# When will huge inflation in Australia occur to wipe down the debts?



## Ald123 (3 July 2015)

I am keen to know if there will be inflation anytime soon in Australia so that the huge mortgage I have taken can be wiped down somewhat? 

I need prices to go up tenfold and salaries to follow suit, so that I don't have to repay my bank so much money.

Will this occur? Can we make it occur in someway.

Who can I vote for to ensure it happens?

What are the signs that it is coming.


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## sydboy007 (4 July 2015)

There's a derth of demand globally due to over capacity.

There's a glut of workers yet to be fully integrated into the global economy.

I can see potential inflation as various resources become scarcer, but I don't see wages rising to compensate.

We are unlikely to get the free kick the boomers got.  either be willing to make the sacrifices to support high levels of debt, or go the safer route of keeping debt levels modest.

In the current environment I'd be debt averse, unless you're very very confident of going through the coming downturn in Australia and being able to maintain a reliable income through it.

Maybe vulture like, but having the potential to invest in a couple of years after forced selling has subsided will be a great way to set yourself up for decent returns.

Some might think I'm being a bit glooomy, but just have a look at what's going on in WA and that's how the rest of Australia is going to be in the not too distant future.  barely above CPI income growth, years more of ToT falls, imports taking an increasing amount of your funds.  It's not going to be pretty, especially when there's an entire generation with no experience of a true economic decline, and household debt levles are 4 times the level they were before the previous recession.  There's going to be a lot of investors, and plenty of speculators, that will get trampled when too many head for the exit.


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## Pager (4 July 2015)

Ald123 said:


> Will this occur? Can we make it occur in someway.




If we get high inflation we will undoubtedly get higher interest rates.

Careful what you wish for……………


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## qldfrog (4 July 2015)

Pager said:


> If we get high inflation we will undoubtedly get higher interest rates.



I would not be that sure
imagine teh dollar at 50c, an economy bleeding and unemployement ripe i do not see the reserve bank  raising their rate irrespective of actual real inflation;
they would prefer changing the indicator;
so i would not be surprise to see high inflation and low interest rates;
so many things are hapening now which defy logic and common economics;
should POG increase to compensate the $ printing and instability;

i wish you are right as this would help savers..but not going that way so far in the last decade.


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## tech/a (4 July 2015)

Think you'll be waiting a loooooong time.


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## Smurf1976 (4 July 2015)

High inflation was certainly a "free kick" in the 1970's and 80's for those seeking to repay debt (housing or other) at the time. So long as you could manage to cover the interest, and rates were much higher then, the real value of the actual debt fell through the floor over time.

At some point we'll probably have high inflation again, but I wouldn't be holding my breath waiting for it to happen.

That said, I do see as plausible the idea that the AUD drops, inflation goes up due to rising import prices, and the RBA delays raising interest rates until the AUD is _much_ lower than most would likely be expecting at present. Wages are unlikely to rise much in that environment however given that the whole scenario is based on the Australian economy being in a bit of trouble to start with due to continuing falls in export prices. Higher unemployment doesn't lead to strong wages growth, especially given the diminished role of unions these days (in contrast to the 1970's).

That's not really a "forecast" on my part, just one scenario that I personally see as being a plausible outcome over the next few years. If that scenario does eventuate then who is in government, within reason, will have little or no impact on the broad outcome. All that will differ is who gets the blame and what they do in terms of distributing / collecting tax revenue under the circumstances but the broad outcome would be similar. That's assuming either a Labor or Liberal government - it could be very different (likely worse) if some radical group somehow managed to find its' way into government (seems unlikely but hard times often do bring such radicals to popularity).


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## Pager (4 July 2015)

qldfrog said:


> I would not be that sure
> imagine teh dollar at 50c, an economy bleeding and unemployement ripe i do not see the reserve bank  raising their rate irrespective of actual real inflation;
> they would prefer changing the indicator;
> so i would not be surprise to see high inflation and low interest rates;




Think you will find that the RBA will have little choice with interest rates, Australia is a small fish in the world economy pond, what happens in the big economy like USA and Europe will determine were our rates go, no matter what is happening on the domestic front.


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## Ald123 (4 July 2015)

tech/a said:


> Think you'll be waiting a loooooong time.




So at the moment it's just better to get rid of the debt, take a hit and save money instead of paying a mortgage on overpriced property that can't go up?


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## sydboy007 (5 July 2015)

Ald123 said:


> So at the moment it's just better to get rid of the debt, take a hit and save money instead of paying a mortgage on overpriced property that can't go up?




Oh hush.  Eeevvvrrrryone knows Australian house prices double every 7 years.  It's part of the constitution.

I'd def be steering clear of property in WA and SA.  Melb has a boom in dog box apartments popular with Chinese who want to get their money out of China, and Sydney is a speculators wet dream at the moment with something like 60% of new mortgages written for IPs.  Queensland I'm not sure what is going to happen.  Lots of high paying jobs will go as the LNG plants get finished.

What's your views on the Aussie economy?  How do you see debt levels, Govt spending, employment developing over the next 3-5 years.  What's your job security like?  

FOMO is the worst reason to invest in property.

Only you can decide what levels of debt you're comfortable with.  I find being debt free provides me with peace of mind.


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## sydbod (5 July 2015)

sydboy007 said:


> Oh hush.  Eeevvvrrrryone knows Australian house prices double every 7 years.  It's part of the constitution.




Ahhhhh!!!! those were the days.

