‘You’re a broken record Gowdie.’
‘True’ I said.
End of conversation.
Repeatedly pointing out the structural defects in systems is a thankless task when all is going well. The information falls upon deaf ears.
Ridicule. Stifled yawns. Rolled eyes.
Heard and seen it all.
Ignoring the facts doesn’t make them go away.
It just makes a bad situation worse.
In the early 2000s, Professor Katsuhiko Ishibashi — a seismologist at Kobe University —warned about the serious dangers posed by nuclear power plants built in earthquake-prone areas.
In 2003, Japan Times reported (emphasis added)…
‘…Ishibashi warned of the danger of an earthquake-induced nuclear disaster, not only to Japan but globally, at an International Union of Geodesy and Geophysics conference held in Sapporo. He said: “The seismic designs of nuclear facilities are based on standards that are too old from the viewpoint of modern seismology and are insufficient. The authorities must admit the possibility that an earthquake-nuclear disaster could happen and weigh the risks objectively.”’
At that time, how serious did he think the threat was?
‘“I think the situation right now is very scary,” says Katsuhiko Ishibashi…“It’s like a kamikaze terrorist wrapped in bombs just waiting to explode.”’
A pretty graphic analogy.
How certain was Professor Ishibashi of his findings?
‘It is not a question of whether or not a nuclear disaster will occur in Japan; it is a question of when it will occur.’
That was in 2003.
Over the next eight years, Professor Ishibashi’s repeated warnings on the vulnerability of Japan’s nuclear facilities went unheeded.
Professor Ishibashi was a broken record.
Until…11 March 2011.
That was the fateful day when a tsunami (generated from a huge offshore earthquake) smashed into the Fukushima Diiachi nuclear power plant.
Fukushima was a level 7 International Nuclear Event Scale disaster — the highest level nuclear disaster possible.
This was the disaster on a scale that Professor Ishibashi feared would happen.
In May 2011, Professor Ishibashi said, ‘If Japan had faced up to the dangers earlier, we could have prevented Fukushima.’
Why didn’t Japan heed Professor Ishibashi’s advice?
Because, in doing so, it would have been a disruption to ‘business as usual’.
No one wants to hear from a naysayer…especially if it impacts the bottom line.
As reported by Bloomberg on 21 November 2011, those with vested interests shot the messenger…
‘Dismissed as a “nobody” by Japan’s nuclear industry, seismologist Katsuhiko Ishibashi spent two decades watching his predictions of disaster come true…’
Our nation’s (so-called) prosperity has been built on a massive financial fault line…too much debt.
The tectonic plates of debt have not yet moved to the extent needed to unleash a tsunami of defaults…but they are grinding away.
‘Falling home loan rates hasn’t stopped the number of households experiencing mortgage stress from rising.
The Digital Finance Analytics (DFA) Mortgage Stress Trends Data to December 2019 found the number of households in mortgage stress – defined by DFA as when household cashflows are negative – rose to 32.7% of all borrowing households.’
Savings.com, 10 January 2020
And remember…these are the GOOD times.
The pressures are building.
Ignoring the facts won’t make them go away…it just makes the inevitably disastrous outcome far worse than what it should have been.
We’re lulled into believing things that are not necessarily true.
We are led to believe our economy is strong
We are led to believe our economy is strong…when in fact, it isn’t.
Our economy has been weakened by the very thing that’s created the perception of strength…too much debt.
Yet, the authorities ignore the lessons of debt crises past and continue to encourage households to add to the pressures within the system.
Anybody who points out the folly of this ill-fated growth strategy is dismissed as a…nobody.
Well, I can tell you that nobody will look after your financial position better than you.
And you need to start questioning what you’ve been led to believe BEFORE the disaster hits.
To paraphrase Professor Ishibashi…
‘It is not a question of whether or not a debt crisis will occur in Australia; it is a question of when it will occur.’
The following is an extract from Chapter 11 of my book How Much Bull Can Investors Bear?
It questions the myth of The Lucky Country.
Hopefully, it makes you think about putting in place protective plans for your capital.
‘Myths are a waste of time. They prevent progression.’
The investment industry thrives on myths and axioms — accepted truths.
‘The share market always goes up.’
‘It’s time in the market, not timing the market.’
‘Cash is trash.’
‘Low risks equals low reward and high risk equals high reward.’
‘Shares should be a significant part of the investment portfolio of people seeking solid growth in capital.’
‘Diversification minimises risk.’
‘Australia’s economy has been recession-free for 25 years.’
‘Good debt versus bad debt.’
