Australia’s Potential Economic Depression

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Bill Shorten’s $2,000 solar panel subsidy and Matthew Guy’s half-price television subsidy are not just haphazard policy, they are desperate attempts to fuel credit growth as anxiety about the state of the economy rises amongst politicians and financiers.

Economic depression is something I talk about often, but I’ve never given a full explanation, so here’s my prediction in a consumable breakdown:

Some Australian economic statistics to consider (Source: ABS & RBA):

  • Private debt to GDP: 205.5%
  • Households debt to GDP: 122.2%
  • Households saving rate: 1% (ratio of savings to income)
  • Total national foreign debt: $2.236 trillion
  • Net national foreign debt: $1.021 trillion
  • Bank foreign debt: $1.225 trillion

A summary of what I predict:

  1. rising interest rates globally increases the cost of foreign debt, forcing banks to raise local loan interest rates, independent of the RBA cash rate
  2. the trending global economic slow down leads to lower commodity prices, sliding AUD down in value
  3. strains on the local economy from interest rate increases lubricates AUD decline as international forex traders become more cynical towards the health of the Australian economy
  4. falling AUD increases strain of foreign debt on economy
  5. bank exposure to foreign debt becomes increasingly acute with struggling commodity prices and declines in asset value, hurting the bank’s net position
  6. cost of imports increase as the AUD falls
  7. real wage continues current stagnation while the cost of imported goods rise
  8. the property bubble pops as borrowers can’t afford rising interest rates and higher cost of living when compounded with the pressure of wage stagnation and a 1% saving ratio, leading to sales, defaults, bankruptcies, and foreclosures, dropping property prices significantly
  9. interest rate income collapses and bank assets decline, causing anxiety about the stability of the banks leading to depositors withdrawing their money, triggering a bank run
  10. RBA sets interest rates to zero to combat foreign debt interest pressures, sells its foreign currency reserves in an attempt to stabilise the falling AUD, however due to its low reserves it makes little impact
  11. banks begin to default on foreign debt as they become incapable of making payments due to low interest income, dropping value of AUD, and an encroaching negative net position
  12. banks are forced into bankruptcy as their income streams and assets collapse

There are three ways I believe the government will react:

  1. the government plunges itself deep into foreign debt in an attempt to pay back the debts banks owe, leaving the government itself exposed to the same issues the banks suffered, leading to credit downgrades from the IMF and the government significantly cutting spending on government services and raising taxes
  2. the government sells exponential amounts of treasury securities to the RBA or the RBA itself engages in quantitative easing in a bid to pump money into the hands of the economy to boost credit growth within the economy, potentially launching a housing interest affordability scheme whereby borrower’s interest repayments are partially covered, however this likely leading to hyperinflation and potentially wouldn’t save the banks
  3. the government completely deregulates foreign direct investment, allowing foreign banks to acquisition our local banks to prevent them going into bankruptcy and permit foreign investors to purchase our collapsing assets and businesses at cheap prices in a bid to increase demand on the AUD and stabilise the dollar.

Of these three options, the third one is the most likely to actually stabilise the economy and restore “normality”, however the cost will be the complete selling out of the Australian economy to foreign ownership, totally surrendering our independence.

The question ultimately asked will be, “Is our nation worth the suffering?”

I would say yes.

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