Australia's Quiet Collapse

staying on top of all the development in finance business and economics can be exhausting between everything becoming an excuse to gamble corporate consolidation of markets and political influence driving huge asset bubbles causing extreme wealth inequality spiralling Consumer Debt and diminishing savings stagnating wages unaffordable real estate and generational wealth divides all stream tied together by questionable government programs it's enough to get pretty depressing but just remember it could be worse we could be Canada and if that wasn't bad enough somehow there is a country that is pushing these issues even further and as a warning for

how bad things could get has managed to hold on for now let's call it Canada with snakes around 200,000 electronic poker machines known as pokies build bars hubs clubs and casinos capping losses at $100 a day and $5,000 a year Australia is officially the worst on record with the average property costing 8 times the median household income Sydney's rental market has gone from bad to worse with prices continuing to sort with Revelations tax payer money is being used on drugs every year up until its downfall credit s would prepare a report that looked at how

wealthy the people of the countries around the world were instead of just looking at GDP per capita which calculates how much the average person in an economy produces in Market output every year this report attempted to calculate the net worth of those people to see how good they were at accumulating wealth over time someone with a high income that is spending everything they make on rent and overpriced food isn't going to grow their wealth as quickly as someone who has a more modest income but is paying off their own home and is investing diligently into

retirement accounts I like to call this the San Fran Tech bro conjecture but according to these annual reports the Australian people always looked like the second group of slower more deliberate Wealth Builders their raw income isn't as high as here in America but they were consistently some of the wealthiest people on the planet UBS which acquired credit s following its collapse recently released the 2024 report and once again Australians had the second highest Media Net worth on the planet they only fell behind Luxembourg which is a European micro-nation which you are probably not in the

tax bracket to even be aware of the fact that this report tracks the median instead of the average net worth is also really important this means that the Australian right in the middle of a lineup from the richest to the poorest is more than twice as rich as an American in the same position the report also includes a generic average where America does have a slight Edge but all that really tells us is that we have an inequality problem with a small group right at the top massively dragging up the average at the expense of

everybody else in line considering all of this the title of this video might not make much sense to you anybody would be lucky to be Australian right well yes and no and lucky really is the important word here Australia has become so Wealthy by getting lucky in just a few key Industries and then by going all in on keeping those Industries Alive by any means necessary including its own long-term viability of course the most obvious place where this has happened is in the country's outrageous real estate market which makes even the most overpriced cities in

America look downright affordable by comparison and of course we will get to that but housing is actually only Just One symptom of much bigger structural problems that the country has been quietly trying to ignore there are lots of people that look like they are happily Building Wealth in Australia and there are even a lot of people becoming extremely wealthy but the different ways to actually obtain that wealth are very narrow the key to Australian wealth is dirt either digging it out of the ground to export as unimproved natural resources or by selling it back and

forth to one another economic complexity ranks a country's exports based on how varied they are and how unique they are to that country a country that export a wide variety of Highly unique products that only it produces would have high economic complexity a country that only exports a few goods that lots of other countries also export would have low economic complexity Australia has the lowest economic complexity of any high-income country in the world ranking 102nd out of 146 total countries included in the survey that has been falling consistently since the 1950s when it was in

the top 30 thanks to a combination of manufacturing as well as research and development coming out of the country but today this puts it behind places like Uganda which have a more varied export base than Australia and now depends almost exclusively on selling natural resources and livestock to Growing economies in Asia because it just doesn't make Financial sense to focus anywhere else having such a resource dependent economy means investors have to decide between funding new innovations that could improve the world or at the very least provide sustainable cash flows or they could invest into developing

more mines to export more resources to an ex existing list of willing buyers the second option has just been a much safer bet for decades which means that the country has some of the most advanced natural resource extraction in the world but is severely behind in other areas of innovation like technology and advanced Manufacturing in some tragic irony the Australian government itself has helped to fund a lot of scientific research resulting in advancements in solar panels the Advent of Wi-Fi modern medical tools and even Google Maps any of these alone would be a major contributor

to the country's relatively small population but when it came to actually commercialising these Technologies the country lost out because its dependence on natural resources undermined its business environment investors would rather the safe predictable option and so these Technologies naturally moved to where they could find funding from other sources that were willing to take a risk unfortunately for Australia this actually just ended up making their investment markets even more risky for a long time the Australian dollar was almost perfectly correlated with natural resource prices which meant Australian investors were resource investors whether they liked it or

not this price connection has decoupled since Co but that itself is probably not a good sign it could actually be the biggest indication that Australia has dug itself into a hole both literally and figuratively that it's going to be almost impossible to get out of without giving up a lot of the wealth it's become accustomed to so it's time to learn how manyy Works to find out how long Australia can keep getting away with it this week's video is sponsored by Henson shaving Henson is on a mission to revolutionized shaving creating a skin-friendly experience that

