What is Australia's total DEBT?

[Temjin]

Temjin, is that graph for total private sector credit growth including corporate, or household alone? Most of my comments pertain to household credit growth in general, and I was referring specifically to the period from mid/late 90s through to 07-ish as well. I do still agree with your point in general.

Re the US - yes, they are certainly in big trouble right now.

Yes, I believe it is for total private sector including all businesses, personal and household. Obviously, household credit would exhibit a less decline, or perhaps an increase if you break the chart down. Will need to check ABS on this.

That is the big question! Low interest rates, tax rebates, investment allowances and so are the regular tools used. Like I said earlier, you cannot force them, government/central banks can only pull levers that attempt to influence the behaviour of individuals and businesses. That's why no outcome is certain! If you can't get things going again then yes, recessions etc will follow as obviously aggregate demand is going to contract.

Cheers,

Beej

Yes, the question now is, would those "regular" tools work? Since none of us here are purely academic economists (at least between you and me), can we know for certain that their "economic theories" (mainstream Keynesian), who DID NOT predict this crisis, will be able to lead us out with those tools?

Can we confidently assume their economic theories, which actually have never been an exact science over the last few hundred years as there were a lot of debates/controversies, actually accurately reflects the "real" world?

I believe "pulling those levels" would only distort the market in its attempt to move back to equilibrium. The process is very painful to certain people/interest groups, but unfortunately, our politicians see thing a lot differently and prefer short term solutions at the expense of the future.

Temjin,

I think you will find that businesses do want to borrow but the banks are unwilling to do so, credit rationing.

Talking to a good friend who headed up the risk management department with one of the big four leads me to believe this along with friends and clients opinions. He has now setup his own company specializing in finding credit for mature and good cash flow businesses. He said it is very tight and difficult at the moment with sound business unable to secure money for further expansion or just day to day activities.

It is this anecdotal evidence that leads me to believe that all is not well in the corporate and business world.

It is business that are the power generators of the economy not the RE market. No business growth, no growth in employment, no money to pay of massive RE debt.

Again only time will tell.

You are certainly right on that the credit rationing has been applied indiscriminately for ALL businesses, both good and bad. I certainly hope the banks / lenders have in place the necessary procedures to root out the real good ones from the bad ones.

However, they are in a conservative mode and it's nature for them to shut off credit in order to preserve their capital reserve and prevent more potential losses.

Yep, I agree that businesses are the generators of the economy and NOT the RE market. The latter is non-productive as available credit are consumed to speculate on prices that does not generate any economic benefit as a whole. Whereas, businesses do create REAL WEALTH by providing valuable services and/or goods from basic resources.

It's unfortunate that the government has decided to save the RE market than the business sector by providing far more tax credits to them than the latter. (evidence from the FHBGs and the credit growth rate differences between RE and the private business sector)

I guess this is because the Big 4s have more than 50% of their "assets" are in residential mortgages. It would be a complete disaster to their portfolio if prices drop significantly and default rates increase. This is the last thing the government wants. (and the banks obviously)

 

[MR.]

Temjin,
You have brought up some valuable opinions. Yes, everything will/should be done that is possible to keep real estate from deflating. If real estate had been left to inflate over the years it should not be a surprise that now at these levels “everything” will be done to keep the asset price healthy. Hopefully in the endeavours to restart the economy the speculative real estate bubble doesn’t increase further.

Hopefully the outcome of the US rate drop in 2000 isn’t an example.
But I'm not so sure.....

 

[Temjin]

Temjin,
You have brought up some valuable opinions. Yes, everything will/should be done that is possible to keep real estate from deflating. If real estate had been left to inflate over the years it should not be a surprise that now at these levels “everything” will be done to keep the asset price healthy. Hopefully in the endeavours to restart the economy the speculative real estate bubble doesn’t increase further.

Hopefully the outcome of the US rate drop in 2000 isn’t an example.
But I'm not so sure.....

Thanks MR.

The remaining question is again, go back to whether those "tools" will be enough to prevent those assets from deflating and cause a local banking crisis, but at the same time, enough to prevent those assets from inflating too much to cause a bigger bubble.

They may want to do "everything" to keep them healthy, but whether they will be successful or not is another matter. Again, I have little confidence that they will succeed in their endeavors. Why? Because history say so.

