What is Wrong in the Australian Economy? - Three Observations

This is the second article in this series commenting on various aspects of the current crisis as applicable to Australia.

Effects of Other Countries' Policies on Australia

In my first article I commented on the effect idiotic political decisions had on our economy. This article focusses on the effect the policies of other countries have on us.

China's growth in recent years was responsible for the boom in Australia directly attributable to the mining industry. However, this growth is now faltering because the State imagined it could control both supply and demand and spent enormously on infrastructure projects, as well as building up a massive export manufacturing sector based on cheap labour.

In consequence, China now has several towns with no inhabitants and rapidly sliding property prices. Also, in view of the falling consumer spending in the USA and Australia after various fiscal stimuli are withdrawn, China will find it more difficult to dispose of its consumer goods.

Naturally that slow down in growth will have a flow on effect on the major suppliers of raw materials to it, like Australia.

The Greek currency crisis is playing out in Europe, with various other countries, like Portugal, Spain, Ireland & Italy, likely to place additional strains on the European Union. Whilst that is proceeding, imports and exports to and from those countries are likely to be slow, with consumers being forced to tighten their belts for some time to come.

After all, Greece only has total debt of $216 billion. Portugal's debt is $288 billion, Ireland's is $862 billion, Spain's is $1.1 trillion & Italy's is $1.4 trillion! Those figures make the $1 trillion rescue package announced recently seem insignificant. To add to the mix, Hungary appears to be in difficulties and although not part of the EU, it owes money to EU banks.

Unfortunately, over the years, general voter apathy and gullibility has allowed bureaucrats and governments of all persuasions in all countries gradually to increase control in all areas, aided and abetted by vocal minority lobby groups, who usually do not see past their own restricted areas of interest.

This growth of the non productive sector has placed increased burdens on society as a whole, with increasing taxes, whether named as such, or as levies or duties. In Australia, this is carried to excess by having three layers of government - Federal, State and Local.

The fact that has been brought home very clearly in the present economic crisis, is that government spending will only postpone the day of reckoning unless the slack, when it is withdrawn, is taken up by consumer spending.

That is not likely to occur, given the significant personal debt levels in many consumer societies which do not have the savings ethic of China, Japan and some other, principally Asian, countries. A sign of this occurring at present in Australia is the slowdown in retail sales.

That is a fact that has been overlooked by the politicians and bureaucrats cocooned in their air-conditioned offices in Canberra and elsewhere, secure in the knowledge that they can force taxpayers to fund their overseas trips, assorted well padded expense accounts and excessive unfunded retirement benefits.