“Poll finds people like ‘free’ money”
Well, that wasn’t the real headline, but it may as well have been.
Both The Age and the News Ltd websites report that 59% of respondents to an AC Nielsen poll approved of the bail out to the banks, the billions spent (and to be spent) on infrastructure projects, and of course the $900 cash bribe.
We’ll assume the first home buyers grant is in there as well.
Interestingly, 52% said they were in a similar position financially as they were last year. While 20% said they were better off.
What do we make of that?
The biggest financial and economic catastrophe since the 1930s, and 72% of the population is no worse off today than they were twelve months ago.
Either the government really is that good at fixing things up, or, there’s more to the story. I’m guessing it’s the latter. But it got your editor thinking…
It just so happens it was a busy weekend in the Sayce household. Saturday involved attending about six hours worth of presentations for the kids’ netball teams, and a swimming graduation.
By the end of the day your editor was exhausted.
So on Sunday it was relaxation time. And what better way to relax than settling back in the lounge room to watch Terminator 2 on video.
Yep, there’s no better way to relieve tension and wind down than watching Arnie and his chums trying to destroy each other and everything around them.
But did you realise that all the action isn’t real? I know it may surprise you to know, but the clever folks in Hollywood use computers and animation to make it look real. They call it Special Effects. Oh, you knew that already.
Of course you did.
It’s obvious that you can’t really make a robot from a liquid metal. And anyone can figure out a metallic robot couldn’t really change its appearance to look like an LA cop, or a ‘mom.’
Just as we all knew that Christopher Reeve wasn’t really flying as Superman.
It looked like he was – or at least it did to a 7-year old in the 1970s – even though we knew it couldn’t be so.
Do you remember watching “The Making of…” shows where they revealed how Hollywood could make Superman fly? A blue screen and some wire. That’s all it was.
Who’d have thought it could be so simple. Superman flying around Metropolis is actually just Christopher Reeve suspended by wires in front of a Blue Screen at a studio in Buckinghamshire.
Well, this morning, as we were reading the news about the success of the Fairy Ruddfather’s spending spree, we wondered whether it was possible that the ‘Great Stimulation’ of 2008/2009 was real.
After all, if 59% of the population love being stimulated, and 52% believe being stimulated has improved their lives, then surely it has been a success.
Who are we to say these people are wrong? Wouldn’t they know for themselves whether they are better off or not?
And why should we be so arrogant to think that Money Morning knows better than the combined brain power of the Fairy Ruddfather, Wayne Swan, Dr. Ken Henry and Glen Stevens?
I mean, these people have thousands of super qualified academics (including some PhDs we expect) and public servants crunching numbers day and night. They concluded the government needed to step in and fill the space recently vacated by the private sector.
But they’ve had external support too. Almost every economic commentator in the mainstream press has approved of the spending measures. How can all those people be wrong and Money Morning right?
Going by their argument, the crazy capitalists and free-marketeers took so many risks that it almost killed the global economy.
So let’s suppose we agree with that – which we don’t – what would be the solution? Well, you’d think if risk-taking and leverage and spending too much were the irresponsible actions of the free market, the appropriate action would be to do the opposite…
Not take risks, not use leverage, and not spend.
But of course, the stimulation hasn’t done any of those things. Instead, the Great Stimulation has encouraged more risk-taking, increased leverage, and advised everyone to spend early and spend often.
Hang on, that can’t be right. We thought it was only extreme capitalism that did those things.
We’re scratching our bald head here and wondering exactly how today is any different to one year or two years ago.
Do you know what? There’s a real chance the polls have got it right.
Maybe those 52% of respondents are no worse off than last year. And maybe 20% of respondents are better off than last year.
So, does that mean all the stimulating has worked? Or does it mean something else?
If we go back to our Terminator 2 and Superman story, the boffins in Hollywood were able to make robots melt and reform, and make a man in tight blue pants fly. If they can do that, then anything is possible.
Therefore it makes us think that when we look at the Australian and global economies, we only think we are seeing an economic miracle. The stimulus is creating a vision which isn’t entirely true.
We look at the economy and it looks fine. We don’t see boarded-up shops. We don’t see queues at the unemployment office (or whatever it’s called), we don’t see millions of people being turfed out onto the streets.
But what if it’s all just an illusion? If we take away the strings and blue screen to the Australian economy, there’s a real chance ‘Superman’ will smash to the ground.
You see, what’s been created isn’t a fantastic new economy at all. And the stimulus packages aren’t helping either. All that’s happened is something Hollywood should be proud of.
We’re experiencing ‘Wealth Special Effects.’
The problem is the economy was boosted to a level it should never have reached. That was done so, not by extreme capitalism or the free market, but by extreme government manipulation and extreme banking.
