The Australian Commonwealth Conundrum on 1 page: #ReserveBank #headache
The Australian Commonwealth economic conundrum is the result of significant regional imbalances between states.
Western Australia is busy digging up dirt and selling it to China,…
Remember Midnight Oil’s Blue Sky Mine?
“But if I work all day on the blue sky mine
(There’ll be food on the table tonight)
Still I walk up and down on the blue sky mine
(There’ll be pay in your pocket tonight)
The candy store paupers lie to the shareholders
They’re crossing their fingers they pay the truth makers
The balance sheet is breaking up the sky”
Queensland is growing bananas,…
While on the South-East coast the older states of New-South Wales and Victoria and busy importing Goods and Services to consume and live the Aussie dream.
The conundrum is that the recovery of WA and QLD seems to go absolutely busters, while the economies of NSW and VIC are much more sluggish.
Just (re)listen to ABC’s segment of Alan Kohler interviewing a hyper-pumped Adam Carr, Economist at ICAP Australia ( http://www.abc.net.au/insidebusiness/ – http://www.abc.net.au/insidebusiness/content/2010/s2858138.htm )
-ALAN KOHLER, ABC: (…) Adam, what does the capital expenditure pipeline look like for Australian resource projects at the moment?
-ADAM CARR, CHIEF ECONOMIST, ICAP: It’s enormous, there’s approximately 250 billion undergoing feasibility or awaiting commencement and in addition to that there’s 100, an additional 100 billion currently undergoing construction.
-ALAN KOHLER: So bottom line, do you think all this makes Australia bullet proof?
-ADAM CARR: Yeah look, absolutely, the way things stand at the moment you bet, I think that’s the right way to look at things, there’s not too much apart from policy blunders that could really ruin things as we talked about before, immigration policy etc and we really are the lucky country, we are well placed to deal with faster growth rates than Asia vis a vie growth rates in Europe as US and we just happen to have the right stuff.
This means that the Reserve Bank (RBA) will eventually have to increase interests rates to calm things down and prevent a bubble in the West (just check houses prices in WA to get a feel of the issue).
The trouble is that the majority of the people (voters) who have to repay their mortgages and credit cards around Melbourne and Sydney will feel the pain of an interest rise, without getting the direct benefits from the resources. This would mean troubles for the government, which will want to avoid such unpopular moves in an election year. Not that they can do much about it anyway, as the RBA governor (independent by status) made it clear that he won’t give in to political pressure from Canberra.
So a few years later, we are back to the issue: Australia needs a strategy to be more than just a mining country. It is easy for white collars working in office or retail jobs in Melbourne & Sydney to feel insulated from the reality that the country does run a model, which is not that far from – say – Saudi Arabia: bless Heavens there is so much good stuff underground. Dig it up. Sell it. And put the money in the bank.
This problem has been regularly raised in many circles, and not just by hippies crackpots. I remember hearing Greg Gailey, Director of the Business Council of Australia being quite vocal about it at the Australian Davos Connection Future Summit in 2009. ( http://www.futuresummit.org/files/Documents/FS_2009.pdf )
{ leLaissezFaire }
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