• Shahar Hameiri, Toby Carroll

via The Drum

23 August 2011.

With London and other major English cities reeling from last week's riots, the European Union struggling to halt the sovereign debt crisis contagion, and the US credit rating downgraded for the first time in history, Australia seems strangely unaffected – the 'lucky country'.

Though Treasurer Wayne Swan now indicates that perhaps the budget will not return to surplus next year as originally promised, no painful austerity measures have been flagged to-date and Australia's public debt to GDP ratio is among the healthiest in the OECD at approximately 22 per cent.

The story goes that Australia has been saved from the Great Recession by the mining boom and the voracious demand for our resources in China.

Yet, a closer inspection suggests that the current situation is both unlikely to be sustained and contains the seeds of much future turmoil – some of which is already bubbling just below the surface. Australia's dependence on the mining sector and the Government's neglect of expanding inequalities mean that there are serious problems attached to both the continuation of the mining boom and its conclusion.

Though mining royalties, as well as the limited 'trickle-down' effect generated by mining, are keeping the economy afloat, the resources boom is increasingly destabilising the delicate balancing act Australian governments have performed in managing the past three decades of economic reform.

In fact, despite Australia's 'lucky' resource-abundance, the story of how we have arrived at a situation in which a small minority has become incredibly rich while the majority drowns in debt – Australia's ratio of household debt to disposable income is the world's highest – bears uncanny similarity to the experience of many crisis-hit OECD countries; probably more than we'd like to admit.

The truth is that despite the appearance of macroeconomic robustness, many Australian households, like their European and American counterparts, have as a result of economic liberalisation experienced declining real incomes and, simultaneously, increasing costs for basic needs like housing and energy. And like their counterparts in crisis-stricken countries, declining incomes have been partly offset by the availability of cheap credit.

While some have gained on paper and in pocket on rising property prices, rising prices have also pushed up the costs of market entry and made rental prohibitive for many in the cities. Further, many Australians, more leveraged than ever before, are often drawing on the rising value of their homes to both cover basic costs and re-enter the market as investors.

-------------------------------------

Read the full article

Photo via The Drum