THE WRITE DIRECTION: Boomcession is the new economic buzzword

I’VE SPENT most of my life in the world of economics, but “boomcession” is a new word to me.

It came about as a new phrase from US economics writer Matt Stoller, who set out to explain what is happening in US financial circles.

As its name implies, the US economy is a combination of boom and recession, but local scribes are questioning if it also applies to Australia.

In my view, it does. As I have written many times, whatever happens in the US usually happens here within five years.

It was one of the main reasons why my children completed their schooling at California’s famous high school, Torrey Pines, near San Diego. They needed to experience what can happen in life as it usually does in America, so that they were in front of the pack when they left home and live on their own.

This experience has worked out wonderfully well for them.

“Boomcession” can best be likened to that of an hourglass where the sand moves from the top section, through a tight point in the middle, and cascades into the lower chamber. So, your perception of the boom exists when you reside in the top section but, if your circumstances change and you fall through the hole and end up in the lower recession section, then your chances of recovery are highly problematic.

My view is that this is exactly what is happening in the Australian economy at present, with the housing, interest rates and inflationary pressures now so obvious that the influx of new visa holders needs to be stemmed so that new housing construction can catch up to present demand over the next two years before resuming at sustainable levels.

So far, Australian consumers have decided to maintain their level of expenditure while demanding that the government subsidise their cost-of-living issues. In turn, this has the government borrowing money to provide that assistance, mainly to get reelected.

This is a short-term race into a general recession. Economic predictions now say that the next general interest rate rise could see the government’s interest rate expenditure become its single largest budget expenditure, especially when future budgets are already predicting deficit outcomes.

By John BLACKBOURN