The Australian Economy

The Australian Economy
The First Fleet
Uluru
Sydney
Australian
Gold Rush
By Justin Kelley
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The Australian
Economy
By Justin Kelley
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The Australian Economy by Justin Kelley
Copyright 2016 Justin Kelley
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted without prior consent from the author.
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Table of Contents
Table of Contents
Preface.....................................................................................................................................5
Introduction..............................................................................................................................5
Economic Terminology................................................................................................................6
Overview of the Australian Economy...........................................................................................10
Australia in a Global Economy................................................................................................12
The Past..................................................................................................................................15
Pre-1788.............................................................................................................................15
The First Colony...................................................................................................................16
Colonising the Country..........................................................................................................17
The Gold Rush!....................................................................................................................19
The 20th Century..................................................................................................................21
The Financial Crisis...............................................................................................................24
The Present.............................................................................................................................25
The Housing Bubble..............................................................................................................25
Mining and China..................................................................................................................30
Race to the Moon.................................................................................................................34
Demographics......................................................................................................................36
The Future..........................................................................................................................38
References..............................................................................................................................39
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Preface
Want to know some facts economic facts. Well this book will give you a blast of facts. This book will
look at the economic history of the land down under: Australia. This involves taking a glance at its past
history and present economic condition. Australia is the appropriate nation to look at as its the one I
reside in. If you had read my previous book titled A Beginner's Guide To Economics And Investing,
you would of discovered that that book was mostly about the United States. So, if you seek so me
economic facts about Australia, well look no further then to this book.
Introduction
As most of the introductory stuff had already been covered by the preface I will keep this introduction
short. Australia is a country with a strong economy heavily focused on mining. This young nation has
has a short history from the first penal colony to the gold rush to the Mining Boom with many ups and
downs. However, Australia also has some economic history during the 50,000 years or so this land was
ruled by the Aboriginals. Australia now faces the challenges of a crashing mining sector, housing bubble
and an aging population. This nation, as history has shown, tends to fare much better then other
Western nations during downturns.
The Outline
This book will be structured into the following specific main chapters:
Economic Terminology
This chapter will give the reader some basic economic terminology to help them understand some
economic concepts that may come up in this book.
Overview of the Australian Economy
Here we will provide an overview of Australia on areas such as economy, geography and demographics
and the concept of globalisation will be explained.
The Past
This chapter will act as a summary of Australia's history. This involves the time before the Europeans
came to Australia, the British arrival to Australia, the Australian Gold Rush and the 20th century.
The Present
The following chapter will discuss the details of the more recent events transpiring in Australia right
now. This includes the housing boom, the Mining Boom and Australia's relationship with China.
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Supply and Demand
This is a fairly basic principle. The supply and demand of goods, services, assets and money is the
foundation of economics. Supply and demand effects prices. More demand then supply means higher
prices and less demand then supply means lower prices.
The Business Cycle
The business cycle is the booms and busts in an economy. The economy fluctuates between booms and
busts from the change in economic activity. Below is a table that displays the common characteristics
of booms and busts.
Characteristic
Booms
Busts
Level of economic output
High
Low
Level of consumer spending
High
Low
Rate of inflation
High
Low
Interest Rates
High
Low
Wages
Increases
Decreases
Unemployment
Low
High
The fundamentals of supply and demand results in busts having lower inflation and booms having
higher inflation, but this doesn't always happen. A bust can be inflationary or deflationary. An
inflationary bust is a result of excessive currency creation (expanding the currency supply causes
inflation) and can lead to a hyperinflation like the one in Weimar Germany. The inflation will erode away
one's debt obligations. A deflationary bust occurs when there is too much cheap credit. This credit (or
debt) goes away via repayments or defaults and the currency supply contracts causing a deflation. A
deflation like the Great Depression leads to lower prices and a smaller GDP and those in debt are wiped
out. This chart below shows the business cycle. The further a nation goes to a boom, the further they
will have to go into a bust.
The Business Cycle
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Bulls and Bears
A bull is a raise in an asset class and a bear is a drop in an asset class. For example, if the stock
market went from 800 to 1,200, it's a bull market and if the stock market went from 1,200 to 800, it's
then a bear market.
The Monetary System
The monetary system is how the government of a nation provides money to its economy. This includes
the type of money used and how it is managed. Most countries like the United States have a debtbased monetary system that uses a fiat currency. The banking structure involves a central bank and
commercial bank. Money is created by the central bank and that money flows from the central bank to
the commercial banks to individuals and businesses. Australia's monetary system is also like this with
the Australian Dollar being its fiat currency and the Reserve Bank of Australia being its central bank.
Currency vs Money
Money like gold and silver are a store of value and currency like banknotes or cheap metal coins aren't
a store of value. Money retains its value and currencies lose value overtime. A Weimar Germany
banknote is worthless and a gold coin from Ancient Greece still retains its value. A fiat currency is a
currency backed by confidence, which loses its value over time.
Currency Supply Measures
The following are different measures used to calculate the size of a currency supply. The more broader
measures tend to be higher value and more long-term assets that are harder to liquidise (turn into
cash and be used in transactions).
M0: This is the most liquid type of currency, like cash and assets that can be easily converted to cash.
M1: This includes M0 and currency that can be easily converted to cash.
M2: Includes M1 and currency that is harder to liquidise like short-term deposits.
M3: Includes M2 and currency that is really hard to liquidise like long-term deposits. This is the most
broadest measure used by most nations, but some nations like the United Kingdom use M4, which is
the most broadest measure used.
Gross Domestic Products (GDP)
This is the total value of a country's economy. This includes production and consumption of goods and
services, trade, investment and government expenditure.
Markets
A market is where buyers and sellers exchange goods and services. However in economics you will find
that the term market is used to refer to certain areas like stocks. This is where the market just relates
to that area like the stock market is the buying and selling of stocks. When just referring to the
markets this is a reference to the entire economy.
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The Exchange Rates
These are the rates of exchange between the currencies around the world, which are often called the
foreign exchange rates. These measure the value of one currency to another, such as a rate of
USD$0.72 per AUD$1, which means you can get 72 US cents for 1 Australian Dollar and USD$1 for
AUD$1.39. When a currency such as the AUD increases against another like the USD, it is appreciating
and when it loses value, the currency is depreciating. Below is a visual example of two fictional
currencies.
FED depreciates
FED appreciates
When a currency appreciates imports are cheaper and exports are more expensive and when a
currency depreciates, imports are more expensive and exports are cheaper.
Important People, Organisations and Facts
Governor Phillip: Governor of the first British penal colony (Sydney) on Australia. He came to
Australia on the First Fleet in 1788.
Reserve Bank of Australia (RBA): This is the central bank of Australia and is responsible for
controlling Australia's interest rates and currency supply. A central bank is a private entity separate
from a government and is owned by private individuals. The Federal Reserve in the United States for
example is owned by shareholders that it pays a dividend of 6%, as outlined in the Federal Reserve Act
on their website, In General. After all necessary expenses of a Federal reserve bank have been paid or
provided for, the stockholders of the bank shall be entitled to receive an annual dividend of 6 percent
on paid-in capital stock.1
The RBA is owned by the Commonwealth of Australia as outlined on their website, The Bank is a body
corporate wholly owned by the Commonwealth of Australia. 2 Elizabeth II is known to be the head of
the Commonwealth and this would apply to other monarchs. In a video, AussieMatters, states on how
these monarchs are funded by banks and rich individuals and so, the RBA is indirectly owned by these
banks and rich individuals.3 Also, some of the RBA's profits are paid to the Commonwealth as stated on
their website under the Reserve Bank Act 1959, The net profits of the Bank in each year shall be dealt
with as follows: ...the remainder shall be paid to the Commonwealth.4 The other share of the profits is
saved or put into a fund. Therefore, the RBA is linked to rich individuals and a share of its profits go to
them.
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Federal Reserve Bank: This is the central bank of the United States.
Bernie Fraser: Governor of the RBA from 1989 to 1996.
Ian Macfarlane: Governor of the RBA from 1996 to 2006.
Glenn Stevens: Current Governor of the RBA.
Some Prime Ministers (PMs) of Australia: a Robert Menzies (1939-1941, 1949-1966), Harold Holt
(1966-1967), Bob Hawke (1983-1991), John Howard (1996-2007), Julia Gillard (2010-2013), Kevin
Rudd (2007-2010, 2013), Tony Abbott (2013-2015), Malcolm Turnbull (2015-present)
Fiat Currency: As stated later in this book, the Australian Dollar was removed from the gold standard
in 1933 and became a fiat currency. This means the Australian Dollar is no longer backed by gold, but
by confidence.
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Overview of the Australian Economy

