The Depression We Didn’t Have to Have

Dear Reader,

Yesterday’s national accounts data sure was weird.

The headline number showed the Aussie economy suffered its sharpest contraction on record, a 7% decline in the three months to 30 June.

‘Real net national disposable income’, a broader measure of growth and better reflection of national living standards, shrank 7.8% during the quarter and 6.9% over the year. On a per capita basis, living standards were down 8% over the quarter and year.

An unprecedented 12.1% fall in household consumption drove the fall. It accounted for 6.7 percentage points of the drop in GDP. In other words, nearly all of it.

Meanwhile, household income increased 2.2% in the quarter, thanks to various government support measures. JobKeeper saw ‘earnings from unincorporated businesses’ rise 22%, while ‘social assistance benefits’ (things like the coronavirus supplement (an additional $550 payment) and the initial Economic Support Payment (one-off $750 payment) soared more than 40%).

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As a result, the household savings ratio surged to nearly 20%! Without all the government support measures, it would have been less than 5%.

In short, then, while the COVID shutdown caused a massive amount of economic destruction in the quarter, nearly all the damage (in aggregate) has been absorbed by ‘the government’s’ balance sheet. And by that, I mean the damage has been absorbed by you and your children’s future standard of living.

The one bright spot was exports. They fell much less than imports (which relate to household spending) and so ‘net exports’ contributed to growth in the quarter.

You can put much of that down to China’s decision to direct credit growth into iron ore friendly infrastructure investment.

However, this is a short term, not a long-term boost for China. Australia cannot rely on China for growth in the years to come. The relationship is irrevocably changed, as I explain in detail in this report.

The June quarter contraction marks the second consecutive quarter of shrinking growth. It confirms what everyone knew, that Australia is in a recession.

Now we’re in the midst of the third quarter. A 10% economic contraction would signify a depression. I think that’s a very real risk of happening given the ongoing slowness of the recovery.

If we do though, it will certainly be the depression we didn’t need to have.

They’re leading us into a depression

Australia’s economic future is now in the hands of power-crazed state premiers and petty health bureaucrats. And minor party sell outs who trade citizens basic rights and freedom for their own benefit, all under the guise of ‘keeping us safe’.

I’m referring to the extension of emergency powers granted to dictator Dan this week, despite an overwhelming public appeal to reject the request for absolute power.

This almost ensures the Victorian economy will be in an official depression by the end of September. Andrews and his team of tyrants have strangled the economy. It shrank 8.5% in the June quarter.

The September quarter could be just as bad. The state has been under curfew at night for the past five weeks, and rumors are that will continue until 27 September — six weeks in total.

Meanwhile, other state premiers aren’t much better, holding firm on border closures, despite the costs outweighing the benefits.

But fear is the currency of all tyrants (both big and petty) and keeping borders closed ‘for the health and safety of citizens’ is a good way to promote fear and retain an iron grip on power.

Their gain though, is your loss. A notable casualty of these borders closures is tourism. From today’s Australian:

State and territory leaders are preparing to defy Scott Morrison’s bid to have national cabinet agree to a single hotspot definition at Friday’s meeting amid new warnings that border closures will cost the tourism industry up to $33bn this financial year.

Tourism Research Australia data shows the industry is on track to lose a combined $54.6bn — at least 40 per cent of the tourism market — from ongoing inter­national and domestic border bans if government-imposed restrictions are not eased.

We’re told this is all to combat this deadly virus. But just how deadly is it? We get case counts and deaths daily, but these numbers, again, are all about fear. They are spat out at us without any context.

But as Dr Mark Imisides points out below, the actual data is very different to what you’re being told. He writes:

If, for example, we were to ask the question of whether your preference for ice cream flavour influenced your mortality, we would arrive at the obvious answer that it didn’t. In other words, regardless of whether you prefer chocolate or strawberry, or anything else, we’d expect that your life expectancy would still be 80.7 for men and 84.9 for women.  

And so with the case of Covid19, we can simply compare the average age of mortality for those that had it with the life expectancy. This will give us a direct measure of the effect of the virus on mortality. 

When we process the data, we arrive at some astonishing, and given the current panic sweeping the nation, counterintuitive numbers: the average age at which men that have Covid-19 die is 81.1, and the average age at which women that have Covid-19 die is 85.2.

In other words, the average age at which people with Covid-19 die correlates within half a percentage point to the life expectancy. And given that the most recent life expectancy data is 2018, and it is slowly trending upwards, to all intents and purposes the average age at which people with Covid-19 die is the same as the average age at which they were going to die anyway. 

Consequently, it is a factual statement to say that in Australia, whether or not you have Covid-19 has as much effect on your mortality as your preference for chocolate or strawberry ice cream.

But don’t tell that to our state premiers. Or Scott Morrison, who is crippled by the fear and is sitting back and watching this unfold, with all but the most feeble objections.

They’re leading us into a depression. All for our own safety.

Regards,

Greg Canavan Signature

Greg Canavan,
Editor, The Rum Rebellion


Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts.

At The Rum Rebellion, fake news and unethical political persuasion are not in the least bit tolerated. It denounces the heavy amount of government influence which the public accommodates.

Greg will help The Rum Rebellion readers block out all the nonsense and encourage personal responsibility…both in the financial and political world.

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