Back in December, David Murray, Chairman of the Future Fund and former CEO of the Commonwealth Bank, issued a stern warning on Australia’s high level of net foreign liabilities, which had reached nearly 60% of GDP: …the assumption that Australia could maintain a high level of foreign borrowings because the economy was underpinned by the
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.
There is more bad credit and sales data out today from the ABS. First, Motor Vehicle Sales: Trend – The February 2011 trend estimate (84 485) has shown a decrease of 0.3% when compared with January 2011. Seasonally Adjusted – The February 2011 seasonally adjusted estimate for new motor vehicle sales (84 122) increased by
Following today’s ABS Labour Force data for February, find below a series of charts indicating the state by state breakdown of full time jobs since early 2007. Everywhere other than WA had a nice pop for the month. This is raw data, which is why the aggregate increases are higher than the national figure quoted
Houses and Holes noted today that the RBA looks as if it is trying to talk tough on interest rates. I assume that was before 11:30am when the ABS figures for housing finance appeared. JANUARY KEY POINTS VALUE OF DWELLING COMMITMENTS January 2011 compared with December 2010: The trend estimate for the total value of dwelling finance
In my previous post on Phil Lowe’s speech, I noted that the RBA is hawkish and clearly still concerned that consumers will binge as mining boom income passes through the economy. The killer quote was: Not unexpectedly, this decline in the relative price of manufactured goods has caught the attention of the household sector. In
All right, this blogger is sorry. He’s tried to leave it alone. He’s willed himself to ignore it. But he just can’t let Gittins! get away with today’s technicoloured shocker. According to the paragon of baby-boomer supiority: The more economists examine it, the more they explode the seemingly self-evident truth that we’re living in a
On Friday evening, Treasury boss Ken Henry delivered his final public address before stepping down in March. At the University of Tasmania Giblin Lecture, Henry delivered his magnum opus, a broad review of Australian economic history spanning three centuries (full transcript below, h/t The Lorax). The document is a must read in full, but the
Ever heard of the Forex Factory? How about World Leaders News? Or Tweet Meme? Philippine Times? Quedit? The News List? Odd Bird Collective? These are just a few of the media outlets that considered it worthwhile reporting on comments from Julia Gillard that she was concerned that Australia has a dose of the economic clap
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The Age today published new Wikileak revelations about the Foreign Investment Review Board (FIRB) and it’s policy vis-a-vis China: Canberra’s foreign investment regulator has privately admitted that it is seeking to limit investment from China in response to political concern about the control of Australia’s strategic resources. Contrary to the federal government’s claims that it
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MacroBusiness would like to doff its hat to Warwick McKibbin. The current and soon to be former RBA member has embraced the spirit of the Trickster and thrown a big spanner into the works in Canberra’s bull factory. We don’t agree with everything Dr McKibbin has to say, and on some things he doesn’t say
The RBA’s lending January credit aggregates were out yesterday and the reading is fascinating. It is no surprise to regular readers that the rate of credit growth in Australia has slowed, a phenomenon it calls disleveraging. January’s credit was a continuation of the several months before it. Owner-occupied mortgages grew month on month at a seasonally adjusted
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A few weeks ago our regular bank insider Deep T mentioned a few pieces of Australian infrastructure while discussing securitization. Certainly securitization is a process which relies on transferring risk into the hands of the bondholders for it to be an effective and useful financing tool. However, risk transfer does not mean an abrogation of
Forgive this blogger for being a bit slow on the uptake, but it just passed a copy of the AFR as it attempted to leave the office and saw the headline “Mining tax hole tops $100 billion”. $100 billion in a fund would have stabilised our financial system for good. $100 billion wrested from power.
Yesterday’s quarterly NAB Business Survey threw up a shocker for December. However, this blogger is more interested in the recently released monthly survey,which shows what a pounding business conditions took in January (find both below): Trading, profitability, employment, forward orders, stocks, exports all smashed. NAB foists the blame onto the QLD floods: Business conditions tumbled 12
I have been watching the National Consumer Credit Protection legislation for some time now. It seems to be slowly creeping into other people’s radar as well. “Under the new National Consumer Credit Protection (NCCP) legislation, lenders are being more cautious when lending to the self-employed and small business owners who, unlike PAYG borrowers, do not
In my previous Macro 101 post a number of people asked me some genuinely good questions about the functional process of the banking system under in certain scenarios. These questions made me realise just how much more there is to say about banking operations. But more importantly it also made me realise how important it is
As usual, the media is beating housing finance data to death with a feather. It’s nothing personal, and this blogger could have thrown a dart to choose which overly-bullish article to deconstruct, but Adam Carr goes further than most so he’s up for a flaming. Using the new ABS housing finance commitments data, Carr argues the
The 21st century will be the century of old age, where declining birth rates meet longer life expectancies. This ageing of the population will affect many areas of the international economy, from consumption and growth to asset valuations. The impacts from ageing will likely be most acute in Western Nations, although some developing countries, most notably
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So then, after today’s howler by Myer, reality has partially dawned on the market and the media: Retail is toast. The above chart shows today’s bloodbath for the stock. The only wonder is why it rose in the previous month. There are a number of explanations in the media for the result, most repeating the
As mentioned in my last couple of posts, new consumer protection legislation was introduced on January 1 to little media attention. Early last week I noted that the legislation could be having a greater impact on lending than many expected. However the true measure of the impact of legislation is just how loud the effected vested interests scream (hat tip
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Cyclone Yasi has been upgraded to a Category 5 storm ( the highest level ) and on current estimates is expected to hit between Cairns and Innisfail at around 10pm tonight. The size of this storm is overwhelming, and the bureau of meteorology has announced that this is largest recorded storm ever to hit Queensland. Weatherzone
Oh yes, ladies and gentleman, fresh from the RBA, that’s another monthly moonshot in Australia’s terms of trade for January. That means: Over the past year, the index has risen by 49 per cent in SDR terms. Much of this rise has been due to increases in iron ore, coking coal and thermal coal export
A cyclone the size of the Northern Territory is currently bearing down on North Queensland. The emergency broadcast system sent an SMS to every Queenslander last night and according to the Queensland Premier Cyclone Yasi will hit the north Queensland coast with greater ferocity than devastating Cyclone Larry. Thousands of residents, as well as patients at Cairns hospital, face