Why a Joe Biden election win could make certain Australians very rich

Polls are saying Joe Biden will romp home in the US election. If he does win, it will be good news for a significant number of Aussies.

Joe Biden is going to win the US election and become President of the most powerful country on earth. That’s what the polls tell us, anyway. What does that mean for you and me? Will anything change if Donald Trump leaves the White House?

The answer is yes, and from the perspective of an Australian, the changes are mostly pretty good.

YOUR MONEY

Polls put Joe Biden nine points ahead of President Donald Trump in the election. That’s a lot. A much bigger lead than Hillary Clinton had this time four years ago. Several of America’s swing states – the ones that could go either way in an election – are in the middle of big coronavirus outbreaks and, according to the polls, that is making them want to vote for change.

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Polls suggest Joe Biden will win but what does that mean for Australia? Picture: Jim Watson/AFP

Polls suggest Joe Biden will win but what does that mean for Australia?

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If Biden wins decisively, markets are expected to go up. Partly because Biden is more predictable than Trump and so uncertainty is reduced. Also, because he’s much more likely to do heavy government spending (fiscal policy) to pull America out of the recession.

America’s unemployment could tumble back down under 5 per cent and economic growth would be a whopping 7.7 per cent in 2022, if Biden wins and democrats control congress, according to analysis by ratings agency Moody’s.

Australia’s stock market tends to follow America’s these days (global stock markets are correlated, more than ever).

Rising US markets would be good news for Australia.

Australians have gone stock market crazy during the pandemic, so rising stock markets matter to us more than ever. People have been getting trading accounts and playing the markets, as the next graph shows (the red line, marked “equity holders”).

But don’t think the stock market is irrelevant to you just because you don’t own stocks. Anyone with superannuation has money invested in the stock market. When stock markets go up, your super balance goes up. (Assuming you left anything in there when the government let us do withdrawals earlier this year.)

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CBA: Financial assets from 2015 to 2020. Source: CBA. Picture: Supplied.

CBA: Financial assets from 2015 to 2020. Source: CBA. Picture: Supplied.

Be careful with this graph though! All the lines are set to 100 in September 2015, meaning they show the change since then. We call that an index. Even though the red line is above the pink line, it doesn’t mean more people own stocks than have bank deposits. It shows the growth in stock ownership has been higher than the growth in bank deposits.

The stock market and the economy and different things, of course. But a rising stock market would also be good news for economic confidence. Nothing makes consumers and businesses nervous like front page stories about a crash. As Australia’s economy tries to recover its footing and grind away at our new high level of unemployment, some positive news will be very helpful.

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THE AUSSIE DOLLAR

However, a Biden victory could change foreign exchange markets and our dollar is likely to rise. A strong Aussie dollar is usually fun because it makes going on holiday overseas much cheaper. But right about now, that’s no use to us.

A higher dollar will just make Aussie exports more expensive for overseas buyers. (Think about it like this: when our dollar rises from 70 US cents to 75 US cents, Americans need to pay five extra cents to buy a dollar’s worth of our goods, but our exporters still only get a dollar.)

That would limit the economic prospects of some of our exporting firms, and also make Aussie consumers buy more imports, which softens our economy.

A rising dollar is bad news for the RBA, which is trying to strengthen our economy through lower interest rates. It could force them into more extraordinary monetary policy, like buying bonds. The side effect of that would be lower interest rates for longer. Good news if you have a mortgage!

CHINA

China’s President Xi Jinping and Joe Biden meeting back in 2011 when they were both vice-presidents.

China’s President Xi Jinping and Joe Biden meeting back in 2011 when they were both vice-presidents.

The days of America and China getting along look to be behind us. But Joe Biden will likely be tough on China in different ways to Mr Trump. Less tariffs, more international pressure. Australia could be dragged into international coalitions trying to put pressure on China. If things don’t improve we could end up boycotting the Beijing Winter Olympics in 2022.

CLIMATE CHANGE

This is a big one. Mr Biden is likely to recommit America to taking action on climate change. Mr Trump is pulling America out of the Paris agreement, but the new president will dive back in. That is going to re-energise the global push to cut emissions.

In the short run this could be a bit painful for Australia as we need to make some big changes fast. But in the long run, if we can stop Australia getting four degrees warmer and burning down every summer, that’d be great.



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