“The result of Libs talking down Oz Economy.”
By Lindsay David, Australia, author of Print: The Central Bankers Bubble, founder of LF Economics:
Wayne Swan, Treasurer of Australia from 2007 to 2013, Deputy Prime Minister and the Deputy Leader of the Labor Party from 2010 to 2013, who thought he saved the Australian economy but just delayed the inevitable, is now blaming everyone but himself for the downward spiral:
Image source: Twitter
As I argued in my book Australia: Boom to Bust, Australia will eventually see a significant economic recession in the not too distant future. And all the data points are clearly indicating my worst fears on where the Australian economy is headed. But we have to ask who is responsible for this economic downturn, and which policy makers helped line Australia up for the collapse in capital expenditure.
Well, we can all try to blame Joe Hockey, Treasurer in the now defunct Abbott Government from September 2013 until September 2015, even though his approach was most definitely the icing on the cake, but unfortunately he was not Treasurer at the time Australia’s political elite truly made what could be two of the greatest (yet laughable) economic related mistakes in the history of Australian economics. And the blame lies with Wayne Swan, alongside the Reserve Bank of Australia (RBA), Treasury, and Australian Prudential Regulation Authority (APRA).
Mistake 1. Flawed Calculations
As per the chart above from the 2012 ‘Australia in the Asian Century White Paper,’ If there was ever such a stupid miscalculation by Australians, it was the forecast on how much iron ore Australia would need to extract from the ground to export to emerging nations such as China to fulfill their long term consumption requirements.
Essentially when you calculate how much iron ore would have to be used by China to construct residential dwellings for its economy not to falter, Team Swan alongside the RBA forecast that China would construct a residential dwelling for every one of its citizens….and more. In other words, more apartments than people. Not to mention China’s private sector accumulating an extra $52 trillion in debt over the next several years in order to stop its Ponzi economy from hitting a brick wall.
Yet, Australians and various stakeholders of the Australian economy took Swan’s word and in unity agreed with the then Treasurer that China would indeed consume several billion tonnes more Aussie iron ore than mathematically required over the next decade and a half, thus apparently making a first world country an economic powerhouse by digging for rocks whilst society flipped houses to each other.
Hence there was a rapid expansion in capital expenditure during the period Swan was Treasurer. One that today has come back to haunt Australia. Had Swan and the RBA considered what China would look like if it actually did consume as much iron ore as they suggested, the planet Cybertron from the Transformers movie comes to mind. Hence today we would not be dealing with the same challenges that still lay ahead for the Australian economy as the mining boom goes bust and capital expenditure falls off a cliff.
Mistake 2. Not allowing households to deleverage in 2008/9.
The other grave mistake that Wayne Swan made was not allowing Australian households to deleverage back in 2008/9. It was the first and last real opportunity for Australian households to have what would have been a difficult yet manageable fall in house prices due to the all but 100% guarantee the mining boom would continue until at least 2012 and flank a depressed housing market as the housing bubble would have burst.
The end result would have been affordable housing and a nation forced to diversify its economy and spend more on building innovative new businesses. But Swan chose to save the housing market so the bubble would simply burst under someone else’s watch. And if I were Scott Morrison (the new Treasurer), I would be clearly reminding people of this.
Wayne Swan thought he saved the day when Aussie households back in September 2008 owed creditors $1.265 trillion. Chump change compared to the $1.9+ trillion households owe creditors today, leaving this nation with an impossible economic mess to deal with as the Australian economy moves further into Wayne Swans’ Black Swan moment.By Lindsay David, founder of LF Economics, author of Australia: Boom to Bust and Print: The Central Bankers Bubble.
Australia’s housing market is now set for the mother of all corrections. Read… First the Miners, now the Banks, then Property? Going to be a Hard Landing for… Australia
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.