Top income tax bracket at 60% (and at a fairly low threshold level at that)

Interest rates at 18% at one stage. My mortgage repayments went from 8% up to 16% over a 2 year period....... talk about my asss hanging out, trying to keep up with that.

I can remember people were extrapolating their salaries when they were going to hit retirement ... somewhere about now .... and the average wage was supposed to be over $500,000 pa now.

When I was young (still a school child) about 20% of the new houses being built were half houses made of Fibro ... yep.... half a house being built new and the other half was to be added when peoples finances rebuilt after that first purchase.

Fond memories .... NOT!!!


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## sydboy007 (5 July 2015)

sydbod said:


> Interest rates at 18% at one stage. My mortgage repayments went from 8% up to 16% over a 2 year period....... talk about my asss hanging out, trying to keep up with that.




Scary thing is with the lowest interest rates in a generation or two, people are actually paying out more of their income on interest than when rates were at those 18% levels.

Far too many debt slaves out there, but it's voluntary slavery so I suppose that makes it right


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## Ald123 (5 July 2015)

Pager said:


> If we get high inflation we will undoubtedly get higher interest rates.
> 
> Careful what you wish for……………




Say that repayment doesn't change because I have fixed my mortgage for 5 years? 
Then inflation comes.

My salary goes up. I save my money on a high interest bank account thus having it rise with the high interest rates. On year 5 maturity when the fixed interest period expires I pile the savings into the formerly fixed interest mortgage and dramatically decrease my principal.


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## Ald123 (5 July 2015)

qldfrog said:


> I would not be that sure
> imagine teh dollar at 50c, an economy bleeding and unemployement ripe i do not see the reserve bank  raising their rate irrespective of actual real inflation;
> they would prefer changing the indicator;
> so i would not be surprise to see high inflation and low interest rates;
> ...




What do you mean employment ripe?


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## Ald123 (5 July 2015)

sydboy007 said:


> There's a derth of demand globally due to over capacity.
> 
> There's a glut of workers yet to be fully integrated into the global economy.
> 
> ...




Is your premise that hard times are coming. Therefore people will have to sell because they are either unemployed or interest rates have risen; or salaries have dropped; or rent yields have dropped and they can't afford to maintain the repayments; or because they lost everything on the stock exchange. Then they begin selling their assets that are draining their income and nobody is buying. Because nobody is buying they need to drop the price to find the buyer, eventually some pseudo equilibrium is reached and the market is flat but everyone becomes productive again and they begin to invest in the stock exchange again and property and we start again. It is at that point you believe it's smart to enter the market again?


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## Ald123 (5 July 2015)

tech/a said:


> Think you'll be waiting a loooooong time.




Ok I appreciate the feedback but can you give a reason why you think so? I am not challenging you here just want to get understanding about the situation we are in and see the future a bit more clearly to take better decisions.


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## Ald123 (5 July 2015)

Smurf1976 said:


> High inflation was certainly a "free kick" in the 1970's and 80's for those seeking to repay debt (housing or other) at the time. So long as you could manage to cover the interest, and rates were much higher then, the real value of the actual debt fell through the floor over time.
> 
> At some point we'll probably have high inflation again, but I wouldn't be holding my breath waiting for it to happen.
> 
> ...




So the best thing to do in that case would be to be an Australian exporter selling something that is plentiful and cheap in Australia to the country with the strongest exchange rate and richest people. What country would that be? What is the country with the richest general population and the strongest exchange rate?


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## qldfrog (5 July 2015)

Ald123 said:


> What do you mean employment ripe?



sorry was far too far and so many mistakes/spelling my post was hardly readable: unemployment ripe-> aka very high was my intended  writing
As smurf as implied, I am not sure salaries would follow inflation in any way nor that interest rates would either.
In crisis, expected economic behaviours do not apply anymore
Seeing how things are in qld now, and with China  soon to get a double wammy of popping real estate and share market bubbles; I expect pretty rough seas ahead
expect the unexpected that is while even if i am not a gold bug, i do have some sizeable share there...and in cash.
Pay your debt at least you will (kind of) own a roof to be under.


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## Ald123 (5 July 2015)

Smurf1976 said:


> High inflation was certainly a "free kick" in the 1970's and 80's for those seeking to repay debt (housing or other) at the time. So long as you could manage to cover the interest, and rates were much higher then, the real value of the actual debt fell through the floor over time.
> 
> At some point we'll probably have high inflation again, but I wouldn't be holding my breath waiting for it to happen.
> 
> ...




If rates are low then people will continue to buy housing. If they buy housing they will have less income. If the aus dollar is low then exporters are able to sell more. If the price of foreign goods goes up then things will get more expensive as it costs more to bring goods in. But If salaries stay the same then people won't afford to buy those things and so then the supplier has to make less money and subsidise with his profits the consumers in Australia to some degree. And people will start saving instead of spending. If the Australian dollar is low and the law allows foreigners to invest in australia then they will causing farm prices, commercial and real estate to go up and ownership to be transferred to foreign owners. If these foreign owners are allowed to enter and live in Australia the population goes up and unemployment rises. Then you have things getting worse until such a time as savings have accumulated so much and housing and stocks are so cheap that people start investing again.


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## Ald123 (5 July 2015)

What if Australians did something really smart. Imagine there is a group of lawyers who are able to secure the homes and savings of the common Australian housing investor but then let everyone be declared bankrupt. The Australian and American banks that piled money into the Australian property bubble by immorally lending out the free resource of endless printed money take a haircut, a glut of properties is the result. Housing prices fall and only the aholes who have been printing money are harmed. The government then has to waive the 7 year rule on bankruptcies or else the economy won't grow again and then people learn never to use printed money that's based on nothing more then the perceived capacity of some mythical nation.


