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

[Ald123]

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.

Thank you for this post, I too hate debt and I have been driven by FOMO, based on the years of statistics regarding property prices. I honestly was expecting rate rises and inflation thinking it's the only way to get Australia out of the ****, I thought that Americans, Europeans and Australians would look at the levels of printed money and what it got people into in 2008 and never believed that they would print more money. I never believed that people could be so stupid to allow so much quantitative easing , but they are. I never realised how greedy bankers are. I never realised just how placated the general population is and how they trust their governments who blatantly screw them over.

Basically the problem we had in 2008 has been multiplied since then and we have not dealt with the underlying problems. The only government in the World who I see as being realistic is Greece, they are basically standing up and saying, we would like to pay our debts, but we would also like to develop our country and allow us to make profits and grow the economy. But the bankers want every last cent and to destroy the economy there so that they can buy it cheap and then run the country German style, effectively making Greece an economic colony of German capitalists. The Greeks are resisting this and I don't think they will be successful as the bankers will get rid of this Tspiras government and bring in another corrupt one that takes on loans from the bankers under terms that kill the Greek people's economy. In Exchange for bags of bribe money and private Swiss bank accounts. Much like in Australia with the lobbying and opportunities our politicians in Australia get. See the mining tax.

 

[Ald123]

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!!!

When was that ? How did things develop in the economy? What caused all that in the first place?

 

[Ald123]

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

Bang! The biggest nail in the head argument I have ever read. This is the smartest thing I have read in ages.

 

[Ald123]

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.

Thank you for that

 

[Smurf1976]

If rates are low then people will continue to buy housing.

Rates are relevant only if someone can borrow the money in the first place.

Lenders raise minimum deposit requirement to 20% and count only genuine savings (no gifts, lottery winnings, personal loans etc). Very plausible based on the past, and it would kill off quite a bit of owner occupied demand for property "just like that". No matter how much someone wants to buy, if they can't get the money then they're not going to be buying.

Demand for property, like anything else, is a function of not only desire and underlying factors (population in the case of housing) but also the ability to get the money. If the money isn't available then you're not buying.

 

[Mrmagoo]

Capital gains on some houses have been 100k NET each year for 10 years. Or close to one million dollars. That is a yearly return of nearly 12% per year of the entire 10 year period, which includes the GFC. These are simply astounding figures.

 

[Mrmagoo]

Rates are relevant only if someone can borrow the money in the first place.

Lenders raise minimum deposit requirement to 20% and count only genuine savings (no gifts, lottery winnings, personal loans etc). Very plausible based on the past, and it would kill off quite a bit of owner occupied demand for property "just like that". No matter how much someone wants to buy, if they can't get the money then they're not going to be buying.

Demand for property, like anything else, is a function of not only desire and underlying factors (population in the case of housing) but also the ability to get the money. If the money isn't available then you're not buying.

Its already at the point where the average worker can't buy inside Melbourne or Sydney. You's be going out to places like Cranbourne or Frankston which are not part of Melbourne and paying sky high prices for a basic home. You're essentially camping outside of the city borders .

 

[tech/a]

Originally Posted by tech/a
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.

Strong USD/EURO weaker AUD
Weak AUD less investment in Aus.
So this acts like an interest rate supresser

Weak AUD means cheaper Aussi product more demand.
Growth in Australia and if it's too much then inflation can
Play a part.

Growth in USA/EURO Zone means stronger currency and inflationary trends.

Not seeing any of this to a degree which is going to influence AUST to any greater degree.

Until we do ------

I see things flopping around in a zone between 60 and 90 cents AUD for the forseeable future.
Inflation which pushes interest rates above 8% will be a looooong time coming.

Personal view.

Will be a looooong time.

 

[qldfrog]

Strong USD/EURO weaker AUD
Weak AUD less investment in Aus.
So this acts like an interest rate supresser

Weak AUD means cheaper Aussi product more demand.
Growth in Australia and if it's too much then inflation can
Play a part.

Growth in USA/EURO Zone means stronger currency and inflationary trends.

Not seeing any of this to a degree which is going to influence AUST to any greater degree.

Until we do ------

I see things flopping around in a zone between 60 and 90 cents AUD for the forseeable future.
Inflation which pushes interest rates above 8% will be a looooong time coming.

