With a fair amount of "rare earth" minerals and refining potential, Australia and the US signed a 8.5B USD deal. However, at what cost? Because at the same time, the Australian Prime Minister, on behalf of the Australian people, apparently pledged an increase of 1T USD (to 1.44T total) investment of Australian superannuation (retirement funds) into the US over the next ten years.
That is insane.
As I see it, this is a systematic hijacking of Australian value, getting pushed into overvalued US companies, where it will be distributed to the fraction of a percent shareholders invested. And I am guessing that Australia isn't the only country that is trading the future of its people by not investing locally in order to get access to the "world's largest debt-driven economy".
As I have stated a lot recently, the US debt model for maintaining economic control and influence, is unsustainable and will crash. We can already see this looking at the growing wealth gap, and how while stock prices have increased 300% over the last decades, real wage growth has lagged behind at 50% growth, a sixth of the return.
Ultimately, the value of a company has to be driven by demand for what the company produces, not the demand for investment into the company itself. Yet, that is not what is happening now. Instead, what is happening is that while that fraction of a percent are getting much wealthier, the wealth has to go somewhere to increase the ROI, which means back into companies, even if they don't have the demand to back up the valuation. For a time, this can make the wealthy even wealthier, but at some point, reality sets in and the high-valuations become a burden, as sales do not meet expectations.
The problem is however, when governments are more interested in chasing the short-term ROI from the markets (like Australia investing into the US companies) rather than investing into sustainable business growth locally. What they are doing is undermining the local economy, and using the retirement money of the country to do so, which effectively means that when that collapse happens, citizens will suffer to the extreme, being left with nothing personally, and a government scrambling to make additional savings, on pensions and services.
The wealthy don't mind, because they aren't reliant on the pension.
And again as I have stated before, this is why it is so incredibly stupid for the rest of the world to keep chasing the American market instead of building a distributed global market. It really is all eggs in the wone basket, and that basket is full of holes, the handle is almost completely detached, and the person carrying it is swinging it around their head.
The problem is that the investment pool is a bit like a reservoir and can only hold so much. The demand on the reservoir takes some out, but if it is filling faster than is being withdrawn, it will overflow. The current markets are heavily overvalued, because demand hasn't grown at the same rate as the investments, and wage growth is lagging behind also, meaning that people can't demand more. Wage growth is typically driven be demand for workers, but there is actually a reduction in demand for workers in most industries, because not only is demand low in comparison to requirements to justify investments, but also automation is growing so less people are required. The robots and AI do not take a wage. This can increase the profit margins now, but ultimately without demand, no matter how efficient a business is, it fails.
In my opinion, it is insanity to increase the foreign investment of superannuation funds into the US by so much, because the more that goes in, not only is the potential loss greater, but it actually becomes a more instable investment vehicle. It will increase in value quickly, but crash much, much faster. Instead, what that investment should be used for is clever development of local business in order to create jobs locally, and innovation into goods and services that could capture some of the global market. On top of this, it could also be used to increase the global demand slightly whilst removing reliance on the single US market. This way, the importance of the US market reduces significantly, which also reduces the influence and control, and ultimately starts to rebalance the global economy, rather than superheating it to the point of catastrophic collapse.
With such poor decision making that is feeding into the hands of narrower distribution of wealth and possibility, we as a global community reliant on the economy for our standard of living and wellbeing, are walking ourselves off of a cliff. Instead of healthy distribution of wealth that stabilises our wellbeing, we have been convinced to chase a meaningless ROI that destabilises everything. Wealth is not the marker of wellbeing, wellbeing is.
But that is not the metric the governments and corporations use for success.
Taraz
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I think ultimately what I would like to see is the US have an oh crap moment where they realize that what they are doing has to change, then fixing it and moving forward with other countries together. I don't know what it will take to cause that, but for obvious reasons I don't want to see the US economy completely fail.
Yeah I get it. I just don't think that oh crap moment will happen at the government level. It is going to take a massive collapse and people to make a change instead. There seems to be an unfortunate inevitability to it at the moment.
When I take if the US, I do t mean the average person. I don't want to see people suffer, but again - we all have to do differently, if we want different.
They problem is, you know the people in power aren't going to hurt one way or the other, so ultimately the ones who will suffer are going to be the average people. Just another thing that is broken with the current system.
Yep. Which makes all the polarized fighting for right and left, even more crazy.
Facts!
Freedom isn't Free.
Trump is demanding Tribute from all US vassal states.
The US has massive debt, needs to re-shore manufacturing & rebuild its military.
Investment from allies is a way to help with this.
Qatar had to commit $1.2T in a much smaller economy, so Australia got off lightly.
Trump is making all US allies who aren't pulling their weight militarily and would require US troops to defend them to pay Tribute in some form.
At least Trump allows it to be invested in things that should generate decent return.
In previous ages the Tribute was a cash payment.
It is a broken system that will collapse. There is no need to pay tribute to the US. The money would be better spent elsewhere.
Perhaps that Pine Gap early warning system sitting in the middle of oz should be rethought.
The thing is... I don't believe the US military would step in to defend Australia if it needed it.
Such agreements do not always bring benefits to the economy of any country. The local economies of the country are weakened and the people of the country are also affected by this. Although it is the lower level people who are not self-reliant who are most affected than the rich.
Agree, depending on foreing investments could be risky, particularly if it negatively impacts local economies and communities.
US is behaving more like monarchy than a free democracy....
America’s national debt recently increased by a trillion dollars over the course of about nine weeks.
When we inevitably crash and burn it’s going to make 1929 look like a church picnic.
I've been trying to find out more about this... because I'm starting to wonder if Albo tricked Trump here.
Source
It's entirely possible I'm completely misunderstanding all of this... but the government can't direct the financial decisions that Superannuation funds make. The quote above makes it sound like that Aussie Super firms have already invested $400B currently, and their projections are that the $400B will grow to $1T in a decade?
In which case the deal is that Australia will sell minerals to US and the super thing is completely irrelevant, but was mentioned to make the deal sound better for Trump?
I agree with your point that Australia shouldn't be doing any deals with the US at the moment, and should be selling any surplus minerals on the open market (ideally with royalties for the Australian people similar to Norway's gas royalties).
This is such a powerful reflection, Taraz. I completely agree that channeling massive superannuation investments into the US markets seems like a dangerous move especially when local industries could greatly benefit from that capital. The idea that nations are trading long term stability for short term ROI is deeply concerning. A diversified and locally driven approach to growth would not only strengthen economies but also make them more resilient to global market shocks. Sadly it feels like most governments are still measuring success through profit rather than wellbeing.
Nicely put.
This doesn't just happen solely at a Macro level. Even as individuals, we sometimes make investment decisions based solely on perception, even when more rational choices are in front of us.
I know someone that sees flying First class as an investment decision.
Sorry, but I would disagree with you here. USA is the strongest country in the world and the only other county that even has a chance to overtake it is China. Would you cheer for China? Also, some of the best and the brightest work in USA and make this country even stronger and I don't see that changing any time soon. Debt is not all bad it allows USA to use it as leverage to dominate on the world stage even more.
Over the past 20+ years investment in USA markets paid off handsomely, I don't see that changing, so investing of those retirement funds into USA by Australia might actually prove to be a good move.