In the real world, the trade imbalance with China can’t be negotiated away. China makes cheaper, more competitive products. That wouldn’t change, even if trade barriers — including NTBs (non-tariff barriers) — were eliminated completely.
Our financial institutions do not exist in a vacuum.
And the financial world has never been immune to upsets in our political history.
The market is subject to wars (at home and abroad), scandal and political shakeups.
What does the current political climate have in store for global markets?
The ‘Lucky Country’
It is said that Australia was saved from the Global Financial Crisis by the mining boom and our export relationship with China. However, this may also mean that we failed to learn the harsh lessons that other economies were forced to swallow.
It remains to be seen whether Australia can avoid further repercussions post-GFC.
Despite our insistence that we are the lucky country, many Australian households continue to experience stagnating incomes while the cost of living rises.
Australians are also subject to soaring levels of debt and a housing affordability crisis that continues to price many out of the market.
Given the current market uncertainty, some economists warn that Australia is making the same mistake post-GFC that America did before it, with unregulated levels of lending activity like what preceded the 2007 crash.
While our housing market cooled slightly in 2018, it’s unclear whether the market is in a bubble that will soon burst. While lending and borrowing have been high, the banks have tightened the lending criteria since the GFC. Our economy is also propped up by population growth and long-term investment.
The political climate will have a strong influence on this, as politicians consider issues like negative gearing, first home buyers grants, and tax policy generally. A wrong move at the wrong time could rob markets of confidence, triggering the bursting of a bubble — or, conversely, ignite new bull markets and set off an even greater boom.
The unintended consequences of government interference in markets can distort market signals, create massive malinvestments, risks, as well as opportunities.
Exploiting these opportunities is often a dangerous task, as policy can be reversed as quickly as it’s enacted.
Post mining boom, what is clear is that Australia is an example of market inequality — one where a minority reaped the profits and the rest of Australia suffered the consequences.
Our editors regularly revisit previous periods in politics and history to discover the parallels with today’s market. Knowing these trends can dramatically assist your investing. Read their latest articles below.
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