A second risk is that the debt accumulation simply becomes overly onerous for the underlying economy to service, also resulting in a current account adjustment. Well north of $1trillion of the debt is owned externally and household debt is a world-beating 186% of GDP so this is a real risk.

It is offset by a relatively clean public balance sheet that deploys fiscal stimulus in times of economic stress. However, in recent years, as both of the two above risks have increased, the public balance sheet has deteriorated as well, setting Australia up for a famous adjustment to end its famous bull run.

MacroBusiness covers all apposite data and wider analysis of these issues daily.

4

David Uren mounts immigration sacred cow

By Leith van Onselen The Australian’s David Uren has penned an article in support of mass immigration and a ‘Big Australia’, claiming that it is central to Australia’s economic success and that “fertile, educated Asians are saving our economy”: Rising house prices and congestion on the roads could be blamed as readily on bureaucratic council planning

12

Mining will never ‘save the Australian economy’ again

Readers will know that I am concerned (convinced!) that the next global shock will bring new levels of pain to the Australian economy. This is because I expect the housing bubble to burst. The three reasons are: we’ve run out monetary policy; we’re approaching the limits of fiscal policy, and we’re approaching the limits of

3

Consumer cash crunch intensifies

From Morgan Stanley: The consumer is not relaxed and businesses are struggling to relate. Recent reports from our sector teams add support to our crunch time thesis around the domestic cycle cash flow squeeze. Filling the cracks with materials is something to consider given meaningful PT upside (MS and Consensus). Consumption Crunch Playing Out: Discretionary

73

Salt of the ponzi bathes in ‘Big Australia’ lies

By Leith van Onselen Following the reslease yesterday of Australia’s Cenus, Bernard Salt – the self proclaimed “unabashed supporter of a bigger Australia” – has penned a triumphant piece hailing the emergence of a ‘Big Australia’ and the so-called enrichment of the major cities. From The Australian: Australia is like a ship casting aside its

14

Shorten fiddles while wages burn

Via the ABC: Federal Opposition Leader Bill Shorten has vowed to reverse cuts to Sunday penalty rates if Labor wins the next election. Mr Shorten made the pledge at an Australian Council of Trade Unions conference in Sydney, as workers in the retail, hospitality and fast-food sectors prepare for a reduction in their take-home pay

20

Has the cult of the Naked CEO sunk the CPA?

There is nothing more precious in this life than your reputation. Not least if you are an auditor! Does anyone remember Arthur Anderson? Via the AFR: Government regulator the Professional Standards Councils has confirmed that public practice CPAs in Victoria will lose their protection from multimillion-dollar malpractice lawsuits, and that CPAs in other states and territories are also

75

Victoria is a rat on the turbocharged immigration treadmill

By Leith van Onselen The release yesterday of the ABS population data for the 2016 Calendar year revealed some inconvenient truths for the Victorian economy. This data showed that Victoria’s population surged by an Australian record 146,628 people in the 2016 calendar year, representing a population growth rate of 2.40%: The State Government has been

24

Victorian immigration ponzi goes completely mad

By Leith van Onselen The ABS released its Australian demographic statistics for the December quarter of 2016, which revealed that Australia’s overall population growth rate has accelerated led by unprecedented growth in Victoria, which has once again obliterated records. According to the ABS, Australia’s population rose by 1.55% in the year to December 2016 to

74

Abbott: Cut immigration to take pressure off houses and wages

He sure ain’t going away: Tony Abbott has delivered a stinging rebuke to the Turnbull Government sharpening his own vision for the country and politics in Australia, promising he is “in no hurry to leave public life because we need strong liberal conservative voices now, more than ever”. In an address delivered in Brisbane this

8

Bloxo sees wages boom, baby, boom!

From Bloxo today: Sentiment indicators show a stark gap between businesses and consumers. While surveyed business conditions are around decade-highs and business confidence is well above average, consumer confidence is below average. Importantly, it’s not just a confidence effect – growth in household spending has been sluggish. The main drivers appear to be weak growth

18

More warnings about unpaid internships slave labour

By Leith van Onselen A fortnight ago, several labour market experts raised concern about the proliferation of unpaid internships, which risked becoming a black market for slave labour. Today, The ABC has picked up on the theme: Unpaid internships are increasingly becoming the default way of beginning a professional career in Australia. According to the

42

Inner-West residents revolt at Sydney population ponzi

By Leith van Onselen Remember the below chart showing the immigration-fueled population explosion that is projected to take place across Sydney over the next 20 years, increasing the city’s population by an insane 1.74 million people – the equivalent to adding a Perth to Sydney’s population? And remember this chart showing that almost all of

21

It’s time to cap politicians’ and bureaucrats’ pay

By Leith van Onselen In the wake of the latest wave of pay rises received by federal politicians and senior bureaucrats, The Australian’s Adam Creighton has called for pay caps to be implemented that limits their pay to a certain multiple of average earnings: Australian politicians and public servants are paid well, more than double

48

Fake Left wrings hands about wages. Ignores immigration

By Leith van Onselen Former federal treasurer, Wayne Swan, is concerned that Australia’s middle-class risks going the way of America’s and claims the Labor Party and the union movement need to better argue the case for improved wages for middle-class workers. From The AFR: “If we cannot make the economic case that good wages and

19

BIS warns on household debt

From the Bank of International Settlements (BIS): Excessive indebtedness has been one of the root causes of financial crises and the ensuing deep recessions. In recent years, the focus has been on household debt, as excessive leverage by the household sector was at the heart of the Great Financial Crisis. It is well recognised that

23

The politico-housing complex devours itself

The MSM bank protection racket is in full swing, at the AFR: London-based investors have warned National Australia Bank chief executive Andrew Thorburn that they consider Australia a less stable and less consistent economy for investment after the South Australian budget hit the big four banks and Macquarie with a surprise $370 million tax. Speaking

25

Pascoe two-faced on mass immigration

By Leith van Onselen Let’s recall Michael Pascoe’s article on Friday whereby he basically labelled those of us seeking a more moderate immigration intake – commensurate with Australia’s first 100 years after Federation – as racist simpletons: A little after Friday lunch, the population clock on the Australian Bureau of Statistics web site will tick

14

Naked CEO gets golden arse, anger mushrooms

Not before time: CPA Australia’s controversial chief executive Alex Malley has been sacked, effective immediately. CPA’s board released a statement late on Friday evening announcing the decision, and that Mr Malley will receive termination benefits of $4.9 million. “Alex’s legacy is an organisation with a global footprint and an ambitious outlook,” president Jim Dickson said.

70

Pascometer burns red on population ponzi

Weeoo, weeoo, weeoo. The Pascometer is wailing on the population ponzi, strongly indicating that the days of mass immigration are indeed numbered: A little after Friday lunch, the population clock on the Australian Bureau of Statistics web site will tick over to 24.5 million. …The simplistic negative economic view of our migration program concentrates on

11

Did China just yank the handbrake on Strayan commercial property?

Via AFR: The days of Chinese companies bidding up asset prices in Australia appear to be numbered, after the banking regulator in Beijing ordered a review of the sector’s exposure to the most acquisitive private firms. The companies singled out for review include property and entertainment conglomerate Dalian Wanda, which has interests in Sydney and

16

Victoria’s roads crack-up amid population deluge

By Leith van Onselen You don’t have to be a rocket scientist to acknowledge that the unprecedented immigration-fueled population growth into Victoria: Which is projected to continue ad infinitum: Necessarily requires massive infrastructure spending to ensure that incumbent residents’ living standards are not eroded. So why then has the Victorian Government slashed funding for road