Sowing The Seeds Of A New Crisis

[Knobby22]

WHy would we have massive unemployment? Are you advising me that the $2700 was spent in shops to save the career paths of the minions who will be paying of the 315 billion debt/deficit we currently have? Admittedly it was only 43 billion in the cash splash. Last time I looked there were no marauding hordes causing social unrest? Pay it off easily??? Excuse me ???

It made Australians more positive and kept them spending.
Have a look at what's happened in other countries.
As the revenues start flowing again, as long as the govmint doesn't keep lowering taxes but keeps things the same they will pay it off easily.
Come back in 3 years.

 

[trainspotter]

"The impact of this sharper downturn on government revenue certainly means a temporary deficit for a longer period of time because of this very sharp contraction in demand." Treasurer Wayne Swan

We are being told Australia will be in deficit for longer than first thought, with reports it could take up to six years to return the economy to surplus.

Treasurer Wayne Swan has put it simply.

"The impact of this sharper downturn on government revenue certainly means a temporary deficit for a longer period of time because of this very sharp contraction in demand," Mr Swan told reporters in Canberra.

Hmmmmmm ... not nice Knobby22

PAY OFF 315 BILLION IN THREE YEARS?? Ummm ... nope ... try 20 years AT BEST. Do the math

 

[Beej]

Originally Posted by jonojpsg

As someone pointed out to me a while back, in Oz, the value of your house can decrease by 20% but the bank can't revalue it and demand that you pay up to bring your loan back to an acceptable LVR. This only happens if you have to refinance.

I've read this here and there on ASF but is it actually the case? I thought most mortgages had a "material change in circumstances" in there, which the Banks have certainly used in the past in commercial property in relation to a material change to the market. I am told this happened in rural lending with deregulation of the Dairy Industry when there were no defaults on accounts, just a material change in equity due to market conditions at the time. So, is it true that this doesn't exist in Residential mortgages??

As explained in other threads on this topic, due to most residential mortgages being tightly regulated under the Consumer Credit Code, this cannot and will not happen in the residential space.

Cheers,

Beej

 

[Uncle Festivus]

However there are reasons why governments are so interested in propping this one up and it's to do with demographics unfunded welfare/pension obligations in the near future.

Shanghai is actively promoting the two-child policy as China tries to defuse a demographic time bomb caused by a shortage of young workers after 30 years of tough population growth restrictions. The policy shift in the large coastal city marks the first time since 1979 that officials have actively encouraged parents to have more children. The city government is worried about the rapidly rising number of elderly people and the resulting burden and drag on the Chinese economy.

Japan is the grayest country in the world, with 21.5 percent of its population 65 or over. Not only is the Japanese population aging, it's also shrinking, from 127 million today to a projected 89 million by 2055, the result of a plunging fertility rate. This unfortunate combination is causing the country to lose its edge and dynamism. Older workers are less innovative; older, more "mature" markets attract less investment. Older populations live off savings, rather than generating new capital. And, as the number of working-age citizens diminishes, pension funds will be exhausted and tax revenues and government budgets will be squeezed.
The demographic transformation will in effect become a guillotine, cutting off policy options as Japan tries to deal with the needs of an elderly population

India and China account for one third of the world's total population older than 65 years of age and issues related to population ageing in the two countries will be “accentuated'' in the coming decades, according to the latest report of National Institute of Aging.

The long-term economic health of the United States is threatened by $53 trillion in government debts and liabilities that start to come due in four years when baby boomers begin to retire. The "Greatest Generation" and its baby-boom children have promised themselves benefits unprecedented in size and scope. Many leading economists say that even the world's most prosperous economy cannot fulfill these promises without a crushing increase in taxes ”” and perhaps not even then.

A USA TODAY analysis found that the nation's hidden debt ”” Americans' obligation today as taxpayers ”” is more than five times the $9.5 trillion they owe on mortgages, car loans, credit cards and other personal debt.
This hidden debt equals $473,456 per household, dwarfing the $84,454 each household owes in personal debt.

The $53 trillion is what federal, state and local governments need immediately ”” stashed away, earning interest, beyond the $3 trillion in taxes collected last year ”” to repay debts and honor future benefits promised under Medicare, Social Security and government pensions. And like an unpaid credit card balance accumulating interest, the problem grows by more than $1 trillion every year that action to pay down the debt is delayed.

abc

 

[wayneL]

The Austrians always say doom is coming. If there predictions varied a bit I might have more respect. Follow this blog for others that have made the prediction.

http://www.debtdeflation.com/blogs/

Keynesians also agree with free market theory especially creative destruction. The difference is that Austrians believe that if no one touched anything, economies would enter an amazing nirvana of steady state of growth and everything is self correcting. Sort of a heaven on earth. This is despite history showing that it's rubbish.

