Where did my city go?

I am returning from a 3 week trip to my home in Australia. I was born there, spent the first 25 years of my life there, then the next 30 years in USA. Each year I go back to South Australia to see family. As much as I love my home city of Adelaide, I’m saddened by what I see going on there and the liquidation of so much of the culture by selling it out to the highest bidder. This is the story of how a city can go from utopia to constrained in a relatively short time frame.

I grew up (as the great Australian, Dick Smith, put it) as a “free range kid”.  Free range kids were free to play, explore, ride bicycles, get dirty, etc.  We lived in the suburbs in the city of Adelaide, and had adventures, played sports, etc.  A wonderful childhood - special times.

I had the wonderful experience of reaching out to my friends that I spent most of my teenage years growing up with, when I returned to Adelaide for a short trip this year.  I hadn’t seen them in years.  One of my mates just underwent intestinal surgery, so got all of us together to visit him and to celebrate a birthday of one of our clan.  It was a great time – well worth the travel effort to get there.

I drove into Adelaide from the country.  My wife has family in rural Australia, so we spent the majority of our time with them, but had a few days to drive 5 hours back to the city where I was born and catch up with everyone.  I had been receiving news, etc. from afar as to the state of Adelaide but being an expat Australian, I only get to see it once a year.  It used to be (back in the 1990s) that you could say that the city never changed – each year you would return it looked exactly as you left it the previous year.

But that all changed sometime in the 2000s. 

Now each year, the city is totally hard to recognize.  What you see immediately, however, is the over crowding. Adelaide never had freeways, big roads, etc.  It is a city of 1 million people – not a trading hub of sorts, and not a big tourist destination.  Those titles were more likely given to Sydney or Melbourne.  They had all the problems of growing metropolis and something that we always felt were not problems that would come to Adelaide.  My city was impervious to that.

In 2019, Adelaide is now the fastest growing economy & city in Australia. 

Click on the above image to watch this local TV news story from Adelaide

The reality is that I always thought that I could return back to my home town in my senior years.  Maybe retire there.  But as it stands right now, that is no longer an option.  If this article does anything, it shines a light on government mismanagement and the power of greed and how a tranquil city can be turned into a stressed out haven of the constrained.

The Pro-Growth agenda

In the early 2000s, the USA (and rest of the world) discovered cheap Chinese products.  In the USA, Walmart moved their entire business model towards importing Chinese products because the customers preferred cheaper over locally made.  This was to be expected in the western world.  People would go to Amazon and sort their product search results, “Pricing, lowest first”.  This was the core reason for the massive expansion of China as a dominant world power. 

With this demand, China needed resources.  Minerals like iron-ore, fuel, food for the growing Chinese population, etc.   It looked to continents like Africa to find these materials and started to infiltrate into their countries to do this.  This is so well documented in this piece by Doug Casey’s International Man website:

What other countries could provide China with materials?  Australia could.

Australia is a country that has 25 million people but a land mass the size of the USA.  A land mass rich in minerals, natural resources, uranium, liquid natural gas, etc.  Australia invited all countries to trade with it.  It exported to everyone.  But it never expected to see the demand from one dominant country at the levels that it did with China.  China’s success was fueled in part by Australia’s exports.  All of a sudden the Australian people started to really see money.  They saw salaries raising 2-3x what had been previous.  Truck drivers were making $200,000 a year salary for driving materials to and from rural mining sites.  This was the definition of prosperity. 

But with that prosperity came a population that had previously been known as frugal savers, conservative economics, and responsible borrowers.   When the good times started, everyone had a party.  The banks started to loosen lending standards, starting a massive real estate boom.  Everyone wanted the deluxe apartment or McMansion.  They borrowed and borrowed.  Stores sold flat screen TVs before they had stock.  Everyone got new cars. 

This was all from borrowings.  I mean who would not think that with truck drivers making $200K a year, they could afford the risk of buying a $1 million house.  I mean as a percentage of income, you could easily afford the mortgage payments.  The future looked bright.

