Aussie Dollar Plummets
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PB
Agreed however it becomes more confused if you retire before 65 as - with current longevity and unknown future inflation factors - you need to plan a long way ahead so you don't run out your investments too early.
Re the housing debt, this is of interest (source RBA) - admittedly written in 2003.
http://www.rba.gov.au/PublicationsAn.../bu_0303_1.pdf
One particular point of interest is the location of the debt - less than one-third of us:
According to the 2001 Census, 43.0 per cent of Australian households own their home outright; that is, they have paid off their mortgage. A further 28.4 per cent live in rental accommodation, and so they also do not have a mortgage on their home. The remainder 28.6 per cent own their own home, but are still paying off the mortgage. It is this last group which has accounted for the growth of owner-occupied housing debt and, by extension, for much of the growth of total household debt.
My reading of the report is that first it was too optimistic and second much of the debt affecting disposable income may well be the things everyone has to have AS WELL as their home.
Just in from the Dog & Lemon Guide five minutes ago (extract) - more gloom:
The U.S. government will rescue Ford & General Motors because it has no choice. However, as part of their rescue package the U.S. government will almost certainly force Ford & General Motors to dispose of their unprofitable overseas assembly plants. The Australian Ford & General Motors plants will be near the top of the list for closure.
At this point the Australian state and federal governments will undoubtedly rush in with their own rescue packages, but these rescue packages will merely postpone the inevitable. The sad fact is, car manufacturing in Australia was only marginally profitable even in good times, and the good times are long since over.
Big car sales slump | theage.com.au
Overall, the Aussie dollar is not looking good!
Agreed however it becomes more confused if you retire before 65 as - with current longevity and unknown future inflation factors - you need to plan a long way ahead so you don't run out your investments too early.
Re the housing debt, this is of interest (source RBA) - admittedly written in 2003.
http://www.rba.gov.au/PublicationsAn.../bu_0303_1.pdf
One particular point of interest is the location of the debt - less than one-third of us:
According to the 2001 Census, 43.0 per cent of Australian households own their home outright; that is, they have paid off their mortgage. A further 28.4 per cent live in rental accommodation, and so they also do not have a mortgage on their home. The remainder 28.6 per cent own their own home, but are still paying off the mortgage. It is this last group which has accounted for the growth of owner-occupied housing debt and, by extension, for much of the growth of total household debt.
My reading of the report is that first it was too optimistic and second much of the debt affecting disposable income may well be the things everyone has to have AS WELL as their home.
Just in from the Dog & Lemon Guide five minutes ago (extract) - more gloom:
The U.S. government will rescue Ford & General Motors because it has no choice. However, as part of their rescue package the U.S. government will almost certainly force Ford & General Motors to dispose of their unprofitable overseas assembly plants. The Australian Ford & General Motors plants will be near the top of the list for closure.
At this point the Australian state and federal governments will undoubtedly rush in with their own rescue packages, but these rescue packages will merely postpone the inevitable. The sad fact is, car manufacturing in Australia was only marginally profitable even in good times, and the good times are long since over.
Big car sales slump | theage.com.au
Overall, the Aussie dollar is not looking good!
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I heard George Bush say one country should not do something that is counter productive to anothers efforts... or such like. I guess that does not apply to Ford and GM
J
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I heard George Bush say one country should not do something that is counter productive to anothers efforts...
He might want to look at himself first on that one (like that's gonna happen
), it was after all the lax monetary and fiscal policies in particular and lack of economic leadership in general of his administration, that created the environment which allowed the current situation to develop in the first place 
The only good thing that might come out of this, is that hopefully there will be a change of administration in the US that gives them a chance to right some of the wrongs of the past eight years..
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Continuing the sad news for our dollar, and the motor concerns of last nights post:
Ford to slash unconfirmed number of jobs
(Probably predictable when the latest Ford import CEO for Oz looked and went back home).
The other item that will have a long term effect on our dollar sustainability is the SKI club (Spending the Kids Inheritance). Now the reverse mortgage for oldies is becoming a lifestyle option, there will be another slowdown when no inheritance passes to the kids later on.
Ford to slash unconfirmed number of jobs
(Probably predictable when the latest Ford import CEO for Oz looked and went back home).
The other item that will have a long term effect on our dollar sustainability is the SKI club (Spending the Kids Inheritance). Now the reverse mortgage for oldies is becoming a lifestyle option, there will be another slowdown when no inheritance passes to the kids later on.
PlankBlender
While I agree with your description of Dubya and his administration, the rot unfortunately didnt start with him. The credit problems the US and the world are facing really started under the Reagan administration. The Clinton administration allowed it to accelerate with programs to get the poor into their own homes etc. Dubya just didnt do anything to stop it. One has to ask what the common denominator with all these administrations was. The name Allan Greenspan comes to mind. He was the one that vermontly pushed for the unregulated capitalist economy of the US and vermontly supported the Derivatives market. His legacy will be remembered over time as the person that ultimately caused this mess.
