When the typhoon of the global financial crisis surged around the world in 2008, most countries took a severe beating. Many came close to sinking. But as the United States and Europe floundered, Australia battened down the hatches and weathered the storm. In fact, life seemed pretty good: Employment was high and there was a healthy trade surplus. But as economic storm clouds gather again, we ask, “Could Australia do it again?”

The question is valid. After all, the Bank for International Settlements has said there are no lifeboats left for the next economic crisis. (See columnist Robert Morley’s article on the subject here.)

One of the major factors that kept Australia afloat in 2008-09 was the fact that the country was roped snugly to China. Australia’s mining boom came at the perfect time. China was consuming any raw materials Australia could sell. Following that was the related housing market boom. And so it was that Australia sailed out the other side of the global economic storm, right alongside China. But what about this next time?

Surfing the Commodity Wave

With a bountiful supply of iron ore, gold and other raw commodities, Australia has been riding the commodity wave quite seamlessly while other nations—lacking these natural resources—have been becalmed at best.

But the wave has died down, leaving Australia in a dire position. As Prime Minister Tony Abbot stated, “We are at risk of succumbing to the European disease; we are at risk of becoming a second-rate nation living on its luck.”

With global commodity prices expected to fall by 10 percent this year, Australia is starting to realize just how bad its predicament is. In fact, it will be one of the first nations majorly affected by the commodity collapse. Nations such as Saudi Arabia and the other Gulf states are also massive commodity nations, but these super-rich nations are backed by a cash surplus they can dig into when times get tough. In effect, when the commodity wave stops, they have something to keep paddling with—Australia doesn’t.

If commodities keep falling, Australia will be in dire straits.

Gina Rinehart, Australia’s richest woman, heads up Perth’s Hancock mining company. Her family wealth comes from the boom in iron ore mining. But since prices went into a tailspin, her estimated wealth dropped from $30 billion to $11 billion—in just three years. Australia is just as dependent on commodities as Rinehart.

Weak Investment

Today, with mining in the doldrums, one of the only areas of high investment left is the property market. Anyone looking to buy a home, particularly in one of the major cities, knows that prices have skyrocketed. In Sydney the average house price was aud$750,000 (approximately us$550,000) last September—almost a 15 percent increase on the year before and still rising.

But the astronomically expensive housing market—even if it was sustainable—can’t hold up Australia alone. According to Sydney Morning Herald columnist Malcolm Maiden, “Other areas of corporate spending range from just OK to dangerously weak.”

Foreign Debt

Another problem then emerges. With the government borrowing a record $1 billion per month to finance operations, Australia could quickly become slave to the lenders. The Australian senate has been unwilling to pass Abbott’s budget cuts, meaning the borrowing may be set to rise to $3 billion per month.

This could set Australia up as the next crisis point. Just as Greece has had to turn to the European Union as a last resort, so too could Australia turn to China as its banker. Some may laugh and say Australia would never find itself begging at China’s front porch, but don’t forget, Australia’s net foreign debt is already at a record $955 billion—almost 60 percent of gross domestic product. If the housing market wipes out, it will quickly push the debt even further below the water.

Reliance on Bonds

Another factor working against Australia today is its financial sector. The nation’s top four banks are some of the most bond-reliant in the world. According to Bloomberg, the average loan-to-deposit ratio of the four is 118 percent. The banks are dependent on people buying bonds. Of global banks with a market worth of $60 billion or more, only Spain, Italy and Brazil have larger dependence rates. Australia is one of the most dependent in the world.

When a global financial crisis hits, global credit markets will naturally tighten, leaving these banks dangerously exposed.

Trade Deficit Warning

Another sign of impending worry in Australia is the broadening chasm of the trade deficit. It has reached a record aud$4.14 billion. Australia is importing more than it is exporting, and that variance between the value of imports versus exports looks set to grow.

Some of Australia’s chief exports have fallen sharply in recent years. Iron ore today is $50 per ton, compared to $180 in 2011. Over the same period, coal dropped from $150 to just $60. This means a drastic fall in the export market.

According to commodities editor for the Telegraph, Andrew Critchlow, “For an economy which in 2012 depended on resources for 65 percent of its total trade in goods and services, these dramatic falls in prices are almost impossible to absorb without inflicting wider damage.”

Commentators are already saying Australia looks like a petrodollar economy of the Middle East but lacks the vast horde of foreign currency reserves to fall back on when commodity prices fall. How long can Australia sustain itself under such a climate? And how can it avoid becoming the next Greece—with huge portions of the gdp being used to pay back loans to the likes of China?

The portrait painted is starkly different from the Australia of 2008-09. The country doesn’t have the lifeboats it once had. The commodity boom is over. Australia is no longer fastened to a commodity-hungry China. As such, the next hurricane of a global financial crisis will hit Australia hard—and the storm clouds are already gathering.

As late Trumpet columnist Ron Fraser wrote in Australia—Where to Now? booklet (available for download here):

Economically, Australia is caught between the proverbial rock and a hard place. … Australia’s economic future simply rides on the back of world commodity prices and continuing demand from Asia, principally China. …Given the systemic economic problems that the Australian economy has endured for decades, the country is hardly in a decent position to weather the storm of any rolling, global economic crunch.

The Australia of today is on the verge of finding out just how right he was.