Then 2008 happened.  The rest of the world saw financial collapse.  They went into massive recession.  But Australia dodged the bullet.  Why?  Because they had all those future orders for raw materials to China.  When times were hard in other parts of the western world, they still wanted their cheap products on Amazon.  So China still sold cheap products, which needed raw materials.  At least for a couple of years.

Eventually a few years after 2008, with Australia patting themselves on the back for dodging the bulk of the hard times of the global financial crisis, China started to see orders from the west dropping.  China had its own problems with over committing on building its own infrastructure.  They had massive cities built with no inhabitants because they saw a future that was rosy as well.  They had to scale back.  That meant stopping the orders on raw materials or at least significant reductions in orders. 

Australia was lucky enough to see this coming, but with a population that had become addicted to debt (in 2018, Australian citizens had an average Debt to Income ratio of 200:1 which was in the top 5 highest levels of debt load in the world), they had a major problem on their hands. This Ponzi scheme was coming to an end.  Rather than taking the treasure of prosperity and saving it, the average Australian had fallen prey to banksters and sold their future out to debt.  Salaries started to drop as mines closed.  That created a ripple effect that could have destroyed Australia.  Foreclosures started to threaten the economy.  What was Australia to do?

Enter the next phase of expansion.  The one thing that can stop a Ponzi scheme, when the promise of future prosperity can‘t be met by the withdrawal of current winnings, was to find another phase of expansion.  And that phase was immigration.

When the Australians went back to their Chinese customers and asked, “Well, we see you don’t need as much of our raw materials.  But what else could we sell you that you might want?”, they got told one thing – Let our people come to your land become Australians.   The Chinese people wanted this – they had been living in a polluted, over-populated country with 1.3 billion people in it, all fighting over their resources.  They wanted to go to a place rich in local resources where they didn’t have to fight for it.

Australia realized one thing.  If you bring in an immigrant who has a suitcase of cash, they will infuse that money into the local economy.  They will prop up the Ponzi scheme and avoid collapse.  So they agreed to open up immigration numbers dramatically.  Whereas Australia had previously seen immigrant numbers around the 80,000 per year, those numbers rose to more than 500,000 a year.  And this is to a country with 25 million people in it.  That’s between 1-2% total population growth per year.  A number that is one of the highest in the world.

The Chinese came in their hundreds of thousands.  So did the Indians.  So did anyone willing to bring in their suitcase of cash and contribute to the country.  This drove up the largest industry in Australia – housing.  Everyone wanted a place to live, but the law of supply & demand meant that with less available housing supply, prices went up and up.  Soon the average 2-3 bedroom home in the Sydney suburbs was selling for $1.5-2 million Australian dollars.  And with exchange rates at the time around the same as the $USD, that was incredible.  The locals could no longer afford to buy in their own neighborhoods, but rather than moving out, they would borrow against the equity in their own homes to buy rental property to further support the expansion boom of Australia.  The music was playing, the party was happening (again) and everyone had a chair at the table.

New construction was booming, and that meant jobs.  So they delayed the GFC again by a number of years.  Meanwhile the other western economies had started to get back to normal and demand for Chinese products was up again, but this time the Chinese realized they still didn’t need Australian raw materials as much and if they did, they made deals when Australia was threatened that the music would stop, by buying into the mining companies, the agriculture, the winemakers, etc. so that they could control the equity and had a direct stake in the raw materials.  Now the profits could be made in Australia, but the money channeled back to China.  They could have their cake and eat it too.  The local Australians saw little benefit in this round of export expansion.

What they did see, however, is more and more and more people.  Cities started to bulge.  They couldn’t support the expanded population.  The government didn’t want to spend on infrastructure because that could effect their stellar AAA investment rating, so they didn’t take on debt.  Private companies could do the bulk of this but they were not being awarded lucrative government contracts at the rate that was needed to support the population expansion.  So cities became harder and harder to live in.

Some long time popular Australians, sounded the alarm.  This video by the legendary Dick Smith, explains the whole problem:

The alarm was sounded back in 2010 here. 