While I agree with your description of Dubya and his administration, the rot unfortunately didnt start with him. The credit problems the US and the world are facing really started under the Reagan administration. The Clinton administration allowed it to accelerate with programs to get the poor into their own homes etc. Dubya just didnt do anything to stop it. One has to ask what the common denominator with all these administrations was. The name Allan Greenspan comes to mind. He was the one that vermontly pushed for the unregulated capitalist economy of the US and vermontly supported the Derivatives market. His legacy will be remembered over time as the person that ultimately caused this mess.
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totally agree 404 Titan
Making Greenspan head of the Fed was like puting a fox in charge of the chicken pen or as a friend of mine indicated a barman in charge of the breathaliser
Greed is a wonderous thing, however, the likes of Greenspan and his cronies wont go hungry, it is the poor average MR and MRs middle class and lower middle class Aussies that will suffer. The housing bubble is going to really hurt!
Greed is a wonderous thing, however, the likes of Greenspan and his cronies wont go hungry, it is the poor average MR and MRs middle class and lower middle class Aussies that will suffer. The housing bubble is going to really hurt!
Grandpa Aerotart
Certainly enough blame to go around 404 and the Clinton Democrats really gave it a BIG nudge (threatened, badgered and cajoled fannie/freddie to relax lending criteria) but it goes back as far as the Carter Democratic Administration.
I suspect Reagan did **** all about it but 'Dubya' tried 17 times in the last 8 years to regulate fanny and freddie unsuccessfully. Certainly its true that at various times in the last 8 years the Republicans had control of the senate but mostly they didn't REALLY because even when they, theoretically, had the numbers at least two 'republican' independents caucused with the Dems. Too there were enough republicans too afraid of voter backlash to do anything meaningful in help alleviate the situation - a by product of the US electoral system that essentially ensures Senators are permanently out on the stump trying to get re-elected.
It was electoral suicide to put yourself in a situation where the democrats could label you as being 'against affordable housing' or as a stooge for 'the big end of town'...I am sure you can imagine the rhetoric that was aimed at that section of the electorate to stupid to see they were being suckered into debts that could not afford. VERY few politicians have the balls to be labeled as such even when they would, demonstrably, have been doing the right thing for those self same voters.
Greenspan too was to blame for inflating a housing bubble to offset the dotcom bubble...Benanke seems to be either just as stupid or is caught politically like the proverbial dear in the headlights...Paulson was a BIG part of the problem as a CEO of one of the big investment banks collecting best part of 1/2 a billion in executive bonuses based on (now) illusory profits from CDOs/CDSs...how he could be seen as part of the solution beggars belief.
Too you can lay much of the blame for Australia's exposure to our own version of subprime at the feet of Costello for keeping Australia's interest rates too low for too long to convince Australian voters that they were in clover when really they were being set up in exactly the same way as those in the US. Now we see the politicians around the world collectively lowering interest rates, flooding the market with liquidity and, essentially if not actually, nationalising banks left and right to try and stave off the inevitable. If you ever wanted proof that politicians really are as stupid, or dishonest, as they seem I point to the cause of our problems, cheap, easy money, as also being, apparently, the solution
I suspect Reagan did **** all about it but 'Dubya' tried 17 times in the last 8 years to regulate fanny and freddie unsuccessfully. Certainly its true that at various times in the last 8 years the Republicans had control of the senate but mostly they didn't REALLY because even when they, theoretically, had the numbers at least two 'republican' independents caucused with the Dems. Too there were enough republicans too afraid of voter backlash to do anything meaningful in help alleviate the situation - a by product of the US electoral system that essentially ensures Senators are permanently out on the stump trying to get re-elected.
It was electoral suicide to put yourself in a situation where the democrats could label you as being 'against affordable housing' or as a stooge for 'the big end of town'...I am sure you can imagine the rhetoric that was aimed at that section of the electorate to stupid to see they were being suckered into debts that could not afford. VERY few politicians have the balls to be labeled as such even when they would, demonstrably, have been doing the right thing for those self same voters.
Greenspan too was to blame for inflating a housing bubble to offset the dotcom bubble...Benanke seems to be either just as stupid or is caught politically like the proverbial dear in the headlights...Paulson was a BIG part of the problem as a CEO of one of the big investment banks collecting best part of 1/2 a billion in executive bonuses based on (now) illusory profits from CDOs/CDSs...how he could be seen as part of the solution beggars belief.
Too you can lay much of the blame for Australia's exposure to our own version of subprime at the feet of Costello for keeping Australia's interest rates too low for too long to convince Australian voters that they were in clover when really they were being set up in exactly the same way as those in the US. Now we see the politicians around the world collectively lowering interest rates, flooding the market with liquidity and, essentially if not actually, nationalising banks left and right to try and stave off the inevitable. If you ever wanted proof that politicians really are as stupid, or dishonest, as they seem I point to the cause of our problems, cheap, easy money, as also being, apparently, the solution
Last edited by Chimbu chuckles; 14th Oct 2008 at 03:25.