Australia has one of the largest economies in the world, which is fairly strong with a big mining and
agriculture sector. This country had fared well throughout the 2008 Financial Crisis because of its
Mining Boom, but is now facing a recession as that boom has ended. Australia like most developed
nations has a large service sector with this sector making up 69% of Australia's GDP according to the
Mundi index. The economic situation of a country is determined by several factors such as
demographics and geography. Below is a run down of Australia.
Geography
Population: 23 million (2015)
Size of Country: 7.7 million Km2
Population Density: 3 people/Km2
Australia is a very hot and barren country with the centre being desert and the coastline being fertile.
The population is mostly on the coast and as a dry country, Australia has to deal with droughts. Since
the population is so far spread, costs for transportation and road maintenance is high.
Map of Australia
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Demographics
Median Age: 37.3 years (2015)
Median Income: AUD$58,000 before tax (May 2015)
Australia's multicultural population is mostly living in urban areas with 4.3 million of them living in
Sydney alone. This country also has a problem with an aging population with there being an increasing
number of older people. However Australia's problem with an aging population is much less then that
of other countries like Japan, Germany and the United States (US). As a population ages, there will be
fewer young people to enter the workforce and to support the older people and this will seriously hurt
an economy.
Economy
GDP: US$1.45 trillion (2015), which is is lower then the year before, US$1.56 trillion (2014) according
to the World Bank Group
Currency: Australian Dollar (AUD)
Balance of Trade: -US$3.3 billion (October 2015)
Australian Dollar to US Dollar Exchange Rate: 0.72 US Dollar (December 2015)
Unemployment Rate: 6% (December 2015)
Inflation: 2% (December 2015)
Consumer Price Index (CPI): 108 points (December 2015)
Government Budget
Government Budget Deficit: AUD$44 billion (2015 fiscal year)
National Public Debt: US$417 billion (December 2015)
Debt per Capita (Person): US$17,000 (December 2015)
Debt as a Percentage of GDP: 26% (December 2015)
Industry
Australia largest industries are mining (Mining Boom), agriculture (not as large any more) and property
(Due to housing bubble). Manufacturing still plays a role, but has been on a decline since the 1960's
and as most Western nations, Australia's economy is mostly based on the service sector. Australia is a
major exporter of metals such as gold, silver, natural gas, coal and iron ore and China is its main
trading partner. Australia faces recession and falling exports due to China's recession.
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Australia in a Global Economy

People can buy products and communicate with others from overall the world. Investors can trade
investments like stocks over the world. Australia was effected by the crash of the US housing bubble in
2008. All of this is possible due to globalisation. Globalisation involves removing trade barriers between
nations, faster global communication and the integration of economies. Globalisation has allowed many
things to be possible such as international organisations and businesses and it has improved the global
economy as a whole. Despite this, globalisation does makes the global economy more vulnerable to
downturns. Individual economies are now more dependent on each other. Globalisation was the reason
the US housing crisis in 2008 caused the world economy to go into a downturn.
A Chain Reaction
Another example the impact globalisation has is when Thailand unpegged the Thai baht, which started
a chain reaction that brought Long Term Capital Management (LTCM) to its knees. The unpegging of
the Thai baht caused the 1997 Asian financial crisis and then the 1998 Russian Financial Crisis and
Default that caused Long Term Capital Management to meltdown. LTCM was a company that traded in
options (a type of derivative) and thought that their trading methods carried little to no risks. However
their risk calculations were off and their mistake almost caused the global financial system to freeze
up.
Australia (Provider), China (Manufacturer) and the United States (Consumer)
The way globalisation integrates economies can be seen with Australia, China and the United States
with these countries having a close economic relationship. Australia as the producer sells its raw
materials such as iron ore and coal to China, who then manufacturers this into consumer goods, which
are then sold on to the US. China buys US debt to depreciate the Chinese Yuan to make exporting their
goods cheaper. Around a third of Australian exports go to China and so where China goes, Australia
follows suit, which was why Australia went into recession after China went into recession. This
relationship between these nations will be discussed in further detail latter in this book.
China sells its products to the US
Australia
(Producer)
Australia sells its raw

materials to China
China
(Manufacturer)
United States
(Consumer)
China buys US debt
A Global Economy
As globalisation has reshaped the world economy, one can't study economics by just looking at one
country. They have to look at the whole economy. No longer can a nation stay completely in isolation
and be unaffected by foreign events. An economist will not only have to look at local economic events
and policies, but also foreign ones in order to make conclusions about the state of a particular
economy.
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History of Globalisation
In ancient and medieval times the Europeans, Chinese and American natives were all almost in
isolation. The economic conditions in Europe did not impact the economic conditions in the Americas.
They all could live in their own little world. At this stage in history, globalisation was almost nonexistent and it would take centuries before it really started to develop.
For most of history, the development of globalisation was slow until nations started exploring and
setting up colonies around the world. This was the first stage of globalisation. This stage saw the
expansion of the empires like the Spanish and British Empires and the increase of international trade.
Now, events in Europe would impact America such as the Thirty Years' War of 1618-1648 causing war
in the Americas.
The second stage of globalisation occurred during the 19 th and early 20th centuries. The world was
becoming more interconnected with countries over the world engaging in trade and diplomatic relations
with each other and international investment was now easier.
But World War One (WWI) and World War Two (WWII) put the brakes on globalisation. In WWI, the
British closed their stock exchange for a year and liquidity (ability to meet obligations, borrow money
and sell assets in the short-term.) dried up. The development of globalisation wouldn't be back on track
until the 1960's.
From the 1960's onwards, the track to globalisation just exploded with the deregulation of markets,
removal of trade barriers, rise of international organisations and more frequent and faster trading of
financial instruments like stocks. This third stage of globalisation also saw the rise of a global monetary
system. Globalisation at this point caused international trade and economic growth to boom, but also
increased the frequency of economic downturns. Now, the world has become one giant interconnected
economy and if humans do start colonising other planets, we would see globalisation on an
interplanetary scale.
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The Past
It's often thought that the Australian economy began when the First Fleet with Arthur Phillip in 1788
established the first British penal colony in Australia. This was when the economic growth really took
off, but an economic system had existed before that event with the Aboriginals. So, the economic
history of Australia spans many thousands of years with the last few centuries seeing the most activity.
The Need for Speed
When looking at economics at a historical standpoint it becomes evident that as technology progresses
and the economy becomes more complex the faster events transpire. Hardly any change took place
during the 40,000 year span of Aboriginal life on Australia and then the European colonisation
escalated the pace of economic progress. In a few centuries a basic economy turns into a thriving
national economy. Today the rate of economic progress is staggering with new advancements or events
taking place almost daily.
Pre-1788
Before the Europeans came, Australia was ruled over by the many Aboriginal nations that Australia was
divided among. These nations ruled Australia over 40,000 years and they had a bartering economic
system. With all societies some form of economic system had to exist. For the Aboriginals it was the
basic bartering system.
What is Bartering
For those that don't know, bartering is the exchanging of goods between people. I give you a cow and
you give me two sheep in exchange. Bartering has the problem of being slow, cumbersome and each
party had to have something the other party wanted. These shortfalls in bartering limited the level of
economic development for a bartering economy and the adoption of money is needed for economic
progress.
Not Just Goods
The Aboriginals are known for their culture that is associated with the Dreaming and story telling. Well,
Aboriginals traded in more then just the average goods and services. They also traded in songs,
dances, stories and art. As these things involved connection to the land and the Dreaming they had a
value of their own and so could be traded too.
Ores and Shells
The types of goods Aboriginals bartered in included mined ores and shells. Ores like red ochre from
South Australia and Greenstone from Mount Isa and Cloncurry were mined and used to make tools like
stone axes.
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Trade Routes
The Aboriginals had a system of trade routes that lead to particular trade centres where commodities
like spear, shields, fish hooks, stone axes, shells and ores were traded. The importance of the trade
routes for Aboriginals extended further then just for trading commodities. The trade routes were also
used to maintain law and relationships between tribes.
The trading centres could be used to resolve disputes, have meetings and share information on the
Dreaming. The social aspect of the trade routes helped tribes to gain respect for each other by
understanding their cultural differences and the rights and responsibility of each tribe.
The First Colony