Almost 10 years later, it has gotten a whole lot worse.  A good friend sent me this interview with Dick Smith done recently:

The education system hack

The immigration numbers are still wide open in 2019.  Despite government making some reductions in general immigration numbers, they have left wide open gaps in society in Australia to allow for new entrants to come in – particularly through tertiary education.  They have created a way that the Universities can benefit by “hacking the system” here. 

The Australian Federal Government have provided multiple pathways for foreign students to obtain permanent residencies, often with the right to bring in family members, by taking advantage of the universities.  I have been an avid follower of Andrew Henderson of Nomad Capitalist for years, and seen him trade off Citizenship by Investment programs as offered by different countries around the world, but normally there is a $100K+ cost of this.  In some lower tier countries such as in the Caribbean or eastern block areas, it may be cheaper but most EU options seem to be around $1 million.

Then I saw this.

Only two (2) years of university attendance, then 12 months of employment in Australia, and permanent residency is your reward.  That leads to citizenship and a passport.

What is the cost of two years of university tuition?  Not much actually.  About $30K for Undergraduate degree, and remember this is in $AUD which at the time I write this has an exchange rate of USD 0.67.  So that’s about $20K USD.   Most US colleges are about $50-100K for that same degree in USD.

Wow.  That is cheap.

So I’m sitting at the table of my mate Malcolm’s place in Adelaide.  We have a few friends over.  One of them is another mate, Alan.  Alan is a professor at one of the local universities.  And we get to talking….

“So how many of your students are foreign students?”.  He tells me 95%.   Mostly Chinese, but he’s seeing an increase in South American students as well.  The reality is that the universities are making huge income from this loophole and it is the cheapest way to get Australian permanent residency and eventually citizenship.  That is a Tier A passport.  With it you get VISA waiver entry to the USA, Europe, UK, Canada, etc.  Very desirable.

Classes are full and it is representative of the fact that these students will find work for 12 months, probably somewhere associated with the resources industry, and eventually become full fledged Australians.  With that, they bring over their families, population rises, etc.  The universities don’t care because they get all that tuition money.

Over population is another form of constrained society

The problem here is it becomes a “be careful what you wish for” scenario.  Australia doesn’t want to see a recession, although I clearly think it is overdue for one.  It has propped up the China invasion of Australia economically to avoid the GFC, but now in human form by way of over-population avoid a new recession risk.  I have been monitoring this from afar through the great research work being done by the folks over at Nucleus Wealth  and I would recommend anyone interested in investing in Australia, might want to subscribe to their weekly podcast.

The problem is often that numbers don’t tell the real story.  So many will see a graph like this and feel like Australia is impervious to economic recessions that have hurt so many other economies.  However the reality on the ground is that the quality of life has dropped substantially.

Since the start of this economic boom, the over population has restricted freedom of movement and increased cost of living dramatically.  The costs of power has literally tripled in Adelaide over the past 5 years.  Yes, tripled.  Imagine if your power bill tripled over 5 years. 

And this goes along with the costs of food and real estate.  Much of the Australian outback is suffering from drought and water resources are being stretched beyond the current population demand.  In addition, cities such as my home town of Adelaide were never designed with this level of population in mind.  Failed government planning has meant that large organizations such as universities that had previously been located out of the center of the city, were moved into the city area – an area that is landlocked with parklands, making it more difficult for traffic to enter and exit the city, and for those that wished to live in the city area, they are now being forced to reside in high rise apartments which have been building at a level never seen before.

The traffic and roadways were originally built for minimal vehicle traffic but are now being expected to support a population being driven out of the central areas to the outer suburbs where housing is more affordable, putting further burden on road infrastructure to transport working families to their workplace. Grid lock is rampant, which major arterial roads being clogged into congestion during peak hours that is more like the freeway system of Los Angeles than a smaller city like Adelaide.

Public transport has not kept up – Australia closed most of its larger rail links in the late 1980s entirely and although some investment has been made in smaller, domestic train and tram lines, they do not keep up with demand.  Buses are often overcrowded.  Crime is on the rise as society finds itself with the anxiety associated with higher population burden.  And jobs are limited as larger manufacturing facilities of automobiles were shut down in favor of importing cheaper, foreign cars from South Korea and Japan.

