The Cookie Crumbles

The stock market seems to be confirming my fears about a slowing economy with hefty falls in recent days.

The warning signs were there as interest rates were cut to record lows and expectations of more to come. Coupled with the uncertainty over global trade and the internal tensions in China, our economy could be in for a very rocky ride.

Of course, there are similar effects across the globe as growth slows and the debts grow but I suspect we will be at the tip of the spear with a fair bit of economic pain to come. My reasoning is two-fold.

Firstly, thanks to the migration Ponzi scheme, we haven’t had a recession in over 28 years. People have grown accustomed to growth and seemingly endless prosperity. It means that few know just what a recession does or how impacts it almost every aspect of life. As asset values decline and cash flows diminish, people see themselves going backwards for the first time. Businesses pull their investments and jobs become harder to find. Employment becomes cherished as alternatives dry up. A recession hurts your emotions as much as your wealth and people are simply unprepared for that experience.

The second reason we will be hit harder than others is because of our economic reliance on China. Food, minerals, education, tourism, construction…so many aspects of our prosperity are linked to Chinese demand and reliant on the inflow of Chinese money.

Unfortunately for us, the cracks are appearing in the debt-laden Chinese economy which will also appear in Australia. China has been losing manufacturing business to other nations and is being further hurt by the trade battles with the United States. The civil unrest in Hong Kong will need to be managed and if the Chinese authorities act with brutality akin to the Tiananmen Square massacre then global sentiment will turn further against them.

If they leave the Hong Kong situation alone then it is likely the unrest will spread and threaten to disrupt the authority of the Chinese communist regime.

It is a tense time for the world and one that will likely result in even less confidence in government’s ability to provide for their citizens. That crisis of confidence would see capital flee to private rather than public assets with those invested in government bonds the biggest losers. As we have discussed before, among the biggest investors in Government bonds are those mandated to do so – the big US pension funds.

Thus begins the catch 22. Pension funds losing money in bonds diminishes the ability to fulfil pension obligations which threatens the income stream so many depend on, generating even more economic uncertainty.

Naturally, there will be swings and roundabouts as the process evolves in coming years but those who have an understanding of what the world currently faces know that it is time to prepare for the economic difficulties ahead.