Both of which are continuing to exert their disastrous ‘Wealth Special Effects’ on the economy. The two ‘organs’ most responsible for the collapse in financial markets are now more in charge than they’ve ever been for guiding us to safety.
The trouble is, they’re just leading us further into danger.
So, if we all know that Superman can’t fly without the aid of some pretty strong string, why does the majority of the population believe you can spend your way out of debt?
Isn’t it obvious that government spending and government debt is actually worse than personal spending and personal debt? Isn’t it obvious that the government has to get the money from somewhere? That somewhere is your pocket.
But that doesn’t matter when we’re being given $900 of our own, or someone else’s money by the government. Money for you to spend, while it wastes about $4,000 per taxpayer on the rest of its stimulus package.
Yeah, you don’t see that figure quoted anywhere often. That’s just our rough estimate of the cost of the stimulus programme per taxpayer. In fact it’s probably a lot more than that if we did the numbers properly.
Even if you managed to get your hands on the $900, the odds still are that your $900 cheque from the Fairy Ruddfather has cost you around $4,000. Is it worth it? We wouldn’t have thought so.
It doesn’t sound like a good return on your ‘investment.’
But that’s the problem. The mainstream press and most people in general tend to focus on what they can see, not what they can’t see. What they can see is $900, and Superman flying through the air.
What they can’t see is the $4,000 cost per taxpayer and the strings attached.
The stimulus and the current state of the global economy – including Australia – is a fraud right now. It has been inflated to an unsustainable level over the last forty-odd years.
When finally we had the opportunity to deflate it and get some sense and reality into the economy, governments and special interest groups – and indeed the public – thought things seemed much better when it was inflated.
So, while it may appear as though things are looking rosy right now, it is little more than the same mirage the world was looking at two years ago.
The ‘wealth’ back then was little more than debt covered by an overvalued ‘asset.’
Today we find ourselves in exactly the same position.
Nothing has changed. The ‘Wealth Special Effects’ look impressive, but strip away the façade and once again we’ll also see that it’s not possible for humans to fly unassisted and it’s not possible for real wealth to be created just by going further into debt.
Other Stuff on the Markets
The S&P/ASX200 climbed 0.55% on Friday, while on Wall Street the Dow Jones Industrial Average added 96 points. In Europe the FTSE100 added 0.47% and the CAC40 gained 0.87%.
The price of gold in Australian dollars is trading at $1,165.40, while in US Dollars it is trading at $1,005.70. Silver in Australian dollars is $19.43 per ounce, and in US dollars is $16.77 per ounce.
The Aussie dollar remained steady versus the US dollar and Japanese Yen, trading at USD$0.8621, and JPY78.30.
Crude oil closed at USD$69.29.
For the biggest movers on the market yesterday click here…
{ 62 comments… read them below or add one }
52% – no change
20% – better off
I assume the remaining 28% are worse off?
yes, that would seem to follow, N.
but, for what it’s worth, I would distrust these sorts of statistics. The reality, I suspect, is probably far worse, not unlike with govt statistics about GDP, CPI and inflation.
I hate debt, too. No mistake about that.
However, the subject would seem to be far more nuanced than Sayce appears willing to allow for it. For example, while it might be true that you cannot spend yourself out of debt by taking on more debt, it simply does not follow that there are no circumstances where you should refuse taking on more debt. For example, if you happen to have an emergency, or lost your job, it would be irresponsible not to get your weekly shopping done, just because you would have to put it on your credit card. This should be too obvious to even need stating.
You have to hope and trust that you will see better days going forward, and that the debt you take on in the short term you will be able to repay in the longer term. Treated with respect and responsibility, being able to borrow today against future income is a privilege and something to be grateful for to the bankers and banksters we otherwise love to hate.
But you can
and, yes, on the subject of our illustrious politicians and their banking alliance cartel, me finks me sometimes protest too much. lol.
On the subject of my credit card being charged by Rudd for an extra 4K for the 1k he sent me, well, I am not feeling all that super about that one. But then again, I expect having less punctures on the roads he will build with my money, and my kids will get (hopefully) a better education through Gillard’s education revolution it is funding. As against the fact that most of the money could have been spent better and wiser, I comfort myself with the thought that even the misspent portion will come handy for the many mums and pops who will need that cashflow to make ends meet.
Anyhow, I am not so convinced that the stimulus is all evil. A crash in the economy would have created far too more upheaval and misery than a graduated and controlled debt servicing burden we will have to shoulder down the track.
Does that make me a Keynesian? God, I hope not, but there is another side to this story, and which should not, perhaps, be completely lost sight of. Otherwise, I, too, wish that the wold was not so complicated. It would be just so much simpler to make sense of it.