Personal view.

Will be a looooong time.

if AUSD is at let's say 50c, what will australia be able to sell????
the minerals do not really count here: the boom or bust is irrespective of the AUD, sure with AUD at 50c, Rio and BHP will make more profit in the Cayman islands and Singapore but this will not generate much extra work/tax for Australia;
agricultural sector will benefit I agree, but no job and hardly any $ in coffer either; plus it takes years to expand cattle herds and at least one year to increase harvest output, as long as the rain is there with an El Nino coming

so my view that a collapse in the AUD (which is needed) may come too late, no extra work, no wage increase, moribond economy so no way can the reserve bank increase rate...
Unless the condition is so bad that the banks/RE bubble pops and Australia find it hard to get outside required capital-> increase of rates under stress as per argentina, brasil in past crisis..not a nice show....;
And in that case we are even worse off.
Even the non catastrophic scenario sees no wage increase,unemployment but inflation due to higher import costs (which is everything we consume nowadays) and always higher captive market prices: taxation, rates, water and power, insurances bills.
It is time that this country realised we have left the 1rst world economy and its rules, and now are part of a resource based economy most commonly seen in thirld world countries

 

[tech/a]

Yes all of that.
Loooooooong time

 

[sptrawler]

I don't think high inflation will kick in, to get high inflation you require rampant wages and or consumerism, neither of which is going to happen.IMO

More likely is a slow decline in living standards, also a fall in the Aus $, the problem is a fall in the value of the Aus $, wont translate into a pickup in manufacturing.IMO

There is no obvious motivation, to manufacture here, rather than O/S, when the unit cost there is so low. Also the huge market place and demand is there.

Why would you spend the capital here, when all that is required, is an output increase at a factory O/S?

There is nothing happening, other than a decline in productive jobs, this is going to be a huge problem.

The removal of minerals will accelerate as machinery and technology improves, the labor intensive public sector jobs are disappearing due to technology.

There has been no desire by multinationals, to make Australia a supply hub, therefore where do you think the inflationary pressure is going to come from?

If there isn't a huge increase in jobs( which require a huge increase in demand for a product), or a huge increase in disposable income( which requires a huge increase in demand for labour), where is the inflation going to come from?

 

[sydboy007]

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.

After tax and inflation you'd be lucky to have a CPI return.

 

[sydboy007]

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?

I don't know what will be the tipping point.

I just know there's lots of very high paying jobs that will not be around as the various resource projects finish. Then we have the car manufacturers closing shop over the next 18-24 months.

I can see the AUD getting back to the 50c level it was pre boom, and with the loss of manufacturing that heads straight into a lot of imported inflation.

I just don't see housing as a decent risk reward investment. Much of the share market is the same. Even in the bonds space it's getting harder to find a decent return for risk.

Some can be lucky to get rich quick by gearign up and flipping houses or getting into an early MTU or FMG. Best to ask yourself what's a realistic return going forward. Is it sensible to expect housing to continue to outpace wages growth by 3 or 4 times? Is it sensible to expect a 15% return from the share market? Possibly getting into some industrials with USD exposure might help, though in some ways you'd be getting on that train late.

 

[sydboy007]

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.

Why would anyone lend money to a country that did this? We'd be up there with Brazil and Argentina, maybe even Greece. We'd be facing credit card interest rates. We pretty much run a CAD through most of the federation. If we get cut off from the global bond market then we'd face a credit crisis. Imagine nearly 60% of mortgage credit disappearing overnight. As loans reach maturity we'd not be able to pay them off. That's definitley one way to implode an economy.

 

[sydboy007]

so my view that a collapse in the AUD (which is needed) may come too late, no extra work, no wage increase, moribond economy so no way can the reserve bank increase rate...
Unless the condition is so bad that the banks/RE bubble pops and Australia find it hard to get outside required capital-> increase of rates under stress as per argentina, brasil in past crisis..not a nice show....;
And in that case we are even worse off.

Quite possibly we'll be importing cars that cost more than if we'd propped up the local manufacturing. Not sure how the idiots in treasury and RBA decided the AUD was going to be at near parity for a very long time, but they've royally borked us. Not sure if the messengers didn't want to get shot, or if politicians since the GFC have chosen the sunshine and lollipops forecasts over other more realistic ones.

