[A-List] Quick State-of-the-Nation spleen vent from Oz

[Rob Schaap <rschaap@xxxxxxxxxxxxxx>]

G'day all,

So much for that promise about point-for-point critiques of sanguine
articles about Australian economies.  No time for that, so just a couple
of notes for now.

(1)  We are living on the card in a big way: a net $37 billion in
1999/2000, $21 billion in the 2000/2001, and $22 billion in the first
nine months of 2001/2002. In 1980 the net foreign debt incurred by a
recognisably quasi-Keynesian Australian economy was A$8 billion.  In the
six years since the so-called neoliberal Howard Government waltzed into
office, ti has soared from A$193 billion to A$332 billion. High growth
by way of structural dependence on foreign borrowing.  In June, 1996,
the  finance sector owed a net $80 billion overseas. By December, 2001, that
had more than trebled to a net $251 billion. The amount the sector has
lent out for housing has more than doubled: an average house in the
state capitals cost about four years' wages in 1990; it now costs more
than eight years' wages.

Low interest rates have enticed Australians to borrow at unprecedented
rates, demanding on credit today what they will now not be able to
demand with readies tomorrow. The credit sector has been lending at one
per cent safety margin, and rates have gone up half that in five weeks.
Negative equity is a real concern throughout suburban Australia, and
within a few months.  Also, Australian business is in debt.  It has to
fund new investment with more debt.  But interest rates are going up to
forestall inflation.  But more expensive money equals higher costs of
production equals inflationary pressure, no?  So an article that
worships central banks forgets just how contradictory their primary
instrument is ...

As professional dissentoid economist Petyer Brain points out (and
apologies for misplacing the citation), "Australia's trade deficit in
elaborately transformed manufactures (ETMs such as machinery, computers,
cars, processed foods, paper, chemicals and the like) is now the major
problem with Australia's current account deficit and this will put a
speed limit on growth and job creation over the next decade.

Although exports of ETMs have risen from a low base, that rate of
increase is declining while imports continue to expand. In 1999,
Australia's trade deficit in ETMs was a huge $9.5 billion, well in
excess of the current account trade deficit of that year of $5.1 billion.
On Brain's projections, the situation will show little improvement for
a decade as in 2009 the trade deficit of ETMs will still be at $9.6
billion with the current account trade deficit at $5.1 billion.

Writing in The Age a month later, under the headline, `Borrowing
puts Australia on road to a meltdown?, Dr Brain elaborated.

For the past 20 years, he said, Australia has run one of the world?s
highest current account deficits, periodically more than 6 per cent of
gross domestic product, borrowing heavily overseas to bridge the gap
between what we earn from exports and what we spend on imports?

"The neglect of manufacturing in this country is inexplicable. Put
simply, Australia has a savings problem because of the neglect of the
manufacturing sector. No-one seems to have noticed that the 13 per cent
share of the Australian manufacturing sector in total output is 5-7 per
cent below comparable overseas countries. This equals the current and
long-term Australian savings/current account deficit gap."

That ain't quite Argentina, perhaps - nor even quite Japan - but there
are bits of both stories in this mix, I think.  As Mark Twain said, if
history does not repeat itself, it certainly rhymes.  Australia's song
is not the original number messrs Howard and Costello claim it to be,
indeed all they did coming up to the last election was speed a familair
ditty on its remorseless way, and all they can hope is that they're
safely back on the Opposition cushions when the large turd they've
produced approaches the Fan Of Reckoning.

Back to the marking ...
Rob.