Australian Lefty on Politics, Governance, Science and Info Management

Chickens coming home, roosting above the fan

Posted by Dave Bath on 2007-11-19

This week’s The Economist doom-and-gloomer about the US economy is worth reading, and applying to the Oz economy because the figures and trends The Economist highlights are worse in Oz.

I’ve long predicted that around 2008, the economic chickens, force-feed junk food by the Howard/Costello government, will come home to roost in 2008.  Suffering steatorrhea, they’ll roost above the fan.

The chickens have a decade of Howard/Costello policies flowing through them, so when it hits the fan, we won’t just be up the proverbial creek without a paddle, but hit by a flood without even the comfort of the barbed-wire canoe and held down by the massive weight of accumulated national debt.

  • Because of
    • the mirage of wealth from the housing bubble; and
    • unrestrained lending
  • There will be a long-run increase in
    • consumer spending; and
    • household indebtness as a proportion of household income

The Oz economy has been bubbling along because of borrowings against illiquid assets that have had their book values written up… always dangerous. 

When reality hits, spending on consumer goods and services will plummet.

The knock-on effects will be severe.  The only small mercy is that the drop in activity will decrease the pressure on interest rates that the tightening of credit availability would otherwise cause.

The Economist argues that even without an official recession, the pain will be just as great.  This will be a long downturn.

What has Australia got to fall back on?

  • China’s quarry?  Not when US consumption drops and China has less need for raw materials.
  • Japan’s beach?  Not when Oz is getting a reputation as a nation of racists.
  • Agricultural exports?  Not with water constraints.
  • Education of full-fee paying overseas students?  Not as the prestige of our universities fall because they have been too forgiving of underperformance by full-fee-paying students and are losing their reputation.

One Response to “Chickens coming home, roosting above the fan”

  1. […] "Chickens coming home, roosting above the fan" (2007-11-19) […]

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