'This looks to me like 2007 all over again, but even worse.'

These ominous words hit the finance sphere this week. If you've tuned in to the Daily Reckoning lately, you might think it was Family Wealth editor Vern Gowdie repeating his warning of a 90% stock crash. But these words actually belong to William White.

Mr White is the former chief economist for the Bank of International Settlement. More importantly, he was the only 'official' economist to call the 2007 crisis before it happened. We know, we know - it's hard to believe a mainstream economist actually accurately forecast something. But it's true.

Kudos to Mr White, of course. He's one up on Ben Bernanke for life. And here's what he has to say now, as The Telegraph reports:

'"All the previous imbalances are still there. Total public and private debt levels are 30 per cent higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle," said Mr White, now chairman of the OECD's Economic Development and Review Committee.'

Mr White then went on the record to say that the five years since Lehman Brothers collapsed have been wasted, the global system is more unbalanced than ever and the world is addicted to easy money and largely out of options if the system goes down again. Jeez, if he fancies a job at the Daily Reckoning, we think we could find a place for him!

All this was before the Fed surprised almost everyone by doing nothing to 'taper' QE. Thanks to that, the Australian dollar and stocks, especially the miners, went up. As we pen these notes, the Aussie dollar is just below 95c to the USD.

The Aussie dollar move is interesting. It's enjoyed a nice rally this month.

click to enlarge
Source: StockCharts

Whether it stays up there is the question. Greg Canavan over at Sound Money Sound Investments reckons it's overvalued. He's hanging on to his US dollar and euro ETF recommendations. He diversified into them before the Aussie hit the skids in April.

The Reserve Bank of Australia is no doubt hoping the market does something similar. It doesn't want the currency any higher. Neither do Australian manufacturers. A high currency makes them less competitive on price. It will be even worse if their energy costs rise as well.

It would be a tough call to deal with both. The direction of the currency is a tricky one to predict long term. But there can't be much doubt that higher gas prices are coming to Australia, especially NSW. Check this out from the Australian Financial Review:

'The reality is that the state [NSW] may run out of gas in the next couple of years, and even a sudden shift in policy means any new sources of supply are another five to 10 years away. The situation will be exacerbated in 2017 when several major liquefied natural gas projects in Australia come on line.

'The other concern is that whatever solution is found, gas will become so expensive in the short term that it will be uneconomic for many manufacturers, which will be forced to close operations.'

That was Wednesday. On Friday things settled down a bit when Origin Energy announced a $3 billion deal to buy gas out of Bass Strait from ExxonMobil and BHP Billiton. That locked in some actual gas. But it also locked in a higher oil-linked price for east coast domestic users. The Australian called it the most valuable east coast gas deal to date. But it won't be enough to fend off higher prices.

'Current prices of $4 a gigajoule are expected to more than double to what is known as export parity, which is the price in Japan, currently $US15 minus liquefaction and shipping costs.'

Not to be out done, Western Australia industry group DomGas Alliance sounded the alarm this week that WA face shortages by 2020 despite BHP opening a new $1.5 billion gas plant.
They're talking their book of course, but it does put energy costs and supply right back in the spotlight.

Australia is heading for a US-style clash between domestic users, exporters and government policy. The difference is the US has the luxury of a glut of cheap gas while they sort out their differences. Australia does not.

Over at The Denning Report, Dan maintains that higher gas prices will provide a sweet spot for companies with proven or probable reserves to cash in. He's backing the projects in his portfolio to start attracting bidding interest. We're about to find out if he's right or not.

Regards,

Callum Newman+
for The Daily Reckoning Australia