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

[Ald123]

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.

 

[sydboy007]

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.

 

[Pager]

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……………

 

[qldfrog]

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.

 

[tech/a]

Think you'll be waiting a loooooong time.

 

[Smurf1976]

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).

 

[Pager]

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.

 

[Ald123]

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?

 

[sydboy007]

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.

 

[sydbod]

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!!!

 

[sydboy007]

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

 

[Ald123]

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.

 

[Ald123]

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.

What do you mean employment ripe?

 

[Ald123]

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.

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?

 

[Ald123]

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.

 

[Ald123]

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).

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?

 

[qldfrog]

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.

 

[Ald123]

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).

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.

 

[Ald123]

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.

 

[Ald123]

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?