Friday, September 23, 2005
High Fuel Costs Lead Australia to the next Boom
Get set for an Australian economic boom, but first some pain.
The rising fuel costs will cause short term economic pain for all Australians. However, that may be a good thing.
Why? Well, we will see a chain of events that will lead to the continuing growth of the Australian economy.
First, the rising fuel costs will dampen the local economy and will also stimulate substitution technologies and improve conservation. An immediate outcome will be to reverse the steady growth of those petrol guzzling SUV's driven by those people who feel "safer" driving the biggest meanest truck possible on our city roads. These tanks of the road, that threaten you with their metal bull bars and block your vision from traffic ahead may be consigned to history, as part of the general trend to more fuel efficient transport. It is a bit like whaling, most enlightened countries have closed their whaling stations, but there are some notable exceptions. Australia has always proven to be enlightened in the long run.
While this enlightenment proceeds, the impact of rising energy cost will, over the next 6 months hit every product and service with increased costs. These increases will lead to price rises that will dramatically slow the economy, but for one thing. Australia already has relatively high interest rates, a buffer the Reserve Bank is able to use, where other countries eg: Japan and USA, have no such room.
This leads to the second in the key chain of events. As the economy starts to slow, the pressure will be on the Reserve Bank to drop the rates they piled on early this year. More people will switch from buying big SUV's and downsize big cars. The savings in lower taxes and reducing vehicle expenditure will mean more funds available to purchase a new home or an investment property. This may hurt the currently booming car market, but overall money spent on home building and investment, is money spent in Australia. Falling sales of vehicles, over 50% of which, are either fully imported, or contain a significant proportion of imported components, will not hurt our overall economy.
The Liberal/National Federal Government of John Howard have proven themselves to be effective managers of the economy for the past 10 years. They have brought in just the right amount of stimulus coupled with a balanced reform agenda. This will be the third and deciding factor, a more open labour market, through ongoing industrial relations reform.
Unfortunately, basic economics is not taught at all well in schools. The road to explaining the benefits to all will be difficult. However, people are trusting of a government with a very solid track record. The message will eventually get through, that an important feature of a strong economy, flexibility of the labour market capable of capitalising on changes of supply and demand will benefit all.
Painful as it sounds, some industries need to be allowed to drown, to allow room for the many growth industries that are now available. While several industries are in decline, there are huge areas of growth that need to be embraced. Consuming too much of our resources to prop up industries that have passed their used by date is a big risk. It is not being kind hearted when you destroy economies, like Keating and Beasley did, trying to apply unbalanced reforms without understanding real market forces.
To illustrate the potential outcomes we can refer to a well known example of the frog sitting cosily in a shallow saucepan of room temperature water placed on a stove. The frog will leap out of the pan if you turn on the heat to maximum. The sudden change in temperature will cause the frog to move. Alternatively, by turning the heat up slowly, a degree at a time, the frog will gradually acclimatise, until it boils to death. Australian's are allowing the petrol gosling SUV drivers to waste a valuable resource. By doubling the price of fuel we are forcing many of these people, who do not need to drive trucks, into something more sensible. Unfortunately, we all suffer while the inconsiderate come to their senses. But the current fuel example will show how the pain of change is better done quickly.
The above example is of course an over simplification of what can be very traumatic changes for many people. However, to use an another example of nature. What happens when a rubbish tip, used for decades reaches its limit and is closed for landfill? Seagulls for many generations learned to live off that tip. They have all forgotten how to hunt as nature intended. Just look at the millions of tax payer dollars that have been poured into rescuing Mitsubishi in South Australia! When the tax payer funded free ride ends, where do the Mitsubishi workers go?
In nature, a seagull that knows how to live as seagulls should, is introduced to the flock starving on the disappearing tip. Most of the flock will follow the the healthy bird to find out how it feeds. The flock very soon learns how to feed itself. Unfortunately, some of the flock will not move until the bitter end. Hence, the need for a safety net - the trick is placing a safety net that is not the main alternative to change. There must be real encouragement to "get out and hunt", as new industries are desperately short of people willing to learn new skills.
The fourth factor in the chain of events is the rise and rise of both Indian and Chinese economies. Together they represent over half of the world's population. The economy in both countries are the fastest growing in the world. They have both moved from third world to second world and will, within a few decades be super powers. Australia is uniquely positioned in geography, resources and skills to take full advantage of our good neighbour relations to help these two potentially giant economies come of age.
