The keys to understanding the next Aussie financial crisis can be found in the writings of famous Austrian economist FA Hayek.
Hayek was famous for railing against government intervention in the economy.
He is also highly quotable.
He rightly points out that:
‘One need not be a prophet to be aware of impending dangers. An accidental combination of experience and interest will often reveal events to one man under aspects which few yet see.’Preview (opens in a new window)
Here at Markets & Money, we have been talking about the RBA’s historically low interest rates for a long time.
Next Aussie financial crisis caused by interest rates
The mainstream media meanwhile, is only now waking up to the consequences this has for the housing market.
Australia could be headed for a recession in 2018. But there’s a few steps you can take now to protect your family’s wealth. Find out more here.
But what does all this cheap money mean for your portfolio?
It means that the next Aussie financial crisis is bubbling beneath the surface. Preparation is key.
We have seen it with the property market falling over the past six months.
We have seen the beginnings of a credit squeeze forming with Westpac raising interest rates to maintain profit margins.
Economics is not as hard to understand as some would have you think.
Hayek says as much when he defines the ‘curious task of economics’ as being able to show people ‘…how little they really know about what they imagine they can design.’
For Hayek economics was not about showing what can be done through economic intervention, but more so showing what can’t be done.
As Hayek also notes, ‘The more the state “plans” the more difficult planning becomes for the individual.’
So it is with Australia, where our government is engaged in an endless pursuit of GDP growth through planning.
This planning includes low interest rates which make it less and less worthwhile to engage in saving.
Australia needs to remove this crutch if it is to return to some form of economic sanity.
Chances of a financial crisis
With Australians’ sky high debt, Paul Dales, an Aussie economist, says:
‘Puts a 20 per cent chance of a recession in the coming years, and an additional 10 per cent chance of a financial crisis — a total 30 per cent probability that the years of boom turns bust.’
We most likely aren’t going to magically pay down household debt.
We most likely aren’t going to raise interest rates in a serious way.
We most likely aren’t going to see any improvement in the housing market in the near future.
If this is the case, Markets & Money puts that chance of financial crisis significantly higher.
For Markets & Money
PS: Australian Recession: Find out why Australia could be poised to fall into recession as soon as this year and what you could do now to protect your wealth. Download now (free).