Of course we need creative destruction, we just don't need a 15 year depression.

Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.

In Keynes's theory, some micro-level actions of individuals and firms can lead to aggregate macroeconomic outcomes in which the economy operates below its potential output and growth. Austrian's believe in Say's Law, that supply creates its own demand, so that a "general glut" would therefore be impossible. Keynes contended that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. Keynes argued that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation.

Keynesians are more realistic.
Because prices are sticky in the New Keynesian model, an increase in the money supply (or equivalently, a decrease in the interest rate) does increase output and lower unemployment in the short run.

Keynesian economists advocate using monetary policy for stabilization.

When the economy is hit by some unexpected external shock, it may be a good idea to offset the macroeconomic effects of the shock with monetary policy. This is especially true if the unexpected shock is one (like a fall in consumer confidence) which tends to lower both output and inflation; in that case, expanding the money supply (lowering interest rates) helps by increasing output while stabilizing inflation and inflationary expectations.

Keynsians also believe you should adjust the nominal interest rate in response to changes in inflation and output.

In my words Keynsians treat an economy is more like a transistor. Without positive and negative fedbacks it will not operate in the "zone" and you will get distortian or even worse runaway.

House prices should be allowed to drop but massive wealth destruction that causes house prices to drop 95%, unemployment at 30% and govenrments to topple with fascists and communists taking control with misery all around has been tried already. The imprtant thing is that governments do not continue the stimulus too long and pay back the debt asap. This may involve raising taxes to the wealthy in the short term. That is the reason Keynsians are hated by people such as Murdoch.

Knobby,

You have a misunderstanding of Austrian theory ad have grossly misrepresented what Austrians say, even to the point of contradicting yourself.

Go and do some research so we can have a sensible discussion...

...until then.

 

[trainspotter]

Thanks Uncle Festivus. I wonder what our lousy $9,000 per man woman and child actually equates too in real terms once you factor in interest component and taxes? And this was prior to the budget prediction of 188 billion dollars. TWICE as much as Keatings catastrophe.

Mr Rudd was questioned several times on ABC1's Lateline before he put a figure on it - Australia's debt will peak at $300 billion. Nope ... according to the latest figures it is over 315 billion dollars and climbing. Not helping the Aussie dollar finished today just under 82 cents compared to USD. Balance of trade will plummet through the floor if it remains so high !

Oh my ... are they storm clouds on the horizon? Nope, just the interest amortising at an alarming rate.

 

[Beej]

Thanks Uncle Festivus. I wonder what our lousy $9,000 per man woman and child actually equates too in real terms once you factor in interest component and taxes? And this was prior to the budget prediction of 188 billion dollars. TWICE as much as Keatings catastrophe.

Mr Rudd was questioned several times on ABC1's Lateline before he put a figure on it - Australia's debt will peak at $300 billion. Nope ... according to the latest figures it is over 315 billion dollars and climbing. Not helping the Aussie dollar finished today just under 82 cents compared to USD. Balance of trade will plummet through the floor if it remains so high !

Oh my ... are they storm clouds on the horizon? Nope, just the interest amortising at an alarming rate.

a) That $315B figure is an ESTIMATE of what the GROSS debt might be in 4 years time! There is something like $100B floating around in things like the future fund and other commonwealth government assets, so the net debt figure is projected to peak at a much lower number. Additionally the economic picture is now looking rosier meaning there is a chance that the projected debt figure will be revised down-wards due to more revenues and less expenditure on the dole act than has been estimated in those forward estimates.

b) So in terms of amortisation/interest payments etc, we are CURRENTLY paying SFA - so your last statement is actually wrong. In net terms the commonwealth at this point in time would still have zero net debt, and a gross debt in the order of < $50B.

Beej

 

[trainspotter]

Thanks for pointing this out to me Beej. Read it and weep. Kruddy himself has admitted it 300 BILLION DOLLARS. "Projected" or not. WHAT IF it is worse than their modelling? Also LESS revenues from tax dollars due to unemployment "Projected". Out of the mouths of babes.

http://www.abc.net.au/lateline/content/2008/s2574225.htm .... in his own words.

The future fund is to protect the superannuation entitlements for ALL government employees and CAN NOT be used to pay of debt !!! WHAT other Govt assets have we left to sell??? Should it be used to pay off debt? Then what? We rent it back?

My last statement said "Oh my ... are they storm clouds on the horizon? Nope, just the interest amortising at an alarming rate."

This basically means the storm is on the horizon (It will be with us soon enough petal, just wait) AS in it is on it's way and the % is ticking. This is not my opinion by the way, I am repeating what Kevin Rudd has admitted for all to see. The 6000 word essay in the paper the other day predicting "DOOM AND GLOOM" aslo helped confirm my "unfounded" thesis. Pfffffffffffftttttttt !!!!!

