The Risk of Economic “Disaster” in Australia

Published on
April 23rd, 2019
55 minutes

The Risk of Economic “Disaster” in Australia

The Interview ·
Featuring Gerard Minack

Published on: April 23rd, 2019 • Duration: 55 minutes

Gerard Minack, founder of Minack Advisors, sits down with Matt Milsom of Qantex to discuss the macro drivers of Australia and of the global economy. Minack and Milsom dive into the macroeconomic considerations surrounding the beaten-up Australian economy, the bull case for Japan, and an explanation of how Modern Monetary Theory might operate in the real world. Filmed on April 15, 2019 in Sydney.



  • RE
    Ryan E.
    12 March 2020 @ 15:55
    Now would be a good time to revisit this idea
  • NN
    Naresh N.
    18 November 2019 @ 21:04
    I've lived in Australia for 6 years. To my simplistic mind, Australia's real growth happened because of 3M's - Mining, Milk and Mortgages. The dairy industry has collapsed and is in the capitulation stage, Mortgage flipping isn't creating price increases and Mining is something that could create value in the junior mining space where precious metals have looked up. Australia's visa system attracts the worst from developing countries especially India, compared to the US which attracts the best PhD brains who create entire new industries in Silicon Valley. Australia attracts taxi drivers who come over on a student visa and convert the visa into a permanent residency. Australia's collapse could be blamed on socialism which has fostered an entire generation of bottom feeders who only wish for bread and circuses from the political leadership and are very assertive voters. This is the very world view that has brought many third world countries into dysfunctional, capital deficit societies. The conservative bench is controlling Australian politics who are basically nut cases. Subjecting ex-PM Malcolm Turnbull through the leadership spill and ousting him was the last straw which broke the camel's back in recent politics. The Australia of the future will consist of large numbers of international students, unemployment, poorly made construction which will render Melbourne and Sydney into a Brazilian favela. The Government will respond with more policy intervention, more spending, more tax terrorism, more regulation and the RBA will respond with more cash rate cuts.
  • RS
    Ryan S.
    2 June 2019 @ 10:44
    Yet to watch, but interested to see what the perma-bear says. He’ll be right with timing sooner or later surely? It is great to see Aussie financial talent being so positively received on Real Vision. #LittleAussieBattler
  • TM
    The-First-James M.
    25 April 2019 @ 19:39
    I think this is the first time I have every heard Gerard mention G-O-L-D on Realvision, albeit briefly. Personally, I'll leave this interview with the takeaway that this is significant W.R.T MMT.
    • MZ
      Martin Z.
      22 May 2019 @ 06:09
      Yeah, and he spelled it out, like it was a four letter word...Personally, I can't see the world's central bankers coordinating on MMT. They haven't done a very good job of that with the ongoing 'currency wars'. As with most cartels, the temptation to cheat becomes greater in proportion to how much cooperation there is. I'll put my money on chaos, uncertainty, and intractability - which, of course, means gold.
  • AB
    AJ B.
    3 May 2019 @ 01:12
    Another old guy preaching we "need" inflation to keep his assets prices up when the under 40 year olds want deflation (they just don't know it yet). Other than this bunk perspective I agree with his outlooks.
    • WM
      Will M.
      5 May 2019 @ 15:23
      Without inflation the system will collapse.
  • DS
    David S.
    3 May 2019 @ 22:03
    One of the best period. DLS
  • JS
    John S.
    29 April 2019 @ 08:54
    excellent wide ranging interview
  • BH
    Ben H.
    29 April 2019 @ 06:37
    Great stuff from the Permabear but timing certainly seems right now. I can only assume they caught him out filming from the side they did since it exposed to 2in wide hole in his sock that otherwise would have been on the inside??
  • PU
    Peter U.
    23 April 2019 @ 20:42
    The crazy socks are back!
    • DS
      David S.
      29 April 2019 @ 02:41
      Socks are becoming the new tie since many do not wear ties anymore. DLS
  • TD
    Timothy D.
    29 April 2019 @ 02:36
    Finally heard a reasonable defense of MMT, and from someone who doesn’t even support it. I’ll continue to point to Venezuela anyway, but I very much appreciated this interview.
  • Sv
    Sid v.
    24 April 2019 @ 16:34
    All nations will use all tools available to meet their national goals of security and prosperity. That includes "weaponizing" the currency if that will improve the security of the nation.
    • CH
      Charles H.