I envy you, Kris. I do.
Oh, and if anybody should have the ear of the PM, could I please have $9,000 in my account next time around, instead of a paltry $900? That would start making a much better difference, both to my balance sheet, and to his popularity rating. He can take that to the bank.
Kris, I too love the The Terminator, and for even better mileage, may I suggest to you The Matrix.
Here’s an attempt to clarify how it all works. It is the month of June, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.
The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.
The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.
The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.
The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town prostitute that in these hard times, gave her service on credit.
The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.
The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.
At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.
No one earned anything.
However, the whole town is now without debt, and looks to the future with a lot of optimism.
And that, ladies and gentlemen, is how the Western world is doing business today.
And if that doesn’t scare the hell out of you then you are brain dead!
Always remember when it comes to statistics…
Statistically if you lay down with your feet and ankles in a freezer with you head and shoulders in a lit oven you will be statistically quite comfortable.
Here endeth the lesson.
Hahahahahaha, Mick. That’s a ripper. Haven’t heard it before. It tells the story well.
This is a debate that is yet to catch up with the Summers/Paulson/Clinton. The spraying about of the contention that public debt is worse than private allowed the current account deficit country to infinitely expand external debt funded asset price inflation fueled services economy expansion upon which clipping the ticket of turnover taxes could exponentially expand government. External debt is a Keynesian GDP multiplier when approached on the above basis, no doubt about it. When the funny money allows one way bets on asset prices to run past economic cycles and inevitable irresponsible lending from the global reserve currency money printing factory reaches the most irresponsible economies “the anglos” then you get a complete breakdown whereby private debt risk becomes equally as destructive as public. The private person taking on the absurd debt was behaving rationally backing their observations of asset price inflation in a gerrymandered playground.
As you say, Ciao. But, if you are only a little guy, if you cannot play in the playground you want, you play in whatever playground there is. No amount of sanctimonious moralising will change a kid’s need to play, and in the same way, if your only practical avenue of improving your life and that of your family is to take on private debt in increasing amounts, then that is what people are going to do. Hence we have record debt levels and record property prices because the more debt people can take on to get what they want and need, the more the price of those things will keep going up. That, in a nutshell, is the basic mechanism through which we are in the currently ridiculous situation – a point on which we can all agree. The difference in views here mostly stems from some people being so dead cock sure that we have reached the limit of this madness, and that the whole thing is about to collapse, while some of us are not so sure, because a bubble can pop at any time, if it is a bubble, and I would even suggest that we do not work with a commonly definition of ‘bubble.’
The connection between Government spending and taxation is missed by so many. They honestly do not make the connection that it is their money being spent (wasted!) by the Government.
I have heard many times that people apparently would prefer better Government services, rather than lower taxes…haha! What morons!
They would rather the Government spend their money then they spend it on what they want? Ahh, but here is the catch.
Most people think they get more from the Government than they give through tax…this is what happens with a progressive tax scale (i.e. What people really mean, is that they would rather OTHER people pay more tax so THEY can recieve more Government services).
PuntPal, you are probably right on all of those points, but there could be a few exceptions. For example, yours truly thinks of government borrowing and spending in somewhat more cynical ways.
1.
That government is going to take my money from me through inflation and taxes is nothing I can prevent or do anything much about. They have the power to do it, and they will, and it makes no difference no matter how much I dislike it or whinge about it.
2.
That bureaucrats will misspend my money on senseless wars fat cat salaries and goodness knows what not, is another thing I cannot do much about.
3.
Ergo, the more of the money they take from me is being sent back to me in “stimulatory payments,” the less there will be for them to waste. Me finks it is much better wasted by yours truly.
Oh, and the principle, while it may appear idiosyncratic, it is perfectly universalisable:
4.
And ditto for everybody else.
Hahahahaha, bb, that one is very good. It is insane, when you take a good hard look at it, isn’t it?
But, for someone feeling like chirping up a little, the story also shows just how bloody easy it would be to wipe out all this freaking debt. So, the question you have to ask is: Why isn’t it done?
And, since I am at it, may I venture a suggestion:
Because it would defeat the very purpose of the money masters to enslave the productive sections of the population through debt and live comfortably off their labour. Not a particularly comforting thought that one.
End of first home buyers grant +
End of government guarantee to wholesale funding +
Increases to the overnight cash rate +
Cuts to immigration intake +
Upward sloping interest rate yield curve +
Increasing unemployment +
National Consumer Credit Reform =what effect on house prices?
Up and down, and down and up,
Then turn around right, and turn around left,
A cartwheel right and a cartwheel left,
Now on its arse, and now on its head,
With all the meddlers, who can guess?!