KEVIN RUDD: Well, Tony, there seems to be a political spin rule on your part to go back to this time and time again. The Treasurer made this absolutely plain in the Budget papers. I said before the figure was $300 (billion) as the Liberals' was $275 (billion). Add $22-billion of non supportive savings, they come to a similar figure. The key thing, though, is this - let me just add this point. This comes to some 13.8 per cent of GDP by the time it reaches its peak at around by 2313, 2014, and then comes down to something like 3 per cent of GDP across the decade.

 

[MrBurns]

As explained in other threads on this topic, due to most residential mortgages being tightly regulated under the Consumer Credit Code, this cannot and will not happen in the residential space.

Cheers,

Beej

This will only happen if the borrower starts to default, the issue of negative equity will only be raised if the borrower has supplied other assets as collateral then the bank might move in to cover ther backside before it gets worse.

There no point calling in a mortgage with negative equity if the payments are still being made, the bank only crystallizes their loss.

 

[MrBurns]

Thanks for pointing this out to me Beej. Read it and weep. Kruddy himself has admitted it 300 BILLION DOLLARS. "Projected" or not. WHAT IF it is worse than their modelling? Also LESS revenues from tax dollars due to unemployment "Projected". Out of the mouths of babes.

http://www.abc.net.au/lateline/content/2008/s2574225.htm .... in his own words.

The future fund is to protect the superannuation entitlements for ALL government employees and CAN NOT be used to pay of debt !!! WHAT other Govt assets have we left to sell??? Should it be used to pay off debt? Then what? We rent it back?

My last statement said "Oh my ... are they storm clouds on the horizon? Nope, just the interest amortising at an alarming rate."

This basically means the storm is on the horizon (It will be with us soon enough petal, just wait) AS in it is on it's way and the % is ticking. This is not my opinion by the way, I am repeating what Kevin Rudd has admitted for all to see. The 6000 word essay in the paper the other day predicting "DOOM AND GLOOM" aslo helped confirm my "unfounded" thesis. Pfffffffffffftttttttt !!!!!

KEVIN RUDD: Well, Tony, there seems to be a political spin rule on your part to go back to this time and time again. The Treasurer made this absolutely plain in the Budget papers. I said before the figure was $300 (billion) as the Liberals' was $275 (billion). Add $22-billion of non supportive savings, they come to a similar figure. The key thing, though, is this - let me just add this point. This comes to some 13.8 per cent of GDP by the time it reaches its peak at around by 2313, 2014, and then comes down to something like 3 per cent of GDP across the decade.

The party has to end sometime, there is no such thing as a free lunch, we cannot avoid what has happened elsewhere and so on and so on, it's all true but it's taking it's sweet time as Rudd puts off, and compounds the gravity of, the day of reckoning to suit his political timetable.

 

[Uncle Festivus]

This is only relevant in the context that China has been promoted as the bright beacon of hope leading the world out of recession, but at what cost? The implications for Australia are already showing up as surpluses of commodities, both in LME stockpiles and on the ground in China.

And this from a China bull?

An unprecedented external demand shock, stemming from rare synchronous recessions in the developed world, devastated the export-led Chinese growth machine. That triggered sackings of more than 20m migrant workers in export-intensive Guangdong province. Long fixated on social stability, Beijing moved to arrest this deterioration. The government was determined to do whatever it took to restore rapid growth.

Yet there can be no avoiding the destabilising consequences of these actions. Surging investment accounted for an unprecedented 88 per cent of Chinese GDP growth in the first half of 2009 - double the average contribution of 43 per cent over the past decade. At the same time, the quality of Chinese bank lending most assuredly suffered from the rash of credit disbursements in the first half of this year - a trend that could sow the seeds for a new wave of non-performing bank loans. Just this week, Chinese regulators told banks that new loans must be used to bolster the real economy and not for speculation in equities and real estate.

http://www.ft.com/cms/s/0/42d38b2c-7bd6-11de-9772-00144feabdc0.html?nclick_check=1

 

[Buckeroo]

And this from a China bull?

Well, that's what you get when you have a Bull in a China shop?

Cheers

Ian

 

[Mofra]

Re: Sewing The Seeds Of A New Crisis

Gen Y has NO IDEA of such matters. They have been borne into a land of milk and honey with nightingales droppig grapes onto the palms of their hands. (very soft hands I must say) In other words they have never EXPERIENCED the tough times. Nuffin to do with "Up yours" and "I want it now" ethos. "Ooohhh the boss didnt like my eyebrow pierced and the tattoo on my neck" they squeal ... Well if you are in the line of retail in the public eye in Myer, it was probably not a good idea to get this done. MAYBE OK if you work in a GOTHIC BONG SHOP.