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## Ald123 (5 July 2015)

Pager said:


> Think you will find that the RBA will have little choice with interest rates, Australia is a small fish in the world economy pond, what happens in the big economy like USA and Europe will determine were our rates go, no matter what is happening on the domestic front.




Can you explain your thinking a little bit more please?


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## Ald123 (5 July 2015)

sydboy007 said:


> Oh hush.  Eeevvvrrrryone knows Australian house prices double every 7 years.  It's part of the constitution.
> 
> I'd def be steering clear of property in WA and SA.  Melb has a boom in dog box apartments popular with Chinese who want to get their money out of China, and Sydney is a speculators wet dream at the moment with something like 60% of new mortgages written for IPs.  Queensland I'm not sure what is going to happen.  Lots of high paying jobs will go as the LNG plants get finished.
> 
> ...




Thank you for this post, I too hate debt and I have been driven by FOMO, based on the years of statistics regarding property prices. I honestly was expecting rate rises and inflation thinking it's the only way to get Australia out of the ****, I thought that Americans, Europeans and Australians would look at the levels of printed money and what it got people into in 2008 and never believed that they would print more money. I never believed that people could be so stupid to allow so much quantitative easing , but they are. I never realised how greedy bankers are. I never realised just how placated the general population is and how they trust their governments who blatantly screw them over.

Basically the problem we had in 2008 has been multiplied since then and we have not dealt with the underlying problems. The only government in the World who I see as being realistic is Greece, they are basically standing up and saying, we would like to pay our debts, but we would also like to develop our country and allow us to make profits and grow the economy. But the bankers want every last cent and to destroy the economy there so that they can buy it cheap and then run the country German style, effectively making Greece an economic colony of German capitalists. The Greeks are resisting this and I don't think they will be successful as the bankers will get rid of this Tspiras government and bring in another corrupt one that takes on loans from the bankers under terms that kill the Greek people's economy. In Exchange for bags of bribe money and private Swiss bank accounts. Much like in Australia with the lobbying and opportunities our politicians in Australia get. See the mining tax.


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## Ald123 (5 July 2015)

sydbod said:


> Ahhhhh!!!! those were the days.
> 
> Top income tax bracket at 60% (and at a fairly low threshold level at that)
> 
> ...




When was that ? How did things develop in the economy? What caused all that in the first place?


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## Ald123 (5 July 2015)

sydboy007 said:


> Scary thing is with the lowest interest rates in a generation or two, people are actually paying out more of their income on interest than when rates were at those 18% levels.
> 
> Far too many debt slaves out there, but it's voluntary slavery so I suppose that makes it right




Bang! The biggest nail in the head argument I have ever read. This is the smartest thing I have read in ages.


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## Ald123 (5 July 2015)

qldfrog said:


> sorry was far too far and so many mistakes/spelling my post was hardly readable: unemployment ripe-> aka very high was my intended  writing
> As smurf as implied, I am not sure salaries would follow inflation in any way nor that interest rates would either.
> In crisis, expected economic behaviours do not apply anymore
> Seeing how things are in qld now, and with China  soon to get a double wammy of popping real estate and share market bubbles; I expect pretty rough seas ahead
> ...




Thank you for that


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## Smurf1976 (5 July 2015)

Ald123 said:


> If rates are low then people will continue to buy housing.




Rates are relevant only if someone can borrow the money in the first place.

Lenders raise minimum deposit requirement to 20% and count only genuine savings (no gifts, lottery winnings, personal loans etc). Very plausible based on the past, and it would kill off quite a bit of owner occupied demand for property "just like that". No matter how much someone wants to buy, if they can't get the money then they're not going to be buying. 

Demand for property, like anything else, is a function of not only desire and underlying factors (population in the case of housing) but also the ability to get the money. If the money isn't available then you're not buying.


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## Mrmagoo (5 July 2015)

Capital gains on some houses have been 100k NET each year for 10 years. Or close to one million dollars. That is a yearly return of nearly 12% per year of the entire 10 year period, which includes the GFC. These are simply astounding figures.


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## Mrmagoo (5 July 2015)

Smurf1976 said:


> Rates are relevant only if someone can borrow the money in the first place.
> 
> Lenders raise minimum deposit requirement to 20% and count only genuine savings (no gifts, lottery winnings, personal loans etc). Very plausible based on the past, and it would kill off quite a bit of owner occupied demand for property "just like that". No matter how much someone wants to buy, if they can't get the money then they're not going to be buying.
> 
> Demand for property, like anything else, is a function of not only desire and underlying factors (population in the case of housing) but also the ability to get the money. If the money isn't available then you're not buying.




Its already at the point where the average worker can't buy inside Melbourne or Sydney. You's be going out to places like Cranbourne or Frankston which are not part of Melbourne and paying sky high prices for a basic home. You're essentially camping outside of the city borders .


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## tech/a (5 July 2015)

> Originally Posted by tech/a
> Think you'll be waiting a loooooong time.
> Ok I appreciate the feedback but can you give a reason why you think so? I am not challenging you here just want to get understanding about the situation we are in and see the future a bit more clearly to take better decisions.




