Read the book.... implications for Australia

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Andreww's picture
Andreww
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Joined: Oct 8 2009
Posts: 5
Read the book.... implications for Australia

 

Hi all,

I first sat through the Crash Course videos last year and was quite taken back with the information.  I have watched with interest as events have unfolded and have taken a more conservative position with my own finances.  This has been a reasonable position to date.

I read the Crash Course book over Easter, and it was an excellent re-fresher.  If I was living in America, I know exactly what I would do.  I am however, living in Australia, and whlst the book encourages me to trust my own information and instincts, I am struggling to judge the likely impacts, as there are many variables.

Australia has a 2 speed economy - resources and everything else.  Lending is slowing, GDP growth is slowing and the housing market is flattening - and perhaps nearing a significant correction. 

If Chris's picture for the US comes true, what will be the impact on Australia?  During the GFC, the AUD got hit very hard. Would this be the case next time around when commodities (in particular energy) are in such high demand?  There was no percieved energy crisis during the GFC.

Certainly Australia's exporting competitiveness is being challenged by the strength of the AUD today, but consumers are also recieving the benefits of reduced inport prices. 

Peak oil will be a major issue for Australia as a nett importer of oil.

So perhaps the synopsis is -

The Australian economy may ride along for a little longer than the US on the back of the commodities demand.

The AUD may continue to grow against the US dollar for some time yet.

The rest of the economy may be a slave to global forces, with a slowing export market (leading to slow jobs growth) and a gradual rise in enemployment. 

The Reserve Bank has a significant lever to pull against inflation, as internest rates are still relatively high.

So where would you invest your money?

 

Andrew

 

 

 

 

 

 

 

Subprime JD's picture
Subprime JD
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Joined: Feb 17 2009
Posts: 562
Hi Andrew Just a little

Hi Andrew

Just a little intro, I have been to AUS 3 times as my wife is from perth. I came INCHES awar from moving down there for work back in the fall of 2010. I was accepted into UWA law school and was prepared to sign the docs. Around the same time I got a job out here and scratched the idea, for now. Peeking at Australia's performance is something I do on a monthly basis, watching the housing market creep towards the plunge. As many have stated, Australia has the biggest housing bubble of all other advanced economies . Some homes in Perth were selling for 1 million that would easily go for 350k out here. Moreover, Aus has a history of banking crisis occuring every so often. With the current set up of the big 4, I wouldnt be surprised to see these banks tumble as defaults begin en masse.

So very simply, with regards to housing you have an easy answer: stay out of debt for now with no mortgages and sit out the plunge. Opportunities will arise later.

Australia sits pretty as national debt is slow and budget surpluses are occurring while the rest of the world is sinking. However, its important to see what the effect a housng bust will have on the economy. But by and large, debt is low and thats a plus.

Household debt is ugly as hell at more than 130% of GDP (higher than the Americans ever hit) however lets not forget that the US gov borrows on its citizens behalfs with social security and medicare. So on balance Aus wins the match wrt the nations balance sheet.

Energy is an issue as Aus is a net oil importer. However, on a down side risk, I could one day see the Chinese post up in Perth, WA saying "ok, were taking over for your own security." No one thinks about how underpopulated WA is. With only 2 million inhabitants on Aus west side, a land invasion would take 5 mins. This is a longer term risk in the event current geopolitical alliances breakdown.

And to answer question, that only you can decide. Look at the facts, do your analysis and then make your move.

Sabco's picture
Sabco
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Joined: Sep 28 2008
Posts: 11
I live in the wheatbelt in

I live in the wheatbelt in WA. Housing prices in my small country town were insanely overpriced and are now well and truly on the way down. We are in a housing bubble. That means our banks are at risk and we will soon have a recession with rising unemployment. The only jobs that will be available will be in the resource sector. If Chinas economy slows down then so will our resource sector. Two things can bring down a housing bubble. Tightening credit and rising unemployment. We have rising interest rates but our unemployment is low and steady at the moment.

All that means is that we are completely committed to China. If they sneeze we catch a cold. Now China can build only so many empty cities before they have to take a breather. So expect Australia to be in a recession within a few years. Timing as always is impossible to get right.

So which jobs will survive the best?

Farming

Aged Care. The baby boomers are retiring and they have all the money.

Natural Gas/Coal industry. No matter what happens the world will still want our fossil fuels. The same cannot be said for our minerals/gold.

 

Pretty much any other sector will be shrinking. Work in retail? Expect to be fired. Work in construction? Ditto. Same for banking. I fully expect at least one of the big four to cease to exist once the housing bubble crashes. Probably NAB as they have been quite aggressive in getting new mortgages on their books in recent years. The minor banks will be decimated. 

On a side note about where I live. It is normal here for farmers to borrow money against their farmland in order to put a crop in. This assumes that farmland always rises in value. Farmers don't farm to make money. They rely on the value of their farm to go up every year and that is where their "profits" are. Now at the moment there is a lot of foriegn buyers for aussie farms. If that trend stops and farm prices were to steady or fall in price then things could get very interesting very quickly. That said when a lot of farmers go bankrupt it doesn't reduce the amount of land being farmed. Someone else will buy it and farm it. Hence why I think farming will always need workers.

An anecdote about our housing construction. I had a tiler and a plasterer over at the same time a few weeks back to do some work. I overheard them talking about their current situation. They were saying that there was no work out there at the moment. Things were down 50%. Housing construction is already slowing. Which is what you expect to see when a housing bubble starts to burst.

http://www.abc.net.au/news/stories/2011/01/10/3109491.htm

 

I suggest getting out of debt. Having any savings spread across multiple banks. Having a month or more of cash under your mattress. 

About Subprime JD comment about China invading. They wouldn't bother. They would just buy a controlling stake in our companies. Invading would be much more expensive. A few bribes and they could buy out any company they like. 

Sydney78's picture
Sydney78
Status: Member (Offline)
Joined: Apr 23 2011
Posts: 15
Great comment , I agree 100%

Great comment , I agree 100% , I am not sure about aged care as baby boomers will need to sell their property to my generations that is not that well off. Question that come sto my mind who is going to buy baby boomers houses?

Most of my generation is in so much debt that we can not cope with few more interest rises. My friends are barely coping with home loan repayments.

I have sold my apparment to last year in August and it sold in 2 days. One year later , my brother has bought his unit last year for 300K and now is trying to sell it for 260K and there are no buyers.

 

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