Terminator 2 on video? That is extreme. Anyhow extreme government manupilation and extreme banking all of a sudden makes extreme ironing look like a bunch of woozies. Hold on to your cash extremely is my thought.
But don’t lose heart my bear friend,
There is still time to join the camp,
To scale the summit, up, up, up,
With Steven Keen and a hot tea cup,
And if fate’s irony should should prove me a clown,
You will see those falling prices on the way down.
Ok. I think it’s now time for the moderator to step in.
Facts:
End of FHB grant
End of government guarantee
Cuts to immigration rate
Upwardly sloping yield curve
Consumer credit reform
More likely than not:
Increasing unemployment
Increases to the overnight cash rate.
Can you provide a logical and rational counterargument please? We’re all bored of the spam and gibberish.
Lol, Ben,
Please be a gentleman,
My fun here only just started,
T ‘d be too painful to be parted.
When economies stutter and splutter,
Central bankers bring the butter,
With their one tool, right and left,
They attempt to ease the debt,
And Santa Claus will be in town,
To keep the debts that keep us down.
Ben – I think this is what property bulls do when they know they have no case to make for the impossible continuation of rising house prices…they go a little ‘loco’
I agree with your arguments and the simple way in which you present the facts. All the indicators suggest house prices will tumble over the next 12-18 months (maybe longer!). Soon the bulls will focus on arguing its just a temporary slump, they will tick with this until early 2010…then with election coming up, they will ramp up their political pressure to do ’something’ to stop the decline.
Simple minds like simple pictures,
Colours only spoil their pictures,
Wishful thinking, falling prices,
While their landlords put up their prices.
Let me make that explicit for you PuntPal.
Ben makes the mistake of supposing that, contrary to evidence and experience, that when the economy starts to hit the wall again, interest rates will also head higher. But this is quite unlikely. On the contrary, rates will be cut fast by the reserve bank, as not even price inflation will be likely to be a problem, and Rudd will find another bunch of stimulus money to pump out into the economy. Both of these happened not that long ago, and there is no reason to suppose that either of them will react any different if, and when, a second wave of troubles hit us.
But, just to be sure, may I point out that prices could indeed fall, but that Ben’s argument, not unlike Sayce’s, do not give us a good enough reason to consider it to be money in the bank.
I can see it now (6 to 18 months) the new norm interest rates 3%, 4.5% will be high and 1% will be low. Who needs interest from the bank when you can buy government bonds at better rate. Banks will borrow off RBA or government at whole sale and make there profits that way when they lend there money out.
We could paraphrase all this speculation on is it/isn’t it over with the wonderful analogy that every boxer has a plan – until they get hit. The global financial system championed by western economies got smashed in round one. It staggered back to it’s corner, dizzy, bloodied and weakened. It’s seconds at ringside have daubed clotting agent on the cuts, given it a good whiff of smelling salts to clear it’s head and a swig of water to rinse and spit in the bucket. They reckon the fights not over and continue to cheer on their battler as they fan the towel across the bruised brute. Yeah they’re certain the ‘Champ’ can still win it. Ding ding! Round 2 starts and it seems the ‘champ’ is using exactly the same plan he had at the start of the fight! Oh dear.
BB – What on earth are you talking about now. Here is something to read that may keep you out of trouble for a while.
http://www.businessspectator.com.au/bs.nsf/Article/Global-house-price-recovery-pd20090916-VX6JT?OpenDocument&src=is&is=Property&blog=Concrete%20Detail
Enjoy.
cb – it wont matter JUST what the RBA does, banks wont be lending $500K to people to buy your average house when they think that person could lose their job in the next few months. The cost of their funding has gone up anyway it is obvious they will raise their variable rates in the near future.
More importanly, buyers wont be lining up to borrow money to buy into the most inflated housing market in the world. Investors will stay away because of them have half a brain at least and there are no FHBers to suck in…there is a vacuum due to the genius policy of ‘bring demand forward’… the stars are all alligning for a crash mate and even the main stream media arent willing to ruin their reputation with bogus claims about rising housing prices in 2010.
PuntPal – rates will be increased by the banks by 0.15% over the next two months, but RBA increases won’t happen yet. Regardless rates are very low and affordability is high. Demand is also very high from both investors and home owners.
Buyers consider this to be a prime time to buy and all your hollering of doom and gloom will be disregarded. Luckily for the buyers, prices will continue to rise, so they are ok, but the procrastinators who had a great opportunity to buy in 2008 and early 2009 will be left behind.
While rates are low demand will stay high. Understand that with home ownership emotion is a huge driving force, and it doesn’t fit computer modelling. Don’t even try, it’s part of a nesting syndrome and that won’t change regardless of economic rationale.
Wow, … Why did I not think of putting it like that before?, lol.