John Howard, Peter Costello and Mark Vaile all understand the future importance of further freeing up the Australian economy. We can grasp the new trade opportunities and therefore employment for many in these emerging economies. Already, the huge growth in China and India has meant that their increase in energy, agriculture and mineral demands is having a major upward price impact on all resources, not just oil. The net effect on Australia will be a stimulus in our resource rich economy.
All this leads to a significant fifth factor in our pending boom - security and stability. Australia is a country with massive borders, a very small population and resource rich. It is an understatement to say that we are a very tempting target. Our most important policy is therefore, how we juggle friendships and ties with our old super power friends and our emerging super power friends. Thankfully, we do not have to rely on Mark Latham and Kim Beasley for planning and outcomes in this arena.
Unlike tiny New Zealand, with no resources apart from sheep, we can not disengage from active participation in the defence of democracy and a freer world trade. New Zealand under Helen Clark has found that big brother Australia is a sufficient barrier to any threat New Zealand may eventually face. So like the seagulls they are happy to live on our discards for free. They have disengaged from looking after themselves and fully embraced the true socialist philosophy so their new motto is "I do not have to contribute to freedom, someone else will take care of that for me".
Australia is playing its part, contributing to a vital role in defending democracy. If all democratically elected governments were to play their part, the war lords, terrorists and likes of Mugabe who attack their own people would not survive. The Middle East policy straddles the two most essential ingredients for the well being of the modern world, oil and stable democracy. It is an area we must police and clean up. This may not be palatable to the purist socialist, who like Stalin and Pol Pot believe the world needs to be destroyed before it can be rebuilt as a true socialist state.
Being tough on crime is nice and desirable in any local community. In the Middle East, being a bystander is not an option as the whole world's economy depends on security in that region. As it is likely that USA, Britain, Poland, Japan, Italy and Australia, among others will stand firm on Middle East policy , so we can expect the long term likelihood of Middle East stability will further stimulate the prospect of Australia's next economic boom.
If you are looking for a great home loan or investment loan option then Compare Home Loans may provide you with the detailed research and solution for your needs.
The rising fuel costs will cause short term economic pain for all Australians. However, that may be a good thing.
Why? Well, we will see a chain of events that will lead to the continuing growth of the Australian economy.
First, the rising fuel costs will dampen the local economy and will also stimulate substitution technologies and improve conservation. An immediate outcome will be to reverse the steady growth of those petrol guzzling SUV's driven by those people who feel "safer" driving the biggest meanest truck possible on our city roads. These tanks of the road, that threaten you with their metal bull bars and block your vision from traffic ahead may be consigned to history, as part of the general trend to more fuel efficient transport. It is a bit like whaling, most enlightened countries have closed their whaling stations, but there are some notable exceptions. Australia has always proven to be enlightened in the long run.
While this enlightenment proceeds, the impact of rising energy cost will, over the next 6 months hit every product and service with increased costs. These increases will lead to price rises that will dramatically slow the economy, but for one thing. Australia already has relatively high interest rates, a buffer the Reserve Bank is able to use, where other countries eg: Japan and USA, have no such room.
This leads to the second in the key chain of events. As the economy starts to slow, the pressure will be on the Reserve Bank to drop the rates they piled on early this year. More people will switch from buying big SUV's and downsize big cars. The savings in lower taxes and reducing vehicle expenditure will mean more funds available to purchase a new home or an investment property. This may hurt the currently booming car market, but overall money spent on home building and investment, is money spent in Australia. Falling sales of vehicles, over 50% of which, are either fully imported, or contain a significant proportion of imported components, will not hurt our overall economy.
The Liberal/National Federal Government of John Howard have proven themselves to be effective managers of the economy for the past 10 years. They have brought in just the right amount of stimulus coupled with a balanced reform agenda. This will be the third and deciding factor, a more open labour market, through ongoing industrial relations reform.
Unfortunately, basic economics is not taught at all well in schools. The road to explaining the benefits to all will be difficult. However, people are trusting of a government with a very solid track record. The message will eventually get through, that an important feature of a strong economy, flexibility of the labour market capable of capitalising on changes of supply and demand will benefit all.
