The Australian government is about to face its own budget problems. Today's Australian Financial Review reports that the government's budget is in tatters. Tumbling iron ore prices will blast a massive hole in the numbers.

The paper quotes Chris Richardson, the go-to man for respectable comment on budget matters, as saying:

'The politicians just don't get it yet. Both sides are operating on a rule of thumb that worked for a decade, which is that China paid for all sorts of things, and that's just not true anymore.'

Actually, we would argue that the politicians will never get it. 'Getting it' would mean backing off...leaving well enough alone. It would mean less meddling and more letting things be. It would mean thinking before doing, and thinking hard enough would obviate the need for doing anything.

But it's not just politicians. The whole country has grown fat, lazy and stupid on the China boom. It has pushed up wages and Australian house prices and made Australia one of the most expensive countries in the world.

Even Warnie thinks he can sell his Aussie home for $15-20 million and buy a sprawling mansion in the English countryside for $9 million. Fingers crossed for him. Perhaps he'll be lucky enough to sell to a corrupt Chinese official trying to get his wealth out of the country before its confiscated.

The only difference between us and other uber-strong currency nations like Switzerland is that we have a hugely negative net international investment position. To put it plainly, we have a massive foreign debt and are a chronic importer of capital.

The China boom masked these structural flaws in the Australian economy.

The tail end of China's boom was completely unsustainable. It was plain for any simpleton to see. We should know, we started writing about it last year. But the only person in any real official capacity to air his concerns was former RBA board member Warwick McKibbin.

Because he said what he thought, the mainstream media often described McKibbin as 'outspoken'. It's a pejorative term used to describe people who tell us unpleasant truths.

In contrast, RBA Governor Glenn Stevens tells us things we want to hear, stuff that makes us feel good about ourselves. Like that China's slowing economy is 'controlled', that iron ore prices will fall a bit, but not too much...that our economy is the envy of the world, and we spend too much time complaining about the glass being half-empty.

A central banker's role is not to tell you the truth. After all, what is 'the truth' when we're talking about the future? There's really no such thing. It's more about being honest with the information you have.

Our rule of thumb is to tell you the same things we'd want our loved ones to know. We're not always right, but if we get it honestly wrong we're happy.

Central bankers, governments and power mongers of all stripes have no interest in honesty. Their aim is to keep you compliant, obedient and docile. They throw money at the electorate and hope enough sticks to ensure their hold on power and advancement of ideology endures for a few more years.

If they could be bothered to look past their noses, they would see that Australia is simply a few years behind the problems experienced by countries in the northern hemisphere. We have chronic trade deficits. Australia only produced a trade surplus in 2011 when the terms of trade were at a historic peak. For nearly every other year since the last commodity boom in the 1970s, we have consumed more than we have produced. In other words, we run persistent trade deficits.

To finance the overconsumption, we call on foreigners to fill the gap. That's been an easy sell with the decade long China boom. But instead of asking what happens after the boom, we blindly expect it to continue. Can we really keep expecting foreigners to finance our overconsumption and spending on houses for decades to come?

If the China boom sustained a massive rise in incomes, house prices and our dollar, wouldn't a bust have the opposite effect? These are legitimate questions that will never receive an honest answer. It will only become a part of the national discussion when it's too late. Then, the power mongers can say that no one saw it coming, that it was too difficult to anticipate such a turn of events.

Of course the electorate won't believe them. So they'll vote them out and usher in a new bunch of clowns uttering fresh lies and false promises.

Like all things in life, democracy has its cycles too.

Regards,

Greg Canavan
for The Daily Reckoning Australia