Port Jackson (today Sydney, New South Wales (NSW)) on January 26, 1788 saw the First Fleet with
Governor Phillip establish the first penal colony of NSW. The British declared ownership of Australia via
terra nullius (meaning that the land never had been previously owned) and the European colonisation
of Australia began. The Australian Economist Noel George Butlin would call this colony a bridgehead
economy when discussing that this penal economy was the starting point for the creation of a very big
and strong economy and country.5
Establishment
The colony (Sydney) was at first meant to be at Botany Bay, but moved as this area was infertile. The
fleet brought with them many supplies along with 1,000 convicts as settlers. These prisoners were sent
to Australia to deal with prison overpopulation back in England. The colony would fair poorly with a
weak economy in it's first few years. This was for the following reasons:
The European seeds didn't grow in Australia and food shortages developed
The colony was far from England and difficult to resupply
Small colonies like this one have difficulties
The British ignored the colony, because they were busy with the Napoleonic Wars
For the colony to survive they had to establish agriculture, which become the foundation of the early
Australian economy. The governors had originally been the main drivers for the economy by providing
most of the supplies like money and management for the economy. But in the 1800's the private sector
(non-government sector of economy, which is run and owned by private individuals) finally started
developing with the government owned public sector becoming a smaller proportion of the overall
economy. During the early 1800's more land was given to the private sector and the variety of skills for
the colony increased as a greater number of convicts and migrants arrived.
The Monetary Systems
Rum, which was first brought to NSW in 1792 on the The Hope, was the first currency used by the
colony and it wasn't until 1813 when coinage started circulating in the form of Spanish silver dollars.
By 1829, this was replaced by a monetary system similar to the British Pound, Shilling and Pence
monetary system. Australia issued it's first own currency in 1910, which was the Australian Pound and
in February 14, 1966, Australia established the Australian Dollar.
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Colonising the Country

Throughout the 19th century, the colonisation of Australia by Europeans went from one colony: Sydney
to towns and cities all over the country. The economy was mainly agriculture with most of the people
being farmers. Explorations further into Australia such as the crossing of the Blue Mountains in 1813
allowed people to go find more land to build farms on. As the century dragged on, the manufacturing
and mining sectors started to become a greater part of the economy.
More Time
As the agricultural sector became a smaller part of the economy, the other sectors could develop and
more advancements could be made to improve living standards in Australia. This is because farming
takes up a lot of time and with a large percentage of the population being farmers means that there is
little room for innovation. The Industrial Revolution increased agricultural production and so allowed
people to move into other areas and so you see agriculture contributing only a little to an advanced
economy.
So, Australia needed to improve its agricultural production to further their economic growth and this
required technological advancement and the develop of infrastructure. With providing food to a growing
population no longer a problem, the banking, mining and manufacturing sectors could expand.
Colonies
Besides NSW, other colonies were also established. Many of the first colonies were military outposts
with convicts and it would be years after establishing these outposts that proper colonies were
established. In 1826, a military outpost was established in Western Australia (WA) out of fear that the
French would colonise that area and Perth was founded in 1829. South Australia (SA) started with the
South Australian Land Company in 1831 and in 1834 legislation was passed to set up a colony there.
John Oxley had chosen Moreton Bay to be the first colony in Queensland in 1824 and Tasmania was
first settled by the British in 1803. The British had failed several times to colonise the Northern
Territory NT) state of Australia due to poor management and the environment and it wasn't until 1869
when the first successful colony, Darwin was founded. Victoria was settled in 1803 at Sullivan Bay and
was made a separate province from NSW in 1851.
The capital state cities in Australia became the main colonies set up in those areas. The order of
founding these cities were: Sydney (1788), Hobart (1804), Brisbane (1824), Perth (1829), Melbourne
(1835), Adelaide (1836) and Darwin (1860). The separate colonies would have their own laws and
government until they became one nation in 1901. For reference to these colonies and states, the map
of Australia seen earlier in this book is displayed on the next page.
Boom and Bust
Every economy goes through a cycle from boom and bust. This includes Australia too. The Australian
economy experienced its first major economic depression during the 1840's. The English recession in
1839 and low wool prices in Britain caused a crash in the agriculture industry in Australia and
agriculture was big for Australia during that time. This along with speculation led to lower demand,
credit defaults and less British Investment in Australia. The Australian colonies found themselves
running a deficit and they increased taxes to refinance in 1845 and they encouraged immigration, but
more people led to further unemployment. The Gold Rush and the rise in wool prices finally brought the
depression to an end. The Gold Rush would be a long-term boom that was followed by another
depression in 1890. This depression would last three years and was a banking crisis with many banks
being forced to close. People that had their currency in banks or had borrowed were devastated. This
depression saw the vanishing of large amounts of credit and this caused a contraction of the currency
supply.
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Deflationary and Inflationary Downturns
There are two types of downturns: inflationary and deflationary. Inflationary downturns are associated
with high inflation or hyperinflation and come about due to a loss of confidence in the currency in
circulation or excessive currency creation. An inflationary downturn sees the currency supply expanding
and prices rising. Deflationary downturns are associated with a deflation and prices drop and the
currency supply contracts. A deflationary downturn normally comes in the form of cheap credit
vanishing under a rash of defaults, which is what contracts the currency supply.
Map of Australia
Consequences for Aboriginals

The European arrival and settlement of Australia lead to the displacement of the Aboriginal populations
already living there. They were driven away and crippled by the many new diseases the Europeans
brought with them and there were also disputes between the Aboriginals and the Europeans.
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The Gold Rush!

In 1848, the gold rush in California began, but that was a short one. Australia however had a nation
wide, multi-decade long gold rush. This gold rush was the boom between the 1840's and 1890's
depressions and it began in earnest in 1851 when gold was found in Australia. Most of the gold found
was in Northern Western Australia, Victoria and NSW. This gold rush is a famous moment in Australian
history that lead to a large increase of immigration to Australia, development of Australia's mining
sector and it had a big impact on the Australian Economy.
Discovery!
Before 1851, gold had been found in Australia in numerous locations, but these finds didn't start any
gold rushes. The California Gold Rush had been driving people away from Australia and the Australian
colonies where worried about this and so they capitalised on Edward Hargraves' discovery of gold at
Bathurst in 1851. Bathurst is near Orange, NSW. He was rewarded for his find by the NSW colony after
he reported his find and the word spread quickly and many prospectors (people seeking gold) flocked
to Bathurst. By a week after the find there was 400 people there. This discovery was followed by many
more and there would soon be a swarm of migrants coming to Australia seeking their fortune. The
following map shows the time and location of some of the gold discoveries.
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The Impact
As previously mentioned the gold rush had a big impact on Australia in terms of mass immigration,
economic growth and the development of the mining sector. As seen by the graph below, Australia's
population exploded after 1851 with 370,000 immigrants arriving in 1852 alone. Victoria was the main
site of gold discoveries during the 1850's and they really benefited from that. Their population went
from 80,000 at the start of the gold rush to 500,000 a decade later and during that decade they
produced a third of the World's gold output. The mass immigration and discovery of gold lead to the
creation of many new businesses, towns, railways and telegraph networks. Australia's economy went
into a massive boom as a result of this gold rush.
Source: Chartsbin.com
Supply and Demand
Despite being a great benefit for Australia, the gold rush also had negative impacts on the Australian
economy. All this new gold caused a glut in the gold market and lowered the value of gold. Simple
supply and demand. If there is more supply of gold then demand for gold, then its value and price
lowers. Gold is valuable because its rare and when there is more around, its value will decrease.
Silver's value for example decreased when the Spanish started mining up all the silver in the Americas.
I remember back when I watched the film titled: The Hobbit. In this film, Bilbo and the Dwarfs are
going to the Lonely Mountain to defeat Smaug and get hold of all the gold there and I wonder what
would happen when all this gold gets dumped onto the market. If all that gold was dumped on the
Middle Earth market, then there would be inflation big time, because...supply and demand. The dwarfs
despite wanting to hoard the gold will spend a lot of it to reconstruct their home and give some of it to
the elves. The inflation would be mainly localised. The same thing happened during the Australian Gold
Rush; there was an inflation due to the gold discoveries. Gold was used as money during that time and
inflation happened to be high during the peak of the California and Australian gold rushes. The value of
the gold held by private individuals and by governments worldwide lost its value, but Australia avoided
this loss by holding on to a greater percentage of the world's gold. Therefore Australia benefited from
at the expense of the others.
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Life for the Miners
Life for the miners was overall difficult. Miners first had to get a miner's license to work on a claim.
There would be miners working on claims all over the goldfields and they would erect huge tent fields
where the miners lived. As the goldfields developed, these tents became huts and business's were
created and eventually mining towns were established. Some of these towns became large and
prosperous, but a number of these towns after the gold rush became ghost towns. Consumer goods
were also expensive to buy and there were soldiers at the goldfields.
And Onwards
A large number of the gold discoveries occurred within the first year (1851) of the gold rush and there
were several more discoveries during the next ten years. Throughout the next few decades there were
several more finds over Australia and the gold rush officially ended in the 1930's. What this means is
that the gold rush peaked within its first few years before it petered out throughout the next few
decades. The gold rush boom ended with the 1890's depression and the centralisation of Australia. The
colonies became states that federated in 1901 to form the Commonwealth of Australia.
The 20th Century

