The likely repercussions of a USD collapse for the Australian economy?

Hey guys, I agree with the majority of opinions and statements ITT(in the thread).

If the past is anything to go by im surprisingly quite pessimistic in regards to repercussions a USD dollar collapse will have on Australia. you only have to look at how the 2008 sub prime crisis was handled by ex- Prime minister Kevin 07. we all ended up 900 dollars richer, buildings got insulation and schools got rebuilt ETC. which is fine when your economy is firing on all cylinders (pre 2008) and we managed to meraciliously had only 1 quarter of recession and even that was only .78.

One of the reasons that the 900 gift to Australian citizens was so successful was because it was used and consumed ( lcd tvs, cars etc) as the months leading to this interest rates were decreasing every time the aussie fed met we as aussies were optimistic about the future. i think this time around the combination of rising cost of living, saturation of mainstream media about economic uncertainty which will entail an USD collapse and a generally beaten up economy will cause Aussies to really tighten purse strings and when the Aus. Government decides to give us $XXX to stimulate the economy once again its going to go straight into savings accounts which will be disasterous to say the least.

In short

1. USD collapses, i expect to see china really pull back on the amount of resources ie. iron ore they import from us which will severely effect the job market.
2. i think this event will be catalyst for a MAJOR contraction in the housing market as people who are over extended will be forced to sell.
3. i think the super funds are going to be battered again which will again hurt the housing market as baby boomers are now forced to sell.
4. i fell unemployment will reach new highs as mining industry takes a massive hit.
5. i finally feel that Australian will wake up from there blissful ingorence when it comes to our position in the world and its economy, they will realise that china is more important to us then they care to admit.

IMO of course

"Mitch"

 

Pokerhaust, I think it is also worth noting that in 08 GFC, we went into that with very little Govt. debt unlike most other western countries. going forward our elected people seem hell bent on spending money the country does not have. It may make the next shock a bit different.

(did you like how i stayed away from showing which side of the political fence i am on? i am very proud, no crazy box for me today!!)

 

I think you said it without saying anything

 

I'm not convinced the mining sector employs that many people both directly and therefore indirectly.... big dollars for sure, but only in restricted 'circles'.

but i am open to be swayed otherwise.

 

Thanks for your thoughts guys. If possible can we please try to stay on topic?

Clawhammer, that text from The Great Depression reads with some eerie familiarity. Thanks for the link.

I find it strange that no-one has written on this topic in some detail from an Australian perspective. Surely the fall of the USD has consequences worthy of some informed, and detailed speculation. I'm just a little flabbergasted that no Australian economist/commentator has written any speculative articles on this possibility/eventuality.

Is it simply that the theories of Schiff etc hold little weight/popularity in mainstream Australian economic circles, or that they are simply unknown?

 

I tend to disagree, the indirect effects of a mining slowdown would be larger then people realize, mine sites do not only hire miners, theres all the support staff ( cooks, cleaners etc.) and there's also the support industry ie. the people that rebuild parts for the machinery, the mining recruiting companies etc. The less people physically working at the mines themselves then the less demand for these other important indirect services. im sure everyone knows at least one person who works at, or indirectly with mining and the associated industries and if some of those people are out of work thats alot money money taken out of our economy

 

I tend to disagree, the indirect effects of a mining slowdown would be larger then people realize, mine sites do not only hire miners, theres all the support staff ( cooks, cleaners etc.) and there's also the support industry ie. the people that rebuild parts for the machinery, the mining recruiting companies etc. The less people physically working at the mines themselves then the less demand for these other important indirect services. im sure everyone knows at least one person who works at, or indirectly with mining and the associated industries and if some of those people are out of work thats alot money money taken out of our econom

 

My DH works for a company that is contracted to BHP so it is close to home for me.

On topic,
I would be interested to see relevant Australian info too. Not much scare mongering going on here. Are we too laid back or feel too smug after our recent side step of the gfc.

 

Aussies economists are still drunk on our real estate bubble.

Study the Lehman Bros collapse. They created all those risky real estate products that the other banks gobbled up and when Lehman Bros declared bankrupty not only were their creditors up the creek, many major corporations whom were invested in Lehman's couldn't pay their workers. The fear spread, banks got the gitters and started calling in their margin loans and faith in Wall street started failing.

The Banks started hoarding their cash and making loans expensive and the Fed poured trillions into the economy to keep the ball rolling. As we now know, it didn't work, Unemployment is rising and to make matters worse inflation is raging and the currency is failing.

That's how it played out over there. That's probably how it will play out here when there's no more dollars to be sucked into the bottom of the pyramid. It's how it played out in the past.

 

^^^

Just so I'm clear - are you suggesting that the real estate bubble in Australia could likely bust to the same magnitude of the US one?