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CC
Very true. If you can find a copy of yesterday's Herald Sun check the two page case study P74/75 with the couple in danger of losing their home.
Priorities are summed up near the end 'Although our couple will limit their spending on entertainment and gifts, this was considered "terribly unrealistic".' 'Troy and Vanessa will take up some suggestions but have said they are not prepared or able to do most of the things George (the financial consultant) suggested.'
My underlining for emphasis. I think I'll head off to have some cake and eat it too - how can Australia survive with the 'all things today' mindset?
Very true. If you can find a copy of yesterday's Herald Sun check the two page case study P74/75 with the couple in danger of losing their home.
Priorities are summed up near the end 'Although our couple will limit their spending on entertainment and gifts, this was considered "terribly unrealistic".' 'Troy and Vanessa will take up some suggestions but have said they are not prepared or able to do most of the things George (the financial consultant) suggested.'
My underlining for emphasis. I think I'll head off to have some cake and eat it too - how can Australia survive with the 'all things today' mindset?
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Whereas you guys are undoubtedly correct in that the historical erosion of lending criteria has been going on for decades, it was the lack of oversight of the current administration that enabled the banks to dream up and globally flog the derivatives made up primarily of bundled sub prime loans, that made the current crisis possible.
At the same time, Bush and his cohorts have made America the b!tches of Japan and China (mainly) by borrowing to spend themselves into the worst budget deficit in modern history
From here: Reuters AlertNet - U.S. CBO says FY08 budget deficit hit $438 billion
We can just hope that this correction was a wake up call for the next administration, and that they will clean up the American act somewhat, otherwise we might have seen the beginning of the end of the most influential economy in the world..
At the same time, Bush and his cohorts have made America the b!tches of Japan and China (mainly) by borrowing to spend themselves into the worst budget deficit in modern history
"This administration will be responsible for the five worst federal budget deficits in American history," said House Budget Committee Chairman John Spratt
We can just hope that this correction was a wake up call for the next administration, and that they will clean up the American act somewhat, otherwise we might have seen the beginning of the end of the most influential economy in the world..
PlankBlender
And guess who strongly urged the current administration to adopt this policy? You guessed it, Alan Greenspan.
james michael
Unfortunately for Troy and Vanessa unless they execute all the financial consultants advise they will have his advice forced upon them whether they like it or not and then some. I have no sympathy for people like this. Unfortunately my brother falls into that category as well.
Whereas you guys are undoubtedly correct in that the historical erosion of lending criteria has been going on for decades, it was the lack of oversight of the current administration that enabled the banks to dream up and globally flog the derivatives made up primarily of bundled sub prime loans, that made the current crisis possible.
james michael
Unfortunately for Troy and Vanessa unless they execute all the financial consultants advise they will have his advice forced upon them whether they like it or not and then some. I have no sympathy for people like this. Unfortunately my brother falls into that category as well.
Sub Prime lending in the US has no comparison product here in Oz. The closest is a product with a savage non bank lender who charges like a wounded bull and if you have to use them you may as well sign the deeds and hand over your house because they will get it in the end.
The yank market went after the great unwashed and conned them into taking on loans some of them could never pay No Income No Job or NINJa s as the market calls them. Where we all got involved is some clever SOB "wrapped" a hundred of these loans at a time and securitised them with foreign banks and anyone willing to buy a piece of the action. The twisted logic was that out of a hundred loans only a small percentage would default....how wrong they were. These instruments were traded all over the planet and no one really knew what their exposure was to them.
I could be cruel and say the big banks have repeated the ninties all over again but this time they lent to the other end of the high risk market.
Where it is different here is interest rates whilst pretty low by oz standards is still relatively high by world standards. The mistakes of population control in the perverse idea of allowing Sydney to expand as it has with limited scope for large scale land development to keep pace with populatiuon housing growth forced a price bubble in Sydney real estate that was easily supported by lowish interest rates. This price bubble spread right around Australia. Little hamlets in Tassie were ravaged in as little as five years to go from cheap affordability with no jobs to increased market value with no jobs fueled by asset rich Sydney investors . Even as far as wheat belt towns in WA felt the touch of the east coast bubble. Darwin with its combined military build up and resources boom has forced up prices and that same situation in Perth and environs fueled by their own resource boom. Banks are tightening up on WA and NT as we speak because of this. Buyers are having to stump up more deposit to purchase in those states and THAT is what is going to force a collapse in those states of over-fueled land and house prices. Owners will not be able to easily offload an overgeared house in this market.
