Doom & Gloom?

Posted by Mike H on 15 July 2016 | Comments

“Pessimists have been shown to have a much more realistic view of the world. Optimists on the other hand are more successful. “


Recently I ‘ve been getting a little depressed reading about the economic doom and gloom in the world in general and questions marks about Australia’s future specifically.

However, the latest edition of The Economist has me scratching my head a little.

How will “unsustainable” Chinese corporate debt levels affect Australia’s economy?

Firstly, an article looking at China’s plans to bring its Credit binge to an end.

The article showed total and corporate non-financial sector debt for major Economies.

Yes, the sad fact is that China’s corporate debt to GDP towers above all other countries. However total Chinese government plus corporate debt compared to GDP is much less than Japan, less than France, Canada, Britain and is the same as the USA.

Seeing how enmeshed the Chinese government is within its corporations, how we divide up the total debt almost seems irrelevant. It’s total debt levels are no worse than any other major economy. Unlike the West they also have the unfettered power to do whatever is needed to fix any problems.

Australia’s bleak economic future?

Also in this month’s edition

The economic and financial indicators table showed the following:

• Australia’s GDP rose quicker (3.1%) than all other developed countries (e.g. USA 2.1 %)

• Our industrial production ditto

• Our unemployment rate though not the lowest is in the middle of the range.

• Our budget deficit is -2 %; less than most other developed countries including the USA (-2.5 %.)

• Next year’s predicted figures are also strong

We might only look good because nearly everybody else is doing badly. Sure we are not doing as well as we were and I am not recommending a bout of “Schadenfreude” but maybe we should at least count our blessings.

Our $AUD is too high?

The Economist also shows Our 10-year government bond rate is really only < 0.6 % higher than USA. Can “interest carry trade” still a significant factor at that level in forcing up the AUD?

Are we to accept the possibility that the AUD sits where it does because the rest of the world sees Australia as a "safe destination and a good place to invest for the future? If you look at historical USD:AUD values, the mean level is around 75c.

Despite the fact that our current trade weighted index doesn’t seem to reflect our AUD level, could it be we are actually thriving?

Perhaps Malcom wasn’t telling a porky after all.

But then again I’ve always been an optimist!


Mike H

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