Strong USD/EURO weaker AUD
Weak AUD less investment in Aus.
So this acts like an interest rate supresser 

Weak AUD means cheaper Aussi product more demand.
Growth in Australia and if it's too much then inflation can 
Play a part.

Growth in USA/EURO Zone means stronger currency and inflationary trends.

Not seeing any of this to a degree which is going to influence AUST to any greater degree.

Until we do ------

I see things flopping around in a zone between 60 and 90 cents AUD for the forseeable future.
Inflation which pushes interest rates above 8% will be a looooong time coming.

Personal view.

Will be a looooong time.


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## qldfrog (5 July 2015)

tech/a said:


> Strong USD/EURO weaker AUD
> Weak AUD less investment in Aus.
> So this acts like an interest rate supresser
> 
> ...



if AUSD is at let's say 50c, what will australia be able to sell????
the minerals do not really count here: the boom or bust is irrespective of the AUD, sure with AUD at 50c, Rio and BHP will make more profit in the Cayman islands and Singapore but this will not generate much extra work/tax for Australia;
agricultural sector will benefit I agree, but no job and hardly any $ in coffer either; plus it takes years to expand cattle herds and at least one year to increase harvest output, as long as the rain is there with an El Nino coming

so my view that a collapse in the AUD (which is needed) may come too late, no extra work, no wage increase, moribond economy so no way can the reserve bank increase rate...
Unless the condition is so bad that the banks/RE bubble pops and Australia find it hard to get outside required capital-> increase of rates under stress as per argentina, brasil in past crisis..not a nice show....;
And in that case we are even worse off.
Even the non catastrophic scenario sees no wage increase,unemployment but inflation due to higher import costs (which is everything we consume nowadays) and always higher captive market prices: taxation, rates, water and power, insurances bills.
It is time that this country realised we have left the 1rst world economy and its rules, and now are part of a resource based economy most commonly seen in thirld world countries


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## tech/a (5 July 2015)

Yes all of that.
Loooooooong time


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## sptrawler (5 July 2015)

I don't think high inflation will kick in, to get high inflation you require rampant wages and or consumerism, neither of which is going to happen.IMO

More likely is a slow decline in living standards, also a fall in the Aus $, the problem is a fall in the value of the Aus $, wont translate into a pickup in manufacturing.IMO

There is no obvious motivation, to manufacture here, rather than O/S, when the unit cost there is so low. Also the huge market place and demand is there.

Why would you spend the capital here, when all that is required, is an output increase at a factory O/S?

There is nothing happening, other than a decline in productive jobs, this is going to be a huge problem.

The removal of minerals will accelerate as machinery and technology improves, the labor intensive public sector jobs are disappearing due to technology.

There has been no desire by multinationals, to make Australia a supply hub, therefore where do you think the inflationary pressure is going to come from?

If there isn't a huge increase in jobs( which require a huge increase in demand for a product), or a huge increase in disposable income( which requires a huge increase in demand for labour), where is the inflation going to come from?


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## sydboy007 (5 July 2015)

Ald123 said:


> Say that repayment doesn't change because I have fixed my mortgage for 5 years?
> Then inflation comes.
> 
> My salary goes up. I save my money on a high interest bank account thus having it rise with the high interest rates. On year 5 maturity when the fixed interest period expires I pile the savings into the formerly fixed interest mortgage and dramatically decrease my principal.




After tax and inflation you'd be lucky to have a CPI return.


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## sydboy007 (5 July 2015)

Ald123 said:


> Is your premise that hard times are coming. Therefore people will have to sell because they are either unemployed or interest rates have risen; or salaries have dropped; or rent yields have dropped and they can't afford to maintain the repayments; or because they lost everything on the stock exchange. Then they begin selling their assets that are draining their income and nobody is buying. Because nobody is buying they need to drop the price to find the buyer, eventually some pseudo equilibrium is reached and the market is flat but everyone becomes productive again and they begin to invest in the stock exchange again and property and we start again. It is at that point you believe it's smart to enter the market again?




I don't know what will be the tipping point.

I just know there's lots of very high paying jobs that will not be around as the various resource projects finish.  Then we have the car manufacturers closing shop over the next 18-24 months.

I can see the AUD getting back to the 50c level it was pre boom, and with the loss of manufacturing that heads straight into a lot of imported inflation.

I just don't see housing as a decent risk reward investment.  Much of the share market is the same.  Even in the bonds space it's getting harder to find a decent return for risk.

Some can be lucky to get rich quick by gearign up and flipping houses or getting into an early MTU or FMG.  Best to ask yourself what's a realistic return going forward.  Is it sensible to expect housing to continue to outpace wages growth by 3 or 4 times?  Is it sensible to expect a 15% return from the share market?  Possibly getting into some industrials with USD exposure might help, though in some ways you'd be getting on that train late.


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## sydboy007 (5 July 2015)

Ald123 said:


> What if Australians did something really smart. Imagine there is a group of lawyers who are able to secure the homes and savings of the common Australian housing investor but then let everyone be declared bankrupt. The Australian and American banks that piled money into the Australian property bubble by immorally lending out the free resource of endless printed money take a haircut, a glut of properties is the result. Housing prices fall and only the aholes who have been printing money are harmed. The government then has to waive the 7 year rule on bankruptcies or else the economy won't grow again and then people learn never to use printed money that's based on nothing more then the perceived capacity of some mythical nation.