Cashed up Sy and ML folk chasing better surrounds in more temperate climes started the flood of investment right around the country. If you ask me the Reserve has stu
big time with the last four rate increases. They were not required. Trying to bludgion a mythical inflation gene has just suddenly disappeared up in a puff of magic hokuspokus. The inflation number is still there! The foolishness of this incoming government trying to create an image of better fiscal managers has , in my opinion, forced the economy to take a deep suck and, in the ensuing mind rush, start to panic for no reason. In the last six months there is a sharp as I have every seen drop in consumer confidence. Is this the same country that survived the tech wreck? the asian crisis when all the paper tigers went up in smoke SARS and September 11th? Nothing has changed internally except a higher dollar(..not any more
)
For the last five years I really thought we had finally beaten the idea that if the US sneezed we caught pneumonia. Now we are back to where we were fifteen years ago. My next bet is the Reserve is going to cut another full 100points and then hang on for the Keating rollercoaster of 2.0% rate changes that WILL break the back of land and house owners in Australia.
CC, you are quite correct. No politician can control what happens to the market. However, what they say, if they say it often enough, the sheep will eventually believe. Australia has been conned. Go and read up on monitary policy with the Banks. THEY MUST GUARANTEE ALL ACCOUNTS HELD since the demise of Pyramid in Vic. Political grandstanding! They must hold in cash the equivalent of all moneys lent on homes.(edit- I will get a ref for this) Australian banks are the most tightly secured banks in the world. Thats why they are four amongst the top ten in the world. Not becuse of their brilliant management...because we(through the government) made them that way.
Just watch now for a spree of big government projects around the country to pump prime the economy and try and revitalise the fragile confidence of business to start to invest in infrastructure.
I am soooo p off that we allowed ourselves to get sucked in..again!
We really do deserve the government we vote for!
No mind, I know the way out.
The yank market went after the great unwashed and conned them into taking on loans some of them could never pay No Income No Job or NINJa s as the market calls them. Where we all got involved is some clever SOB "wrapped" a hundred of these loans at a time and securitised them with foreign banks and anyone willing to buy a piece of the action. The twisted logic was that out of a hundred loans only a small percentage would default....how wrong they were. These instruments were traded all over the planet and no one really knew what their exposure was to them.
I could be cruel and say the big banks have repeated the ninties all over again but this time they lent to the other end of the high risk market.
Where it is different here is interest rates whilst pretty low by oz standards is still relatively high by world standards. The mistakes of population control in the perverse idea of allowing Sydney to expand as it has with limited scope for large scale land development to keep pace with populatiuon housing growth forced a price bubble in Sydney real estate that was easily supported by lowish interest rates. This price bubble spread right around Australia. Little hamlets in Tassie were ravaged in as little as five years to go from cheap affordability with no jobs to increased market value with no jobs fueled by asset rich Sydney investors . Even as far as wheat belt towns in WA felt the touch of the east coast bubble. Darwin with its combined military build up and resources boom has forced up prices and that same situation in Perth and environs fueled by their own resource boom. Banks are tightening up on WA and NT as we speak because of this. Buyers are having to stump up more deposit to purchase in those states and THAT is what is going to force a collapse in those states of over-fueled land and house prices. Owners will not be able to easily offload an overgeared house in this market.
Cashed up Sy and ML folk chasing better surrounds in more temperate climes started the flood of investment right around the country. If you ask me the Reserve has stu
big time with the last four rate increases. They were not required. Trying to bludgion a mythical inflation gene has just suddenly disappeared up in a puff of magic hokuspokus. The inflation number is still there! The foolishness of this incoming government trying to create an image of better fiscal managers has , in my opinion, forced the economy to take a deep suck and, in the ensuing mind rush, start to panic for no reason. In the last six months there is a sharp as I have every seen drop in consumer confidence. Is this the same country that survived the tech wreck? the asian crisis when all the paper tigers went up in smoke SARS and September 11th? Nothing has changed internally except a higher dollar(..not any more)For the last five years I really thought we had finally beaten the idea that if the US sneezed we caught pneumonia. Now we are back to where we were fifteen years ago. My next bet is the Reserve is going to cut another full 100points and then hang on for the Keating rollercoaster of 2.0% rate changes that WILL break the back of land and house owners in Australia.
CC, you are quite correct. No politician can control what happens to the market. However, what they say, if they say it often enough, the sheep will eventually believe. Australia has been conned. Go and read up on monitary policy with the Banks. THEY MUST GUARANTEE ALL ACCOUNTS HELD since the demise of Pyramid in Vic. Political grandstanding! They must hold in cash the equivalent of all moneys lent on homes.(edit- I will get a ref for this) Australian banks are the most tightly secured banks in the world. Thats why they are four amongst the top ten in the world. Not becuse of their brilliant management...because we(through the government) made them that way.
Just watch now for a spree of big government projects around the country to pump prime the economy and try and revitalise the fragile confidence of business to start to invest in infrastructure.
I am soooo p
off that we allowed ourselves to get sucked in..again!We really do deserve the government we vote for!
No mind, I know the way out.
Last edited by OZBUSDRIVER; 14th Oct 2008 at 06:37.
PlankBlender, you beat me to it
My business is in the worst shape since 1990. Most of my work revolves around building infrastructure. It IS very quite. My wife is in finance, she is rolling along OK but the new first home buyers have dried up to a large extent. On that regard it will be very interesting to see what the banks make of this forced savings plan. It amounts to a drop in the bucket as far as helping with the purchase price. Effectively, it may lock out first home buyers for another five years in a worst case scenario.