Hear, hear, and take note all ye bears on the sidelines.
Those are bold predictions by Peter Fraser, and dare say, not unrealistic.
True, however, that credit is tight, and it is not easy to borrow, even though you could afford your home loan now than you could before rates were cut and economy was full steam ahead.
And even if prices are not going anywhere in a hurry, we need to keep in mind that just because there is no longer a mad scramble to get into debt and push prices higher, it does not follow that the opposite in fact is going to happen. Who, I pray, will be mad enough to sell their property at a massive loss, when in fact they can get a decent return on their investment by simply renting out to all those who do not want or cannot buy at current prices?
There will be some, perhaps, those pushed over the edge and very desperate, but it is most unlikely that there will be volume. I have made this argument several times now, but it seems to me that argument is futile. “I want cheaper prices, therefore I will believe in cheaper prices,” as far as I am aware, has not yet worked for anyone, and certainly has not been working for me. To wit, the cost of my electricity bill has been steadily going up, and so have all my other bills, in spit of all my desires to the contrary. I’m afraid, it will be no different with the properties I have my eyes on.
No kidding, will all the evidence marshalled, some of the bears seem not to have given an inch on their conviction that there is absolutely no way that the sky isn’t falling in. With an attitude like that, why not join Steven Keen on his march and wear a T-shirts that say: “Steven Keen was right!”
That would go quite well with Keen’s own T-shirt, which will say something like: “Ask me why I was wrong about property prices.”
i thought it was enough to state the facts, but i now see that it i must explain my views a touch more:
the economy can hit the wall, and inflation can rise at the same time… it’s known as stagflation… i’m sure you remember the 70’s?
The government will not further stimulate the economy. Where do you think that money comes from anyway? In any case, it must be paid back eventually… interest rate payments have an opportunity cost… what happens to the government spending foregone on other areas of the economy? Increased govt spending = stimulus, but what about reduced govt spending?
it doesn’t matter what the reserve bank does, as banks will raise interest rates… upward sloping yield curves reflect market expectations regarding rising short term interest rates… why? possibly because funding costs are going up. how do we know? because banks will soon not be able to borrow on the government’s balance sheet, and longer term funding has already been locked in at exorbitant rates.
what does this mean? It means that banks will pay more for funds which will mean that they will raise rates. Banks are incentivized, by shareholder expectations, and internal remuneration structures, to make a profit. It may be the case that any future decreases to the cash rate will reduce funding costs for banks, but how much of the funding mix is made up of short term wholesale funding?
I have still not heard a counterargument to the decrease in demand caused by the first home buyers grant…
just a thought that the government can always “wrench” the houses back by lifting interest rates or taxes up dramatically cos to pay back all that debt (stimulous) at these paltry rates now wont make much headwind
If it does crash the stronger(est) will survive but the rest go back to the real estate agent,conveyencers,solicitors,banks
then the new buyer will prob want to refurbish the property etc etc ..so it all creates jobs
Then the government waits with both hands open to collect some of capital gains on sold property to add to its coffers
If ur out on a limb borrowed big with property its seems very risky in the medium to long term
People go for sharemarket & if they got burnt there then go to property which could have its problem as above
Its hard to see predict in the future but the predicted crash is usually studied,anticipated through past historical data of previous recessions,depression etc
Ben – the drop in the FHOG won’t decrease demand, but it will decrease ability to finance. Just because you can’t afford a new Porsche doesn’t mean that you no longer want one.
Should the banks lose sales and profitability, they may alter their benchmark savings requirements to allow a higher LVR such as 95% or even 97%. After all defaults are very low and economic prospects look much better than they did 6 to 12 months ago. We will just have to wait and see on that.
There – now you have a counter argument.
etch – either an increase in interest rates or taxes will affect ability to borrow.
From the governments perspective any slowing of the housing economy will also result in lower revenue streams for them, so often some stimulous is needed to maintain their income. Otherwise other taxes must be increased or spending curtailed.
What we really need though is for government, in particular state government, to release land for development, and lower the statutory charges and needless regulations so that the land can be sold to home builders at the right price. That will increase supply and result in a decrease in demand, which will flow onto price. In effect home prices in Australia arrived at this position because successive state governments haven’t planned correctly, and kept on milking the property cash cow for their own ends.
Beating mortgagors around the head with interest rate increase is not a long term solution to the undersupply. Perhaps that would provide window dressing in the immediate term, but in fact it will make the situation worse. Not a good idea etch.
Ben,
A possible and not implausible counter argument that can be lined up with Peter Fraser’s is the one I have already described in detail, whereby the ability of people to channel their super savings into property is gaining traction and momentum very fast. Consider these points:
1. SMSF purchasing property as an income producing asset is only a trickle at the moment
2. While I cannot speak for what individual savers, the fact is that Australian superfunds have been hit by the GFC and have lost massive amounts of member savings through their high percentage exposure to shares.