Painful as it sounds, some industries need to be allowed to drown, to allow room for the many growth industries that are now available. While several industries are in decline, there are huge areas of growth that need to be embraced. Consuming too much of our resources to prop up industries that have passed their used by date is a big risk. It is not being kind hearted when you destroy economies, like Keating and Beasley did, trying to apply unbalanced reforms without understanding real market forces.
To illustrate the potential outcomes we can refer to a well known example of the frog sitting cosily in a shallow saucepan of room temperature water placed on a stove. The frog will leap out of the pan if you turn on the heat to maximum. The sudden change in temperature will cause the frog to move. Alternatively, by turning the heat up slowly, a degree at a time, the frog will gradually acclimatise, until it boils to death. Australian's are allowing the petrol gosling SUV drivers to waste a valuable resource. By doubling the price of fuel we are forcing many of these people, who do not need to drive trucks, into something more sensible. Unfortunately, we all suffer while the inconsiderate come to their senses. But the current fuel example will show how the pain of change is better done quickly.
The above example is of course an over simplification of what can be very traumatic changes for many people. However, to use an another example of nature. What happens when a rubbish tip, used for decades reaches its limit and is closed for landfill? Seagulls for many generations learned to live off that tip. They have all forgotten how to hunt as nature intended. Just look at the millions of tax payer dollars that have been poured into rescuing Mitsubishi in South Australia! When the tax payer funded free ride ends, where do the Mitsubishi workers go?
In nature, a seagull that knows how to live as seagulls should, is introduced to the flock starving on the disappearing tip. Most of the flock will follow the the healthy bird to find out how it feeds. The flock very soon learns how to feed itself. Unfortunately, some of the flock will not move until the bitter end. Hence, the need for a safety net - the trick is placing a safety net that is not the main alternative to change. There must be real encouragement to "get out and hunt", as new industries are desperately short of people willing to learn new skills.
The fourth factor in the chain of events is the rise and rise of both Indian and Chinese economies. Together they represent over half of the world's population. The economy in both countries are the fastest growing in the world. They have both moved from third world to second world and will, within a few decades be super powers. Australia is uniquely positioned in geography, resources and skills to take full advantage of our good neighbour relations to help these two potentially giant economies come of age.
John Howard, Peter Costello and Mark Vaile all understand the future importance of further freeing up the Australian economy. We can grasp the new trade opportunities and therefore employment for many in these emerging economies. Already, the huge growth in China and India has meant that their increase in energy, agriculture and mineral demands is having a major upward price impact on all resources, not just oil. The net effect on Australia will be a stimulus in our resource rich economy.
All this leads to a significant fifth factor in our pending boom - security and stability. Australia is a country with massive borders, a very small population and resource rich. It is an understatement to say that we are a very tempting target. Our most important policy is therefore, how we juggle friendships and ties with our old super power friends and our emerging super power friends. Thankfully, we do not have to rely on Mark Latham and Kim Beasley for planning and outcomes in this arena.
Unlike tiny New Zealand, with no resources apart from sheep, we can not disengage from active participation in the defence of democracy and a freer world trade. New Zealand under Helen Clark has found that big brother Australia is a sufficient barrier to any threat New Zealand may eventually face. So like the seagulls they are happy to live on our discards for free. They have disengaged from looking after themselves and fully embraced the true socialist philosophy so their new motto is "I do not have to contribute to freedom, someone else will take care of that for me".
Australia is playing its part, contributing to a vital role in defending democracy. If all democratically elected governments were to play their part, the war lords, terrorists and likes of Mugabe who attack their own people would not survive. The Middle East policy straddles the two most essential ingredients for the well being of the modern world, oil and stable democracy. It is an area we must police and clean up. This may not be palatable to the purist socialist, who like Stalin and Pol Pot believe the world needs to be destroyed before it can be rebuilt as a true socialist state.
Being tough on crime is nice and desirable in any local community. In the Middle East, being a bystander is not an option as the whole world's economy depends on security in that region. As it is likely that USA, Britain, Poland, Japan, Italy and Australia, among others will stand firm on Middle East policy , so we can expect the long term likelihood of Middle East stability will further stimulate the prospect of Australia's next economic boom.
If you are looking for a great home loan or investment loan option then Compare Home Loans may provide you with the detailed research and solution for your needs.
