The Truth About The Aussie Economy

The Truth About The Aussie Economy

The world is changing. Fast.

The question is, will Australia stay behind?

And where do you sit on the curve of ideas? Are you ahead of the curve, or behind it?

Just think of how things we once held for granted have melted away these last few months.

Not long ago, saying Donald Trump is an idiot wouldn’t have found you many objectors around the world.

But these days, even the EU admits otherwise.

Bloomberg ran the headline ‘EU Says Trump’s Tough Trade Strategy Working’ and featured this quote:

‘The Trump strategy is working,’ EU Commissioner Cecilia Malmstrom said in Gothenburg, Sweden, on Thursday when asked about the US’s reworked trade pacts with Canada, Mexico and South Korea.’

Given the EU is next on the list of nations to be confronted by Trump’s strategy, it’s a remarkable admission. Faced with the choice of American tariffs or a more balanced trade deal, how will Europe react?

Trump-bashing seems to have hit its peak everywhere. The Democrats are even worried about their ability to regain majorities in the upcoming mid-term elections.

When the Donald lashed out at the Federal Reserve recently, he earned himself a far more muted cacophony of criticism than usual.

It’s even become fashionable to argue that ‘Trump is right’. Sure, most commentators say it is for the wrong reasons. Or they qualify their statement in some other way. But try googling the phrase. You’ll be surprised.

‘Trump Is Right About China Trade’ writes the Wall Street Journal.

British writer and former US correspondent Ambrose Evans-Pritchard wrote another such story in the Telegraph: ‘Trump is right: the Fed is deliberately popping his beautiful stock bubble.’

Trump’s roaring economy threatens to overheat and is forcing the Federal Reserve’s hand. Or, as Trump prefers to put it according to CBS, ‘Federal Reserve thinks ‘our economy’s too good.’

The anti-EU movement grows

Over in Europe, similar changes are underway.

The EU has become rather unpopular amongst its citizens. The Friends of Europe think tank did a survey of 11,000 Europeans in September. Two-thirds did not think life would be any worse without the EU, and 49% see the EU as ‘irrelevant’.

Some individuals disagree. Get a load of this from EU foreign policy chief Federica Mogherini:

‘Close your eyes and imagine for one moment the European Union disappeared from the global scene right now. Let us say for a month, or a week, even for a few days. The world would simply collapse.’

That one made my day.

It was almost as funny as this, reported in the UK’s Telegraph: ‘Ireland signs up to French version of the Commonwealth in bid to wield more clout after Brexit.’ Yes, the EU is so bad that Ireland needs the French to help them out with trade.

Most painful of all for the status quo in Europe was this news, which only very few of the UK’s newspapers picked up on. The Daily Mail did, though:

‘Professor Alan Manning, chairman of the Migration Advisory Committee, argued it had cost taxpayers’ money as overall they cost more in benefits and public services than they paid in taxes.

‘Appearing before MPs, he said low-skilled migration since 2004, when Labour threw open the doors to Eastern Europeans, “hasn’t really had positive effects and has had negative effects”.’

Suggesting this would’ve branded you as racist, xenophobic and all sorts of other things just months ago. But being ahead of the curve risks just that sort of derision.

Speaking of which, could Italy leave the euro and default? When I predicted that in February, I was laughed at.

These days, it’s the top talking point in Bali amongst the world’s top finance ministers and IMF officials according to Bloomberg.

Closer to home, our Aussie economy is facing some shocking truths of its own.

It turns out that house prices really can fall. Bankers don’t care about rules, regulations, or lending standards. Superannuation funds do not have your best interests at heart.

I’ve been writing about all three since 2012.

I think I’ve shown you how assumptions and beliefs can change. But which false truths are yet to crumble in Australia?

False truths or future proof?

Is the Australian economy on a record run of economic growth because of its resilience, good regulation and wise economic management?

Or are we the lucky country? And might we have become the complacent country thanks to our good fortunes?

The trouble with Australia is how fragile things have become.

What would a decent crisis do to the country?

In 2008, our Superannuation system performed horrifically thanks to an overinvestment in stocks.

Our currency plunged thanks to its ‘risk’ status. People like to invest down under when times are good and pull their money out when it’s not.

Aussie property is a world-famous money laundering route.

And foreign investors are a huge portion of the marginal buyer. Many don’t show up on the radar properly. What if this demand disappears overnight in a crisis?

Our government debt is low. But that’s only because we haven’t had to bail out the banking system. Ireland’s debt to GDP was low before 2008, but it still landed a spot amongst the PIIGS (Portugal, Italy, Ireland, Greece and Spain.)

How many jobs are reliant on the finance, housing and resources sector? They’re all famously fragile and subject to crises.

Where will you stand when Australia’s false truths are exposed?

Until next time,

Nick Hubble Signature

Nick Hubble,
For The Daily Reckoning Australia