Australia headed for ‘economic armageddon’

Australia headed for ‘economic armageddon’, by Joe Hildebrand. The usual warnings and predictions, which will eventually come true — presumably, maybe. People have been saying this for more than a decade now. The GFC came, but the rules changed. The central banks can stave off economic collapse for quite a while with low interest rates and some disguised printing, albeit at the cost of economic stagnation (like Japan). Still, this article is fairly prominent and the litany comes from a somewhat authoritative source.

AUSTRALIA is headed for an “economic Armageddon”, with record household debt, record foreign debt and a massive housing bubble creating a perfect storm that could “wipe out” millions of families if there is a global shock.

That is the apocalyptic warning of a former government economic advisor, who says the government needs to cut tax incentives such as negative gearing and welfare handouts and the RBA needs to increase interest rates in order to avoid a “devastating depression”.

Corporate governance specialist John Adams, who was an economics and policy advisor to Senator Arthur Sinodinos and management consultant to a big four accounting firm, believes he has found seven disturbing signs that the global economy is primed for a major fall. …

Raising interest rates back to near the market level of 6% is necessary, but would trigger a recession or worse:

Mr Adams called on the RBA to take pre-emptive action by raising interest rates and said the government needed to rein in tax breaks like negative gearing as well as welfare payments.

This, he admitted, would result in “a mild controlled economic recession” but would stave off “uncontrolled devastating depression”.

The seven signs:

  1. Record Australian Household Debt
  2. Record Australian Net Foreign Debt
  3. Record Low Interest rates
  4. Australian Housing Bubble
  5. Significant Increases in Global Debt
  6. Major International Asset Bubbles
  7. Global Derivatives Bubble

Our economies got into this mess because we put a bunch of public servants in control of setting the most important price in the economy, interest rates (actually the price of overnight money). Markets do a better job of setting prices, but that is impossible in our current system of paper money where banks and government manufacture the government-approved money.

There is no way out now, because there is too much debt. Debt is an implicit promise to be repaid in something of similar real value. But it is now “mathematically impossible” for the debts to be repaid, except by making dollars worth much less in real value. Many will miss out, and will not be as wealthy as they now think they are.

So there will be winners and losers — and who wins and who loses will be decided by the political system. Are the governments and monetary authorities listening to you and do they have your interests at heart? Didn’t think so.

hat-tip Mark Ellis