EDIT- just to add. And this is the reason I cannot afford to fly at all!...there! That makes it more GA oriented!
My business is in the worst shape since 1990. Most of my work revolves around building infrastructure. It IS very quite. My wife is in finance, she is rolling along OK but the new first home buyers have dried up to a large extent. On that regard it will be very interesting to see what the banks make of this forced savings plan. It amounts to a drop in the bucket as far as helping with the purchase price. Effectively, it may lock out first home buyers for another five years in a worst case scenario.
EDIT- just to add. And this is the reason I cannot afford to fly at all!...there! That makes it more GA oriented!
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404
Back in the 70's I paid off the house before I started my flying lessons on the basis of pay as you go, not on the never never.
The carpet was threadbare, the Holden weary - but I owned it all. Things came to us later - when I knew we could pay for them. The missus now understands why we did it because she now has cash in the purse and no debt in the last 30 years..
How do we get that message to the Troys, Vanessas, and your bro? Of course, that raises its own problem with the Aussie dollar because it busts the artificial spending boom and creates its own economic dramas.
Somehow I'm reminded of the Hal Roach line about the Irish guy who sold his bike and said "If I knew he wasn't going to ever pay me .... I'd have charged him twice as much" - I think the economy has turned Irish
Back in the 70's I paid off the house before I started my flying lessons on the basis of pay as you go, not on the never never.
The carpet was threadbare, the Holden weary - but I owned it all. Things came to us later - when I knew we could pay for them. The missus now understands why we did it because she now has cash in the purse and no debt in the last 30 years..
How do we get that message to the Troys, Vanessas, and your bro? Of course, that raises its own problem with the Aussie dollar because it busts the artificial spending boom and creates its own economic dramas.
Somehow I'm reminded of the Hal Roach line about the Irish guy who sold his bike and said "If I knew he wasn't going to ever pay me .... I'd have charged him twice as much" - I think the economy has turned Irish
Grandpa Aerotart
Ozbusdriver Australia does have a subprime problem...because many 1000s of mortgages were given on minimum or no deposit finance based on the belief that property prices were going gang busters (FOREVER) and they'd have 25% equity in a few years anyway.
If you put down 5-10% (or even 20-30% in some cases) on a house 1 or 2 years ago it is highly likely your mortgage is now subprime in that the house is worth less (if you HAVE to sell) than you owe the bank. This is 'ok' in the short term if you stay employed and interest rates stay reasonable. Unemployment is going up...watch the result of the mining boom losing some or all of its steam in WA (especially), NT and QLD.
Yes, not as bad as the Ninja loans in the US but with real estate prices at double the multiples of wages that exist in the rest of the developed world they are unsustainable. Real estate prices tripling within 7 years is a bubble that will burst and when it does even if prices only crash back to where they were 5 years ago that is a 50% reduction.
A large % of the population of Australia, everyone below 30-35, seems to think that real estate cannot go down (and stay down for a long time)/have never seen a recession/don't believe it can happen/have fallen for the BS that modern economic management has ended the boom and bust cycle of previous generations. Witness the couple in the above post.
I know people in their late 40s saying all the above.
Every week we hear the politicians talking and every week they have been wrong. I don't have any expectation that this week's attempts to avert recession are any more enlightened than last week's. Politicians in the UK (at least) have been receiving briefings by Japanese bankers and politicians on what happened in Japan back in the 90s...and rather like the couple above are cherry picking those parts of that advice that seem palatable.
Japanese real estate, if memory serves, fell by 80% back in the 90s and hasn't recovered since. I don't think Australia will be as bad for all sorts of good reasons but 50% would merely put us back in line with the rest of the western world at 3-3.5 times average wages for an average house...instead of 6-7 times.
I don't think the fear in the population is unreasonable at all. If they understood the true extent of the CDS/CDO issue that fear would turn to outright panic.
Very few people, including our elected leaders, understand it. One of the points made by the Japanese is the banks will lie through their back teeth about their exposure and hence they recommend 100% nationalisation of the banking industry in the UK, as an example. Brown is not doing that he is merely 'investing' taxpayers money and taking a shareholding...in institutions that are quite probably truly fecked units. Ditto the US.
I agree that our Banks in Australia have operated under some of the strictest regulation in the western world. That doesn't make them immune from credit defaults or the CDS/CDO issue, to which they are exposed to an extent that I am sure they are not being completely honest about.
Japan, our biggest trading partner by a long way, is heading for recession again just as it started to recover from its last recession..almost.
China will contract dramatically too if not go into technical recession.
Those two countries make up a huge chunk of the 'mining boom'.
I just bumped into Kiwi friends just back from holidays in NZ. They described NZ as 'mayhem' with properties (and toys) for sale all over and businesses going broke left and right...the rhetoric there in the media was 'the Australian bubble is about to burst - and take NZ with it' and you'd have to say that is much more likely than not.