Considering that so much of the constraints on life come from financial overhead, the debt levels require to secure affordable housing along with a variable rate interest base, puts all of society on a work treadmill.  This is further impacted by a high cost of energy, along with food & transportation.  It quickly becomes a more difficult place to find personal freedom.  On the positive side, the Australian tax system particularly for companies, was relaxed over the years however as a result there isn’t as much money being spent on infrastructure.  So the individual pays less in taxes, but gets far less in services which are still mandated to be provided by the government.  The largest employer in the country is the Federal government, but considering it only has to support a (currently) 25 million population, it runs very inefficiently based on the ratio of the size of government vs. the size of the population.

What can be learned by this?

We live in a global world where people can travel relatively inexpensively.  When the cost of travel and shipping internationally has come down, trade between countries can be done easily.  China represents the largest example of trade with other countries that I’ve ever seen.  And although I’m very much an “open borders” Libertarian, you’d think I would be ok with open trade here.  I am.  But what I’m not onboard with is when you sell out your own liberty and sovereignty to a trading partner, diluting your own identity and risking becoming subservient to your trading partner.

The thing is that immigration is not offered in return to Australians who might want to move to China.  You can visit, but you have to leave.  I’m not saying that this is a question of equivalence of immigration between countries, but having reciprocal migration would be nice.  The problem is, however, that the dominant trading partner should not be entitled to “take over” the subservient partner.  And this seems to be the end goal of China.  They appear to want to take over (economically) the entire Australian country.  I spoke to a fisherman at the wharf of a local lobster fishing town.  He told me that it would cost me about $200 for a single lobster.  Considering that I can pay $20 for a Maine Lobster or a north Atlantic lobster in New England on the docks, I couldn’t understand why so much.  The reason is that they are contracted to first supply the Chinese market and you have to pay the same that they are willing to pay.  Hence the local market is ignored in favor of the export market.

This is just plain wrong.  You support your local market first, even if it means you don’t make as much money.  Because you live in that market.  This should be your “tax” for the right to trade in that market.  The same should be true of education.  If you are going to charge foreign students to come in and give them the opportunity to secure residency, it would seem to me that the least you could do is to provide a free education for local students.  But no, they are expected to pay as much as the foreign students.

There is no willingness to favor locals with the fruit of their own country here.  And that is the problem.  Yes, Australia is a vast country that can handle some population increase.  But if this requires some investment in infrastructure build out, surely that should be borne by the new arrivals that are driving up the costs to everyone else?  The local citizenry should not be expected to bear the burden of this – particularly in a country that boasts how it avoided recession.

But most importantly, it cannot sell itself out to a foreign sovereign power like it has.  This has resulted in the local population feeling the burden of a stupid “pro-growth agenda”, particularly when the local population never voted for this.  According to Dick Smith, 8 out of 10 Australians reject the pro-growth policies of population growth because they are the ones bearing the brunt of this.

So while the USA has President Trump dominating the news media with the “Build the wall” on the southern border policy to stop illegal immigration from central America, and farmers in the USA are struggling to exist due to tariffs on China and lack of export markets, and also a lack of labor to harvest crops, Australia has chosen to open up legal immigration to anyone that wants to come in and only in the past year or so has scaled back that (at least to a level that the local voting population think is serving them), meanwhile leaving the loopholes wide open for the universities to act as a conduit for immigration policy just so they get the $30K tuition income per student.

Constraints come in many sizes.  Sure, you can be 100% financially independent.  But if you are living in a city that used to be a peaceful, beautiful place and is now a stressed, urban jungle, are you better off?  You might not be stressing at your job as much, but stressing to go down to the local store to get your groceries due to traffic congestion, or watching your food prices skyrocket or your utility bill triple cannot reflect the unconstrained lifestyle.  What we leave for our children and their children is critically important here.  A thriving economy is great, when it comes from local manufacture, production and invention.  But an economy built on a Ponzi scheme like I saw in Adelaide scares me.  I know at some point this will all explode.  It is just a matter of when and keeping out of the blast range.