Australia during the 19th century had economic growth based on settling new land and by the turn of
the century, the whole country had essentially been colonised, so Australia needed another source for
economic growth. This of course would be the development of the already settled land. After federation
in 1901, the manufacturing and mining sectors would grow to become important industries in Australia
and the government regulations on the economy would rapidly increase during this time frame.
Manufacturing
During most of the 20 th century, manufacturing was the main driver of the Australian economy. This
century saw manufacturing develop, peak and then decline. Before 1901, manufacturing was on a
small-scale and rural level with little technological advancement and opportunities and so growth was
slow. After 1901, an increase in technological advancement and the scale of manufacturing along with
better employment conditions and foreign investment started to accelerate the growth of
manufacturing. Prior to WWII manufacturing was mainly based on textiles and agriculture, but after
the war, this sector leaned more towards other areas like electronics, steel and vehicles.
Manufacturing peaked in the 1960's with it contributing 28% to Australian output. From then on,
manufacturing slowly started to decline. The cost of employment in many Western countries by that
time was getting expensive and many businesses started to outsource their business activities to
developing nations like China and India where manufacturing is cheaper. This process really heated up
during the 2000's and the loss of manufacturing will be a big blow to the economies of the Western
nations, which will become importers instead of exporters.
The US for example got out of the Great Depression because they had a young labour force and were
exporters and because they had large scale manufacturing, but now the US doesn't have this and this
is being a major burden on their economy. A nation like the US will end up running a trade deficit and
will end up having serious debt problems.
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Mining
The decline of manufacturing was made up by the rise of mining in Australia. From the 1950's onwards
Australia started to experience its long-lived Mining Boom. Mining would not be playing a big role in
Australia's economy until the later half of the century and it would contribute to a strong Australian
Dollar. The Mining Boom would see the rise mining companies like BHP Billiton, Rio Tinto and Chalco.
The Role and Development of Government
The Australian Government during the 20 th century would go through a period of centralisation. The
state governments would give up more sovereign rights, which the federal government took control of
such as law making. Each state had separate laws, but over the years many of them were superseded
by the federal government. This centralisation also involved removing inter-domestic tariffs and
increasing national tariffs.
The new federal government introduced several national regulatory bodies that dealt with areas like
industrial disputes and wages. The different sectors of the economy had been highly regulated since
1901, but during the 1980's onwards there was a massive deregulation of these sectors, especially for
the financial industry. This made it easy for business's to access to foreign finance and competition.
Sowing the Seeds of Financial Destruction
The deregulation of the financial sector had been a mistake that future generations would pay for. The
financial businesses could now get involved in many more risky activities like derivatives to make
megabucks at the expense of the stability of the economy. A derivative is a paper asset that derived
from an underlying asset. A bank selling a mortgage off to another company is an example of
derivatives. These risky activities have really damaged the world economy and now in 2016 are about
to reap the seeds of financial destruction they sowed. LTCM (Refer to Australia in a Global Economy)
use of derivatives almost froze up the world financial system and that was on a very small-scale. Now
in 2016 derivatives are worth over US$1 Quadrillion (more then ten times the world GDP) and if that
blows, the coming disaster will cause a colossal cataclysmic event. The financial sector had already
been responsible for causing the Financial Crisis in 2008 by selling off all the mortgages as derivatives
around the planet, making the damage that much greater.
A New Monetary System
Australia introduced the Australian Pound, which was fixed to the British pound sterling. Australia
during that time was on a gold standard, which is where their paper currency is backed by vault gold.
In 1933, during the Great Depression, Australia left the gold standard. Australia changed its monetary
system again in 1966 by introducing the Australian Dollar.
Foreign Impacts
There where several changes in Australia's foreign relations and trade with other nations. First, Britain
was replaced by the US as Australia's main ally during WWII. During the 1960's, Australia started
getting most of its imports from the US and Japan became the main source of its imports. Near the end
of the century, China would became Australia's main trading partner in terms of imports and exports.
Australia would end up becoming trading partners with many other East Asia countries as they started
to play a bigger role in Australia's foreign activities.
The Great Depression
The deflationary economic crash in the US with the failure of their banking system was felt all over the
world with Australia's economy slumping as a result of it. Australia was forced off the gold standard
and was pushed into recession with falling foreign investment, exports and profits for agriculture
businesses. The boom in manufacturing had however reduced the effect the depression had on
Australia, but this still became the worst depression Australia lived through.
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The Post-War Boom
Australia would enter another boom after World War Two with the baby boom generation and massive
immigration. This boom was associated with the start of the Mining Boom, peak of the manufacturing
boom and high employment. The high level of exports also was a contributing factor in sustaining this
boom by paying for imports and government expenditures, but the fall in exports due to the weakening
global economy caused Australia to go into recession during the 1970's. The graph below shows
Australian exports as a share of Australia's GDP and illustrates the relationship between the business
cycle and exports. Exports are high during booms and low during recessions. A nation will not go well if
their exports are low. An exporting nation experiences economic growth and an importing nation
experiences economic decline by running trade deficits.
Source: Cuffelinks.com.au I Philo Capital

Into the Recession
The weakening global economy had caused Australia to go into an inflationary recession experienced
with falling exports, increasing unemployment, rising prices and stagflation. Stagflation is inflation with
high unemployment.6 If unemployment is high and demand for goods and services is down, then one
would expect deflation, but sometimes there is inflation instead of deflation. This recession during the
1970's-80's with stagflation occurred because:
There was runaway inflation in the form of currency creation. If you increase the currency
supply, then the purchasing power of that currency lowers. Australia's M1 currency supply of
AUD$800 million in 1976 was increased by 900% to AUD$8 billion by 1990 7 and their M3
currency supply of $10 billion in 1970 was expanded to AUD$25 billion by 1990, which is a
150% increase.8 No wonder there was so much inflation with all that currency being created.
The Great Depression had caused a whole generation to save and the next generation had all
this currency to spend during the 1970's, which caused inflation.
The problem of an aging population started happening during the 1970's. There were an
increasing number of older people and a decreasing number of younger people from the 1970's
onwards. The recession was quite bad due to the alarming aging rate of the population during
that time.9
Interest rates were high during that time period to combat inflation. Higher interest rates
reduces inflation, but also causes recessions by making accessing to credit harder. The inflation
rate was around 10%10 and the interest rate was well over 10% 11 during the 1970's and 1980's.
The central bank (Reserve Bank of Australia) controls the currency supply and interest rates.
So, the above are some of the main reasons why Australia had such a bad recession during that time
period. Now lets look at how Australia got out of that recession.
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And Out of the Recession
During the 1990's, the recession started to subside as the global economic conditions started to
improve. A global deregulation of several industries and the tech boom contributed to ending the
recession. Australia made many reforms such as making the Australian Dollar free-floating (fluctuates
on the exchange rate), tax reform, reduced wage controls and promotion of competition. Australia also
joined the Asia-Pacific Economic Cooperation (APEC) in 1989, which promotes international trade.
The tech boom was a technological revolution coupled with a bubble in technology stocks. This was a
major stock market bubble that crashed in the early 2000's, but the damage done by this crash wasn't
as significant as other crashes and the boom continued into the 2000's. The Financial Crisis in 2008
would bring an end to that recession.
The Financial Crisis