3. Needless to say, their members will not be impressed by the amount of money their superfund managers have lost from their accounts in return for all the fees they charged. Just consider how you would feel being charged 2k in fees in addition to having lost 20%+ of your supersavings.
4. This will likely accellerate an exodus from large superfunds, with Mr and Mrs Average choosing instead to manage their own supersavings by establishing their own SMSF, where they will make their own investment decisions. They are unlikely to do much worse than their large funds have been doing over the past two years.
5. Once they manage their own money, sensible people will tend to stick to the tried and trusted investment options, and there can be little doubt that property investment will fall into that category.
6. From here, you can reasonably expect that a significant percentage of the many billions of dollars currently held in supersavings will start to find its way into property. It is already a trend, and it is most likely that it will become stronger and stronger going forward.
7. That much is already enough to answer your question, but here is the cream on the cake: Some clever people have worked out over the past few years that a SMSF can in fact leverage against property by means of installment warrants, and all the major players, and some medium size players in the lending business are already onto the game, lending into the property market as we speak. This is no fiction, or pie in the sky – it is happening and it is accellerating trend.
8. In spite of property prices being at record levels, and regardless of why they are at record levels, the fundamentals or property investing are that the return on your investment (ROI) is very competitive in comparison to the most likely alternatives today’s investors have open to them. I have detailed the relative merits of the most likely candidates in earlier posts and will not repeat them here, except to observe that whith fundamentals like that, money on the sidelines will inevitably gravitate towards property through SMSF.
Although this subject and line of reasoning appear not to have been taken much notice of up to this point, it will be increasingly recognised and taken account of in the future. As word spreads, and the practice becomes better established, there is unlikely to be a shortage of capable demand for property.
As for the supply side, even if there is no great shortage at the moment, developers have not found it easy over the past couple of years to finance new development, so it does not look like the Australian property market is going to be hit by an avalance of new housing that would overpower current steady, and possibly strengthening demand going forward. And if that is correct, then supply – demand fundamentals would indicate at least a mild upward pressure on prices, rather than the imminent apocalyptic collapse being touted by Sayce.
Hey, bb, that is a good illustration of the apparent absurdity of the situation with the boxer. But maybe, it just may be, that the fight is not quite as it appears. Consider, for example, a possible minor complication:
There is a sh!t load of money riding on the battered and bruised fighter not losing the match, and in fact all the officials will lose big time if they allow it to happen, or worse, they might have their arms broken – not an unknown, or implausible scenario in boxing, and not exactly implausible with regard to the current GFC. Plus, behind the scenes, invested interests have just made an offer to the manager of the winning corner 10 times the value of the prize money, and an ominous warning that their family home’s address has been duly noted.
Now, if you knew these little details playing out in the background, would you still put your money on the winning fighter at the sounding of the gong going into the next round?
Since there are some in this audience interested in the metals, I have just come across the most recent pronouncement on gold by the “Maestro,” Alan Greenspan. For the sake of the bigger picture, I will also paste in here, again, that earlier quote, and then make a comment.
“Germany in 1944 could buy materials during the war ONLY with gold. Fiat money paper, in extremis, is accepted by NOBODY. Gold is always accepted.” (Alan Greenspan 1999)
“What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.” .(Alan Greenspan 2009)
With pronunciations like these, it is hard not to conclude that Greenspan, in his heart of hearts is a believer in gold as a monetary metal and the ultimate store of value. His latest pronunciation reminds me of the many former insiders who finally spill the beans on insider knowledge, and what really goes down in the corridors of wealth, influence and power.
Dr. Mafolo, that is provoking, and your conclusion and good advice is compelling. The only thing that makes me nervous about it is that that is precisely what the banksters and money printers want us to do, while they are pooring their cheap as sh!t money from the Fed into all the various asset classes that have been on the rise since March.
If that is in fact what has been happening, then from their perspective the longer us mugs sit in cash, the more purchasing power we lose, while they leverage big against our savings on which they are paying us a pittance in interest. Then, when we can no longer bear the punishment and decide to get out of cash, they will dump their assets and deposit our cash into their own accounts.
I may be cynical, but we cannot count out this possibility. What says you?
ah, I meant “thought provoking”, this machine seems to feed on letters and words.
I have a suggested case study for the bears.
The main line of their argument seems to run along this simple logic, that since record high prices in the US and the UK ended in a big POP in the wider context of the GFC, Australia must be next in line.