Why would anyone lend money to a country that did this?  We'd be up there with Brazil and Argentina, maybe even Greece.  We'd be facing credit card interest rates.  We pretty much run a CAD through most of the federation.  If we get cut off from the global bond market then we'd face a credit crisis.  Imagine nearly 60% of mortgage credit disappearing overnight.  As loans reach maturity we'd not be able to pay them off.  That's definitley one way to implode an economy.


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## sydboy007 (5 July 2015)

qldfrog said:


> so my view that a collapse in the AUD (which is needed) may come too late, no extra work, no wage increase, moribond economy so no way can the reserve bank increase rate...
> Unless the condition is so bad that the banks/RE bubble pops and Australia find it hard to get outside required capital-> increase of rates under stress as per argentina, brasil in past crisis..not a nice show....;
> And in that case we are even worse off.




Quite possibly we'll be importing cars that cost more than if we'd propped up the local manufacturing.  Not sure how the idiots in treasury and RBA decided the AUD was going to be at near parity for a very long time, but they've royally borked us.  Not sure if the messengers didn't want to get shot, or if politicians since the GFC have chosen the sunshine and lollipops forecasts over other more realistic ones.

Can see it with the NSW Govt.  Already at the highest level of stamp duty, but they're predicting continued increases and to a degree matching spending to this.  It'll end as well for them as it has for barnett.

I can definitely see a world where inflation is high, but I don't see a world where wages growth will compensate for it.  Too many workers for not enough jobs, and as IT progresses more and more jobs will disappear.  In the medium term most of us may be too poor to actually deal with a real human which will be the service option available only for those who can afford it.


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## sydboy007 (5 July 2015)

sptrawler said:


> I don't think high inflation will kick in, to get high inflation you require rampant wages and or consumerism, neither of which is going to happen.IMO




We may not have cost pull inflation, but I think we'll be getting some serious cost push from the tradeables sector.

For the last decade the CPI figure has been kept in check mainly by the price of falling imports.  That trend is definitely in reverse with a falling AUD and as costs in China have increased.

We'll just be poorer as the free kick from the mining boom is reversed.  I honestly think the majority of people have no idea what's slowly headed our way.  Just imagine the anger from motorists facing a 20% increase in petrol, which only requires a fall of the AUD to 60c US.  At least that will get us back to competitiveness with the BRL.


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## sptrawler (5 July 2015)

sydboy007 said:


> We may not have cost pull inflation, but I think we'll be getting some serious cost push from the tradeables sector.
> 
> For the last decade the CPI figure has been kept in check mainly by the price of falling imports.  That trend is definitely in reverse with a falling AUD and as costs in China have increased.
> 
> We'll just be poorer as the free kick from the mining boom is reversed.  I honestly think the majority of people have no idea what's slowly headed our way.  Just imagine the anger from motorists facing a 20% increase in petrol, which only requires a fall of the AUD to 60c US.  At least that will get us back to competitiveness with the BRL.




I think I covered that, by saying, there will be a drop in living standards.

It won't affect me, but you had better keep on your toes.

Australia is wedged, with a third world resources economy, trying to support a first world welfare economy.lol

It will send us all broke, fortunately it won't be a quick death.

Just my opinion.


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## sptrawler (5 July 2015)

sydboy007 said:


> Quite possibly we'll be importing cars that cost more than if we'd propped up the local manufacturing.  Not sure how the idiots in treasury and RBA decided the AUD was going to be at near parity for a very long time, but they've royally borked us.




If GM or Ford were interested in Australia as a manufacturing base, why did they build the right hand world car production facilities, in Thailand and South Korea?

Well if you don't know, I'm not going to tell you. lol,lol, lol

Ask Bill and the boys.

It reminds me of what an old guy in the union told me when I was really young, " you have to milk the cow, not pull the #its off it". Lol

We've certainly done that, but it's been a great ride.


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## sptrawler (5 July 2015)

sydboy007 said:


> I don't know what will be the tipping point.
> 
> I just know there's lots of very high paying jobs that will not be around as the various resource projects finish.  Then we have the car manufacturers closing shop over the next 18-24 months.
> 
> ...




At last we're on the same page.


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## sptrawler (5 July 2015)

Ald123 said:


> When was that ? How did things develop in the economy? What caused all that in the first place?




That was the early 1970's, wage rises and welfare payments increased, this was also compounded by the mining boom.
Everything got ahead of itself and the economy stalled, unemployment blew out and inflation went out to about 13% from memory.
Fraser was elected and he brought about a wages freeze, which wasn't popular, so he`was chucked out.

Then Hawke was elected, he brought about a real drop in wages of about 20%, under the wages accord.

Then the rationalisation of the car industry was intruduced, where tarif protection was reduced. This was designed to make the local industry more competitive, all it did was make the multinationals focus on a third world production model.
This has affected Japan, Europe and the U.S also, most manufacturers are building new production plants in third world countries.
This will have the positive effect of improving those countries living standards, but will have a knock on effect in other countries.
Nothing stays the same, nothing is forever, everything is finite.


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## wayneL (5 July 2015)

Despite the best efforts of central banks, consider deflation?


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## sptrawler (5 July 2015)

wayneL said:


> Despite the best efforts of central banks, consider deflation?




Won't happen in a capitalist system, just think how do you run a business, you buy the product in at $1 and have to sell it at $0.90c every business goes broke.

Deflation kills the capitalist system, it can't operate, that's why we will end up back in equilibrium. The long term norms will return, it is just a matter of when.IMO

The datum line may be rest, but the long term average will return.