Nah, no generalisations there at all

What with their cheap housing, free university and low unemployment rates, they...

...oh wait, that wasn't gen Y at all.

Back to case in point, it may not be as simple as picking the next economic crisis if governments worldwide have set the precedent for direct intervention and heightened regulation at the first sign of trouble. In the war for hearts and minds the Keynesians may not just have won the recession this time.

 

[knocker]

Re: Sewing The Seeds Of A New Crisis

Nah, no generalisations there at all

What with their cheap housing, free university and low unemployment rates, they...

...oh wait, that wasn't gen Y at all.

Back to case in point, it may not be as simple as picking the next economic crisis if governments worldwide have set the precedent for direct intervention and heightened regulation at the first sign of trouble. In the war for hearts and minds the Keynesians may not just have won the recession this time.

Yes I recall the free education, however that was late eighties early nineties, full blown recession. Also you had to work hard to get there, none of this buying a degree ****. Gen Y are the biggest bunch of self indulged shirkers. All they are interested in is blowing the dole on tattoos drugs and mobile phones.

 

[Mofra]

Re: Sewing The Seeds Of A New Crisis

Yes I recall the free education, however that was late eighties early nineties, full blown recession. Also you had to work hard to get there, none of this buying a degree ****. Gen Y are the biggest bunch of self indulged shirkers. All they are interested in is blowing the dole on tattoos drugs and mobile phones.

Ah late 80s & 90s = HECS era, no freebies (unlike the Baby Boomers, the most lazy, self-indulgent pack of slack whiners this fair land has ever produced).

If only people could act a little more like those wonderful gen X types - the happy medium, and quite handsome lot to boot

Might have to watch what you say the gen Y's though - not nice to upset the people who may choose your nursing home

 

[knocker]

Re: Sewing The Seeds Of A New Crisis

Ah late 80s & 90s = HECS era, no freebies (unlike the Baby Boomers, the most lazy, self-indulgent pack of slack whiners this fair land has ever produced).

If only people could act a little more like those wonderful gen X types - the happy medium, and quite handsome lot to boot

Might have to watch what you say the gen Y's though - not nice to upset the people who may choose your nursing home

Um no. From recollection Hecs came in 1990. I completed my degree 1988 and honors 1989. All free. And I doubt any gen y will choose my nursing home lol In fact I reckon most gen X will be outliving gen y unfortunately. lol

 

[Mr J]

Re: Sewing The Seeds Of A New Crisis

Gen Y are the biggest bunch of self indulged shirkers. All they are interested in is blowing the dole on tattoos drugs and mobile phones.

How's the nursing home going?

 

[Buckeroo]

Re: Sewing The Seeds Of A New Crisis

Ah late 80s & 90s = HECS era, no freebies (unlike the Baby Boomers, the most lazy, self-indulgent pack of slack whiners this fair land has ever produced).

If only people could act a little more like those wonderful gen X types - the happy medium, and quite handsome lot to boot

Might have to watch what you say the gen Y's though - not nice to upset the people who may choose your nursing home

Wow, you have much to learn grasshopper and that silver platter of yours will soon be empty.

Cheers

 

[wayneL]

Stumbled across this again today and figured this is as good a place as any to stick it (maybe it should be in the politics thread:

Abraham Lincoln's greatest ever quote that Lincoln didn't actually say:

You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong
You cannot help the poor man by destroying the rich.
You cannot further the brotherhood of man by inciting class hatred.
You cannot build character and courage by taking away man's initiative and independence.
You cannot help small men by tearing down big men.
You cannot lift the wage earner by pulling down the wage payer.
You cannot keep out of trouble by spending more than your income.
You cannot establish security on borrowed money.
You cannot help men permanently by doing for them what they will not do for themselves.

(They were written in 1916 by the Rev. William J. H. Boetcker and popularly attributed to Lincoln because they were alongside a bona-fide Lincoln quote)

 

[stocksontheblock]

Has it worked? At what cost? Who pays for it? Who will lend the money eg Net Long-Term TIC Flows was neg $20B for May? As usual, the beer & skittles mob have very little factual data to back up their claims, other than hope & rhetoric based mostly on the opinions of people who have comprehensively gotten it wrong from the start. The starting point for enlightenment for anyone wanting to know the real facts can be found from the Wardens Of Liquidity & Debt themselves -

I've just picked up on this topic, and with so much to make comment for/against, I have to first ask of UF to detail the "at what cost?" part.

I would be very keen to know his thoughts on the cost factor. I know you dont simply mean cost as in money, yet if the Gov't stimulus has a price on its head, then what would have been the price should the market's of been left to their own devices. Are you suggesting the price would be less?

For the record, I understand all theory and what it means for both sides, yet I am trying to understand, for instance, peoples thoughts on what the price will be (stimulus) and would have been (markets).