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100 free blades with your purchase of a Hensen Razer that's enough refills for 2 years of Shaving there are dozens of serious problems just under the surface in Australia that you might not think of much by themselves but together they Chang the Optics of the country from a thriving and vibrant economy to a place living on Long borrowed time one of those issues is gambling Sports gambling online casinos and Market wagering has become one of the fastest growing Industries here in America since regulations were loosened in 2018 since then billions of dollars have been piled

into carving out market share encouraging people to bet on basically anything the rush to acquire customers has become so extreme that a lot of these companies aren't even running their online casinos at a profit because they are reinvesting as much as they can into growing their customer base as fast as possible the reason why investors don't mind burning billions of dollars in a highly risky industry with serious regulatory risks is because of Australia Australia is living in the future when it comes to gambling and that future is Bleak according to their own government inquiries Australians

lose almost $1,000 per person every year through different forms of betting that's inclusive of a large share of the population who don't partake at all so the losses of the average Aussie punter are statistically far worse Australia has a deep wide and highly entrenched gaming industry the average Australian Pub operates like a mini Casino complete with a small selection of electronic poker machines betting on sports is Common Place horse racing is a major tradition that even has its own public holiday novelty betting Market has been a major thing there for decades and this is all

on top of more traditional gambling like lotteries casinos and scratch offs back here in America The Venture capitalists have done the math and have figured out if they can replicate Australian style gambling a market as big as ours then they can stand to make trillions Australia is also a great business test case against the risk of Regulation unsurprisingly the sheer Market penetration of gambling in Australia has caused problems for at risk individuals largely young men on top of the financial consequences of losing thousands of dollars every year the country has an epidemic of related issues

like fraud petty crime and violent stemming from unhealthy gambling the public also largely hates how prevalent gambling is pushed on them so you would expect it would be easy to get the political support to pass laws to moderate the reach of this industry right wrong all of these companies employ lots of people and they spend a huge amount of money on fear-mongering the job losses that would come if a local bar couldn't have a casino floor stapled onto it for any of you who haven't been to Australia you might think I am joking I am

not joking Australia has been extremely soft on regulation and while gambling by itself is not single-handedly going to take down the country it's emblematic of a lot of genuine issues that aren't getting addressed because nobody wants to be responsible for shaking up the delicate balance of prosperity the same is true for the mining industry from earlier and the real estate crisis that we still need to get to there is nothing wrong with a country exporting its resources the problem Australia has had is turning a revenue source that is good for Australia into money that is

good for Australians a lot of the revenue generated by mining in Australia has just been paid out to foreign mining companies in Arrangements that are not that different from many exploited third world Petro States Australia has tried in the past to generate more government revenue from its resources but heavy lobbying one out and people have been too afraid to try it again since the currency has been so dependent on these exports in fact the government has actually gone the other way and given hundreds of obscure grants bonuses deferments schemes and incentives to mining companies to

help them along according to the government's own minerals website the intention of these schemes is for providing both commercial and operational advantages to investors new government initiatives support the long-term sustainability of the Australian resources sector by de-risking and encouraging mineral exploration and Discovery one of the country's biggest problems is that nobody wanted to invest anywhere else so this does seem a bit strange but destabilizing this source of foreign income could knock over other highly leveraged areas of the economy so their government is trying to keep it running hot by whatever means necessary now at this

point you might be thinking how the did this Place get so rich to begin with was it really just putting a bigger number on their homes and calling that wealth well yes but there actually is still one more thing Australia has a system called super annuation which is a special tax advantaged investment vehicle that Australian workers can use to save and invest for their retirement it's functionally similar to a 401k or an IRA but the big difference is that employers must contribute a share of their employees pay into their nominated account every year instead of

it being voluntary or offered as a part of their job package the current contribution requirement is 11.5% which means every Australian worker is effectively saving more than 10% of their income for retirement something like that would make even a lot of disciplined financial planners blush the hope is that this money will eventually take the strain off the public funded pensions as the Australian population gets older and it has built some enormous fortunes according to JP Morgan the average Australian household now has the equivalent of almost a quarter of million dollar invested in just this one

