Ok this thread is bordering on getting political. I'm fine with that because, well, I'm Australian and love to talk politics as much as the next bloke/sheila but I just thought I'd point it out because I don't want this thread to lose it's status as possibly the best "Australian Investing Thread" on the Internet right now.
With that out of the way, I wanted to talk about two things unique about the Australian economy: deficit = bad, surplus = good mantra, and whether we squandered the biggest resource boom since the 1800s.
(unfortunately I haven't got much time so will just lay it out there and come back later to clean up the mess. I'll try and tie it in with the rate cuts and what the politicians are trying to do here)
So basically, during the 90s we had this budget surplus AND a strong economy. Unfortunately people fallaciously assumed that the budget surplus was the cause of the strong economy and the politicians of the time (happened to be Howard government but could have been anyone) did nothing to dispel this myth. The reality is nothing is confirmed in this regard, and if anything the Keynsians are currently in the lead with their "government deficit spending helps prop up the economy in times of softness." Anyway, what that means is that the Australian public who lived through the 90s, hearing that we now have a budget deficit, are concerned that this means the economy is in the shitter. But even worse are the politicians who are happy to run with this in order to implement their policies, cut budgets, etc.
The reality, as Marty pointed out, is that we are finally consolidating and clearing out the inefficiencies in the Australian markets, something which the US did back in 2008 (banks being the major exception), while Europe and Japan still refuse to go through this process. Even so, lowering rates yesterday is a sign that the government is somewhat committed to propping up certain industries in the short-to-medium term, in particular exporters.
Secondly, as you know we have just come out of a massive resource boom, the likes of which only come around every 200 years or so. I'm trying to find the details of the last one but from memory it was like a wheat or wool boom or something in the 1800s. The rough question I want to ask is "did we squander it?" but a more appropriate question might be "should we have created a sovereign wealth fund from the spoils?"
Lets look at OPEC nations quickly. They realise that they have this finite resource underneath desert. Once that is gone they're basically fucked. But for now the going is good! So they're happily exploiting their natural resources and buying up huge parts of the world economy. So that one day when they run out of oil the country should in theory be able to just live on the dividend cheques for the rest of eternity.
An example more similar to Australia might be Norway, who found massive oil deposits nearby and decided "the spoils of these resources belong not just to us but to all future Norwegians" and set up a similar sovereign wealth fund.
I naively googled "Australia's sovereign wealth funds" recently expecting to find a massive list of different ways we have been putting away money for the future, making sure the natural spoils of our country have been well managed, setting some aside for future generations.
Anyone who has done the same google search knows where this is heading. There are like two - one is a Western Australia-only fund, and the other is this piddly little education fund that I think Howard set up.
Ok so then what happened to the massive windfall that we no doubt received from this resource boom?? Besides making mining magnates into politicians and either fatter (in the case of males) or uglier (in the case of females and Palmer).
Well, we basically propped up the middle class for about eight years. We didn't let swaths of home owners experience default on their loans by keeping unemployment more or less constant (I'm comparing with the US in this case. Bear with me). In the end, this is what we have to show for it. Not a constant stream of dividends from the greatest companies in the world, as we would have had if we directed the cream from the mining boom into a sovereign wealth fund.
Now, whether this was a good use of opportunity will remain a question for the ages, and is academic now. For me, without a home, the thought of home ownership is even more of a far off dream these days than it was 10 years ago. But more importantly, we still have all these inefficient businesses in our economy. Marty mentioned it above, the impending recession is something that the US got over and done with quickly, whereas Australia has chosen to do it a little differently. Is this better or worse? Who knows. What I do know is that my strategy doesn't change - continue to purchase assets classes which are currently undervalued, and assume that in the end it will all revert back to the mean.