      24 April 2019 @ 22:38
      Sure, so long as the nation that controls the international trade currency understands that it creates a powerful incentive for others to diversify away to different currencies. There is nothing magical about the US dollar as an international currency. This is not 1944, when US held three quarters of global gold reserves and amounted to half of global GDP in a war-devastated world. The use of the US dollar as a tool for national security achieves security objectives at the expense of confidence in the US dollar as a unit of exchange... and the US dollar is, after all, a fiat currency that depends entirely on confidence for its value.
    • DS
      David S.
      29 April 2019 @ 02:36
      Charles H. - Well said. I do not know how, but a reserve currency of any country will be gone. The main hope for control on politicians all over the world is an efficient FX market. DLS
  • JA
    Jesse A.
    26 April 2019 @ 20:38
    What does he mean by "...then the reason you tax is to prevent the private sector from competing for the resourced you're after"? at "21min45sec left". I have always thought the idea of abolishing all taxes and just having the government spend money into existence was an interesting one.
    • RM
      Robert M.
      28 April 2019 @ 23:26
      His point is that from the stance of MMT with full printing of Gov spending, you are likely to achieve full production and have no output gap. This puts the economy into inflationary territory (eg: from shortages of labour which increases wages) thus you would need to tax the private sector simply to slow its production. This is similar to what Fed Funds hikes achieve at the end of most business cycles.
    • DS
      David S.
      29 April 2019 @ 02:29
      Wage inflation, which is good for consumer spending, is not the same thing as consumer price index inflation. The internet allows consumers to be efficient price shoppers. It is possible to have wage inflation with CPI and the GDP deflators growing at a slower or rate. This will reduce margins on price sensitive companies. The world is becoming a more difficult place to use classical models.. All the more reason the Fed should stand pat for now. DLS
  • KR
    Kieran R.
    24 April 2019 @ 22:25
    I've seen Gerard speak live before and love his work. He's definitely been more right than wrong on Australia. I would agree that the probabilities of an Aussie recession are higher than they have been for a long time. However, with the following caveats. Gross household debt to disposable income is indeed at record levels. But when talking about Japanese debt Gerard cited net debt and made that distinction. If you apply the same lens to Australian households, in Australia 'offset accounts' are popular and half of all borrowers use them. Offset accounts are just cash deposits that effectively offset your mortgage. If I have a $200k mortgage and $100k in offset I only pay interest on $100k. Once cash deposits are taken into account net debt to disposable income is around 120% rather than the close to 200% gross figure that is often cited. Households also have strong asset positions through our compulsory superannuation system and the portion of loans in negative equity with price declines to date is still very low. Looking at Aussie RMBS since June last year there have been 153 ratings upgrades and only 6 downgrades primarily due to prepayments that de-risk the RMBS. According to CBA data 80% of borrowers are ahead on repayments with an average of 32 repayments worth of buffer. Needless to say sentiment in Australian housing has gone to shit. Sales have gone down the toilet, stock is not moving and as Gerard mentioned, building approvals are drying up that will lead to a collapse in construction activity. I think betting against credit risks though is a harder trade and I would not short the banks for some of the reasons Gerard mentioned. Also Gerard mentioned that the Perth property market has been in decline for a few years now due to mining slowdown. That is true but we haven't seen a US style subprime meltdown there (of course there have been some defaults and there are developers going bankrupt over there now but not absolute blood on the streets). Currently 12% of Perth borrowers are in negative equity. But instead of mass defaults what's happened is people have just held on not wanting to realise losses. This has meant housing activity has collapsed. Less housing stock traded in Perth last year than in the last 1991 recession yet you have double the housing stock you did back then. Due to tougher bankruptcy laws here people just don't leave the keys in the letter box if they are underwater. I'm not saying mass defaults and credit risks boiling over is impossible, I just think betting on declining housing activity is a higher probability trade than betting on the credit risks. I think retailers geared to housing activity are a better bet such as Harvey Norman, Nick Scali, Duluxgroup and JB HiFi. Bluescope Steel is completely geared towards housing construction due to their Colourbond product, which generates the vast portion of their EBITDA. I used to work in their economics department and I can tell you they watch housing construction like a hawk as they know that's where most of their earnings come from. Homebuilders and property groups like Abacus, Stockland and Lend lease will also cop it in a slowdown. Infrastructure investment is really ramping up over here and there are green shoots in the mining sector Gerard mentioned. Unclear how this offsets resi property slowdown. Australia does have much better fiscal positions than other developed markets so there is more firepower on the fiscal front and the RBA has not expanded their balance sheet like other foreign central banks. So there is some firepower there if we slip into recession - not saying it's going to be pretty though. If there is global recession and China falls off a cliff (I profess to have no idea what goes on in China) I think it could get very ugly for Aus and in that scenario you would want to be long ACGB's (although they have rallied a lot this year) and short AUD. Currency still has a long way to fall in my view if Aussie conditions deteriorate IMO
    • JF
      Jarrod F.
