Storm Clouds Gathering
We could be in for some wild economic weather. The winners will be those who have prepared for what is to come.
If you haven't done so already it's time to batten down the hatches.
The warning signs are everywhere and I suspect that Australia may be hit hard by the perfect storm.
Those who are prepared will see if off while people who refuse to lift their gaze will suffer the most.
One of the catch phrases of finance is that if America sneezes then Australia catches a cold.
There's no doubt that the USA has a big case of the sniffles and that sends an ominous message about our economy.
While the official figures are manipulated for political purposes the facts cannot be suppressed for long.
Fresh from redefining what a recession is, the Biden administration are now conditioning the public before they acknowledge the clear problems with the US economy.
Naturally it won't be their fault. All the problems will be blamed on others but the rest of us have seen it coming long before blame could be apportioned.
Firms are laying off workers, car sales are plummeting, mortgage costs are rising and cost of living is out of control.
Even the stellar 'Black Friday sales' had a bad story hidden behind the record numbers.
The bad news is that the 'record' isn't really that good when you account for inflation. If prices have risen by 10 per cent or so in the past year then it's reasonable to reduce the sales figures by a similar amount if you are comparing with last year.
That suggests that there was an actual real decline of around 8% in the volume of sales on this benchmark day.
You can see a similar trend in the real estate market. Prices are dropping and buyers are still not stepping up. It's the same story with new and used cars.
America has many of the same problems as we do. Too much debt and too many non-productive people.
It's grown slothful on excess credit and money printing.
We have too, but our domestic issues are compounded by one of the highest cost of living anywhere in the world.
Electricity prices are set to jump by fifty percent in the next few months. That's going to really hurt many household and business budgets
Fuel and transport costs are bumping up the prices of everyday items.
The interest rate hikes are starting to bite and house prices are starting to fall. That may seem like a blessing to some but if you are one of the heavily indebted home owners, a price drop is the last thing you want to see.
Right now, our own financial figures don't reflect the future pain that is seemingly built in to the system.
People are still spending here, seemingly oblivious to what lies ahead.
I suspect the reason for that is the (almost) unbroken record of economic growth we have enjoyed for decades. People have forgotten about the early 90's recession. The GFC was but a bump and markets rebounded quickly post COVID.
To be fair, Australia has weathered international storms with barely a hiccup recently. However, I also believe that this time is likely to be different.
Like many Australian households, our government is more indebted than ever.
That means it's got less firepower to combat the brutal state economic reality coming our way.
This will be compounded by the diminished impact of whatever action it takes to ameliorate the worst of what lays ahead.
In effect, they'll get less bang for our buck.
Of course they aren't alone. Governments across the world face the same dilemma and none of them are quite sure what to do about it.
Thought for the Day
“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”