In 2008, the world was shocked by the Financial Crisis that was engineered by poor human fiscal
decisions in the United States. The United States with sub-prime and NINJA loans and low interest
rates allowed almost anyone to get access to cheap mortgages and credit, which created an unstable
bubble. The banks made this bubble worse by selling off the mortgages as derivatives to investors. This
was meant to spread the risk, but instead increased the risk and would make more people suffer from
a single default on a loan. When the United States increased their interest rates, it became harder for
debtors to pay their mortgages and this caused a wave of defaults on mortgages. This resulted in the
bubble being popped.
The United States went into a recession and due to globalisation this recession was felt worldwide.
Australia like in the 1930's and in the 1970's managed to avoid the worst of the recession. Australia's
own housing bubble only stagnated during the recession while the housing bubble in the United States
ended. A major reason why Australia avoided the worst, was because they had a Mining Boom to carry
their economy through the Financial Crisis.
The Housing Bubble
Before the Financial Crisis of the 2000's, there was a presumed boom in all asset classes. This was
wrong. The rise in asset prices was actually a result of inflation with only housing, gold and silver being
in bulls. If you adjusted the rise in asset prices with inflation then you will see that most assets
performed poorly. Normally there would be a bull in Asset A while there is a bear in Asset B while the
capital flows from Asset A to Asset B, but all the currency creation during that time caused runaway
inflation. Freshly printed currency was used to put all the assets in a bull. Australia itself had increased
its M1 currency supply from 120 billion at the start of the century to 230 billion by 2008. 7
The Great Recession
Another name for the Financial Crisis in 2008 is the Great Recession.
Page 23/44
The Present
Australia had fared well in the first few years of the post-Financial Crisis era, but since 2012, has been
slowing down along with China and Australia now even in 2016 still has a housing bubble, but that
bubble now seems close to popping. This chapter is going to look at Australia in the post-Financial
Crisis Era.
The Housing Bubble

The Financial Crisis had brought an end to many housing bubbles. The crash in many of these bubbles
weren't complete though. In the UK and the US, house prices in many areas had tanked, but in the
cities the prices had continued to rise. This is the same case with Canada and Australia. The housing
bubbles in these countries did not collapsed during the Financial Crisis and now housing prices in these
countries, particularly in cities, is going through the roof. Australia's collapse in the mining sector had
also partly collapsed its housing bubble in 2013 and so in Australia there are both bulls and bears in
the housing market in different areas. What this means is that a bubble in a nation can be localised.
There can be ridiculous housing prices in Sydney while houses are dirt cheap in some outback mining
towns.
The Extent of the Bubble
The housing (property) bubble is in existence throughout Australia particularly in it's main cities:
Sydney, Brisbane, Darwin, Perth, Adelaide, Hobart, Melbourne and Canberra. Sydney is currently
famous for its very high property prices that now on average exceed $1 million. The chart below is
showing the median house price in Sydney and by looking at this chart you can see how house prices
slumped during the Financial Crisis before rising again. For the other main Australian cities listed
above, their housing prices are also very high, but Sydney by a large margin has the highest prices.
Source: Resdex
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In the more rural areas of Australia, the housing bubble is less evident. There are towns that have
fairly high housing prices while there are many mining towns that have very low housing prices. When
determining if housing in an area is in a bubble there are several measures one can use. These
measures are used to determine if the price of housing is undervalued, fair valued or overvalued.
Several of these measures are:
Price: Obviously the most commonly used measure for determining the value of a house; price
gives one an indicator on how affordable a house is. If an individual sees that the price of a
house doesn't seem to match its value then they will see it as expensive like a shack costing
half a million being seen as expensive.
Median house price/median household income ratio: This ratio is the median house price
divided by the yearly median household income and shows how affordable housing is for the
average Australian family. A ratio of 4 is overvalued, 2-3 is fair valued and 1 is undervalued.
Mortgage/rent ratio: This ratio indicates to you how much you have to pay for every dollar
you get from renting out a house. A ratio below 1.0 means a loss and a ratio above 1.0 means a
profit. As 1.0 is the historical average anything above is overvalued and anything below is
undervalued.
Comparing property to other assets: This measure is actually several measures and involves
comparing the price of housing to the price of other assets like stocks and gold. By determining
how much of a particular asset it takes to buy a house during different times in history you can
start finding trends that show if housing is in a bubble or not. If it takes more then the historical
average amount of an asset to buy a house then housing is in a bubble. For example let's say
on a historical average it takes 200 ounces of gold to buy a house, but at one point in history it
takes 277 ounces. At that point in history, housing would be considered to be overvalued.
Supply and Demand: This is how many houses in general are for sale in an area (supply)
compared to the number of buyers (demand). In an area I used to live, housing was sure
performing poorly. Around half of the houses were for sale and there were hardly any buyers for
that area.
Conditions: The conditions of the area is another measure not only to determine the value of a
house, but also where its value will be in the future. If the local economy was in a recession or a
natural disaster had occurred, housing prices in that area would be falling just like housing
prices would rise if a local economic boom was occurring. Conditions can also determine the
value between individual houses. A house would be more valuable then another house if it is
closer to public transport and other public services and has better views then that other house.
Using the indicators
By using these above indicators (measures) we can determine if housing is in a bubble or not in a
specific area. Let's use Coffs Harbour, New South Wales (NSW) for example. According to the Australian
Census, the yearly median household income in Coffs Harbour is $44,000 12 in 2012 and the median
house price stands around $360,00013. Using these figures, Coffs Harbour's median house price/median
household income ratio is 8. Since 2012, the median price of housing has increased by $45,000 with
the housing market in Coffs Harbour picking up speed. Coffs Harbour a few years ago began a major
housing development named the Lakes Estate as part of the improvement of their housing market.
Coffs Harbour has a fairly descent economy with a crime rate higher then the state average of NSW.
This city and the surrounding region is however in a better economic condition then the Kempsey
region south of it. In conclusion, we can draw from this data that Coffs Harbour has a minor housing
bubble that is expanding.
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How the Housing Bubble Started
The housing bubbles in many countries started in the early 2000's and globalisation caused property
markets in different nations to follow similar trends. So, the housing bubbles in nations like the US, UK
and Canada helped prop up Australia's housing market. Of course this was also one of the factors
initially leading to this bubble. As already stated, the mass currency creation during the last few
decades had created an artificial bull in many markets via inflation and this contributed to creating a
boom during the 2000's. With this along with deregulation of many industries and low interest rates,
one could say that this boom was artificially created and the Financial Crisis was the market restabilising. So the causes of the housing bubble are:
A housing boom in other nations supporting Australia's housing bubble
Mass currency creation that created an inflationary boom.
A tax system that encourages the use of credit and real estate investing.
The M3 currency supply increased by a whopping 350% from 2000 to 201514
The deregulation of many industries
Low interest rates (see on graph below)
Source: WWW.TRADINGECONOMICS.COM I RESERVE BANK OF AUSTRALIA