If you put down 5-10% (or even 20-30% in some cases) on a house 1 or 2 years ago it is highly likely your mortgage is now subprime in that the house is worth less (if you HAVE to sell) than you owe the bank. This is 'ok' in the short term if you stay employed and interest rates stay reasonable. Unemployment is going up...watch the result of the mining boom losing some or all of its steam in WA (especially), NT and QLD.
Yes, not as bad as the Ninja loans in the US but with real estate prices at double the multiples of wages that exist in the rest of the developed world they are unsustainable. Real estate prices tripling within 7 years is a bubble that will burst and when it does even if prices only crash back to where they were 5 years ago that is a 50% reduction.
A large % of the population of Australia, everyone below 30-35, seems to think that real estate cannot go down (and stay down for a long time)/have never seen a recession/don't believe it can happen/have fallen for the BS that modern economic management has ended the boom and bust cycle of previous generations. Witness the couple in the above post.
I know people in their late 40s saying all the above.
Every week we hear the politicians talking and every week they have been wrong. I don't have any expectation that this week's attempts to avert recession are any more enlightened than last week's. Politicians in the UK (at least) have been receiving briefings by Japanese bankers and politicians on what happened in Japan back in the 90s...and rather like the couple above are cherry picking those parts of that advice that seem palatable.
Japanese real estate, if memory serves, fell by 80% back in the 90s and hasn't recovered since. I don't think Australia will be as bad for all sorts of good reasons but 50% would merely put us back in line with the rest of the western world at 3-3.5 times average wages for an average house...instead of 6-7 times.
I don't think the fear in the population is unreasonable at all. If they understood the true extent of the CDS/CDO issue that fear would turn to outright panic.
Very few people, including our elected leaders, understand it. One of the points made by the Japanese is the banks will lie through their back teeth about their exposure and hence they recommend 100% nationalisation of the banking industry in the UK, as an example. Brown is not doing that he is merely 'investing' taxpayers money and taking a shareholding...in institutions that are quite probably truly fecked units. Ditto the US.
I agree that our Banks in Australia have operated under some of the strictest regulation in the western world. That doesn't make them immune from credit defaults or the CDS/CDO issue, to which they are exposed to an extent that I am sure they are not being completely honest about.
Japan, our biggest trading partner by a long way, is heading for recession again just as it started to recover from its last recession..almost.
China will contract dramatically too if not go into technical recession.
Those two countries make up a huge chunk of the 'mining boom'.
I just bumped into Kiwi friends just back from holidays in NZ. They described NZ as 'mayhem' with properties (and toys) for sale all over and businesses going broke left and right...the rhetoric there in the media was 'the Australian bubble is about to burst - and take NZ with it' and you'd have to say that is much more likely than not.
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Weekend Oz: Big banks ignored sub-prime troubles | The Australian
AUSTRALIA'S big banks ignored the sub-prime crisis in the US and actively took greater risks in the home mortgage market to see off a challenge from rival lenders.
The banks not only relaxed their lending standards in recent years - ultimately luring many customers into financial distress - but held off tightening their terms of credit to build a better market position.
Reserve Bank documents, obtained by The Australian using Freedom of Information laws, show the change in lending standards was driven by competition and the housing boom.
In the last six months of last year, banks informed the Reserve Bank that the proportion of new mortgages described as non-standard - such as low-document loans and those with high loan-to-valuation ratios - was increasing.
That was despite the sub-prime crisis, rising interest rates and evidence that more of their existing mortgage customers were unable to make repayments.
In April this year, as the Reserve Bank ended its run of interest rate rises, an RBA analysis found the relaxation of lending standards had allowed some Australians to take on extraordinary debts. Households with annual incomes of $60,000 or more could borrow up to five times their annual income - up from 4 1/2 times in 2004 - requiring repayments of about 50 per cent of gross income, up from 45 per cent in 2004 and well above the common cut-off point that lenders applied of 30 per cent.
Single individuals could borrow amounts requiring repayments of 50-75 per cent of their net income, about 5 per cent higher than in 2004.
Although most borrowers had not utilised their greater borrowing capacity, the analysis found "recent low-income home buyers do appear to have taken on relatively larger loans".
The median mortgage debt servicing ratio - the proportion of income spent on a mortgage - for recent mortgagors had risen from 20 per cent in 2003-04 to 22 per cent in 2005-06 and had been "accompanied by an increase in financial stress".
Based on income scales, the largest increase, 4 per cent, came from lower-income households and first-home owners.
The analysis noted that new and poorer mortgagors had increasingly found themselves in financial trouble; since 2004 there had been a gradual increase in the proportion of loans that were at least 90 days in arrears.
A follow-up analysis in July this year, based on data collected in May, found that for households earning $90,000 or more, their borrowing capacity had fallen by 6per cent since late last year. But most of that was due to rising interest rates as lending standards were "still much looser than in 2004".