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## Ald123 (5 July 2015)

Ok so assuming I have the following scenario what is the smart thing to do?

We own a house worth $830k and owe $500k on it.
The house is on a very quiet street on 721sqm block near the beach in Perth in karrinyup/ Trigg 
I stupidly fixed the interest rate 1 year ago at 5.69% for 5 years with NAB. Break costs are $28k 
My repayment is $3200 a month, it's killing me. 
It has been rented out for two years already and I need to be careful not to attract capital gains tax on it, there is a 5 year waiving period?
The house was vacant for 3 months as no tenants around. 
Am considering refinancing and therefore having the tenant pay a greater amount of the mortgage repayment. 
It's rented out at $450 a week as the rentals have dropped from $600 a week in the last two years.

I am going to be earning $6400 per month after tax but living in NSW Newcastle in one or two months time. 
Currently in NZ, company is paying my rent here. 
Returning to Australia ASAP 
3 small kids, 6; 4 and 2 years old. 
Wife won't work until 6 months time. 
She has no job yet in NSW yet but realistically can't see how she can work full time.
If she did work full time she would probably get a similar salary. 
I have no car yet.
I have $20k cash
I have no credit card debt or any other debt except my wife has some Hecs debt of 30k

Knowing what you know about Australia and what is coming in terms of the economic cris, recession depression.
What would you do?


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## sydboy007 (6 July 2015)

may be of interest

http://www.morningstar.com/cover/videocenter.aspx?id=557925

over an hour video there as well


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## sptrawler (6 July 2015)

Ald123 said:


> Ok so assuming I have the following scenario what is the smart thing to do?
> 
> We own a house worth $830k and owe $500k on it.
> The house is on a very quiet street on 721sqm block near the beach in Perth in karrinyup/ Trigg
> ...




I think there are a lot of variables and it is a very personal investment, regards risk/ return, expected capital gain. There is no way I would comment on it.


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## sydboy007 (6 July 2015)

Ald123 said:


> Ok so assuming I have the following scenario what is the smart thing to do?
> 
> We own a house worth $830k and owe $500k on it.
> The house is on a very quiet street on 721sqm block near the beach in Perth in karrinyup/ Trigg
> ...




You're already seeing what the property market is like in WA, and it's not going to get any better as people migrate to other states and those left don't have the incomes they used to.

The exit is going to get very very crowded when the forced bankruptcy sales start to come.  You're house value may not have taken into account the downturn in WA over the last 6-12 months.  RP data shows Perth down 0.9% over the last 12 months.  There's a huge surge in apartments in Perth, just as population growth is reversing.  i wont be surprised if WA has negative population growth soon.  Vacancy rate in perth is now 4.9% and rising.  Definitely a renters market.  over 14000 blocks of land and properties for sale in perth.  Buyers market, though you'd be best off waiting for the market to bottom in a few years.

Rents are down over 14% for house and 12% for apartments on a 3 year basis.

before the boom mining capex was somethign like 6-8% of state final demand.  It's fallen from a peak of 30% but still around 24-25%.  Imagine what $10-12B of demand removed from the WA economy is going to do to employment.

The Roy Hill iron ore project will see 8,000 construction workers turn into 2,000 miners, and one wonders how long those numbers will hold up with the margin squeeze that’s coming. You can double the attrition when the iron ore juniors go under.

Then there’s the giant LNG projects, Gorgon and Wheatstone. At Gorgon, 9,000 construction workers will turn into 400 gaseous technicians, whereas at Wheatstone, 6,500 workers will shrink to around 400 (if not less).

Add in multipliers, and Western Australia could easily see 50,000 jobs lost as mining capex returns to pre-boom levels (or below).

Factor is an end to the construction boom and you can kiss good bye to thousands of construction jobs and i doubt many will have the moeny to higher them for renovations.

With both mining capex and housing construction facing sharp downturns over the next two years, the Western Australian construction industry could shed up to 80,000 jobs, with cascading impacts on other sectors.  that in a population of just 1.4M, we could see WA unemployment over 10% quite quickly, unless the east coast gets some economic refugees.  What a shame they didn't seceed.  Stp the sangroppers has a nice ring to it /sarc

In the 1970s Perth house prices fell by 30% over an 8 year period in real terms.  Nominal values would have made it seem not so bad.  I'd think things will be worse this time simply because debt levels are so much higher.

There is no contemporary Australian experience to match the developing economic situation in WA. It has been in effective recession for two years already (excepting exports which do little for local activity). That domestic recession is set to deepen meaningfully in the next year and, with next to zero prospect of counter-cyclical spending coming from a broken state Budget, holding a negatively geared property would be folly.


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## sptrawler (6 July 2015)

Jeez Syd, show some compassion.


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## sydboy007 (6 July 2015)

sptrawler said:


> Jeez Syd, show some compassion.




I didn't think compassion was in the Australian lexicon anymore.


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## Ald123 (6 July 2015)

sydboy007 said:


> You're already seeing what the property market is like in WA, and it's not going to get any better as people migrate to other states and those left don't have the incomes they used to.
> 
> The exit is going to get very very crowded when the forced bankruptcy sales start to come.  You're house value may not have taken into account the downturn in WA over the last 6-12 months.  RP data shows Perth down 0.9% over the last 12 months.  There's a huge surge in apartments in Perth, just as population growth is reversing.  i wont be surprised if WA has negative population growth soon.  Vacancy rate in perth is now 4.9% and rising.  Definitely a renters market.  over 14000 blocks of land and properties for sale in perth.  Buyers market, though you'd be best off waiting for the market to bottom in a few years.
> 
> ...





