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Monday, 3 September 2012 Melbourne, Australia
By Nick Hubble

In today’s Money Morning:…new report paints gloomy picture for Australia…the resource curse…why the Aussie dollar is set to fall…how to profit after the fallout…the crisis in Greece forgotten, not solved...

Resources Boom, Resource Curse or Industrial Renaissance?

Today’s Money Morning is about Dutch Disease. How do you save and make money from Australia’s coming boom, bubble and bust?

But first, someone should let Federal Resources Minister Martin Ferguson know that the mining boom need not be ‘over’. Here’s what he said: ‘The commodity price boom is over. Anyone with half a brain knows that.’

Finance Minister Penny Wong disagrees. ‘No, I think the mining boom has got a long way to run.’ We’re not sure which half of her brain she’s using.

But Wong may be correct on this. Never mind the plunging iron ore price, which has halved over the last twelve months. And don’t worry about BHP’s abandoned Olympic Dam plans.

Report Sends Warning on Aussie Economy

Anyway, the goose that lays the golden egg may be cooked. A report by research firm Variant Perception has caused some controversy. No longer are Australia’s problems just the ramblings of crazed Money Morningeditors. Here’s what analyst Jonathan Tepper had to say about Australia’s fake prosperity:

‘Australian growth has been dependent on two huge bubbles: a domestic housing market that is one of the most overvalued in the world and a reliance on the Chinese fixed asset investment craze.’

Why is a housing bubble fake prosperity? Because house prices can tumble. A huge amount of wealth you thought you had can disappear very quickly. All it takes is for house buyers to refuse to go into vast amounts of debt.

And that’s even more likely to happen now that the other part of Australia’s fake prosperity is in doubt: the resources boom. It’s really a resource curse. Jonathan Tepper says Australia will suffer from Dutch Disease. In fact, he says we’re a ‘classic case’.

What’s Dutch Disease? It’s when the resources sector dominates an economy, and that causes other parts of the economy to flounder. So when the resources boom ends, only the floundering bits remain.

You can probably guess how Dutch Disease got its name. But it’s a surprisingly recent name coined by the Economist in 1977 after the Netherlands discovered vast natural gas fields. Sound familiar?

So how do you make and save money from Australia’s Dutch Disease? Well, the sickness plays out in the following way. First there is a crash in the economy as the booming part takes a big hit. That’s started already. Resource companies have cancelled projects and Fortescue Metals has lost 40% of its share price since May.

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