Onlookers shouldn’t be surprised by the erupting global financial mess enveloping Europe, the US and now China. The so-called recovery of 2009-2010 was never really a recovery, but rather an orgy of government-funded speculation that fooled some, and enriched others (namely bankers and speculators).
The situation was best explained by Bill Bonner, who wrote last week in the Daily Reckoning that:
“Remember how desperate officialdom was to ‘prevent a catastrophic collapse?’ in Europe and America. The European banks bailed out their speculators. Then the governments bailed out their banks. Then, they bailed out the countries that had bailed out their banks.
“In America, the government bailed out the banks … the insurance companies … the automakers … About the only industry that wasn’t bailed out was the financial publishing industry. Guess we didn’t send them enough campaign contributions …
“Then, the Europeans and the Americans bailed out each other.
“And they’re still bailing. The US is running a budget deficit so large that we’ve lost track of it …was it $1.5 trillion? $1.8 trillion?
“And the Europeans are preparing another big bailout for Greece … Italy … and who knows who else.”
Your correspondent is constantly surprised at the ability for humans to ignore the obvious and, instead, focus on non-existent positives. The foolhardy belief that things will somehow be all right, when clearly, they won’t.
To summarise: the US is running a crippling deficit, needing to either borrow money from its trading partners, or print money, simply to pay its mounting bills. Europe, which decided a decade ago to join a bunch of completely disparate sovereign states in one monetary union, is now realising that their economic union was a disastrous folly. A system that involves hard-working German taxpayers paying Greek public servants to retire at 55 is not one that is likely to last.
Meanwhile, the world’s banker, China, is struggling with problems of its own. Its facade of economic growth has been created through world-record stimulus, designed to ensure its massive populace remains employed and the rest of the world continues to buy its output. But facades can’t remain forever. China has recorded three consecutive months of manufacturing contraction, while the Shanghai sharemarket has slumped by 15% in the past two months. All this is against the backdrop of increasing inflation, and an ever-growing real estate bubble.
The world’s politicians have spent two years kicking the proverbial can down the road. But the can finally appears to have broken, un-kickable, while the world’s investors and speculators keenly await the last gasp efforts of unelected central bankers, who show little grasp of history, and have protected speculators over savers, the rich over the voiceless.
As for Australia — the miracle economy, led by the Finance Minister of the Year — well, we continue to hang by a thread. Dependant on China for to keep our deficit in check (through the sale of iron ore and coal) and a property bubble to preserve “wealth”. Meanwhile, Australian corporates continue to struggle, with the Australian Financial Review this morning reporting that eight miners and banks earned 99% of the profits of Australia’s top 50 companies.
While the higher prevailing level of interest rates, and relatively low public debt allow Australia a small degree of comfort, a collapsing China and crashing property market may soon see Australia in a far worse predicament.
[While the higher prevailing level of interest rates, and relatively low public debt allow Australia a small degree of comfort, a collapsing China and crashing property market may soon see Australia in a far worse predicament.]
Oh dear, the gloom merchants, the economists what a sad miserable lot and their world is. Given their past record of useless predictions The Greatest Treasurer in the World will steer the country through any troubled waters and once again the dire forecasts of the dummies will come to nothing. Get a life!!!
I have to say I hope you’re wrong Adam. I’m no good with a bow and arrow and there’s not much around my house to hunt. I know we might be looking at armageddon but at the end of the day, if we were all that worried about it, we wouldn’t be here sitting at our desks we’d be hoarding tinned food and boarding up our windows.
Something tells me that this system we live under has us all so well trained to be good little workers, that even if it does come crashing down around us, we’ll still turn up to work in the morning on time and behave.
You’ve nailed it Adam. Aussies have had it so good for so long it’s hard for them to even imagine that rising property prices and export earnings would do anything but last forever. Yet as you’ve so succinctly pointed out, our capacity for self-deception is boundless. What’s coming will really be a shock to the system.
OK solasaurus as you appear to know all, how about listing the catastrophe’s that are about to shock the system. Just to assist you WA and Federal Govts have today signed a massive gas deal worth billions that will require a 6000 workforce..over to you.
I have a relative like you David. Nearly a year ago I bet him $100 that the median house price in Perth would be down YoY. He scoffed at me at confidently explained how house prices always go up. A year on and house prices across the country are down (incl. >7% down in Perth) and I now regret that I only bet $100.
But if house prices are not enough, consider:
> Back in 2008/09 the price of iron ore and other commodities collapsed. (That was before the world’s crony capitalists persuaded the central banks and decision makers to flood the interanational system with credit thereby temporarily refloating the price of equities.) And here in WA there were all of a sudden thousands of previously high paid miners out of work. How quickly this is forgotten even as commodity prices start heading south again.
> Demand for Aussie mineral resources from China is coming largely from the Chinese property bubble which is now out of control. Try googling for “Ordos” or “chinese ghost cities”, and you’ll see how the construction boom has left China with an over-capitalised property market. With demand for Chinese exports (40% of the Chinese economy overall) withering as the credit binge of the developed nations draws to an end, expect to see some of the most dramatic impacts of the imminent global depression to be on show in China.
> From Adam’s article: “Meanwhile, Australian corporates continue to struggle, with the Australian Financial Review this morning reporting that eight miners and banks earned 99% of the profits of Australia’s top 50 companies.”
Most Aussie companies are already struggling, and we’ve seen consistently low levels of business confidence this past 6 months. A few huge mining and banking companies excepted, the economy is actually fairly weak. Our exposure to international markets means we’re far from immune from the credit/banking implosion that’s about to occur in the North Atlantic.
Don’t get me wrong, I think this fool’s paradise we call home will fare much better than many other economies. But if you can’t see what’s happening in the global economy right now you’re either oblivious to economics or willfully deluding yourself.