March 2011
That distant humm you can hear is the guts being sucked out of the Australian economy.
And it has a single source: China.
Our resources boom is bound up in the fortunes of China, and you will read that it is giving us the biggest boom economy in generations. This is simply not so. Resource booms inevitably lead to near disaster for the remainder of any economy.
First of all it sucks resources away from other sectors. Resources such as labour and financial, are taken from other economic necessities such as innovation and new industries required for our long term future. This will increasingly become apparent to the many, and especially so when the boom runs out.
Second, China is insisting that its people be given the jobs that our local engineers would traditionally complete.
Thus you will see today that vast tracks of industry in WA, a resource rich state, are in decline and closing due to lack of work.
This runs contra to what the headlines say and we are lead to believe.
Both of these are trends are known as the “hollowing out” effect and this economic effect has been rumbling around Asian countries since China opened for business in the past 15 years especially. Think Asian crisis of late 1990’s.
I was interested to read an article by Greg Canavan that showed that most of the world's manufacturing sector is in expansion mode.
He says “Everyone else, in fact... except Japan, Greece and Australia (10% of economy).
In these three countries only, manufacturing contracted in December 2010”.
And data from January shows the Australian manufacturing industry is still contracting. Greece and Japan are definitely not role models with which to be compared.
He then also looks at Australia’s service sector (85% economy), and shows that our performance is also measurably poor against the rest of the world, and also shrinking.
To stop the boom in one small part of the Australia landscape, resources, of course our central bank is raising interest rates causing our dollar to appreciate and all the mortgage holders – who are NOT beneficiaries of the discrete mining boom – to pay higher amounts for the loans.
Another disturbing statistic is that Australia presently has unemployed and underemployed rate of 16.5%. Yes that’s right, unemployment is not the 5% we are fed by the media.
Yet the miner’s want to import even more cheap skilled labour to meet their needs rather than educating our existing labour force and keeping the money in Australian economy. This also keeps downward pressure on wages and employment in Australia.
And even worse, all those record breaking profits of the miners we read about this past month, are very reliant on their very low tax expenses (that is the money that you and I expect to receive through improved infrastructure, say).
This is because of the accelerated depreciation of their investments allowed by the tax rules.
So yes, we are experiencing a two speed economy and people are saving more than spending.
That is because the community can tell more about what is happening in the economy than any number of overpaid economists.
Disclaimer: This is not advice. I am not licensed to give advice of any kind. Advice can be understood as individual advice to a person about their particular financial circumstances, or general advice about investing. So you cannot, and should not, rely on anything written here. You should only rely on advice from a licensed advisor. If this article has sparked interest please seek out a licensed advisor.