The big picture in Australia

[MrBurns]

I and others I know have a feeling tha things arent good on the home front, retail vacancies increasing, spending way own, a feeling like just before previous recessions ony worse, anyone else getting this vibe ?

 

[medicowallet]

I and others I know have a feeling tha things arent good on the home front, retail vacancies increasing, spending way own, a feeling like just before previous recessions ony worse, anyone else getting this vibe ?

Welcome back,

I agree, things are looking interesting in non-mining.

The government is also broke, so can't spend the Liberal's fortunes to get themselves out of whatever comes along next time.

I for one think Australians could do with a short lean time to help galvanise our economy for the future.

 

[Starcraftmazter]

The government is also broke

Hi. This statement makes no economic sense, a government of such a country as Australia cannot go "broke" as it has it's own currency of which it's central bank is a monopoly controller. Public debt is also extremely low compared to every other developed country - indeed, public debt is the absolute last thing to worry about in Australia.


No, it is the private debt - the highest private debt to GDP in the entire world (about on par with the Netherlands), led by the world's biggest housing bubble, barely supported by a commodity bubble which is crashing which is the real worry.

And indeed, as the commodity bubble bursts, as demographics rapidly change, as the housing bubble bursts - our country, left with an uncompetitive economy due to wage inflation that happened solely to allow people to service ridiculous mortgages, with a manufacturing base a fraction of the size it used to be, will enter the biggest depression in it's history.

 

[Beej]

[Australia has] the highest private debt to GDP in the entire world

This statement is demonstrably false - and by a loooong margin:

 

[McLovin]

This statement is demonstrably false - and by a loooong margin:

Of course, if the private sector continues to delever then at least one of two things must occur, either the government continues running a deficit and/or Australia starts running current account surpluses. Basically, the government line that it will return to surplus is a myth. If the private sector continues to delever and we continue to run a CA deficit then the government will continue to be in deficit. And it doesn't matter which side of the political spectrum the government of the day happens to be from. On the other hand, the current account surplus that we have been seeing of late is probably due, in no small part, to the private sector deleveraging.

The sum of the three sectors (public/private/external) must equal zero. To date what has happened is the private sector has born the debt burden, as opposed to countries like Italy and Greece where the public sector did.

This chart might explain it better...

 

[Glen48]

Saw a chart were we are number 4 in the worlds most over priced Housing Canada was first, word is our housing is 40% over priced.
What could be a problem if the general public get word of a collapse it will cause instability in prices as all want to unload ASAP.
Yep we are under way for a depression over the next 20 yrs

 

[MrBurns]

Housing is already slipping, I go on gut feel so I wont win any economic awards but it feels eerily spooky out there, massive job losses, companies outsourcing and/or moving OS and who can blame them, it's not good I think we're in for it.

Even our darling home grown Telstra has it's call centres in darkest Africa, how many Aussie jobs has that cost ?

Libs will cut Govt jobs by thousands, where will those people go ?

 

[Kee37]

While i feel that definitely yes, the housing bubble is getting closer and closer to a burst point (supported by many international-based economists/forecasting organisations 1,2) it's also worthy to note that most Australians demand for owning houses is still growing with the GenX/GenY prerogative still centered around real estate ownership.

So yeah, definitely they're over priced, but within the realm of Australia the demand still seems to be there for saving towards house ownership which, to me atleast, offsets a lot of the bursting-bubble theories.






1. http://www.news.com.au/money/proper...dward-chancellor/story-e6frfmd0-1225861377051
2. http://www.news.com.au/money/proper...r-through-market/story-e6frfmd0-1226221461085

 

[ROE]

Housing is already slipping, I go on gut feel so I wont win any economic awards but it feels eerily spooky out there, massive job losses, companies outsourcing and/or moving OS and who can blame them, it's not good I think we're in for it.

Even our darling home grown Telstra has it's call centres in darkest Africa, how many Aussie jobs has that cost ?

Libs will cut Govt jobs by thousands, where will those people go ?

