Australia Runs out of Luck, Now Needs a Miracle

[marmar]

By Lindsay David, Australia, author of Print: The Central Bankers Bubble, founder of LF Economics. Originally published at Wolf Street.


Australia, you have officially run out of luck.

While leveraged property investors in Sydney and Melbourne are desperately hunting for a senseless “net-yield” that makes the yield on a German 2-year bund look rewarding, the Australian mining sector is screaming towards what may be one of the greatest and colossal economic breakdowns in modern Western history.

As iron ore illustrates, this is not a downturn; this is a spectacular crash in the spot price of a commodity. And the sad news is, there is no new demand scenarios (unless China builds more apartments than its population) to suggest that more supply is needed to fulfil the demand of the global economy.

Australia made two bets.

The first bet was that China would willingly consume every ounce of iron ore Australian miners could dig from the ground and pay a premium.

Unfortunately, Australia has built an (incredibly sophisticated and streamlined) iron ore production operation so big that the world may never be able to consume all that it can supply. Our treasury, RBA, Miners and politicians assumed that China would forever grow. But they failed to calculate over the long-term that if China continues to consume all the iron ore dug from Australia’s underground, the world’s most populous nation would literally need to build a national subway network, literally an airport every 22 kilometres apart from each other and literally more dwellings than people. .................(more)

http://www.nakedcapitalism.com/2015/04/wolf-richter-australia-runs-luck-now-needs-miracle.html

[hobbit709]

1. Nobody ever believes a bubble will burst.

They just believe that it will keep expanding forever.

[dixiegrrrrl]

2. Nothing grows forever....a look at history would have told them that.

I had to take Econ 101 in college. ( mid 1970's, midst of the Population Bomb and Environmental issues)
3 days in, the teacher was talking about how great capitalism was, that profits went up and up forever because people would buy forever.
( apparently the previous 200 years of bull markets and subsequent depressions were not on his radar).

I asked him what would happen when good and services hit a saturation point, since there could not be an infinite supply of resources to make things, over a long enough time span.

He told me that was impossible.

I found another class to take.