Australia: Lucky Country for How Long?

[PUBLISHER’S NOTE: We start mailing free copies of Vern Gowdie’s The End of Australia this Saturday. Be sure to watch your inbox to claim your copy.

In the meantime, we return to one of the planning meetings Vern Gowdie had for the book with Bill Bonner, this one in Paris. When we left off, Bill had pointed out that the next crisis is going to be infinitely more serious than the one in 2008…]

Vern Gowdie:  From an Australian point of view, we’re sort of labelled the lucky country.

Bill Bonner:  The lucky country, yeah.

Vern:  We’ve got a very stable economy. We have great beaches, and we’ve got this abundance of resources. And it was the resources that gave us the protection from the GFC.

Bill:  Yeah, yeah.

Vern:  You know China ramped up demand, and — but at the same time, they also quadrupled their debt from $7 trillion to $28 trillion. We know from that McKinsey Report.

Next time…I don’t think we’re going to be so lucky.

Bill: The expansion of credit reveals itself in Australia as an increase in the demand for raw materials, which are then shipped to China and turned into finished goods, sold in the US and Europe. When that expansion stops, the whole chain backs up, and suddenly, people don’t need raw materials. They don’t need what Australia’s selling, either raw materials or finance. And so then, the lucky country isn’t so lucky.

Again, the lucky country is true. I mean it’s lucky. In that natural way, it’s very lucky – lucky to have all those wonderful beaches and so few people on them. But not necessarily lucky from an economic standpoint over the next half a century.

Vern:  I just wrote an article recently that we’ve gone from being obese to morbidly obese. Instead of putting us on a diet and a little bit of exercise [after] 2008 and saying, ‘That was the heart attack; you got to get your house in order.’ They actually went for more sugar and more cholesterol.

Bill:  Yeah, yeah. Absolutely. Have you seen the number from the McKinsey report? It was $57 trillion more in global debt since 2008. That’s a huge figure. It’s huge!

Vern:  And so the average person, some of this won’t be news to them. But to a lot of people, it will be hard to get their head around the fact that the system is so unstable when on the surface, it looks stable.

Bill:  It looks stable…

Vern:  It looks like it’s been calmed.

Bill:  And the major media are not at all interested in this story. So to the typical person who gets his financial news from TV, from the government, from the major media, he won’t have any idea, and the whole thing will come as total shock to him that there’s anything wrong at all.

We’re an underground media. We’re the alternative, and it’s only because we’re not supported by government, not supported by advertising, not supported by big business that we can say the things we do. But relatively, only a few will get this information.

Vern: And the thing that resonated with me about all of this is it’s gone on and on and on. But I think it was Herb Stein, he said if something can’t continue, can’t go on, then it won’t.

Bill:  It won’t. Who is going to stand up and say, ‘We need to reboot this economy. This economy doesn’t work.’ I use the word ‘depression,’ and I got a lot of feedback, negative feedback, from my readers who said, ‘We can’t have a depression.’ Nobody wants a depression.

But guess what? A depression — now I’m calling it a reboot [laughs] — a reboot is just what we need. There’s no way of getting around it. The question is what kind of a reboot? Nasty, long [and] hard? Or is it going to be short and swift and get it over with, like Iceland?

Sooner or later, something is going to blow up. It’s going to blow up politically. It’s going to blow up financially. It can’t be paid. They’re going to go broke. They’re going to default. The people who are stuck with these debts, they’re going to say, ‘No. We’re not going to do it. It doesn’t make sense. Why should we pay these debts? They’re not our debts.’

That’s the funny thing about change you know: you wait a long time. You wait a long time thinking like Herb Stein. Well, something is going to change. Something that can’t go on forever has got to stop. And you wait, and you wait, and it doesn’t stop. And then you begin to think, ‘Well, maybe…maybe it could go on forever. Maybe they can borrow forever. Maybe a borrowing can go up faster than GDP almost indefinitely.’

And then something happens, and it happens fast. And all of a sudden, it happens very fast. I think—it takes your breath away. You say, ‘What? I didn’t expect that.’ You didn’t expect it even though you’ve been looking at it for the last 20 years.

I don’t know. But we’ll wait and see. It’s going to come to an end sometime. We know that…

[PUBLISHER’S NOTE: What will the end look like here in Australia? What will Australia’s own ‘reboot’ look like? And how can you make preparations today to protect yourself and even prosper from Australia’s coming ‘reboot’. It’s all in The End of Australia. Be sure to claim your free copy this weekend.]

Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

To read more insights by Vern check out the articles below.

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