Australia faces worse crisis than America
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white_goodman
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why not get therese rein to pay the void
Do you think that it may be a possibility that Australia will have to eventually when a recession hits and we cant service the mortgage sell some assets (possibly a lot of our real estate) like some of the companies have been doing in the wake of the subprime crisis? i.e if all the easy money went into real estate what happens when we can't afford to pay the interest anymore? do we have to let that money flow back out of our real estate assets? and the house price depreciation that goes with it? interesting to note that house prices are falling in the US as people are not willing to service their loans anymore (although they get a choice to walk away from the house unlike here, where you have to pitch in more assets until the bank recovers the debt I think).
It's hard to say if this will happen soon though, or at all.
Bank failures / consolidation. AUD goes down with USD. Stock market crashes because it cannot find another bubble to blow. Banks, home builders, luxury goods / services will go bankrupt. House prices keep falling until they become affordable for average income earners.
That is just the start before we follow USA into a depression.
From my point of view we are starting to see a lot of business’s being squeezed at the present time in OZ. As a result, firms are currently laying off workers in dribs and drabs, however while the cuts are relatively small at the moment, I think over the coming quarters we will see even more firms having to cut huge amounts of labour from the workforce, especially in the non resource states. This is when the real problems start to arise.
Firstly, those people who took out loans or mortgages when interest rates were low a few years ago and locked into a fixed honey moon rate, who I might add could barely afford it at the time, will have to face the problems of significantly higher interest rates along with the increased chance of losing their job. Not a good mix. Although probably only a small proportion of people, but regardless of whether there mortgage was fixed or not those on lower incomes feel the pain of even small rises in interest rates. Given banks margins are being squeezed as a result of difficulties in accessing cheap funding, the rise in interest rates not only resides with the RBA.
Secondly, considering banks have been known to lend up to >95% the value of a property over the past few years in a rising asset price environment and still have not changed their ways as asset prices start to head into reverse means that a lot of households are highly leveraged and any further rises in interest rates or widespread increase in unemployment will have severe ramifications to the broader economy.
Although the argument of: “most debt lies with more wealthy individuals and hence there are in turn little problems in servicing this debt”, is a valid point to some degree. I think people seem to forget that a proportion of these wealthier individuals have complex webs of debt, using various assets as backing for other loans. Don’t forget that asset prices have taken a fairly significant hit and if economist are to be believed there is a general consensus that Australia property prices have a fair way to fall if they are to come back into line with property value in the rest of the world. Added to this is the fact that company profits are softening, which again flows onto wages & bonuses in general.
The end result for our banks could be fairly ugly. I know a friend of mine the other day was dealing with a commercial client and had to reject his application for a loan because of the dire state the business was in. He then went on to learn that another big bank picked up this client with no questions asked. Just a bit of food for thought. Personally I don’t see the Australian banks and economy in general getting hit anywhere near as hard as the US, but I still think we have a fair way to go in this debacle, until the cheap debt web unfolds fully back home. I expect more and more write downs and provisions for bad debts from the banks.
In the end I suppose the state of the Australian economy is in the hands of the BRIC economies. If demand for Australian resources remains strong then we will be insulated to some extent from the problems affecting other developed economies.
Firstly, those people who took out loans or mortgages when interest rates were low a few years ago and locked into a fixed honey moon rate, who I might add could barely afford it at the time, will have to face the problems of significantly higher interest rates along with the increased chance of losing their job. Not a good mix. Although probably only a small proportion of people, but regardless of whether there mortgage was fixed or not those on lower incomes feel the pain of even small rises in interest rates. Given banks margins are being squeezed as a result of difficulties in accessing cheap funding, the rise in interest rates not only resides with the RBA.
Secondly, considering banks have been known to lend up to >95% the value of a property over the past few years in a rising asset price environment and still have not changed their ways as asset prices start to head into reverse means that a lot of households are highly leveraged and any further rises in interest rates or widespread increase in unemployment will have severe ramifications to the broader economy.
Although the argument of: “most debt lies with more wealthy individuals and hence there are in turn little problems in servicing this debt”, is a valid point to some degree. I think people seem to forget that a proportion of these wealthier individuals have complex webs of debt, using various assets as backing for other loans. Don’t forget that asset prices have taken a fairly significant hit and if economist are to be believed there is a general consensus that Australia property prices have a fair way to fall if they are to come back into line with property value in the rest of the world. Added to this is the fact that company profits are softening, which again flows onto wages & bonuses in general.
