Posted May 12, 2014 by Martin Armstrong
Australia has been a resource-rich country that was used to running a surplus in the years headed into the 2007 financial crisis. The deficit now has a lot of people concerned in Australia – but not all. Australia is a highly socialistic country with very vocal Marxist groups. Mr Abbott has indicated that all Australians will have to share the pain to guarantee future prosperity and that has the socialists dubbing him the “Demolition Man”. An Australian socialist is typically up there with the French version who never saw anyone else’s money they felt was not their’s for the taking.
Abbott has been talking tough with tax hikes for the rich, cuts to welfare and the raising of the retirement age to 70. However, the socialist in Abbott is expected to introduce massive national building projects that will only drain the national wealth – not solve any economic future problems for Australia.
These are the expectations to be included in his economic blueprint. This interesting aspect is the swing toward conservatism politically. Given this is where each day begins, the sense outside of Australia is that the political winds may be changing.
Abbott is looking to save billions of dollars in a fight against Australia’s ballooning budget deficit, which is forecast to reach 123 billion Australian dollars ($115bn; £68bn) over four years. This is clearly austerity – not hyperinflation. Australia has a budget deficit of around 3% of gross domestic product (GDP), while public debt is less than 20% of GDP. That is far less than what Greece and France as well as the United States and most of Europe.
The A$ bottomed in 2001 and peaked against the dollar in a 10 year decline for the US$ into 2011. This lined up with our Economic Confidence Model. We should see a 3 year reaction into 2014 for the US$ (A$ decline). This is already causing political changes in Australia thanks also to the decline in Emerging Markets. There is the potential for a 7 year US$ rally if we see new highs in 2015 and a higher yearly close.