AUD1=.6689 as of a hour ago.
For the younger viewers of this financial meltdown please ponder the amount of control being exerted by your elected leaders, precisely zero, for next time they are making claims as to their economic prowess. Australian political leaders, of whatever persuasion, are mere voyeurs - as much victims of what goes on overseas as we are. What they do next shows whether they are morons or not...and they all are.
When they drop interest rates and pump liquidity into the market - the way all western govts are at present -Australia less, so far at least - they are doing that in vain hopes of propping up asset values artificially. If assets are over valued, and real estate in Australia most assuredly is, making money too cheap merely sustains the bubble a little while longer (if they are lucky - and in the current circumstances they are, most assuredly, out of luck) and delays the inevitable correction.
In Australia of late an average house has been 6+ to 7+ x average wages. Historically in Australia it was closer to 3 - 3.5x. In the US, Canada, UK and EU just before the crash it was around 3.5x.
So what do you think house prices are most likely to do next? They weren't going to go up for much longer even without the current financial crisis.
NSW has been in recession all by its lonesome for 12 months. Victoria lives in relative recession permanently as does SA. That leaves NT, WA and QLD, the mining states (ACT is on a different celestial orbit
) - with Asia going into recession demand for minerals will inevitably drop, offset a little by the helpful exchange rate - look for layoffs in the mining sector and the unravelling of house prices artificially inflated by CUBs (Cash Up Bogans) who went from marginally employable to 6 figures working for the mines and live in a house they think is worth 600k and have at least 1 very late model Falcon/Commodore/SUV (probably something similar for the Mrs), a new wake boarding boat and a brand new flat screen TV that covers half one wall in the living room opposite the brand new leather lounge...all bought with cheap credit...oh and lots of stuff for their 4 kids. Even a prime mortgage becomes sub prime in a heartbeat if you can't make the payments and the real value just decreased 40%. Think it cannot happen? Watch...real estate had
tripled in the last 7 until just recently. Utter madness. Perth will be hit HARD.
Either peoples wages double or house prices crash - which do you think the govt would never let happen...which do you think the govt cannot stop?
This, our consumer economy, is what the Reserve Bank is desperately trying to prop up. Ultimately they cannot because it is impossible.
Jobs will be lost in the mining sector, tourism etc and that ripples out across the economy...estate agents, boat, car, TV, white goods sales all fall...law firms who specialise in conveyancing, trucking firms, mine support industries. All laying off staff and that ripples out further...builders, brickies laborers, plumbers, electricians, roofing people..and then banks.
Local and State govts start to feel the squeeze from a lack of stamp duty revenues etc...they wont fire people of course so they borrow and/or put up rates - we've seen that already - save water they screamed, so we did, they lost revenue and put up the rates based on artificially inflated land values. Wanna lay bets on how fast land values will be adjusted downwards and thus the rates?
Then we get to commercial real estate - already taking a hammering in the US - in fact had it not been for the commercial real estate bubble lasting until a few weeks ago the US would have been in recession last January. Businesses go broke and vacate leases, new businesses don't start and yet look at the mad building of commercial real estate that has been going on in the last 7 years - new shopping malls, industrial estates and theaters.
Look at the enormous amount of high density living that has gone up on the coast, much still unfinished...and look at the developers flirting with insolvency as we speak.
All this debt collateralised, leveraged, rated AAA and sold off to the ignorant in CDOs (Bonds) and worse, CDSs, (placing a highl leveraged bet that debts will default)...all completely un regulated...thank you elected officials again...and NO-ONE knows where all that worthless paper is or what it is worth...this is the real elephant in the beer fridge.
Then we get to the airlines.
This all
must happen. Australia
probably won't be hit as hard as the US/EU but we will be hit...how hard depends on how hard asia is hit. China, Japan and India in particular. We'll probably recover quicker because of the exchange rate and our minerals...3-6 years if history is anything to go on.
Who is to blame?
Ultimately our elected officials make the policies/turn a blind eye that allow this madness with low interest rates and affordable housing mandates that entice, or in the case of the US demand, lending criteria to be relaxed so people who couldn't get a mortgage all of sudden are convinced they can afford it.
Mortgage defaults/repo/bankruptsy were at historical highs in Australia for the 12 months
before this latest fiasco..what
do you think happens next?
If you're older than early to mid 40s you're seen it before - probably not as bad - for you 20 somethings watch and learn. Watch the pollies !!!! this up.