There is no need to deny that there is logic in the argument, but as many have pointed out, the logic is far from water tight, and the predicted outcome is far from certain. The typical response to these objections has been that the bulls here must surely be kidding themselves to think that Australia will be the only one to dodge this bullet.
That response is fair enough, and it is something that indeed should pause us to think, and think harder, and try to see if we are missing something after all, and that is indeed something that the bulls here have done. What has been lost sight of in all these discussions, it seems to me, is that Australia is not in fact the only one who has dodged the bullet so far. Far from being alone, those countries, near and far, who are most relevantly similar to Australia’s economy and banking system, also have dodged the big POP.
Who am I talking about? New Zealand and Canada, of course. All three countries being resource plays, and their banking systems having been largely unaffected by the toxic derivatives that sit like so many dirty bombs on the books of US and European banks, might just provide enough contrast for not lumping them into the same risk category as concerns their respective property markets.
However that may be, there is something to ponder here for all of us, but our resilient bunch of bears here could benefit the most, perhaps, from coming to grips with these matters.
True, the big ‘fight’ may just have been rigged. But in the end even the greatest of fighters must inevitably pay a cost as a consequence for the battering they take. Our economy will too. Pundits try to predict when and what form this might take but it baffles me why this particular thread seemed to always hark back to property? There are others that deal with property prices but this theme is about debt. I know cb has previously claimed he has no professional interest in the property industry but Peter Fraser has to be an agent or property investor no risk. And please, no more gratuitous advice. Thanks but I tend not to listen to what real estate persons have to say about property prices as it is rather predictable. Something about a conflict of interest seems to influence their opinion on that subject. Now back to the problem or non-problem of our future indebtedness!
BB I’m not an agent, how trite that comment is.
not impartial though are you pf? this from your website:-
“Today there is a growing list of commercial lenders who are happy to look at long term loans, interest only loans, low doc loans, and just about any scenario that is worthwhile. To choose the best lender for your situation you really need someone experienced in this type of finance, who can filter through the various lenders and products, to find the one that is most suited to your needs. we can and will take on that role for you.”
and cb, you seem to get excited when pf has anything to say. for someone who claims to be neutral are you sure you arn’t a property spruiker in disguise?
lol, dennis graham, that is very funny. But no, I am just another one of those lost academics in this debate, not unlike Steven Keen, whom I have not seen being accused here of being a hired anti-property spruiker for happening to be on the other side of the ditch from where my misguided thinking happens to have landed me. So, the answer is, again: Nope.
Although, I must declare interest and genuine hope that property prices will fall rather fast, as I am trying to load up on a couple of properties and do not fancy paying stamp duty at these record high prices. You see, I have a different philosophy to the property bears: I borrow if I see a good buy (a property with a good 6 – 10% ROI) if, and when, I judge it to be relatively safe, and have a willing lender on the other end of the line. So, as irrational as that may strike some (Sayce, for example, has already expressed some muddled disbelief at the suggestion), I am wasting my time here while waiting for lender approval, so that I can proceed to exchange.
Now, if you wanted to be cynical, you could say that what in fact I am doing here is I am psyching myself up for my mad plans, and to such an accusations I would not have too many replies, except to point out that, judge the lucidity and reasonableness of my argument. I have tried my best not to talk through my wrong end, and I could not say the same about Sayce’s output, not even in my most charitable disposition. My arguementsh have been thought through and they stand or fall on their own merits.
ah, and about Peter Fraser, you could safely say that I regard his contributions being on the money. The man clearly understands and can take into account all the pros and cons of the argument here, and come up with a reasoned conclusion and realistic assessment of what is most likely to happen. He presents a balanced view and assessment, and does not make extreme claims in either direction, and the finger you are pointing at him is quite unfair.
Hello bb, now that is a relevant point you make in saying that ” it baffles me why this particular thread seemed to always hark back to property? There are others that deal with property prices but this theme is about debt.”
I suppose that we kind of got lost a little bit with the main subject, because there is probably not that many here who disagrees all that much with regard to the undesirability of increasing the national debt load. I did make an attempt, if you check back, of sounding some misgivings about the subject being as black and white as Sayce is presenting it, but a discussion did not get off the ground.
Plus, the fact that Sayce still hasn’t posted his 15 September missive that again touched on property, another thread on property got off the ground here, as it was the most recent posting somewhat still close enough to bear the subject.
Hey, bb, so here is then a serve on the subject of debt.
What would seem to be one of the more worthwhile borrowing exercises our Santa Rudd govt could and should undertake, would be to borrow as much money from overseas at a rate that only our govt can borrow, and then use that to refinance all the private debt at sifnificantly lower rates than we are being forced to pay now. That could potentially cut our debt servicing burden bay a third or more, and would allow us all to breath much more lightly. That, IMHO, would be much better than distributing all that borrowed money ON TOP OF, INSTEAD OF, the massive debt with which we are already being weighed down. What says you?