Can see it with the NSW Govt. Already at the highest level of stamp duty, but they're predicting continued increases and to a degree matching spending to this. It'll end as well for them as it has for barnett.

I can definitely see a world where inflation is high, but I don't see a world where wages growth will compensate for it. Too many workers for not enough jobs, and as IT progresses more and more jobs will disappear. In the medium term most of us may be too poor to actually deal with a real human which will be the service option available only for those who can afford it.

 

[sydboy007]

I don't think high inflation will kick in, to get high inflation you require rampant wages and or consumerism, neither of which is going to happen.IMO

We may not have cost pull inflation, but I think we'll be getting some serious cost push from the tradeables sector.

For the last decade the CPI figure has been kept in check mainly by the price of falling imports. That trend is definitely in reverse with a falling AUD and as costs in China have increased.

We'll just be poorer as the free kick from the mining boom is reversed. I honestly think the majority of people have no idea what's slowly headed our way. Just imagine the anger from motorists facing a 20% increase in petrol, which only requires a fall of the AUD to 60c US. At least that will get us back to competitiveness with the BRL.

 

[sptrawler]

We may not have cost pull inflation, but I think we'll be getting some serious cost push from the tradeables sector.

For the last decade the CPI figure has been kept in check mainly by the price of falling imports. That trend is definitely in reverse with a falling AUD and as costs in China have increased.

We'll just be poorer as the free kick from the mining boom is reversed. I honestly think the majority of people have no idea what's slowly headed our way. Just imagine the anger from motorists facing a 20% increase in petrol, which only requires a fall of the AUD to 60c US. At least that will get us back to competitiveness with the BRL.

I think I covered that, by saying, there will be a drop in living standards.

It won't affect me, but you had better keep on your toes.

Australia is wedged, with a third world resources economy, trying to support a first world welfare economy.lol

It will send us all broke, fortunately it won't be a quick death.

Just my opinion.

 

[sptrawler]

Quite possibly we'll be importing cars that cost more than if we'd propped up the local manufacturing. Not sure how the idiots in treasury and RBA decided the AUD was going to be at near parity for a very long time, but they've royally borked us.

If GM or Ford were interested in Australia as a manufacturing base, why did they build the right hand world car production facilities, in Thailand and South Korea?

Well if you don't know, I'm not going to tell you. lol,lol, lol

Ask Bill and the boys.

It reminds me of what an old guy in the union told me when I was really young, " you have to milk the cow, not pull the #its off it". Lol

We've certainly done that, but it's been a great ride.

 

[sptrawler]

I don't know what will be the tipping point.

I just know there's lots of very high paying jobs that will not be around as the various resource projects finish. Then we have the car manufacturers closing shop over the next 18-24 months.

I can see the AUD getting back to the 50c level it was pre boom, and with the loss of manufacturing that heads straight into a lot of imported inflation.

I just don't see housing as a decent risk reward investment. Much of the share market is the same. Even in the bonds space it's getting harder to find a decent return for risk.

Some can be lucky to get rich quick by gearign up and flipping houses or getting into an early MTU or FMG. Best to ask yourself what's a realistic return going forward. Is it sensible to expect housing to continue to outpace wages growth by 3 or 4 times? Is it sensible to expect a 15% return from the share market? Possibly getting into some industrials with USD exposure might help, though in some ways you'd be getting on that train late.

At last we're on the same page.

 

[sptrawler]

When was that ? How did things develop in the economy? What caused all that in the first place?

That was the early 1970's, wage rises and welfare payments increased, this was also compounded by the mining boom.
Everything got ahead of itself and the economy stalled, unemployment blew out and inflation went out to about 13% from memory.
Fraser was elected and he brought about a wages freeze, which wasn't popular, so he`was chucked out.

Then Hawke was elected, he brought about a real drop in wages of about 20%, under the wages accord.

Then the rationalisation of the car industry was intruduced, where tarif protection was reduced. This was designed to make the local industry more competitive, all it did was make the multinationals focus on a third world production model.
This has affected Japan, Europe and the U.S also, most manufacturers are building new production plants in third world countries.
This will have the positive effect of improving those countries living standards, but will have a knock on effect in other countries.
Nothing stays the same, nothing is forever, everything is finite.