How Australia Grew Fat and Lazy Off the China Boom

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The Australian government is about to face its own budget problems. Today’s Australian Financial Review reports that the government’s budget is in tatters. Tumbling iron ore prices will blast a massive hole in the numbers.

The paper quotes Chris Richardson, the go-to man for respectable comment on budget matters, as saying:

‘The politicians just don’t get it yet. Both sides are operating on a rule of thumb that worked for a decade, which is that China paid for all sorts of things, and that’s just not true anymore.’

Actually, we would argue that the politicians will never get it. ‘Getting it’ would mean backing off…leaving well enough alone. It would mean less meddling and more letting things be. It would mean thinking before doing, and thinking hard enough would obviate the need for doing anything.

But it’s not just politicians. The whole country has grown fat, lazy and stupid on the China boom. It has pushed up wages and Australian house prices and made Australia one of the most expensive countries in the world.

Even Warnie thinks he can sell his Aussie home for $15-20 million and buy a sprawling mansion in the English countryside for $9 million. Fingers crossed for him. Perhaps he’ll be lucky enough to sell to a corrupt Chinese official trying to get his wealth out of the country before its confiscated.

The only difference between us and other uber-strong currency nations like Switzerland is that we have a hugely negative net international investment position. To put it plainly, we have a massive foreign debt and are a chronic importer of capital.

The China boom masked these structural flaws in the Australian economy.

The tail end of China’s boom was completely unsustainable. It was plain for any simpleton to see. We should know, we started writing about it last year. But the only person in any real official capacity to air his concerns was former RBA board member Warwick McKibbin.

Because he said what he thought, the mainstream media often described McKibbin as ‘outspoken’. It’s a pejorative term used to describe people who tell us unpleasant truths.

In contrast, RBA Governor Glenn Stevens tells us things we want to hear, stuff that makes us feel good about ourselves. Like that China’s slowing economy is ‘controlled’, that iron ore prices will fall a bit, but not too much…that our economy is the envy of the world, and we spend too much time complaining about the glass being half-empty.

A central banker’s role is not to tell you the truth. After all, what is ‘the truth’ when we’re talking about the future? There’s really no such thing. It’s more about being honest with the information you have.

Our rule of thumb is to tell you the same things we’d want our loved ones to know. We’re not always right, but if we get it honestly wrong we’re happy.

Central bankers, governments and power mongers of all stripes have no interest in honesty. Their aim is to keep you compliant, obedient and docile. They throw money at the electorate and hope enough sticks to ensure their hold on power and advancement of ideology endures for a few more years.

If they could be bothered to look past their noses, they would see that Australia is simply a few years behind the problems experienced by countries in the northern hemisphere. We have chronic trade deficits. Australia only produced a trade surplus in 2011 when the terms of trade were at a historic peak. For nearly every other year since the last commodity boom in the 1970s, we have consumed more than we have produced. In other words, we run persistent trade deficits.

To finance the overconsumption, we call on foreigners to fill the gap. That’s been an easy sell with the decade long China boom. But instead of asking what happens after the boom, we blindly expect it to continue. Can we really keep expecting foreigners to finance our overconsumption and spending on houses for decades to come?

If the China boom sustained a massive rise in incomes, house prices and our dollar, wouldn’t a bust have the opposite effect? These are legitimate questions that will never receive an honest answer. It will only become a part of the national discussion when it’s too late. Then, the power mongers can say that no one saw it coming, that it was too difficult to anticipate such a turn of events.

Of course the electorate won’t believe them. So they’ll vote them out and usher in a new bunch of clowns uttering fresh lies and false promises.

Like all things in life, democracy has its cycles too.

Regards,

Greg Canavan
for The Daily Reckoning Australia

From the Archives…

The Gold Sub-Standard and the Inflation Cake
24-08-2012 – Greg Canavan

BHP and Rio: Just Following the Followers
23-08-2012 – Greg Canavan

How Media Regulation is Just a Clamp Down on Freedom of Speech
22-08-2012 – Dan Denning

Monarchs, the Masses and Democratic Mayhem
21-08-2012 – Bill Bonner

Why China’s Crack-Economy Needs a New Fix
20-08-2012 – Dan Denning

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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6 Comments on "How Australia Grew Fat and Lazy Off the China Boom"

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ADL
Guest

Well said! The rot coming out of the “leaders” mouths (that’ll be you, Wayne Swan)and the sheer ignorance of the populace is truly flabbergasting….and scary.

Ross
Guest
We grew fat and lazy off exploiting the efforts of one Paul Volcker, and later the Rubin-Summers duo. China were takers, not makers, of the scenario. The USD carry trade did the heavy lifting in creating the Australian bubble. The washing of freshly printed USD notes hyper leveraged off the ZIRP and despatched like Rothschild’s arrows through Australia and other markets facilitated economic “exceptionalism”. Australia’s economy was driven by “exceptional” raw leveraged collateral by the 4 pillars which generated debt that overlaid the combination of “exceptional” asset price inflation and low CPI basket expectations far more so than commodity prices.… Read more »
CMeltdown
Guest

Spot on article! So what will Shane Warne do if he can’t sell his house?!

Garry
Guest

In a word “the Dutch Disease” that’s our problem. A burden we have been carrying for years. Spread by 2nd rate politicians who allowed us to become a one trick pony.

Kim
Guest

And after the mining boom ends, Australians are going to discover the rude truth… it takes a lot longer to build up industries than it does to destroy them. Especially when your country has little capital.

Mark
Guest
Australia has become fat lazy and stupied.This is a world of everyone for them selves and Australia with a large land mass and tiny population needs to see this. LOOK at what you have done. In boom times you need to ensure you save rainy day money.where is it? Aus has a large pensioner glut coming through the system all of them think they should be able to sell there houses to young people for megga bucks,young people can not afford them,so to try to get on the housing ladder they will save more take longer and HAVE FEWER CHILDREN.… Read more »
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