Thank you for that. So in your opinion it's not even worth getting the property refinance and having the renter pay for it, because the bank loan could hinder buying the new family home in Newcastle?


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## Ald123 (6 July 2015)

Have there ever been forced bankruptcy sales in Australia on a massive scale? Have there ever been forced bankruptcy sales in Australia where people lost the value of their house? What is the biggest drop in value in house sales that people have endured in the Aussies State capital cities. It seems to me that property prices would need to drop to the expensive one being about $800k and those are properties that cost about $20000000 today. The median to about $300k and the cheap ones to about $150k before things can become affordable. 

Mass scale bankruptcy is that a reality that possible?


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## Ald123 (6 July 2015)

Another question why did government allow the private and household debt to become so large that it's heading towards 4 trillion? 

Surely they are now in the zone of hating the people and getting paid off by banks to do that to turn the people into debt slaves. 

Are we happy to be debt slaves?


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## Vixs (6 July 2015)

Ald123 said:


> Thank you for that. So in your opinion it's not even worth getting the property refinance and having the renter pay for it, because the bank loan could hinder buying the new family home in Newcastle?




What do you mean refinance and have the renter pay for it? Your current mortgage payments are fixed for another 4 years at $3200 a month. Your rental income is $450/mth gross, so after property management fees, maintenance, rates, landlord's insurance, building insurance..You're probably getting less than $375/mth, easily. So you have a shortfall of approx $1700+ per month. If you refinanced, assuming your are able, you might save 1% p.a. or so, or $5,000/yr in interest, freeing up around a little over $400/month, still leaving you at $1300 a month or more short. Would you pay $28,000 today to save $20,000 over the next 4 years? I probably wouldn't, especially if I really needed that $28,000.

That appears to be what you are suggesting, and it doesn't seem to be an economic win. It's concerning that you fixed a payment at 5 years that you could hardly afford a year later. Are you paying interest only or principal & interest?  Payments of $38k a year suggest principal and interest, which is going to hurt your bottom line in this situation, especially as you need the money elsewhere.

I'd forget buying another property at the moment if you can hardly afford the one in Perth. I'd consider renting for a few years - you're not going to sleep better at night with another half million dollar mortgage, especially if you're of the opinion the whole economy is going to ****. Take advantage of the fact that there are plenty of people out there that are just like you that you can rent from in the meantime. 

If you're of the opinion that the property is going to fall in value over the next few years and you don't want to pay another $100,000 in interest for the ride, then you also have the option of selling the property (challenging with a tenant in there at 450 a week I would imagine), paying out the break costs and agents fees and walking away with a bit less than $300k in the bank and no mortgage of $3200 a month anymore. That might be a tough pill to swallow, but at least once it's done it's done.

I don't know what I would do in your situation as I don't know the rest of the situation, but it may help to look at what your assets and liabilities, income and expenses would look like after taking whatever action you're considering, and looking at how you'd feel with that as a blank slate. The rest of it is just noise.


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## tech/a (6 July 2015)

Sell it


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## Knobby22 (6 July 2015)

Yep, sell it and clear your mind. Hopefully its gone up enough to get your money back.
Sure prices could rise but if the opposite happens what will that do to you?


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## sptrawler (6 July 2015)

tech/a said:


> Sell it




+1 concentrate on the ppr, while rates are low.

Perth house prices are going nowhere, but down for the next 5 years, until underlying population grows.IMO


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## Ald123 (6 July 2015)

Vixs said:


> What do you mean refinance and have the renter pay for it? Your current mortgage payments are fixed for another 4 years at $3200 a month. Your rental income is $450/mth gross, so after property management fees, maintenance, rates, landlord's insurance, building insurance..You're probably getting less than $375/mth, easily. So you have a shortfall of approx $1700+ per month. If you refinanced, assuming your are able, you might save 1% p.a. or so, or $5,000/yr in interest, freeing up around a little over $400/month, still leaving you at $1300 a month or more short. Would you pay $28,000 today to save $20,000 over the next 4 years? I probably wouldn't, especially if I really needed that $28,000.
> 
> That appears to be what you are suggesting, and it doesn't seem to be an economic win. It's concerning that you fixed a payment at 5 years that you could hardly afford a year later. Are you paying interest only or principal & interest?  Payments of $38k a year suggest principal and interest, which is going to hurt your bottom line in this situation, especially as you need the money elsewhere.
> 
> ...




Thanks for the reply I appreciate it. My rental income was weekly though, not monthly


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## nioka (6 July 2015)

Think of inflation as a measurement of the difference of the cost of what we want and what we are prepared to actually earn.

Debt has a way of coming home to haunt sooner or later. Australia is a mini Greece financially. Gradually selling of the country to pay interest. without even taking into account the income from the sale of assets this is the position for the government financially;


Interest per Year

A$17,656,551,987 Interest per Second A$560

Debt per Citizen A$23,230

Debt as % of GDP 25.62%

GDP A$2,129,801,184,250

Population 23,490,349

National Debt $545,678,000 plus and rising by around $560 per second.


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## Ald123 (6 July 2015)

sptrawler said:


> +1 concentrate on the ppr, while rates are low.
> 
> Perth house prices are going nowhere, but down for the next 5 years, until underlying population grows.IMO




What does PPR stand for.

