By: Nick Marshall

Nick Marshall — Mon, 25 Aug 2008 13:38:17 +0000

Australia will always be dependant upon selling its raw materials and primary produce. No problem. What is bizarre is that we have to import large numbers of immigrants to allow BHP, Rio, Xstrata to do it. Such is the pace of development and demand for labour that tradesman's wages have been elevated across the country. This in turn led to a huge demand for investment houses and apartments to negatively gear and thus lower the tradie's tax obligations. There has been a masssive over production of holiday apartments in North Queensland, for example, which has put pressure on hotels and particularly motels. Many motels in Cairns are offering rooms at the same price as 25 years ago. Meanwhile, with immigration above 200,000 per year, the strain on infrastructure, schools, hospitals, ports is telling us that the economy has been driven harder than it is capable of sustaining. This has all been driven by the extraordinary growth in money supply - something that has always happened when money or credit creation has no limit set upon it such as a gold standard. The same goes for agriculture. There is no doubt that this country can produce a lot of food - but at what cost? The salinity problems in the West Australian wheat belt and the state of the Murray Darling system are not a testament to sustainable agriculture. Look at what has happened to the Tuna fisheries and the Orange Roughy fishery. This is not to say that we should not develop mines or primary production. Our population needs to earn a living and pay for its imports. The trouble is we do not appear to be doing that. Most of the last 5 years has seen monthly deficits when our terms of trade have been as good as it gets. The problem is that we do not save enough to develop this country ourselves. Instead we are on the debt treadmill - we may have gained jobs (too many if we have to import labout) but we have fallen into the trance of consumer culture and believe that spending (consuming) drives our economy. In the short term it does but in the long term we need capital accumulation to pay for the development of Australia. We have taken the short cut of importing capital so that most of the fabulous earnings from the great ore bodies of WA, Qld and SA are going overseas. The Reserve bank has been trying to encourage saving with higher interest rates but most people are still in thrall to the idea that houses are a great investment and so the political pressure and consumer pressure to lower rates is immense. (Pretty tough on the pensioners, who rely on fixed interest, to live on. Unfair, too, because they were the people who drove this country forward after the War.) The truth is, houses are not a great investment over time and have historically just about kept pace with inflation. In reality, they are just a necessary cost of life. Given the space and the length of the coastline of this country, it is truly astonishing the value that a population of only 21 million people has put on a single quarter acre! And borrowing to do so, too. Truly, the ball and chain is self-imposed.

By: Ross

Ross — Mon, 25 Aug 2008 07:24:00 +0000

Every debt gilled homeowner in Australia is backing Swan to flog off the mine, the farm, and the grandkids in order for him to hold the AUD up. The current account is funny like that isn't it?
Any more AUD to TWI deflation and then import price inflation will deal the final telling blow to those on the edge of their ability to make mortgage payments, or to those looking to flog off their retirement bastion mcansions to fund their fuel and ETS bills.
All those that thought they could borrow their way to the good life want bailing out and Wayne & Glenn & Ken are there to serve their compadres of the generation that stuffed the nation. And Costello, Howard, Keating & Hawke warrant the long rest in the same small unmarked ditch.

Comments on: Wayne Swan Approves Chinalco Investment in Rio Tinto (ASX: RIO)

By: Nick Marshall

By: Ross