      25 April 2019 @ 02:13
      Good point about Australian mortgage offset account balances and retirement (superannuation) savings. As you point out, these stats are often left out in the analyses of Australian housing bulls, ala Steve Keen et al. Australia has one of the most developed private retirement savings systems in the world - as at December 2018 the total pool stands at $2.7 trillion, the third largest in the world, and projected to hit $5 trillion by 2030 [ASFA, 2019]; not bad for a country of 25 million people. And at the government-mandated personal retirement savings rate of a minimum of 9.5% of worker income p.a. (set to increase to 12% p.a. in 2025), it's the highest retirement savings rate in the world [OECD, 2018].
    • MF
      M F.
      28 April 2019 @ 14:18 Gerry Harvey telling investors to sell their house and buy Harvey Norman Shares...well if you could stomach the 20% drop after he made the comment...considering the falling housing and the 10% dividend wacky as it sounded..he was far at least!
  • DK
    Daniel K.
    24 April 2019 @ 16:27
    Probably my favorite interview so far.
    • DO
      Daryl O.
      26 April 2019 @ 08:46
      Completely agree. The best I've seen on RealVision.
  • DM
    Dario M.
    26 April 2019 @ 02:31
    Brilliant interview Gerard! Appreciate your insights in particular regarding MMT and China. Cheers
  • DC
    Dave C.
    26 April 2019 @ 01:38
    Great interview - hope the next interview with Gerard will be soon - RV viewers need to hear from him more than every 3 years. Also very impressed by the interviewer - succinct, unobtrusive and good value add. I do recommend this piece on MMT by Gerard
  • RM
    Ryan M.
    25 April 2019 @ 22:40
    Bloody brilliant
    • RM
      Ryan M.
      25 April 2019 @ 22:51
      Anybody know this guy's returns? This is top 5 RV interviews in my opinion. Wow.
  • KD
    Karl D.
    25 April 2019 @ 03:42
    Exceptional analysis on the current state of the Australian economy. Look forward to having him back on the show when the situation progresses!
  • TR
    Thomas R.
    24 April 2019 @ 00:35
    I finally got my answer to what's wrong with a debt jubilee. It's because if printing money is acceptable then why do you need to tax? If there is no fiscal responsibility and we deem it acceptable to simply print what we need - no need to tax - The implications of that on markets, currency, etc, is mind boggling to me. Can't even being to get my head around that. Great interview!
    • SS
      Shanthi S.
      24 April 2019 @ 00:44
      Yes, but they will tax, to keep a lid on inevitable inflation. Which will result in the progressive transfer of wealth from individuals to the State over time. MMT is a one way trip to out and out Socialism. Is it not?
    • DS
      David S.
      24 April 2019 @ 20:25
      MMT is quicksand for sure. It is not the road to socialism; it is the road to bankruptcy. If Argentina can sell 100-year bonds politicians will use MMT to keep in office. DLS
    • CH
      Charles H.
      24 April 2019 @ 22:46
      Printing currency to fund fiscal expenditure through currency debasement is a regressive taxation of the entire economy, both capital and cash flows. It is effectively creeping, stealth communism. The end game of MMT is a worthless currency, and all economic activity subsumed into the government balance sheet.
  • CD
    Christine D.
    24 April 2019 @ 05:26
    Interesting. However he gets the construction industry absolutely wrong. I have commented many times on this before because I work in it and I know what is happening. The last couple of years were a massive boom of high rise residential construction and housing. This is over agreed! However why is none talking about the biggest ever boom in commercial construction that ever happened in Australia??? There are tons of hospitals, casinos, shopping malls etc being built in the new residential areas that were a result of the previous booms. There is a big consolidation in the industry and the companies that successfully changed profile from residential to commercial are sucking up the workforce. This is vastly overlooked! One more point is that even though current savings rate is negative, net household assets are almost highest in the world. Even with further asset price declines it will still stay relatively high. Furthermore there is steady wage growth. All this said a recession would be great to buy cheap assets.
    • DS
      David S.
      24 April 2019 @ 20:18
      US homeowners can walk away from a mortgage that is underwater. Can Australian homeowners do the same without major problems? DLS
    • CH
      Charles H.