That month, the Reserve Bank's financial stability department also warned that the relaxation of standards, and particularly the rapid growth in low-document loans, "may mean that the average borrower in arrears is now less able to 'self-cure' than in the past".
"Arrears rates on low-doc loans are currently a little over double that for prime full-doc loans," the department noted.
As recently as August, the Reserve Bank was unable to ascertain any significant tightening of lending standards, although that has since changed.
"In the housing loan market, the large banks have continued to increase their market share, and lending standards have not tightened significantly," one document noted, before a September meeting with banks.
"Nonetheless, with banks paying increasing attention to credit risks, there are signs that credit has become less readily available for some borrowers," it said.
The Government last month decided to spend $4 billion to foster competition in the mortgage sector. The amount was doubled yesterday.
The banks not only relaxed their lending standards in recent years - ultimately luring many customers into financial distress - but held off tightening their terms of credit to build a better market position.
Reserve Bank documents, obtained by The Australian using Freedom of Information laws, show the change in lending standards was driven by competition and the housing boom.
In the last six months of last year, banks informed the Reserve Bank that the proportion of new mortgages described as non-standard - such as low-document loans and those with high loan-to-valuation ratios - was increasing.
That was despite the sub-prime crisis, rising interest rates and evidence that more of their existing mortgage customers were unable to make repayments.
In April this year, as the Reserve Bank ended its run of interest rate rises, an RBA analysis found the relaxation of lending standards had allowed some Australians to take on extraordinary debts. Households with annual incomes of $60,000 or more could borrow up to five times their annual income - up from 4 1/2 times in 2004 - requiring repayments of about 50 per cent of gross income, up from 45 per cent in 2004 and well above the common cut-off point that lenders applied of 30 per cent.
Single individuals could borrow amounts requiring repayments of 50-75 per cent of their net income, about 5 per cent higher than in 2004.
Although most borrowers had not utilised their greater borrowing capacity, the analysis found "recent low-income home buyers do appear to have taken on relatively larger loans".
The median mortgage debt servicing ratio - the proportion of income spent on a mortgage - for recent mortgagors had risen from 20 per cent in 2003-04 to 22 per cent in 2005-06 and had been "accompanied by an increase in financial stress".
Based on income scales, the largest increase, 4 per cent, came from lower-income households and first-home owners.
The analysis noted that new and poorer mortgagors had increasingly found themselves in financial trouble; since 2004 there had been a gradual increase in the proportion of loans that were at least 90 days in arrears.
A follow-up analysis in July this year, based on data collected in May, found that for households earning $90,000 or more, their borrowing capacity had fallen by 6per cent since late last year. But most of that was due to rising interest rates as lending standards were "still much looser than in 2004".
That month, the Reserve Bank's financial stability department also warned that the relaxation of standards, and particularly the rapid growth in low-document loans, "may mean that the average borrower in arrears is now less able to 'self-cure' than in the past".
"Arrears rates on low-doc loans are currently a little over double that for prime full-doc loans," the department noted.
As recently as August, the Reserve Bank was unable to ascertain any significant tightening of lending standards, although that has since changed.
"In the housing loan market, the large banks have continued to increase their market share, and lending standards have not tightened significantly," one document noted, before a September meeting with banks.
"Nonetheless, with banks paying increasing attention to credit risks, there are signs that credit has become less readily available for some borrowers," it said.
The Government last month decided to spend $4 billion to foster competition in the mortgage sector. The amount was doubled yesterday.
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CC,
For someone I have read quite a bit of on these forums,
"It was electoral suicide to put yourself in a situation where the democrats could label you as being 'against affordable housing' or as a stooge for 'the big end of town'...I am sure you can imagine the rhetoric that was aimed at that section of the electorate to stupid to see they were being suckered into debts that could not afford. VERY few politicians have the balls to be labeled as such even when they would, demonstrably, have been doing the right thing for those self same voters."
I would have thought you would have been advocating that this lot do the right thing, be unpopular and lose but walk away with their principles intact.
It is a dig at your values, but one of the reasons we, collectively, are in the poo is because some people will not stick to their beliefs but believe that as long as they are still in the game that they can make a difference.
Longterm, people have respect for individuals who are willing to take a bullet for their principles and come back, than those who will compromise their principles for political expediency.
A politician cares about the next election, a statesman about the next generation.
I've stolen that line from someone. Churchill? But I'd love to find a statesman soon.
For someone I have read quite a bit of on these forums,
"It was electoral suicide to put yourself in a situation where the democrats could label you as being 'against affordable housing' or as a stooge for 'the big end of town'...I am sure you can imagine the rhetoric that was aimed at that section of the electorate to stupid to see they were being suckered into debts that could not afford. VERY few politicians have the balls to be labeled as such even when they would, demonstrably, have been doing the right thing for those self same voters."
I would have thought you would have been advocating that this lot do the right thing, be unpopular and lose but walk away with their principles intact.