The credit bubble
From 2000 to 2015, the M3 currency supply had increased by a whopping 350% 14 in Australia and this
expansion of the currency supply has caused high inflation. The graph on the next page displays the
total credit Australia has and this amount has increased by 250% from 2000 to 2015. Total credit
includes debt instruments like loans, mortgages and credit card debt. This credit bubble has created
inflation, but credit over time is written off as debts, which is either paid off or defaulted on. When this
credit bubble pops there will be a massive deflation in the currency supply, GDP and prices, and those
in debt will be wiped out like in the Great Depression.
All this credit has also been a support for Australia's housing market. Credit allows individuals to buy
more assets then they usually can through methods such as gearing and mortgages. This acted as a
rocket booster to the housing market and low interest rates are the fuel. Remember, the lower the
interest rates, the less interest one has to pay. A nation should manage its interest rates in such a way
that would avoid creating a credit bubble, but Australia didn't manage its interest rates well and now
has a credit bubble.
Page 26/44
Population
Population was another big catalyst for the housing bubble in Australia. Australia had experienced a
large population growth during the last decade with the population growing from 19 million in 2000 to
24 million by 2016.15 This large growth meant there were more home buyers and that demand would
lead to higher housing prices. Just like demographics can benefit the economy, they can also hinder it.
Many Western countries like the US, Japan, Germany and Italy are experiencing a problem with an
aging population. As the population ages and starts shrinking in those nations, so will the demand for
housing and there will be a massive bear market for housing. Australia will experience a similar fate if
the current trends continue, but Australia is a couple decades behind these nations. The impact of
demographics on Australia will be discussed further later in this chapter.
Chinese Investors
Within the last few years there has been a large increase in the number of Chinese investors investing
in Australia. There has been Chinese investment before, but no where near the level it is now. A news
article titled Chinese property investment through the roof: What it really means states that Chinese
investors have claimed 23 per cent of new housing stock in Sydney and 20 per cent in Melbourne in
2013-14.16 There are divided views if Chinese investment in Australia will continue, as China tightens
its capital controls and the weakening Australian economy are scaring investors away. Continued
Chinese investment could maintain the housing bubble in the future.
Impact of the Housing Bubble
Housing and mining sectors have been the main drivers of the Australian economy within the last few
decades and now that mining is in decline, real estate is the last thing holding the Australian economy
out of recession. These two sectors had also been major reasons Australia fared much better then
other nations during the Financial Crisis. The housing bubble has boosted the economy and is now
responsible for holding it together. This bubble has driven investment away from other sectors of the
economy and as a bubble, it will really hurt the Australian economy when it pops.
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For investors and Australian citizens the bubble had both a positive and negative impact. They are
positively impacted when the value of the house they own increase in value, but this only applies to
original home owners. There are many that are negatively impacted by this though, especially in
Sydney. In the areas where housing is in a bubble, its more expensive to rent and buy property and
the cost of living in general is higher in these areas. The Sydneysider can now expect the price of a
house to be ten times their yearly income and even the average Australian will experience similar
issues. In 1980 (during the recession), the national house price-to-income ratio was around 3 and that
number had reached 5.5 by 2015 17 with the national median house price reaching $650,000 18. This is
evidence in itself for the housing bubble and shows how the cost of living has increased in Australia.
The chart below shows the result of the higher cost of living, which is a massive increase in household
debt to GDP for Australians. This higher cost of living has also been a result of inflation.
Source: St. Louis Federal Reserve Bank, ABS, RBA

Signs of Weakness
China's recent slowdown had dealt a double-whammy to Australia. First it put the brakes on Australia's
mining sector in 2013 and second it reduced the number of Australian exports and both of these events
have increased the likelihood of Australia's housing market crashing.
Firstly, the reduction in the mining sector has weakened Australia's economy and has lead to economic
problems in many mining towns. There used to be many booming mining towns with high house prices
and rent that now have became backwater towns. Secondly, one third of Australian exports go to
China, who's slowdown had reduced the number of exports Australia makes. This results in lower
government revenue and a trade deficit for Australia. Both of these factors had put Australia's housing
bubble in popping territory and if the bubble pops, then Australia will be all set for recession.
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Mining and China

The mining sector first played its major role in the Australian economy during the gold rush in the 19 th
century and since then it continued to play an important role in the economy. However, the contribution
of this sector to the economy was made during the Mining Boom, which drove Australia's economy for
over two decades and was fuelled by foreign demand for raw materials. China had became a major
trading partner for Australia during the boom and they were the main source of demand. However,
China's slowdown in 2013 had caused mining in Australia to go into a downward spiral.
Growing Demand
This Mining Boom was Australia supplying a growing demand for raw materials like coal and iron ore
from countries like China, Taiwan, South Korea and Japan. This demand and the fact that these
countries choose Australia as the supplier is the reason why the Mining Boom came about. China would
be the main buyer of Australian raw materials, which they needed to fuel their own property bubble.
China in a massive urbanisation plan was building whole new cities and buildings around their country
and this prompted Australian mining business's to expand their mining operations. This new boom in
China and Australia would developed an interesting relationship between these two nations that even
included America.
The Trio
Remember the diagram shown below? It was used earlier in this book to discuss the relationship
between Australia, China and the United States in the Australia in a Global Economy section. We will
now go into much more detail about this relationship. We will go over this diagram again to refresh
your memory. Australia mines up many raw materials like iron ore and coal and China buys this up to
fuel their property bubble and manufacturing sector. China makes many consumer goods and this is
sold to the United States and other countries. China keeps its currency (the Chinese Yuan) down by
buying US debt through government bonds in order to make exporting its consumer goods cheap. The
United States can go further into debt and engage in deficit spending by having their debt bought up
by China and this keeps the US Dollar high. This is a relationship these countries will want to keep, but
to due various reasons it can not last.
These reasons are as follows. Firstly, China's property market has crashed and is producing less as
China goes into recession and this has ended Australia's Mining Boom. Secondly, the US runs a trade
deficit in this relationship and this will overtime build up a debt that will force the United States to
cease buying Chinese consumer goods. The United States are running a deficit as all their
manufacturing and other useful industries are being outsourced. Thirdly, if the United States goes into
a recession, which is commencing right now, then they will buy less Chinese consumer goods as
American consumers can't afford them any more.
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How this effects Australia
This relationship as previously mentioned has made Australia very reliant on China. In 2000, less then
6% of Australian exports were heading to China, but now over 30% of them do. 19 This means where
ever China goes, Australia follows and China is going down.
Impact of the Mining Boom
The Australian Mining Boom had numerous impacts on the Australian economy that were both positive
and negative. The Mining Boom had helped Australia through the 2008 Financial Crisis and had
improved general living standards for Australians. Many new jobs and mining towns were established
with the number of jobs in coal mining going up to 60,000 by 2014 from 15,000 in 2001. 20 Living costs,
rents, wages and home prices all rose sharply in the mining towns and investment in the mining sector
rose to 8% of Australia's GDP at the peak of the boom from the historical average of 2%.21
Appreciation of the Aussie Dollar
The Australian Dollar (AUD) appreciated against the US Dollar (USD) as a result of the Mining Boom in
Australia. This chart below shows the exchange rate of the AUD against the USD from 1995 to 2016.
The Australian Dollar appreciated from 0.51 in the early 2000's to 1.1 at the peak of the Mining Boom.
The peak of the boom was 2010 to 2013, which was when the growth of the mining sector rapidly
increased. During this time, the Australian Dollar was strong. This means that exporting was more
expensive for Australian businesses and this hurt other Australian industries like agriculture and
manufacturing. This also means that importing goods into Australia is cheaper and that would benefit
importing businesses and Australian citizens. This period of a high Australian Dollar lasted for only a
few years and since 2013, the Australian Dollar has been depreciating ever since and is now reaching
2008 Financial Crisis lows of under 0.7.
Source: Trading Economics, St. Louis Federal Reserve
Page 30/44

Dependence on China
As mentioned already, the Mining Boom in Australia was a result of the relationship between Australia,
China and the United States and it had made Australia very dependent on China with a third of its
exports going there. So, when China went into a downturn, Australia followed.
Higher prices of raw materials
The rapid rise in demand for raw materials like iron ore and coal had caused their prices to sky-rocket.
However, China's slowdown and Australia's oversupply of these raw materials had then lead to a
tanking in these prices and this was essentially the main reason for why the Mining Boom came to an
end.
The Boom Comes to an End
As just mentioned in Higher prices of raw materials, China's slowdown and Australia's oversupply of
raw materials like iron ore and coal caused Australia's Mining Boom to end. We will now look into this in
to much more detail starting with China.
China's boom
In the 2000's China went through a massive boom with high growth in the manufacturing and housing
sectors. China's property market was in a big bubble with very high housing prices and rapid growth of
Chinese cities. This growth of cities was actually to rapid with there being large unpopulated urbanised
areas. China at the same time became a major manufacturing country too and China is now expected
to overtake the United States as the largest economy in the near future. This was the source of
Chinese demand for raw materials like iron ore and coal. However, in 2013, China began its downturn
with a crash in its property market with Australia really feeling the impact.
Oversupply!
The mining companies in Australia just had to overreact to China's demand for raw materials that
Australia is a major exporter of. Feeling the need to make profits by supplying these demands, the
mining companies expanded their operations and implemented technologies like automation. This
caused a massive oversupply of raw materials like iron ore and coal as the businesses tried to
maximise their profits. This oversupply coupled with a lower demand from China caused a glut in the
market and caused the prices of these raw materials to go off the cliff. The following chart shows the
prices of iron ore, thermal coal, gold and silver and what you can see is that these raw materials saw
their prices rise and peak during the Mining Boom and drop after it. There are other reasons like a
slowing global economy and a deflationary downturn that are also causing their prices to slump, which
were explained in my previous book: A Beginner's Guide To Economics And Investing.
Source: Trading Economics, InfoMine, IndexMundi