Thanks for your thoughts


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## tech/a (6 July 2015)

Ald123 said:


> What does PPR stand for.
> 
> Thanks for your thoughts




Principal place of residence

Or 

Pizz poor result


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## sinner (6 July 2015)

Ald123 said:


> Thanks for the reply I appreciate it. My rental income was weekly though, not monthly




Hi,

My 2c is that if hyperinflation is your major hope then you are in way over your head.

At a cost of $830,000 with weekly rental return of $600 you are talking about a gross yield of ~3.7% pa. 

The outstanding balance of $500,000 with weekly rental return of $450 you are talking about a gross yield of ~4.68% pa.

This is not including the >5% pa in interest payments.

Ignore the yield. Ignore what other people are saying (it's not legal for people on ASF to give financial advice anyway!). 

If you bought the property under the assumption that it was a good investment, you can clearly see from the gross yield that is not much better than a bank account and you should decide if all the extra hassles and risks make it a more worthwhile than parking your cash in a Government bond or bank account.

If you brought property under a speculative assumption that you would be able to sell the same property to someone else for a greater price, then you should decide whether you think the probability of the price rising from here is greater than the probability of it falling.


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## sydboy007 (6 July 2015)

Ald123 said:


> Another question why did government allow the private and household debt to become so large that it's heading towards 4 trillion?
> 
> Surely they are now in the zone of hating the people and getting paid off by banks to do that to turn the people into debt slaves.
> 
> Are we happy to be debt slaves?




Not quite sure how old you are but I remember when Howard and Costello were in opposition and they had their debt truck wandering around Australia as they were very very concerned about the private sector debt levels.  Strangely, once elected they never mentioned it again.  In 1996 mortgage debt levels to GDP were around 31-32%.  they're now over 90%.  Household debt levels doubled under Howard and Costello, and that was really the economic miracle.  A debt binge that pumped up house prices and destroyed productivity in the economy (put simply if the cost of land in Australia is much higher than the same land in a different country then we will have higher input costs, hence lower productivity).

offshore funding is now roughly 50% of all credit.  Imagine what a closing of markets like during the GFC will do to us.  With Govt debt now on an unsustainable increase their guarantee may not hodl as much weigth as it did during the GFC.

Housing has sucked the life out of the country.  Business credit has pretty much stagnated since 2008 while mortgage debt has ballooned to be 50% higher.  Ponzi credit, but how many greater fools are left out there?

As to are we happy to be debt slaves?  The answer has to be a resounding yes.  No one is forcing people to get into debt, especially mortgage debt.  No one is pushing for meaningful reforms to land zoning and sorting out issues around land banking and stamp duties making buying and selling property expensive.  There's like 15+ years of land on the urban fringe that could be developed, but why would you bother when restricting supply is more profitable than developing?  No need to fight the BANANAs when you just horde land.

While initial repayments on new mortgages are lower than the late-1980s and early-1990s, they remain well above the 40-year average. And remember, these high debt loads will still be around in a decade, thanks to low inflation and anaemic wages growth.  In terms of disposable income it's possible mortgage repayments will increase, leaving less money for supporting economic activity.


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## Ald123 (7 July 2015)

tech/a said:


> Principal place of residence
> 
> Or
> 
> Pizz poor result




Ok so is your opinion that it's better to buy a house where you live in it and forget about the rental? Officially that property is my principal place of residence. But o won't be living in it for the next 3 years, and then I either have to move back into it or sell it then in order to avoid capital gains tax being applied to it when I sell it.


The break costs of my fixed loan is $25000, either way I have to take a loan to pay those break costs. So if I want to sell it or refinance I have to pay a penalty of $25000.


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## Ald123 (7 July 2015)

sydboy007 said:


> Not quite sure how old you are but I remember when Howard and Costello were in opposition and they had their debt truck wandering around Australia as they were very very concerned about the private sector debt levels.  Strangely, once elected they never mentioned it again.  In 1996 mortgage debt levels to GDP were around 31-32%.  they're now over 90%.  Household debt levels doubled under Howard and Costello, and that was really the economic miracle.  A debt binge that pumped up house prices and destroyed productivity in the economy (put simply if the cost of land in Australia is much higher than the same land in a different country then we will have higher input costs, hence lower productivity).
> 
> offshore funding is now roughly 50% of all credit.  Imagine what a closing of markets like during the GFC will do to us.  With Govt debt now on an unsustainable increase their guarantee may not hodl as much weigth as it did during the GFC.
> 
> ...




A really good analysis. I am 40.


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## tech/a (7 July 2015)

Ald123 said:


> Ok so is your opinion that it's better to buy a house where you live in it and forget about the rental? Officially that property is my principal place of residence. But o won't be living in it for the next 3 years, and then I either have to move back into it or sell it then in order to avoid capital gains tax being applied to it when I sell it.
> 
> 
> The break costs of my fixed loan is $25000, either way I have to take a loan to pay those break costs. So if I want to sell it or refinance I have to pay a penalty of $25000.




You've made a lot of assumptions from an answer to what is PPR?

You have to do a risk analysis and come to a conclusion from that.
Do it with an accountant who understands property and can run cost evaluations on
each option.


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## sptrawler (7 July 2015)

tech/a said:


> You have to do a risk analysis and come to a conclusion from that.
> Do it with an accountant who understands property and can run cost evaluations on
> each option.




+1, there has never been a better time to pay down your PPR, it would be really interesting to hear what a property analyst had to say.

It certainly wouldn't be as black and white, as it is, when interest rates are high.IMO


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