A well written piece Damien. Rather than doing the right but hard thing (tax reform and productivity reform) it's back to the same old story of credit growth and population growth to juice the economy.
I am a bit colour challenged, it seems IMF debt chart has two groups, Aus, Can, UK, and US and then the republics. Looking at banking balance sheets also paints complementary picture, the first group notably US, UK, and Aus have the most stretched balance sheets. With this level of financial stress on citizens, it's an unstable system which can survive and may be even prosper but with a string of miraculous events.
It's like you were putting my thoughts into words Damien! Unfortunately, I've come to much the same conclusion, although I'm not so certain that cash will hold it's value either..... Gold maybe???
An extremely well written and concise piece. I just hope some politicians treasurers read it. The only concern I have is that you are all too correct. Modern Monetary Theory seems to have the ascendency in policy circles at the moment. Governments both State and Federal have learned to their cost that they must be seen to give more and are punished at the ballot box for any perceived brake on growth in credit. I do not see this changing any time soon.
I guess it's too much to ask that the Reserve Bank go on strike and refuse to lower rates again until the actual people responsible, the Government, act responsibly. But given the salaries and perks of the Board and CEO that question answers itself.
Population growth and/or 'immigration' has been overstated since 2006 when the UNPD NOM definition (used only by Australia, UK and maybe NZ) was expanded. This was done through conflation of (12/16+ month) temporary churn over or 'froth' including students, backpackers, NZ'ers and temp workers, but often misrepresented as permanent immigrants (minority gain PR). For population growth to increase, and be maintained, would require international education to expand significantly, when it has already experienced significant growth in an uncertain economic environment. Meanwhile our permanent population base is stagnant while the oldies and now baby boomers are downsizing etc., hence spending less but maybe releasing funds for younger generations?
Thanks for sharing your thoughts, Damien. I have always had a question in my mind that whether our superannuation savings offset somehow our household debt. I think most other OECD nations don't have as high retirement savings as we do. If we compare the net amounts (household debt -retirement savings), then the comparison may not be as stark. However, it is just my 5 cent worth of observation. I'd be interested in other your view on this. Cheer
I like your style Damien, and your conclusions too.
Well a cynical person would think this govt would withhold infrastructure spend in more to force lower rates to come about- in order to deliver paper wealth for the wealthy from artificially low rates and higher asset prices. This would be a means of rewarding their voting base.
There’s an unwritten contract in Australia between voters, Government and immigrants, and it’s been in place for a long time: voters work as stable, corporate employees to pay off debt for 20+ years, pay taxes, and in return expect to be financially compensated via housing price appreciation and high employment levels. Immigrants arrive and do the jobs voters don’t want to do, or aren’t skilled to do, so that their children can enjoy Australia’s relatively open society that voters tacitly provide. Australians again renewed the contract at this year’s Election, despite a more logical and ideal alternative. To wish for optimal economic management ignores the political contract. To suggest that things should change ignores what Australia is. Might as well found a new country. Does a global economic crisis upend the political contract? Aren’t global central bankers, politicians and corporate talking all the time in order to support it? Investing for a break-down in order is folly, unless the how and when can be identified. Otherwise buy stocks, property and bonds and pin your ears back.