John Abernethy, chief investment officer for Clime Asset Management, explains how Australia’s government could be leading the country to another recession, and how it could have been avoided:
A recent holiday to the USA and the United Kingdom stimulated one thought in my mind – how insignificant Australia has become, once again.
For a brief period as the world emerged from the GFC, it was clear that Australia had managed its way through the world recession, albeit with some luck. At that time and from afar, Australia appeared a dynamic economy that was well positioned in the Asian growth region. Our massive resource base would see Australia generate foreign income surpluses that could cleverly be reinvested across other industries to create an economy that would stand unique in a low growth world.
Well regulated, high education standards, a burgeoning albeit small population, democratically governed, with strong laws, an open media and a massive savings base for retirement. These are all positive features of our society and our economy. So much so that everyone wants to live here – however from afar, it becomes clear that our leaders either do not care or cannot envision what we will become or look like in 10 or 20 years’ time. Rather, they run Australia based on the preeminent desire of winning the next election.
Australia seems totally devoid of a stated economic policy or plan that is credible, sensible and designed in or for Australia’s best interests.
The notion of an economic policy that is in Australia’s best interests is important to understand in the context of the effects of the unrelenting quantitative easing (QE) program (or is it now a saga?) of the US. Ben Bernanke and the US Federal Reserve’s QE program has literally been turned into a TV serial that is re-run multiple times on any day, over weeks, months and now years. It is also now watched by hundreds of millions of people all round the world who wake up each day for the overnight highlights and gossip. The US business programs are full of it and so too are the news services whose only other focus seems to be the criminal activities of American footballers.
Let’s be blunt about QE - the USA does not give an economic damn as to the effects of its policies on the rest of the world. Indeed, their concern starts and ends with the obsessive fascination with stock indices (the Dow Jones, S&P 500 and the Nasdaq) based on the perverse view that the US economy lives or dies on stock prices.
Frankly, the US is no longer the “home of the brave”. The unrelenting money printing and the propping up of Wall Street will go down in history as the economic disgrace of this era. Whilst QE and the financial support of banks was needed in 2008 to stabilise the financial system and avoid a depression, its continuation at the rate of $1 trillion per annum is economic abuse.
Amidst a number of unintended consequences, one result of QE has been the emerging irrelevance of Australia, lazily basking in the false economic sunshine of a highly inflated currency. Throughout this recent period our government, our bureaucracy and our Reserve Bank have failed to recognise the falseness of markets. Our currency and our bond yields were just fanciful, but those in control of Australia apparently had no idea that this was the case. In a few years’ time it will become more apparent that the Australian government should have issued immense amounts of bonds at low interest rates and at an inflated currency point to raise the foreign capital needed to fund our future infrastructure needs. In just the last 6 weeks, our long term bond yields have risen by 1% and the $A fallen by 15%.
We have missed a golden opportunity due to the idiotic political obsession with balanced budgets and the naïve belief in free trade with a world that manipulates currencies in our face. In our view, the lack of an ability to understand the world economic situation has led Australia towards a possible recession and therefore taken us back to relative insignificance.
The full article was released in The View, stocksinvalue.com.au.