The wind of change is coming so make sure you build windmills instead of shelters
1. Own your own home
2. Debt Free
3. Have income generating assets ...

when stuff cheap you buy up and generating more income

 

[craft]

Of course, if the private sector continues to delever then at least one of two things must occur, either the government continues running a deficit and/or Australia starts running current account surpluses. Basically, the government line that it will return to surplus is a myth. If the private sector continues to delever and we continue to run a CA deficit then the government will continue to be in deficit. And it doesn't matter which side of the political spectrum the government of the day happens to be from. On the other hand, the current account surplus that we have been seeing of late is probably due, in no small part, to the private sector deleveraging.

The sum of the three sectors (public/private/external) must equal zero. To date what has happened is the private sector has born the debt burden, as opposed to countries like Italy and Greece where the public sector did.[/IMG]

What about the capital account??? current account is only half the story.

 

[Starcraftmazter]

This statement is demonstrably false - and by a loooong margin:

Can I just briefly ask you to have a look at the charts you posted and make the obvious conclusion that they actually all contradict each other?

Maybe you should try a bit harder next time.

We do have the highest, along with the Netherlands. UK and USA are significantly below us.

 

[McLovin]

What about the capital account??? current account is only half the story.

Well yeah, the two have to balance. For the purpose of my example though, it's impossible to have the private sector as a net saver and run a current account deficit and have the government in surplus.

 

[Beej]

Can I just briefly ask you to have a look at the charts you posted and make the obvious conclusion that they actually all contradict each other?

Maybe you should try a bit harder next time.

We do have the highest, along with the Netherlands. UK and USA are significantly below us.

Que? The first chart (by Steve Keen) shows that the UK and the US private debt to GDP ratio's tower over Australia's! (450%, 250% vs 150%). I have no idea how you can look at that chart and claim that Australia has higher private debt / GDP ratio that the US and the UK???

The other charts just so other aspects of the debt picture, breaking things down a bit more, and adding public debt on some of them etc. One even looks at debt to income just for another view. The reason for any discrepancies is likely the time when the chart was published, and/or the inclusion or not of financial sector debt.

 

[Smurf1976]

I and others I know have a feeling tha things arent good on the home front, retail vacancies increasing, spending way own, a feeling like just before previous recessions ony worse, anyone else getting this vibe ?

Absolutely. A few examples (all of them are within the past month and are true, I've only removed the business names etc).

1. Large engineering consulting firm. Employee based in Melbourne tells me that "they aren't winning any work" because "nobody's willing to commit to anything given all the uncertainty".

2. Building trades worker who moved from Tas to SA. Suffice to say that he's now driving a delivery van due to lack of work in his trade.

3. Roofing contractor in Hobart. "Not much on and may lay off staff".

4. Victoria is widely reported as "on the brink of recession". Vic isn't exactly a minor state so that's significant.

5. Tasmania is officially in recession and the string of big job losses is becoming rather long. Forestry in chaos, TEMCO (which employs hundreds) shutting practically the whole plant in 2 weeks time and may never re-open, Bell Bay Aluminium (also employs a lot of people) reportedly considering closure or downsizing, K&D Bricks permanently closing the plant at the end of the month, an ongoing stream of job losses across the public service, Aurora Energy's "fire on completion" policy with apprentices, unemployment has hit 7% officially. That's just in Tasmania, and that's just what's happening right now.

6. Anecdotally, there's pretty overwhelming evidence that in most of the country, just about every industry other than mining or things associated with it are seriously struggling at the moment.

7. Various media reports of hundreds of people applying for low level retail etc jobs.

8. Practically everywhere you go, people are concerned about money. Either worried about security of their income, worried about the cost of living or worried about their investments. But just about everyone is worried about money in one way or another - the exact opposite of the situation a few years ago.

9. It's now relatively easy to get tradespeople etc whereas this wasn't the case during the boom.

10. The general mood seems to be one of doom and gloom.

 

[craft]

WTF... I’m Confused.

Of course, if the private sector continues to delever then at least one of two things must occur, either the government continues running a deficit and/or Australia starts running current account surpluses. Basically, the government line that it will return to surplus is a myth. If the private sector continues to delever and we continue to run a CA deficit then the government will continue to be in deficit. And it doesn't matter which side of the political spectrum the government of the day happens to be from. On the other hand, the current account surplus that we have been seeing of late is probably due, in no small part, to the private sector deleveraging.

O.K first confussion you talk firstly about the current account being in defict and then in surplus - We have run a current account defecit continously since 1975.