The Australian economy is doing so well right now, relative to other developed countries anyway, is largely because of Chinese's massive stimulus package. They still have a huge over-capacity and imbalance problem. With their export collapsed as a result of reduced demand from the US and the rest of the world, what is the reason behind their "record" import data? Research had indicate that the state sponsored companies are stockpiling the resources to take advantage of the low price, and in addition, private speculators were actually buying them to...well.. "speculate" without the intention of using them. (i.e. not consuming)

It's not sustainable in my opinion, so as soon as the stimulus effect from China has waded off, their demand for our resources will drop.

This then in turn, cause higher unemployment rate, blah blah blah. You know the rest.

I think I went outside the topic of debt. hahah but that's ok.

 

[MR.]

go back to whether those "tools" will be enough to prevent those assets from deflating and cause a local banking crisis, but at the same time, enough to prevent those assets from inflating too much to cause a bigger bubble.

The more I think about it the more I'm concluding that we have the tools with enough interest rate movement in Australia to prevent those assets from deflating. (for now) Many debtors hadn't had it so good with these low interest rates, doubt they'd default, if they were still employed and/or had tenants.

1) Latest interest rate rise was to cool real estate. Could still continue on it's path with increasing rate rises for now. But dampening the economy. Until?

2) If realestate is under control and inflation breaks 3% again, will the RBA raise rates knowing how deep the debt is in real estate?

 

[Macquack]

2) If realestate is under control and inflation breaks 3% again, will the RBA raise rates knowing how deep the debt is in real estate?

Are you suggesting that the Reserve Bank would penalise people with no debt so as to cower to the debt laden masses, I think you may be right.

 

[Soft Dough]

Are you suggesting that the Reserve Bank would penalise people with no debt so as to cower to the debt laden masses, I think you may be right.

Depends how influenced the reserved bank is when they receive their PM from our PM.

It also depends on when the next election is.

 

[joeyr46]

Depends how influenced the reserved bank is when they receive their PM from our PM.

It also depends on when the next election is.

Since when did the RBA decide were interest rates will go supply demand decides. RBA has no power at all and just follows along behind what the market does and then make silly statements like "Rates are at emergency levels" Might have been lowest levels since 1960 (And interestingly house prices did not scream up until the seventies at 13% interest rates )Current level of interest rates is IMHO a measure of the fact that we have so much debt there is no one left who either wants to borrow or qualifies to borrow, we're finally running out of greater fools (maybe)

 

[MR.]

1) Latest interest rate rise was to cool real estate. Could still continue on it's path with increasing rate rises for now. But dampening the economy. Until?

Until, the economy can take no more pain from higher rates. Interest rates are kept on hold for the economy and the RBA turns a blind eye to real estate. The government steps in and changes a few real estate rules perhaps so she aint flyin too far.

2) If realestate is under control and inflation breaks 3% again, will the RBA raise rates knowing how deep the debts are in real estate?

They’d be treading carefully not to upset the real estate market. I’d think the RBA might let inflation run a little to the peril of savers.

Are you suggesting that the Reserve Bank would penalise people with no debt so as to cower to the debt laden masses

Appears that way to me.
What else could the RBA do?

 

[MR.]

Since when did the RBA decide were interest rates will go supply demand decides. RBA has no power at all and just follows along behind what the market does and then make silly statements like "Rates are at emergency levels" Might have been lowest levels since 1960 (And interestingly house prices did not scream up until the seventies at 13% interest rates )Current level of interest rates is IMHO a measure of the fact that we have so much debt there is no one left who either wants to borrow or qualifies to borrow, we're finally running out of greater fools (maybe)

Joey the following is to the best of my knowledge.

Since when did the RBA decide were (where) interest rates will go(?) (The RBA dictates cash interest rates and margins are added by banks to borrowers) supply demand decides. (maybe but mostly not)

RBA has no power at all (The RBA has the power to change interest rates whenever they like up or down)

just follows along behind what the market does and then make silly statements like "Rates are at emergency levels" (The RBA doesn’t just follow along behind. The so called silly statement is not silly at all. The RBA is explaining, knowing private debt is already extremely high, that the rates are to kick start the economy and are not to continue the speculation for real estate. Also so everyone knows not to "commit" to spending the left over money from their home loans)

Might have been lowest levels since 1960 (agree)(And interestingly house prices did not scream up until the seventies at 13% interest rates ) (Perhaps late 80’s. Seventies had between 6 and 10% interest and house prices had risen only 15 – 20%. Late eighties property at approx 14-16% interest and rose approx 30%)

Current level of interest rates is IMHO a measure of the fact that we have so much debt there is no one left who either wants to borrow or qualifies to borrow, we're finally running out of greater fools (maybe)(If interest rates continued to stay low greater fools will definitely be found in real estate.)

 

[Chronos-Plutus]