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The super-cycle of commodities and the Lucky Country

By James Cumes - posted Wednesday, 1 August 2007

When I read articles about the super-cycle commodity boom (see below), I can't help recalling the glory days of the 1960s and 1970s when it was nigh impossible as anything in economic life to avoid making a fortune by playing the stock market in commodities in Australia.

You had to be a real expert - you had to have all the academic gloss as well as all the model-making, chart-creation and other clever tools of our guru economic culture - actually to lose money by trading in commodities in Australia at that time.

I remember how much money - even going back into the 1950s - you could make by following reports that Joe Blow and Company were looking for something. Even if they never found anything - and a whole lot of them never did - you could make a fortune just by buying a few shares in some “penny dreadful” and then waiting for everyone to line up behind you buying them too. The only clever part was getting out a short head in advance of the mob as they headed for the exits.


One of the books that I read most avidly at that time - along with millions of other avid readers - was called The Limits to Growth. There will be some who still remember it and - as I do - rather vaguely recall what it said, that is, what it said in 1973.

Its essence was that there was only so much of every vital commodity in the world. I don't remember that it said that this was so much the case that we would shortly have to find another accommodating planet to live on if the human race were to survive. But someone else did say that in a book I read a few years later. (Sadly, I forget what that one was called now; but its warning should always be borne in mind. Other accommodating planets are terribly hard to find!)

The Limits to Growth was not optimistic - at least I don't remember that it lifted my spirits at the time. Once, I recall I was re-reading it on the way to an OECD Ministerial Meeting held in Paris in 1974 - it was almost part of the set curriculum for any such meeting in those days - and it didn't improve my mood for what, at the best of times, is a pretty long and tiring flight between Canberra and Paris.

However, the good news was that the shortage of commodities was making Australia rich - and the projected even greater shortage deriving from the limits to growth, would make us even richer. We were really on to a good thing. The "Lucky Country" was going to get even luckier as the years rolled by.

Then came the bust which lasted a long, long time. Australian governments made a lot of mistakes so it would be churlish of me to blame the less heady days, especially after the mid-1980s, solely on the collapse of the commodities boom. Our own treasurer, a man whom the years have identified ever more clearly as one of the more foolish of our democratic leaders, declared over the radio, as I drove through the heart of Canberra one day in 1985 or 1986, that we were well on the way to becoming a "Banana Republic".

We never sank to quite that nadir in our economic fortunes; but the commodities bust, combined with the penchant for error of virtually all democratic governments, on almost everything economic, made the quarter century after 1980 pretty challenging. We never did become quite a "Banana Republic" and, after a time, we became used to being only a moderately prosperous member of the wealthiest club within the planet's establishment. We began to think we were doing well - in some of the later 1990s, for example - not because we were relatively as well off as we had been in the late 1960s, but because we were less miserable than we had been in the earlier 1990s.


That demonstrates again, I suppose, that the real test of contentment derives not from satisfaction with your position on the rung of the ladder on which you stand at the moment but whether you think you're going up or going down.

In most of the quarter century after 1980, the Australian dollar took a pasting - even as compared with the American dollar which itself didn't do too well over long stretches after 1980. At one stage, the Australian dollar even slipped below 50 US cents and it languished for a long while at a value not much more than half a US dollar or just over 60 cents. (For comparison or by contrast, it now seems headed for 90 cents.) Its standing against other currencies - the major European currencies, the Euro when it was launched, the yen, the Tiger currencies and several others - sank, in some instances, to a third or a quarter of what it had been in the years of glory that belonged to the period within which The Limits to Growth was published.

And now we've reached a new and different phase in the cycle. After the years of plunge and scraping along the bottom, we're swinging up, up and up again. Now it is said that:

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America's Suicidal Statecraft is available most readily through Amazon, at $26.99 a copy.

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About the Author

James Cumes is a former Australian ambassador and author of America's Suicidal Statecraft: The Self-Destruction of a Superpower (2006).

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