 

Thanks for that great link to the document re. the Big Bank Smash of 1893 - how eerily familiar are the circumstances that preceeded it?!

 

Absolutely. It employs a massive amount of people. no offense Clawhammer, but if you largely reside in suburbs/city of a major city, (.i.e. Brisbane) You will hardly notice the mining activity. I know because i live there myself. However i also work in the mining industry so get to see just how big of an industry it is. and pokeraust is correct, from the people that work at the mine itself, there is a multiplier effect to the support industries like contractors, equipment manufacturers, rail companies, port authorities etc. The sheer quantity of local suppliers that I personally deal with is amazing, and I am just involved in one section of a small coal mine. Don't underestimate a mining collapse, not saying it will happen but if something like that does eventuatue, i.e. Coal and iron ore prices falling 50% or more, will be like an undersea earthquake of 10.0 that causes a tsunami. From the initial job losses, to the winding back or cutting of support industries and labour. if the housing market hasnt crashed before this 'possible' event then this will sure cause it. Not to mention what a housing collapse would do the finance and banking industry. The people worst hit will be those that work directly in the mines. I have never seen so many broke people than in the mines, leveraged to the hilt a lot of them with massive debt that they financially cannot miss even a single paycheck let alone take a job for less than 100k.

Thats to start with the immediate effects. The longer term effects of a reduced tax base for the federal government and a MASSIVE loss in royalties to states and federal government will be a huge hit to government finances and budgets which will either mean that we have to cut government spending to match (ill wage a chocolate testicle on that happening) or we go further into debt, which I will point out is what got greece, ireland, the US, UK and every other major country (except Germany???) into the cooking pot in the first place.

The australian economy is strong dont get me wrong but it is all so much precariously hinged on resources and China than most people, (and i suspect even those working directly in the indurtry) realise. I do however think we are in a better position than most countries and the Long term trend is still that the BRICS are developing and long term is still bullish resources, which provided our government doesn't choke and kill the industry with taxes, should be bullish for Australia. We aren't the only country with abundances of natural resources, we do however have this with political stability*


*Batteries not included.

 

We're still just a one-trick pony country - always relying on resources.

I'm not saying we should or should not be but what happens when China realises it can get resources from places such as Kahzikstan and the like more cheaply? We're in danger of saying "Ho, ho, ho - we have so many years of resources in our grounds and you'll have to get it from us so we can charge you whatever we like".

Result? Other countries look elsewhere or they start buying our companies and there's only so far the FIRB will go in hindering a foreign acquisition when all levels of government are bankrupt.

We've had the chance to develop other industries in the past but either blown it, stopped-it or exported-it.

Zargor

 

From what I hear from friends and family working mine sites around Aus, there is no slowing down in demand for our resources from China. In fact there are several billion dollar expansions happening at the moment. As long as the utterly useless government we currently have doesn't fuck it up, we should do okay outta the Chinese...

 

I'm thinking of making my contribution to lessening our reliance on one sector to sustain our wonderful land.

Being in the tourism industry, and yes, I know, we've tried to rely on tourism in the past, and it's failed ... but this time I'm thinking we could offer ring side seats to "Watch a bubble burst" in real time. You get the chance to actually observe a bubble bursting, with all the associated misery, pain and suffering. Would make a great series on Channel Nine, and if Richard Branson got his act together, you could probably view it from space too.

 

Yank's are buying Ford's & Chevy's again. Everyone resume your standard positions. Oh & some kneesans too

http://online.wsj.com/article/BT-CO-20110104-709535.html

 

A little old being 2006 figures (must be time for another census )...but the ABS says that mining only directly employs 130,000-odd Australians, or about 1.4% of the Aust. population.

Now when you talk about indirect support don't forget that the army and public service need haircuts, cafe' lattes, maintenance, construction & support workers too. In the army's case 130,000 people is not many frontline troops, and as for the public service...well...ayyyeeee!? To put it further into perspective, there are estimated to be 300,000 people in this country with gambling addiction and they effect 7 people around them, i.e 1 in 10 people are effected by gambling ...therefore gambling is more significant than mining.

http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/6291.0.55.003Feb 2006

furthermore, it only contributes to ~6% of Australian GDP and falling, meanwhile look at the services sector!
http://www.abs.gov.au/Ausstats/[email protected]/Previousproducts/1301.0Feature Article212005

Now, I'm going to present you a 'leading question'. Based on the above facts, why do you think the Govt would push so hard to promote and support mining above all other industries in this country? The question is open to anyone...Don't rush in...take your time and think about it.

 

Because they're $%#^en idiots who couldn't find the nuggets in their arse with a geiger-counter.

Oops ... sorry ... I rushed in

Zargor