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The result of an oversupply and lower demand caused these raw materials to lose their value and this
would have damaging effects for the Australian economy. The amount of revenue from mining for the
Australian government and mining business dropped. Same mining business's like BHP Billion and Rio
Tinto tried to further increase their output to stay profitable, but this only resulted in hurting other
mining business's and a further drop in prices. Australia is now facing economic troubles due to a
weakening mining sector, lower exports and decreasing prices in raw materials.
A Weakening Economy
As the mining sector weakened, Australia's national income had stagnated22 and its GDP had actually
shrunk by US$100 billion from 2014 to 2015. 23 Australia experienced a growing trade and government
deficit and as a result the Australian government has being going further into debt. This topic of debt
will be look at latter in this chapter.
Australia had faced a rash of job lay-offs, especially in mining in the aftermath of the boom. There is
story after story of people in mining losing their jobs and of mining towns downgrading. One such story
is the story of Peter Windle. During the good old days he had a manager job at Glennies Creek Coal
Mine earning him up to AUD$60,000/year and he is now reduced to a bus driver. He states that
"Everyone is getting out. Three hundred houses are for sale in my town, three in my street, and rental
prices have collapsed on older weatherboard houses from AUD$1,000 a week to AUD$200."24 He is just
one of many people that are now having it hard.
The Future for Australia and its mining sector
Australia has a rough time ahead for it. Since mining went South in 2013, Australia has been getting
ever closer to recession with now only housing and agriculture keeping its economy afloat. If you look
back in history, agriculture supported Australia in its early days and then it was manufacturing during
the first half of the 19th century. In recent years it was mining and housing. Mining left in 2013 and
housing is on the verge of leaving and after those two are gone, agriculture will be left to keep
Australia afloat and agriculture isn't that big any more.
So, what will drive Australia's economy in the future? Some say it will be mining again, while others
say manufacturing or tourism will pick up the pieces. Australia is the world's largest supplier of
uranium, so they could use nuclear energy to revive their economy. Another possibility is solar energy.
The use of solar energy in Australia in the last few years has increased rapidly and Australia has a lot of
sunshine over a large flat landmass. With enough improvements in solar energy, Australia could make
this an industry that could help its economy in the future.
Science in the form of technology and biotechnology can also help Australia in the future with these
fields having potential for advancement in the future. Australia has already done advancements in
these fields. The CSIRO (Australia's government agency for scientific research) helped to develop Wi-Fi
and Cochlear (An Australian global biotechnology business) has developed hearing implants. There is
also potential for gene therapy in Australia. These fields can help Australia in the future, but this will
need funding and encouragement.
Gold and Silver
If you have paid attention to current economic conditions and have read my previous book: A
Beginner's Guide To Economics And Investing, you can see that we are on the verge of a worldwide
recession. In this book I explain why we are heading towards global recession or even depression and
why gold and silver should do very well then. If they do, then countries that are the main producers of
them will do well and Australia is one of them and this can be another source of economic recovery for
Australia in the near future.
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Race to the Moon

It seems that countries today just want to print their currencies into oblivion and stack up mountains of
debt. Today countries are expanding their currency supplies at unprecedented rates. From the Financial
Crisis to today, the United States have quintupled their M0 currency supply from US$0.8 trillion to
US$4.0 trillion, all in just 8 years. 25 Switzerland is even worse, expanding their currency supply by ten
times within that same time period.26 It is not just these countries, almost all countries are rapidly
expanding their currency supplies, which includes Australia. All countries are in a grand competition to
see who can print the fastest.
True Inflation
There are many factors that contribute to inflation, but what you see in the chart below is the main
cause for inflation; the expansion of the currency supply. It's just shocking on how fast Australia is
expanding their currency supply, especially the M3 measure, which has increased by 350% in the last
15 years as shown by the chart below.
Source: Trading Economics

So What is the True Inflation Rate
Australia officially stated inflation rate is just below 2%, yet when I'm at the shops, I don't see a 2%
inflation rate. I remember several years back when the price of unleaded petrol was below AUD$1, but
now the price is above AUD$1.20. The official inflation rate doesn't match real-life experience with
inflation. So what is the inflation rate. Well, we can look at the inflation rate of another currency and
carry that over to the Australian Dollar.
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The US Dollar's inflation rate of almost 0% also doesn't match real-life, but we can figure out their true
inflation rate. Before 1980, the United States used a more accurate method of calculating their inflation
and John Williams uses this method to calculate today's inflation for the United States, which he posts
on his website ShadowStats. The 1990's method shows an inflation of 4% and the older method from
the 1980's reports an inflation of almost 8%.27
Since, the US Dollar has an inflation of 8%, then the inflation rate of other currencies will be similar
based on the exchange rate. Considering that the Australian Dollar has depreciated significantly against
the US Dollar within the last few years, we can conclude that Australia's annual inflation rate is more
around 10%.
A Debt Problem
This next chart shows Australia's government debt as a percentage of Australia's GDP. By looking at
this graph, we can see the huge debt problems Australia had during World War Two and that now
Australia is going further into debt. This recent increase in debt has been due to a number of factors
such as a weakening Australian economy and increased government spending. Australia's debt problem
is much less then that of other countries, which many of have much higher debt to GDP ratios. Japan,
the United States and Greece all have debt greater then their GDP. The United States generate debt by
borrowing their currency into existence through the Federal Reserve, which is a process explained in
my previous book: A Beginner's Guide To Economics And Investing. One can expect Australia's debt to
continue to rise until a deflationary recession happens.
Source: ABS, AOFM, Barnard, Butlin
Page 34/44
Demographics
As I have stated at the start of this book: demographics play an important role in an economy. A
welfare state won't work if the country has a large portion of old people compared to younger people.
There are now many Western nations that have a problem with an aging population as I have stated in
the section about Australia's housing bubble. Nations like Japan, Greece, Italy, the US, China and
Germany have populations much older then most other nations. When you look at a demographic chart
showing age by sex like the one below for these nations, the demographics are displayed almost like an
upside down pyramid. This is a sign of an aging problem. A normal pyramid shape with most of the
population on the bottom means a young population. A diamond shape with the population clustered
around the centre means an aging population. An upside down pyramid shape with most of the
population on the top means an old population.
This demographic chart shows the age by sex of the Australian population in 2013 and this looks like a
pyramid turning into a diamond. This means that Australia's population is still fairly young, but is
starting to age and Australia's population demographics in terms of age is much better then most other
Western nations. If Australia has something going for it that will benefit it in the near future is its
demographics. New Zealand too has good demographics.
Australian Demographic in 2013 (Age by sex)
Source: Wikipedia (author: Rickkly1409)
Page 35/44

