Australia’s Per Capita Recession & What it Means for You

Yesterday saw more confirmation that all is not well in the ‘lucky country’. Whilst the headline GDP growth was an awful 0.1% for the last quarter (worst in 15 years), or 1.1% for the year, the per capita figure saw the 5^th straight quarter of decline (just two is called a recession) and sits at -1.3% for the year, the worst since the onset of COVID-19. To be clear, only our rampant immigration is keeping the headline figure positive.

Why? According to our Treasurer:

“The primary cause of this very weak growth was higher interest rates, combined with moderating but persistent inflation and ongoing global uncertainty,"

But don’t worry your cotton socks about it because…

"Over the past year, around three quarters of OECD economies have recorded a negative quarter while Australia has avoided one to date… Australia recorded faster annual growth than most major advanced economies – faster than Canada, Italy, the United Kingdom, Japan, and Germany," he said.

Cold comfort as we see savings rates plummeting to just 0.9% as households draw on savings to live. With clear early signs of a worsening unemployment rate on its way the following graph is sobering:

Indeed, what didn’t get much attention today is that it looks like those big juicy government handouts during COVID-19, bolstering savings accounts for those who put it away, is now nearly half gone, down to 45% of the $255b then reserves, from 23% just five months ago.

If you have invested those handouts in gold on the other hand, from that mid-July spike above you’d be up nearly 40%. But admittedly not everyone could afford to do that as many relied on the handouts. The chart above does however confirm a lot held on to it but then lost most of it against rising inflation and the usual near zero bank interest not remotely offsetting that.

Herein lies the core issue we often talk to in Ainslie Research and that is the following chart:

Clearly, if you are invested in assets that benefit from this massive monetary expansion (monetary inflation) you are way outstripping CPI (main street inflation). So where to from here?

Crescat Capital’s recent research paper lays it out.

“The importance of the current disparity between central banks’ balance sheet assets and the expanding money supply is often overlooked, yet it stands as arguably one of the most important macro developments occurring at present.

Tight monetary conditions in a historically indebted environment are unsustainable, and further monetary dilution serves as a relief valve to alleviate financial stress.

Even with quantitative tightening efforts and maintaining interest rates notably higher than those of the past 15 years, there persists a substantial increase in both the monetary base and M2 money supply. Remarkably, this trend is not exclusive to the U.S.; other developed economies are also witnessing similar phenomena. Below are a few examples for reference.

This combination of expanding money supply alongside one of the most aggressive fiscal spendings we’ve seen outside of a recession could potentially create an explosive mix for inflationary pressures that are firmly embedded. Prolonged higher inflation seems inevitable, and it’s difficult to imagine investors not turning to hard assets as a crucial alternative in response.”

And so, as we talked to in the latest Macro and Global Liquidity Update there is still liquidity coming into the system despite all the tightening talk. Indeed, right on cue, Bank of Canada last night announced the first G7 rate cut this cycle. Our analysis is far deeper than simple rates or M2 monetary flows and is critical to understand to ensure you aren’t left behind with money in a bank account going backwards at an extortionate pace.

Money in a bank is DESIGNED to go backwards through the ill understood inflation tax. But it’s not CPI ‘basket of goods’ inflation that is really leaving you behind, it is monetary inflation itself robbing you every day you are not in the right assets.