      24 April 2019 @ 22:43
      Asset prices are price because of credit availability. Asset price declines destroy equity, not the debt. If the saving rate is negative and equity is being destroyed, then consumption must be reduced. Australia is living far beyond its means and an economic contraction is a necessary consequence now the debt binge is coming to a close.
  • CH
    Charles H.
    24 April 2019 @ 22:27
    Great, insightful interview, thanks. Anecdotally, there is already a recession in Australia. We just haven't yet gathered the data to measure it statistically. In six months, we will know that entered a recession three months ago. The only open question is how bad things are going to get. Interesting comments about MMT funding fiscal policy, in tension with monetary policy controlling inflation, and controlled currency debasement supporting export growth. The problem is that history shows fiscal spending is very easy to expand and politically extremely difficult to contract. In Australia specifically, fiscal expansion has proven impossible to contract over the past ten years, even when a government wanted to do so. So in Australia MMT would in practice mean an ever-growing public sector, ever-expanding money supply, ever-increasing interest rates and ever-more expensive imports for an economy that has been hungry for foreign capital ever since Europeans settled there. There is a good chance that MMT would be attempted in a financial crisis, especially if Shorten comes into government, but it would be a hiding to nowhere.
  • TK
    Toby K.
    24 April 2019 @ 21:51
    Fascinating macro views. Class act.
  • RE
    Richard E. | Contributor
    24 April 2019 @ 17:34
    Excellent interview! Truly covered all important points one could in that amount of time.
  • JS
    John S.
    24 April 2019 @ 16:19
    Great interview!
  • JM
    Jason M.
    24 April 2019 @ 12:34
    Top Notch. Please bring him on again
  • MC
    Michael C.
    24 April 2019 @ 06:50
    Excellent interview over a wide range of topics. Interesting perspective on Australia facing a recession on its own and what that might mean for stock prices.
  • PC
    Peter C.
    23 April 2019 @ 19:44
    Any possibility to get someone talk about Canada here?
    • MC
      Michael C.
      24 April 2019 @ 01:14
      Replace every mention of Australia with Canada and you get a close approximation
    • MN
      Maverick N.
      24 April 2019 @ 03:36
      Precise point............let's get Ben Rabbidoux on this subject.
  • BY
    Bowie Y.
    24 April 2019 @ 01:49
    never expect we'll have uber bear from the down under! enjoyed this show
  • SS
    Shanthi S.
    24 April 2019 @ 00:39
    Wow! Spectacular insights. Great communicator. Gerard has such a broad global view, and excellent insights into Australia. It’s hard to get opinions on Australia that aren’t extreme and lacking nuance. Fantastic stuff.
  • JL
    James L.
    23 April 2019 @ 22:23
    Very, very good interview. What we must understand is and the point clearly made is that not only is Australia got household debt at astonishing high levels to income but the savings rate which is quoted at 2% is misleading! Not only is this figure weak, it’s wrong AND in negative when as Gerard points out you pull out the employer provided 9.5% compulsory saving. High personal debt, negative personal savings. Equity mate, can only get you so far!
  • RB
    Randy B.
    23 April 2019 @ 21:07
    Actually one of the best economic interviews/presentations I have seen Real Vision or anywhere else.
  • IA
    Ibrahim A.
    23 April 2019 @ 19:31
    Great interview, fantastic guest. Wide ranging conversation with many interesting insights. More please!
  • DS
    David S.
    23 April 2019 @ 19:12
    Great interview on so many hot topics. I will need to watch a couple more times just to understand some of the main points. On first viewing, the rabbit hole of a free lunch just gets deeper and deeper. We have gone from deficit spending when the economy is in trouble and paying it back when the economy is better to deficit spending when the economy is in full employment just so we do not have to tax to pay it back. All the QE did not help the real economy because the excess money is not employed in profitable projects. Japan has used any QE and or early MMT to build infrastructure everywhere. Per Mr. Koo, this has kept the Japanese GDP from falling off the cliff. Hard assets like land, commodities and gold look like the main hedge. I would like to see Mr. Koo return and discuss his opinions on MMT. Will it also raise stock prices like QE? For me this is scary stuff. DLS
  • WY
    Wenlin Y.
    23 April 2019 @ 13:40
    Thanks for the interview. Am from Australia, been having similar views lately as well, good to hear it being agreed with. On the other hand, it’s quite worrying, most people here seems totally unaware of the economic situation.
  • MJ
    Matthew J.
    23 April 2019 @ 11:16
    Great interview. Gerard offers great insights. Thanks