‘If I sell, I’ll pay too much tax.’
If you find yourself wondering why I’m dedicating a chapter questioning these considered wisdoms, there’s a good chance you accept the messages they convey.
This is precisely why the industry, mainstream commentary and society repeat them in varying ways. Say it often enough and it becomes the truth.
People just accept they’re true…without really applying even a modest amount of critical judgement.
Myth #1: The Lucky Country
We live in the best country in the world.
Australia is blessed with an abundance of the best life has to offer — magnificent weather, a landscape from coast to country that’s the envy of the world, great food, fresh water (which cannot be taken for granted when you see footage of war-torn Syria), a stable political environment, a judicial system (while not perfect, it’s far better than the kangaroo courts of other countries), law and order, a world-class health system, a variety of sports to support and participate in, and a social welfare safety net.
All in all, we — as a society — have it pretty good. In so many ways we are the ‘Lucky Country’.
However, the Lucky Country myth we need to question a little more deeply is the one built on our economic success over the past 28 years.
This myth is perpetuated by headline such as this one:
‘What the Rest of the World Can Learn From the Australian Economic Miracle’
The New York Times, 6 April 2019
According to the article…
‘Ask Australian economists about this golden run, and almost all will say it has been driven partly by good luck and partly by good policy.’
Good luck? Definitely.
There’s no question we’ve been the lucky beneficiaries of a debt-fuelled China boom.
Good policy? Questionable…unless, of course, you consider lowering interest rates to encourage households to go deeper into debt is good policy. The Lucky Country, indeed.
The following table on Australia’s GDP is from the Australia Bureau of Statistics (ABS):
The next table is the latest GDP figure published by the ABS:
In 2010/11, Australia’s GDP was $1.32 trillion.
In 2018/19, our economic output has grown to $1.88 trillion.
Australia’s economy has expanded $560 billion over the past eight years.
On the surface, it looks like a cause for celebration. But keep the bubbly on ice for a moment…
In 2010, Australia’s national debt (public, corporate and private) totalled around $4.4 trillion. The latest national debt tally is slightly over $8 trillion.
Source: Australian Debt Clock
We’ve added $3.6 trillion to our national debt to create economic growth of $560 billion. It’s taken $6.40 of debt to generate $1 of economic activity.
The need for more and more debt to produce GDP is a trend that’s been ongoing since the early 1990s…our last recession.
Back then, Australia’s total national debt was less than $1 trillion.
Over the past three decades, we’ve accumulated a further $7 trillion in debt.
In 1990, Australia’s GDP was $400 billion. Over the past 30 years, it has taken $7 trillion of debt to generate an additional $1.48 trillion in economic activity…a ratio of $4.70 of debt accumulated to $1 of economic growth.
Notice the trend?
Over 30 years, the debt accumulated to GDP growth ratio is 4.7:1…
Over the past eight years, that ratio has accelerated to more than 6.4:1. There is an exponential curve taking shape here. In another decade — assuming we don’t hit the wall — it may take $10 of debt to produce $1 of economic growth.
The prospect of this happening is not great — unless of course interest rates go even lower to further reduce the cost of debt.
Even then, the trend is unsustainable. Yet, as a nation, we are told to celebrate our economic success, when in reality that success is a fraud. Therein lies the problem.
People genuinely believe our economy is some sort of miracle, when it is nothing more than a Ponzi scheme. Based on that widespread belief (combined with ultra-low interest rates), the debt binge continues as if nothing can go wrong. Hence the renewed property frenzy in our major capital cities.
Stability creates instability. The greatest risks are when people do not perceive risk. More and more debt accumulation over the past 30 years is evidence of complacency.
All this added debt comes with more than just the cost of an interest payment.
According to property site Domain in June 2019:
‘The number of home owners aged 55 to 64 still paying down their mortgage has jumped from 14 per cent to 47 per cent in 26 years, prompting concerns for their wellbeing into retirement and the superannuation system as a whole.
‘Numbers in all other age groups also increased, with fewer and fewer Australians owning their homes outright, even into old age.’
The cost is carrying debt into your golden years. This simply did not happen a generation ago. Banks did not permit borrowing beyond your working years. These days, in the drive for profits (and to keep the debt-dependent economic model ticking over), anyone who can ‘fog up a mirror’ is now fair game for a hefty loan.
It may be that some of the debt burden has been accumulated since retiring — from a reverse mortgage facility.
Whatever the composition of the debt, the fact remains that we, as a nation, are addicted to debt to finance lifestyles we cannot afford.
This should be cause for national shame — not celebration.