The Impact of Demographics
Make no mistake about it, demographics play a big role in economics. You need a young population to
have a strong economy. For example, a welfare state only works with a young population as there will
be many young people supporting the old retires. If the population is aged, then there are way fewer
young people supporting many more old retires and a welfare state in such demographic conditions
can't last.
Having a young population also means you have many more young people entering the workforce and
investing in order to support the economy. However now in many nations we have few young people
and many old people and that spells disaster for the stock and housing markets. First there are fewer
young people to maintain the stock market and buy houses. Second as the old people retire they take
their retirement funds out of the stock market and they move to smaller houses. This will cause a crash
in house prices and in the stock market and the housing market will be further damaged if the
population as a whole starts to shrink. So, Australia has several decades left before its stock and
housing markets crash as a result of an aging population unless their birth rates go up again, but that's
unlikely.
Decreasing Birth Rate
Australia's birth from 27.3 in 1900 has halved to 12.6 by 2012. 28 This low birth rate that is below the
replacement rate (rate to maintain population) is causing an aging population. Australia's birth rate is
simply not high enough to stop an aging population and the chance of the birth rate going up is
unlikely. This lowering birth rate extends to almost all Western nations and is a result of:
Western people marrying less and latter. In Australia the marriage rate has steadily decreased,
but in the United States marriage rates are dropping fast.
Fewer Western people choosing to have children and those that do have less children. Families
in the past where quite large when compared to now. In Australia the average household size in
1910 was 4.5 and now that number is 2.5.29
More Western women are going into the workforce and choosing not to have families. This point
relates to the two previous ones.
During a recession, birth rates plummet and Australia is on the verge of recession. The average
family can find it hard to finance raising a child and this is definitely the case during a recession.
Page 36/44
The Future
A Hard Time Ahead
Australia sure has a hard time ahead with a failing mining sector and housing bubble on the verge of
popping and with not much left to pick up the pieces after they fall. In this chapter I have mentioned
what is pushing Australia down into recession and what it has going for it like demographics. In the
short-term Australia will go through quite a deal of pain, but in the long-term should still do well after
the coming recession.
Resources
The following are websites that provide information about Australia and can be used to stay informed
about Australia's economy.
Trading Economics: This website provides a wide range of statistics for many different countries. For
Australia it shows M0, M1 and M3 currency supplies, debt to GDP ratio, inflation, unemployment,
balance of trade and GDP. It displays this data in graphs.
Australian Bureau of Statistics (ABS): The ABS provides lots of statistics on different areas on
Australia like demographics, consumer price index, labour force and Census data. The ABS provides
data that is mostly recent and historical data is more harder to find, especially data that can be
constructed into a graph.
Reserve Bank of Australia (RBA): The RBA provides data on exchange rates, interest rates (cash
rate), inflation, total amount of credit and currency supply. It has a page that provides data formatted
as a spreadsheet on a range of statistics and this data can be constructed into a graph with historical
data provided.
Federal Reserve Bank FRED: The economic research site of the US central bank might provide
mostly US based data, but also releases data based on Australia such as household debt to GDP and
the M1 currency supply.
World Debt Clock: This shows data on the debt statistics on a country like Australia including total
debt and debt to GDP.
Australian Securities Exchange (ASX): This is the Australian stock exchange and provides data on
the Australian stock market such as their main stock market indexes: S&P/ASX 200 and All Ordinaries.
Page 37/44
References
Quote References
1) Federal Reserve Act, 2013, viewed on the 6/1/16
http://www.federalreserve.gov/aboutthefed/section7.htm
2) Questions & Answers, 2016, viewed on the 6/1/16
http://www.rba.gov.au/qa/
3) AussieMatters, Who Really Owns The RBA? (Reserve Bank Australia), May 18, 2009, viewed on the
6/1/16
https://www.youtube.com/watch?v=N_mVoOVVykI
4) Reserve Bank Act 1959, 2015, viewed on the 6/1/16
https://www.comlaw.gov.au/Details/C2015C00201/Html/Text#_Toc417377882
The Past
5) The Economic History of Australia from 1788: An Introduction, no date provided, viewed on the
23/11/15
https://eh.net/encyclopedia/the-economic-history-of-australia-from-1788-an-introduction/
6) Stagflation, Investopedia, 2015, viewed on the 25/12/15
http://www.investopedia.com/terms/s/stagflation.asp
7) Australia Money Supply M1, Trading Economics, 2015, viewed on the 25/12/15
http://www.tradingeconomics.com/australia/money-supply-m1
9) Population Size and Growth, Australian Bureau of Statistics, 2015, viewed on the 25/12/15
http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1301.0~2012~Main
%20Features~Population%20size%20and%20growth~47
10) Australia Inflation Rate, Trading Economics, 2015, viewed on the 25/2/15
http://www.tradingeconomics.com/australia/inflation-cpi
11) 2015 Outlook, Equitas Partners, 2015, viewed on the 25/2/15
http://equitaspartners.com.au/2015-outlook/
Page 38/44

The Present
12) Coffs Harbour Demographics (NSW) Local Stats, no date provided, viewed on the 5/1/16
http://coffs-harbour.localstats.com.au/demographics/nsw/north-coast/mid-north-coast/coffs-harbour
13) Coffs Harbour, no date provided, viewed on the 5/1/16
http://www.propertyvalue.com.au/suburb/coffs%20harbour-2450-nsw
15) Australia Population, 2015, viewed on the 6/1/16
http://www.tradingeconomics.com/australia/population
16) James Law, Chinese property investment through the roof: What it really means, News, May 2015,
viewed on the 7/1/16
http://www.news.com.au/finance/real-estate/buying/chinese-property-investment-through-the-roofwhat-it-really-means/news-story/ba6df0a7bcdcae773677d72a4545a41d
17) Jason Murphy, Why house prices don't need to be a consistent multiple of income, News, August
2015, viewed on the 7/1/16
http://www.news.com.au/finance/real-estate/why-house-prices-dont-need-to-be-a-consistent-multipleof-income/news-story/b717202becf54b9a65f1abbc49b6a1f7
18) AAP, The true extent of Australia's rising property prices, News, June 2015, viewed on the 7/1/16
http://www.news.com.au/finance/real-estate/buying/the-true-extent-of-australias-rising-propertyprices/news-story/88fa34f997e4858c558e74c2c52cda40
19) Australian Exports: Global Demand and the High Exchange Rates, Reserve Bank of Australia, 2015,
http://www.rba.gov.au/publications/bulletin/2013/jun/1.html
20) Julian Lorkin, From boom to bust in Australia's mining towns, BBC News, January 2015, viewed on
the 9/1/16
http://www.bbc.com/news/world-australia-30584123
21) The Effect of the Mining Boom on the Australian Economy, Reserve Bank of Australia, 2016, viewed
on the 9/1/16
http://www.rba.gov.au/publications/bulletin/2014/dec/3.html
22) Australia Gross National Income, 2016, viewed on the 9/1/16
http://www.tradingeconomics.com/australia/gross-national-product
23) Australia GDP, 2016, viewed on the 9/1/16
http://www.tradingeconomics.com/australia/gdp
24) Julian Lorkin, From boom to bust in Australia's mining towns, BBC News, January 2015, viewed on
the 9/1/15
http://www.bbc.com/news/world-australia-30584123
25) Federal Reserve Bank of St. Louis, St. Louis Adjusted Monetary Base [BASE], retrieved from FRED,
Federal Reserve Bank of St. Louis, viewed on the 10/1/16
https://research.stlouisfed.org/fred2/series/BASE
Page 39/44

26) Switzerland Money Supply M0, Trading Economics, 2016, viewed on the 10/1/16
http://www.tradingeconomics.com/switzerland/money-supply-m0
27) Alternative Inflation Charts, ShadowStats, 2016, viewed on the 13/1/16
http://www.shadowstats.com/alternate_data/inflation-charts
28) Demographics of Australia, Wikipedia, January 2016, viewed on the 10/1/16
https://en.wikipedia.org/wiki/Demographics_of_Australia
29) Household in Australia source data, Australian Institute of Family Studies, 2016, viewed on the
101/1/6
https://aifs.gov.au/facts-and-figures/households-australia/households-australia-source-data
Bibliography
Books
A Beginner's Guide To Economics And Investing, 2015, Australia, Justin Kelley
https://drive.google.com/open?id=0Bzla_Dyl6dAUbVdMR20yUTRUTVE
Australia in the Global Economy, 2013, Pearson Australia, Australia, Tim Dixon, John O'Mahony
The Ascent of Money, 2009, British Broadcasting Corporation, UK, Niall Ferguson
Statistics
2016 Outlook For Unemployment & Property, 2014, viewed on the 5/1/16
http://propertyupdate.com.au/2016-outlook-for-unemployment-property/
Australia Interest Rate, Trading Economics, 2016, viewed on the 6/1/16
http://www.tradingeconomics.com/australia/interest-rate
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http://www.abs.gov.au/
Average Sydney House To Be One Million Dollars Next Year, Propell, no date provided, viewed on the
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Federal Reserve Bank of St. Louis, no date provided, viewed on the 9/1/16
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Page 40/44

Household Debt to GDP for Australia, Federal Reserve Bank of St. Louis, no date provided, viewed on
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Australia GDP composition by sector, Index Mundi, 2015, viewed on the 20/12/15
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10/1/16
http://theconversation.com/the-truth-behind-our-dangerous-public-debt-levels-13245
What export boom?, June 2015, viewed on the 25/12/15
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tabRank=2&subTabRank=2
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http://www.indigenousaustralia.info/culture/trade-routes.html
Page 42/44
Page 43/44
The land Down Under. Australia is a

relatively young country with little
modern history, but this history does

have its moments like the gold rush.
Australia's economy, even during
recessions had something to keep it
going, but now mining is crashing and

the housing bubble is ready to pop.
The question is now, what will keep

Australia going into the future?
Page 44/44
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