It is a dig at your values, but one of the reasons we, collectively, are in the poo is because some people will not stick to their beliefs but believe that as long as they are still in the game that they can make a difference.
Longterm, people have respect for individuals who are willing to take a bullet for their principles and come back, than those who will compromise their principles for political expediency.
A politician cares about the next election, a statesman about the next generation.
I've stolen that line from someone. Churchill? But I'd love to find a statesman soon.
Grandpa Aerotart
100% agree max1. I point out only what happened not that I agree with what happened.
A better wording perhaps would have been,
Some years ago that perception was probably accurate. I think that has changed.
As my last sentence that you quoted said
The world is particularly poorly served in the Statesman department in the last decades.
A couple of links that enlighten.
YouTube - Democrats Defend Fannie/Freddie from Regulation - 2004 Video
YouTube - McCain's Early Recognition of Fannie/Freddie Crisis
A better wording perhaps would have been,
It was perceived as electoral suicide to put yourself in a situation where the democrats could label you as being 'against affordable housing' or as a stooge for 'the big end of town'.
As my last sentence that you quoted said
VERY few politicians have the balls to be labeled as such even when they would, demonstrably, have been doing the right thing for those self same voters."
A couple of links that enlighten.
YouTube - Democrats Defend Fannie/Freddie from Regulation - 2004 Video
YouTube - McCain's Early Recognition of Fannie/Freddie Crisis
Last edited by Chimbu chuckles; 14th Oct 2008 at 15:38.
So CC, PB, and Miraz, what do you make of the doubled first homeowner grant?
Obviously this alone isnt going to solve the economic crisis. Do you think it will cause the prices to spike and then make the housing bubble worse?
Its very tempting but to be honest there still arent enough houses out there in a realistic price range. I am baffled as to how the average person affords a house. The average income (amongst full time workers - and including overtime!) in Australia only realistically supports a $150,000 loan at today's interest rates!
I know we cant do any more than speculate, but, assuming it will, how long do you guys think it will take before we see the housing market crash?
I would have been happier if they left the first home owners grant as it was and made the new home grant available to all (not just first time) homes built for the purpose of occupancy (i.e not for investors). That would spark more building and take a lot of pressure off, and might even bring house prices down slowly instead of a massive crash.
Obviously this alone isnt going to solve the economic crisis. Do you think it will cause the prices to spike and then make the housing bubble worse?
Its very tempting but to be honest there still arent enough houses out there in a realistic price range. I am baffled as to how the average person affords a house. The average income (amongst full time workers - and including overtime!) in Australia only realistically supports a $150,000 loan at today's interest rates!
I know we cant do any more than speculate, but, assuming it will, how long do you guys think it will take before we see the housing market crash?
I would have been happier if they left the first home owners grant as it was and made the new home grant available to all (not just first time) homes built for the purpose of occupancy (i.e not for investors). That would spark more building and take a lot of pressure off, and might even bring house prices down slowly instead of a massive crash.
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Show me an oversupply in available housing and I'll show you a housing price bubble. The US had a massive oversupply in cheap housing, crap rental returns and prices going through the roof.
Here, we have an undersupply, high rentals with high occupancy rates and the associated price inflation. Until there is a change in the supply situation nothing should change.
In theory.
Everything works in theory.
Here, we have an undersupply, high rentals with high occupancy rates and the associated price inflation. Until there is a change in the supply situation nothing should change.
In theory.
Everything works in theory.
Guest
Posts: n/a
Flog, you should have another look at the graphs on the first page of this thread: Rents have been very closely following inflations for years, and in relation to general cost of living across the country aren't higher than in other countries, with the exception of a few centres like Melbourne and Sydney, but the same is true in other large cities around the world..
The fact is that there has been an unsustainable price hike in Oz housing prices over the last ten years or so, closely linked as discussed to the resources boom and baby boomer spending. Once those two influences start to wither (and they will!), house prices will come crashing down.
The ABC quoted one of the pre-eminent real estate academics in the US the other day saying "real estate returns over the last few hundred years have averaged around 1 percent" (!!!) and "if it were any other way in the long run, people would not be able to afford to buy a house as prices would permanently and irrecoverably detach from incomes". The latter has happened to a degree in Australia (average house price being 7.5 times average annual income, as opposed to 3-3.5 times in the rest of the world), supply and demand laws dictate there must be a crash to correct this imbalance!
The fact is that there has been an unsustainable price hike in Oz housing prices over the last ten years or so, closely linked as discussed to the resources boom and baby boomer spending. Once those two influences start to wither (and they will!), house prices will come crashing down.
The ABC quoted one of the pre-eminent real estate academics in the US the other day saying "real estate returns over the last few hundred years have averaged around 1 percent" (!!!) and "if it were any other way in the long run, people would not be able to afford to buy a house as prices would permanently and irrecoverably detach from incomes". The latter has happened to a degree in Australia (average house price being 7.5 times average annual income, as opposed to 3-3.5 times in the rest of the world), supply and demand laws dictate there must be a crash to correct this imbalance!