The end result for our banks could be fairly ugly. I know a friend of mine the other day was dealing with a commercial client and had to reject his application for a loan because of the dire state the business was in. He then went on to learn that another big bank picked up this client with no questions asked. Just a bit of food for thought. Personally I don’t see the Australian banks and economy in general getting hit anywhere near as hard as the US, but I still think we have a fair way to go in this debacle, until the cheap debt web unfolds fully back home. I expect more and more write downs and provisions for bad debts from the banks.
In the end I suppose the state of the Australian economy is in the hands of the BRIC economies. If demand for Australian resources remains strong then we will be insulated to some extent from the problems affecting other developed economies.
theasxgorilla
Problem solved... next bubble.
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In the end I suppose the state of the Australian economy is in the hands of the BRIC economies. If demand for Australian resources remains strong then we will be insulated to some extent from the problems affecting other developed economies.
Not to mention being insulated from both the long standing and new problems specific to the Australian economy.
Yep most defintately.
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"The Aussie is going down, big time," said Mr Redeker.
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Not against the the Pound it isn't Hans.
More comments later on this interesting topic - but for now I shall continue to bet against the silly valuation of the pound against the Aussie battler.
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Not against the the Pound it isn't Hans.
More comments later on this interesting topic - but for now I shall continue to bet against the silly valuation of the pound against the Aussie battler.
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"Australia faces worse crisis than America" - WHAT A LOAD OF ...
Every State and Territory is now reaping the benefits of vastly increased royalties from sales of iron ore and coal. For instance: QLD receives 7% royalty on coal up to US$100 per tonne and 10% over that figure. Average coal price was around $56 per tonne for thermal coal last year and now set at US$125 per tonne and far greater figures on the spot market. These States and Territories, quite rightly so, are raking it in.
Fair enough, some sectors have it tough but overall things are great for Australia. AUSTRALIA are no America, that's for sure.
Every State and Territory is now reaping the benefits of vastly increased royalties from sales of iron ore and coal. For instance: QLD receives 7% royalty on coal up to US$100 per tonne and 10% over that figure. Average coal price was around $56 per tonne for thermal coal last year and now set at US$125 per tonne and far greater figures on the spot market. These States and Territories, quite rightly so, are raking it in.
Fair enough, some sectors have it tough but overall things are great for Australia. AUSTRALIA are no America, that's for sure.
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"The decision by National Australia Bank to make drastic provisions on its US mortgage debt could have ramifications in the US itself. It opted for a 100pc write-off on a clutch of "senior strips" of collateralized debt obligations (CDO) worth £450m - even though they were all rated AAA. No US bank has admitted to such fearsome loss rates."
This isn't exactly true either if you believe this:
http://www.crikey.com.au/Business/20080729-How-Merrills-dragged-NAB-into-an-830m-writedown.html
And I dont even think NAB have reported well to the market where in the CDO they sat and the rating of that particular tranche.
But hey, what a great headline!
Australia faces worse crisis than America
Oh please...
This isn't exactly true either if you believe this:
http://www.crikey.com.au/Business/20080729-How-Merrills-dragged-NAB-into-an-830m-writedown.html
And I dont even think NAB have reported well to the market where in the CDO they sat and the rating of that particular tranche.
But hey, what a great headline!
Australia faces worse crisis than America
Oh please...
wayneL
VIVA LA LIBERTAD, CARAJO!
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Jeez it must be bearish down there!!! It took 29 posts before these sorts of comments turned up.
It was only a few short month ago when I was still in oz, I would have been run out of town for even suggesting something like this and Ambrose Evans-Pritchard would have had his entry visa cancelled forever.
Things change quickly eh?
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Would you like to take the other side of my long AUD short GBP trade Wayne?
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I know mate.
I just wanted to bet another $1 !
I just wanted to bet another $1 !
wayneL
VIVA LA LIBERTAD, CARAJO!
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I went long the AUD with every penny I had about 5 years ago.
Aurum.
My whole family did that in 1972 when it was ~$1.40... bad trade that.
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No? Gone shy?
wayneL
VIVA LA LIBERTAD, CARAJO!
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The Aussie middle class is a lot more geared up and is not taking world conditions seriously.
Aussie battler are much better paid than yankee or pommie battlers and it's much easier being broke in Oz than either UK or USA.
That's the short answer, for the long answer DYOR.
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But what is happening to the capital and financial accounts and what are their long-term implications?
Higher CAD will put pressure on AUD, ultimately this will increase debt as a value, but will cause a decline in the CAD.
Not a good scenario, but nothing not known before.
Higher CAD will put pressure on AUD, ultimately this will increase debt as a value, but will cause a decline in the CAD.
Not a good scenario, but nothing not known before.
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