asset class before including regular savings Investments or home equity the fact that it is mandatory and applied to all workers means that the concentration of retirement Savings in the hands of already wealthy households isn't as high as it is here in America this is genuinely an amazing Financial tool and you might be starting to notice a trend here it is covered over a lot of other problems collectively Australian super annuation is worth more than 2 trillion USD which is only enough to buy 2/3 of Apple but it has outgrown the Australian investment Market because investment

activity is just not as strong there this means more and more of these retirement savings have been invested abroad with the majority of that money ending up back here in the American markets now that alone is not a bad way to diversify risk outside of Australia and yes it's all getting pumped into the Magnificent 7 but that's all investing these days what could possibly go wrong the real problem is that Australia is technically taking their cash which is propped up by a mining industry and then giving it to us so that we can build businesses

here in America a lot of Australian companies which are not in the gaming mining or real estate industry are actually choosing to raise Investments and go public here in America instead simply because we have more investors that are willing to put money into companies that aren't in gambling mining or real estate I mean thanks I guess but if the country was more accommodating of other Investments it could use a lot of the savings to make its people and itself wealthy and more productive the wealth invested into the Australian super annuation system may also be very

impressive but it won't actually do much unless it can keep up with how expensive it is to live in Australia a common strategy for Australian workers is to wait until they can access the retirement savings take all of the money they accumulated over their working career and use it to pay off their house so yeah this is where we finally get to the elephant in the room real estate the cost of housing in Australia has made every single problem so so far even worse and it's also going to make it much harder to fix according

to a broad Market survey the average age of a first home buyer in Australia is 36 years old and the fastest growing group of people buying a home for the first time are those aged between 40 and 49 homes are so expensive that they are usually taken on with a 30-year mortgage and families will move into larger homes as they build up Equity so a lot of Australians are now getting to the age they would like to retire still in massive debt using the proceeds from superannuation to pay off their mortgage doesn't technically make them

any poor they have just transferred retirement savings into real estate Equity but it does allow them to access the government's public old AG pension since it's not counted as an asset to assess if they have the ability to fund themselves since paying a mortgage or rent normally takes up so much of people's budget there giving up retirement savings often works out to be more financially responsible because even a modest pension income can cover everything else as long as they have a paid-off house to live in for many households this has made one of Australia's greatest

wealth building tools just another way to prop up a real estate market that is already so expensive that the rest of the world should be afraid of it but how did it get this bad in the first place there is the usual combination of investor speculation generous financing nimbyism and high levels of migration into cities that couldn't expand fast enough but on top of that Australia has added its own special ingredients taxes on earned income in Australia are some of the highest in the world someone earning the equivalent of just $120,000 American a year would

pay 45% on every additional dollar they earned after that and remember Australia is not a cheap place to live so even though that would be a very good salary for anybody it's not actually going to go that far after tax is taken out however one of the unique features of Australia is the fact that personal investment losses including paper real estate losses can be used to write off personal income to reduce their tax this effectively makes every person in Australia their own little business that can accrue expenses to offset their tax and the best business

to get into with the most possible expenses is real estate this tax structure has encouraged High income earners to favor investing in a real estate that they can use to make paper losses like depreciation to offset their income and then turn highly taxed earned income into much more modestly taxed capital gains the system called negative gearing is almost universally agreed to be broken it would be a lot easier to tax everybody at a lower rate and get rid of these write-offs but it's been really hard to make that happen because they can't afford this house

of cards to unravel there is now so much debt and wealth tied up in Australian housing that the Australian economy could be wiped out by even the indication that the government could reign in these incentives the same thing is happening with other less obvious policies as well immigration to Australia has been some of the most intense in the world and the country has become highly dependent on low income immigrants to do a lot of the jobs they aren't willing to in high income immigrants to also buy into their asset Market according to Henley Partners a

law firm specializing in legal arrangements for high net worth immigrants over 40% of the millionaires in Australia today were not born there some have of course gone there and made their fortunes but most have just gone there and parked their fortunes that they already had in all of the biggest issues in the world today Australia is a look at what 10 years from now could mean for us and perhaps the biggest problem is that so far they have managed to keep everything on track but there is a difference between success and delayed consequences Australia has

some of the most valuable banking institutions in the world but most of their books are tied up in lending to an overvalued real estate market workers are getting taxed heavily while dealing with declining real incomes businesses are finding it too expensive to operate there in all of the wealth in the world paper or otherwise doesn't mean anything if it can only buy you a one-bedroom apartment 2 hours from anywhere now if you are an Australian and this was all a bit depressing for you it could be worse you could be from the UK also go

and watch this video on Canada next to find out how they effectively made exactly the same mistakes as Australia without even accidentally making themselves rich in the process and make sure to like And subscribe to keep on learning how money works