The sum of the three sectors (public/private/external) must equal zero. To date what has happened is the private sector has born the debt burden, as opposed to countries like Italy and Greece where the public sector did.

The sum of the three sectors have to balance at the 'Balance of Payment level' only. Current account is only part of the BOP.

Well yeah, the two have to balance. For the purpose of my example though, it's impossible to have the private sector as a net saver and run a current account deficit and have the government in surplus.

Private sector as net saver = Provider of Capital
Current Account deficit = User of Capital.

The two actually offset and could theoretically offset perfectly but where there is a surplus (as you seem to be indicating is the potential problem) the government does NOT have to soak up the surplus through a fiscal deficit, The inbalance could/should simply be balanced through the capital account. In fact we have been a net importer of capital (both debt and equity) for a long time – you would think in a major resource boom we would/should start paying back the debt and buying back the farm.

 

[McLovin]

WTF... I’m Confused.




O.K first confussion you talk firstly about the current account being in defict and then in surplus - We have run a current account defecit continously since 1975.

It should be current account deficit not surplus.

Reading the end of that paragraph I'm not quite sure what I'm trying to say.

(3) Private Sector Surplus or Net Saving = Government Deficit + Current Account Balance

The trade balance (exports – imports) is not the precise term to use when considering all financial flows, the current account balance is. For the US, the two very close in magnitude. We’ll call equation 3 the Sector Financial Balances (SFB) equation. Again, this is an accounting identity, not theory. Disagreeing with it is akin to believing the earth is flat. For examples of this framework directly in use on this blog, see here and here.

http://wallstreetpit.com/8568-the-sector-financial-balances-model-of-aggregate-demand

 

[craft]

Absolutely. A few examples (all of them are within the past month and are true, I've only removed the business names etc).

1. Large engineering consulting firm. Employee based in Melbourne tells me that "they aren't winning any work" because "nobody's willing to commit to anything given all the uncertainty".

2. Building trades worker who moved from Tas to SA. Suffice to say that he's now driving a delivery van due to lack of work in his trade.

3. Roofing contractor in Hobart. "Not much on and may lay off staff".

4. Victoria is widely reported as "on the brink of recession". Vic isn't exactly a minor state so that's significant.

5. Tasmania is officially in recession and the string of big job losses is becoming rather long. Forestry in chaos, TEMCO (which employs hundreds) shutting practically the whole plant in 2 weeks time and may never re-open, Bell Bay Aluminium (also employs a lot of people) reportedly considering closure or downsizing, K&D Bricks permanently closing the plant at the end of the month, an ongoing stream of job losses across the public service, Aurora Energy's "fire on completion" policy with apprentices, unemployment has hit 7% officially. That's just in Tasmania, and that's just what's happening right now.

6. Anecdotally, there's pretty overwhelming evidence that in most of the country, just about every industry other than mining or things associated with it are seriously struggling at the moment.

7. Various media reports of hundreds of people applying for low level retail etc jobs.

8. Practically everywhere you go, people are concerned about money. Either worried about security of their income, worried about the cost of living or worried about their investments. But just about everyone is worried about money in one way or another - the exact opposite of the situation a few years ago.

9. It's now relatively easy to get tradespeople etc whereas this wasn't the case during the boom.

10. The general mood seems to be one of doom and gloom.

Despite all this the Macro numbers are still healthy which implies a lot of the pain is structual. The danger is that we mistake cyclical for structural and investment to much in resources and decimate everything and everybody else beyond being able to recover when/if the terms of trade fall. Diversity in Australia's economy needs weaker terms of trades and soon, but I doubt if the mining magnates see it that way.

 

[craft]

Reading the end of that paragraph I'm not quite sure what I'm trying to say.

So you've managed to confuse as both then

 

[McLovin]

So you've managed to confuse as both then

It would appear so!

Sorry, I really have no idea what I was saying there. My last sentence contradicted the first. 1am.

 

[McLovin]

Despite all this the Macro numbers are still healthy which implies a lot of the pain is structual. The danger is that we mistake cyclical for structural and investment to much in resources and decimate everything and everybody else beyond being able to recover when/if the terms of trade fall. Diversity in Australia's economy needs weaker terms of trades and soon, but I doubt if the mining magnates see it that way.

3 year election cycles do not make for long term economic planning.