EYE-BALL Guru on – The ‘Lucky Country’ Tag – if you say it enought it must be true –
|Latest GURU Posts:
– The Value of the A$ – Part II – another report from ‘The Australian’s’ David Uren –
– The Value of the A$ – Part I – a report from ‘The Australian’s’ David Uren –
– Media Economic Commentary on June 2012 Retail Sales Figures – just naive …
– The Rise of the Australian $ – Finally someone from Academia Land agrees –
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The “LIBOR” Scandal …Part III – Banks a conduit for crime and corruption!!!
– Link to Part II – The LIBOR Scandal … The Banks are in Trouble … again!!!
– Link to Part I – The LIBOR Scandal … about to explode …
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Joe Hockey’s misfires on Welfare – he should be made to serve a lifetime on welfare existence …
US Bank Stress Tests – The Cover-Up and bullshit continues …
Dec 23rd 2011:
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| Author: EYE-BALL Guru |19th Aug 2012 |
|The post GFC term – ‘The Lucky Country’ has been used to describe Australia’s escape from the worst of the GFC fallout as a proud ‘banner’ by those wanting to talk up the Australian economy.
The most boastful have been Political Leaders serving in the current ALP Government and journalist’s copy catting the slogan as poetic license. The Opposition can’t refute the figures that roll out month after month, GDP growth, Unemployment, Inflation, retail sales and the like – all point to an economy the envy of the rest of the world.
But just how ‘LUCKY’ is Australia – what is the ‘LUCK’ – does it give some weight to an economic management debate that is was a ‘fluke’?
That thread then takes you to questions in whether Economic Management has any influence over and above consumer confidence as an economic stimulus.
Let’s analyse the statement – ‘The Lucky Country’ in the context of how Australia was seen as being a ‘lucky country’ before the post GFC use of the phrase.
Australia is envied far and wide because of our climate, our beaches, our lifestyle, and the Aussie flavour that the likes of Paul Hogan used to invite tourists to our shores to take a look for themselves. Many came and many agreed – Australia was indeed a ‘Lucky Country’.
Now let’s skip to the post GFC era and see why the ‘Lucky Country’ tag is being used to describe our financial and economic status as compared with the rest of the world.
The Howard-Costello partnership left Australia in a debt free state after the 2007 election defeat. Now it is a matter of record through past GURU posts that Costello’s ‘Scrooge’ approach to Treasury Budget surplus’, left Australia’s with urgent infrastructure needs in the mining, energy, and many other important bottlenecks. These infrastructures get our exports to off-shore markets, i.e. ports etc – and they were hugely neglected during the Howard/Costello era.
The fact remains that the massive surplus’ through 2005-07, some A$70 billion left Australia in a very secure position in a financial context. Below is a chart of the A$ debt relationship to GDP for the last 20 years. [Click on image to enlarge in a new window.]
Up to 1996 it had been a Hawke/Keating Labour Government since 1983. Howard’s term during 1996-2007 demonstrates Costello’s Treasurer performance. But managing an economy is not just about surplus/deficit outcomes. Australia as a part of the Global economy and as international borders have opened, so has world trade, and Australia’s part in that global Economy has repercussions for the Australian economy.
Any Government cannot erase all debt – it has to have debt securities to sustain a viable market in its securities. The 10% 2007 figure as shown in the above chart was not really net debt – the 10% represents the amount of debt securities on issue. In other words – Government will always have some debt on issue.
The flip side of the Howard/Costello debt reduction is the Current Account growth during the same period. See chart below …
This chart is the reverse of the Debt reduction of the previous chart.
What is the Current Account – in simple terms it is the difference in the Balance of Trade – i.e. difference between export receipts, and cost of imports in A$ terms.
As the A$ appreciated from early 2000’s, the value of A$ receipts for exports fell, whilst the cost of imports meant Australian importers paid less for their imports. Australia upon reflection of the above chart are an import Nation. There has not been a positive Current Account result since 1959 except for an 18 month period during 1972-73. [See Chart below – click to enlarge in a new window.]
And the full 1959-2012 chart … [See Chart below – click to enlarge in a new window.]
Our resources and agriculture exports have diminished in A$ terms as the A$ has appreciated since the early 2000’s. In more recent times more and more business’ are encouraged to import goods rather than buy locally because those goods are cheaper from offshore markets.
Another cross to bear as a result of the high A$ is that Australian employers see opportunities to transfer domestic employment to off-shore bases because of cheaper labor costs. That means job losses in Australia, and jobs for people in off-shore markets.
Manufactures see the A$ strength as reason to transfer their production to offshore venues. Overseas tourists seek cheaper destinations, and now avoid Australia as a destination. Australian tourists use the high A$ value for cheapened holidays and travel overseas rather than holiday in Australia.
So when the Politicians and media journalists all sway with the comment – ‘that Australia is really a Lucky Country’, none of them have any idea what they’re talking about.
We’re talking about decades of Industry history now having to change the way they do business, and that change is generally confronted with the realism that their business no longer affords them the lifestyle they once had. The inclination is to reduce operations and in more extreme cases, small business’ across Australia are closing in the thousands.
It piss’s me off when I hear uninformed commentary about how a high A$ is a good thing. A high A$ costs all of the above and in that context – people need to understand that this does not make Australia the ‘Lucky Country’.
To put it in an Olympic context – the likes of Swan and his motley crew of advisors and staffers, think that the higher the A$ – the bigger the gold medal.
The RBA are as equally responsible for this generation oversite – nobody is thinking where Australia will be in five more years of a high A$ policy. Australia’s GFC is still to come – it’s happening in the background, but our housing bubble is still to burst, our unemployment is dependent on WA and QLD mining activity – and the Debt/GDP ratio whilst still very healthy – has shaky forecasts at best. This Government has no real vision on economic management beyond re-election in 2013.
There is no doubt that economic times in the US, parts of Europe, Japan, and other Nations in full meltdown as a result of their Debt crisis positions make Australia look good. But we could be so much better if Leaders understood what cost the high A$ is really doing to this Nations longer term prospects.
Please – think before you open you mouth and call Australia the ‘Lucky Country’ … especially when talking about economic management and prosperity.
Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.
The EYE-BALL Guru …