Grasping the Nettle

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Last week’s article entitled: “OK … What’s Really Going On?” seemed to capture the interest of quite a few readers.

You have to ask whySo, tell me … how many people have you spoken with lately, who are fearful about the European and US debt problems?

And have you stopped to find out how few of them realise that the problems confronting those countries may actually be GOOD news for Australia.

Perhaps it is worth explaining how that could possibly be — because there are several things you need to appreciate.

  1. The decline in demand by North Atlantic countries is being more than offset by China, India and other emerging economies; and
  2. Australia is able to provide the minerals and farm produce that these countries dearly need.

If the much-talked-about potential defaults by Greece, Portugal and Ireland were to occur … the impact upon Australia is likely to be far less than most pundits would have you believe top

Virtually the full effect will be felt by the Northern developed economies.

Compare these Debt LevelsAnd you only need to look behind the key numbers to discover why …

  • According to the IMF, Australia’s total government debt is only 20% of gross domestic product.
  • For Germany, their debts is 73% of GDP.
  • While the US debt is 5 times ours, at 102%.
  • Both the US and Europe are running massive deficits every year.
  • They will be introducing both spending cuts and tax increases, simply to prevent their current debt levels from rising further.

Whereas, Australia’s economy should be running at a surplus within 2 to 3 years.

However, there is then the fear that a further North Atlantic slowdown will halt global growth and detrimentally affect Australia’s economic prospects.

Once again, this view tends to ignore the fundamentals.

Bottom Line: Australia (and other low-debt nations) will actually become far more appealing for others to invest in … than those struggling Northern countries.

With a strong inflow of funds, this will help Australia keep its borrowing lower. And in turn, this will underpin our economic activity — thereby improving the overall growth prospects for Commercial property investors going forward.

 

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