Dennis Graham,
I post on several sites and have never hidden my occupation as a finance broker. Posters from all sides of the argument will attest to that.
I am seeking good quality information and feedback on the market. Why does that make my opinion less than yours?
What is your contribution but a further trite comment. Surely you can do better than that.
BB appears to be an intelligent person, so it was disappointing that he simply dismissed me with assumptions because he did not agree with me. It appears that I was too well informed, well finance is my business, so naturally I am well informed on the subject. Do you want information from someone who knows nothing? What use would that be. I gave him information on an honest basis, I can’t help it if he was not able to recognise that.
If posters wish to have a voice please use your intellect before you type.
Sorry PF but if you check back on your comment I think the phrase “what on earth are you talking about now” in referring to my pathetic attempt at creative brevity could be construed as being ‘trite’ rather than informative. Be that as it may I reckon cb’s idea of St. Kev the Stimulator borrowing on our behalf at ultra low rates to directly finance our private debt – in effect bypassing the Banks – sounds great! Perhaps he could even call it the ‘Commonwealth Bank’ or has that already been done before? Wonder what the big 4 pillars would think about it though not to mention those that earn their living by picking up their margin from the merry go-round of brokering loans from these institutions to salve the consumption fix of Australia’s ravenous debt junkies!
hmmm, and those not wanting to hear bullish bad news, or anything that might question Sayce’s apocalyptic pronouncements, could save themlves the aggravation being served up here by simply reading his posts sent out by email.
lol, BB, and of which, you might say, yours truly happens to be one, hahaha.
Thank goodness I still recognise a junkie when I see one, hahaha.
Well, I guess, that is what govt does, isn’t it? If it happens on a good idea, it will flog it off to suckers and then “regulate” them to death. Isn’t that exactly what they are doing, again, now, with Telstra?
Let me see, ….. I lost $$$ on T1. Then T2 came along and I thought, ok, let me make some of those losses back on this one. Result: Lost another $$$$$$$$. Darn. And just when I thought of giving up, T3 is dished up, and I thought, you surely can’t lose the third time on it. Result: Lost another $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$.
Lesson: If government has anything to do with it, keep well away from it, whatever ‘it’ might be. I also suspect that the CBA working out fairly well was a fluke. It must have happened in spite of government.
BB I was referring to your post earlier today when you said “but Peter Fraser has to be an agent or property investor no risk. And please, no more gratuitous advice. Thanks but I tend not to listen to what real estate persons have to say about property prices as it is rather predictable.”
I don’t think that I have misconstrued that, but if I have I apologise. I get upset when posters automatically brand people because of their work, rather than listening to what they say and making a judgement on the content.
On your above post all borrowers are not debt junkies, most businessmen borrow to maintain or expand their business, and are not speculating in property, although an element of risk is always involved in business lending. Most homebuyers are looking to provide a roof over their families heads, they are not speculators.
Perhaps we got off to a poor start with the 9mm issue, but your subsequent posts appeared intelligent, so I was able to overlook that. How about you do the same.
I have some knowledge so I am happy to answer any questions, and you can judge me on those answers, but just pointing and name calling won’t do. Alternatively you could ask someone who doesn’t know anything if you are not interested in knowledge. It is up to you.
BB – that’s a very poor analogy (sorry to spoil a good story)
In the village, the wealth of each person was $100 asset minus $100 debt = $0. The overall wealth of the village was also $0, before and after the rich tourist.
Nevertheless, every villager was expecting to use the interest income from their debtors to retire early to a canal side estate with cheese & wine lifestyle. Obviously this was a hallucination in a zero sum economy. With all the “debts” written off they also wrote off the future income streams that propped up the house of cards.
This is what debt repudiation has not been explored as real solution to the ongoing crisis. We all must believe that we can get rich by selling ourassets to each other at ever higher prices, funded by ever higher levels of debt. That delusion will eventually fall apart.
BB, as unlikely it is for something sensible like that to happen, it even less likely that we will have the additional two elements we should have for shaking ourselves to our own senses:
1. Sound money, not this cheap sh!t that banks conjur into existence on their keyboards.
2. Decent and fair guidelines on lending, so that availability of credit is equitable, and not porked to connected interests.
Something along these lines would make a vast financial industry to shrink and those working in it would easily find work in other, productive areas of a booming economy that would be likely to result. A bloated finance industry, just like a bloated government and public service sector, are more of a dead weight on the economy than anything else. You need some of both, but not like we have at the moment.
But I must admit that I am no expert in this area at all, and these are just my vague impressions, and not a worked out and seriously held view or position.
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