Economists warn 200,000 jobs may go by end of 2009

Written by admin on October 19, 2008 – 10:52 pm

National Australia Bank economists predicted growth would drop to 1.25 per cent by the middle of next year, with an interest rate cut to 4.5 per cent and unemployment at about 6 per cent by the end of the year, meaning the loss of 200,000 jobs, Fairfax newspapers report today.

» Economists warn 200,000 jobs may go by end of 2009 – 19th October 2008


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Back to Politics, The blame game; Who crashed the economy? – It wasn’t us!

Written by admin on October 15, 2008 – 10:18 pm

The weekend emergency briefing about the actual state of the economy must have come as quite a shock to Prime Minister Kevin Rudd and the Government. Just as big was the shock to see both the Government and Opposition united in what ever decisive action was needed to safe guard the Australian economy and prevent us falling into recession, if such a positive outcome is possible. Not a bad word was said between either party, and this even prompted a question at the National Press Club today from an Adelaide Advertiser journalist about what was said between the two over the course of the weekend.

Today was the day to let out the bottled up tension being held since the weekend. Rudd started at the National Press Club by saying Australian’s had no role in this crisis – “As Prime Minister I will not sit idly by and watch Australian households suffer the worst effects of a global crisis we did not create.” He then went on to attack major banks and financial institutions for their “obscene failures in corporate governance which rewarded greed without any regard to the integrity of the financial system” and told how “failure of extreme capitalism” forced the Government’s hand to react to the current situation.

He also announced the government will work with APRA (the Australian Prudential Regulatory Authority) to address problems with excessive executive pay packets and promote greater financial system stability. This sparked a blast from the banks later in the day saying the nation’s financial institutions were “not being bailed out by the Government”. David Bell, Australian Bankers Association chief executive said there was “no evidence that Australian bank salaries packages have weakened our banks”.

The Opposition later attacked Rudd with Opposition Leader Malcolm Turnbull saying the Rudd Government should have acted sooner and missed the warning signs. “Regrettably, Mr Rudd’s Government missed the warning signs at the beginning of the year and talked up inflation, and consequently interest rates, at precisely the wrong time,” he said.

But guess what? It’s now my turn to attack some of their statements.

Firstly, Rudd’s comment “As Prime Minister I will not sit idly by and watch Australian households suffer the worst effects of a global crisis we did not create.”

Even today, there is still the tenancy to say this crisis stemmed from the Subprime problem which developed in the United States. I suspect this is what Rudd is referring too. He might be forgiven for having a lot on his plate of recent, but the Subprime was simply a trigger of an asset bubble fueled by cheap and readily accessible credit. Why is it now spreading to many other countries, so quickly? Because most OECD countries got caught in the same trap. They lowered Interest rates to kick start the economy after tech wreck and cheap credit, most of it in an unregulated environment, has fueled a huge global house price bubble and credit binge.

Our house price asset bubble is one of the biggest among OECD countries. At present the average Australia house is worth 7.5 times wages. At the peak of the US bubble, prices averaged just 3.5x wages. In the UK and Ireland it averaged about 5x wages.

This huge housing asset bubble in Australia has driven up household debt further and faster than our friends in the states and now begs the question – If Americans can’t afford their houses, what hope do we have?

Now the only way Australian’s can say they didn’t participate in this crisis, is if they say they didn’t speculate in the property market, didn’t sign a mortgage for a house that they probably can’t afford at large multiples to their wages and didn’t spend more than they earn’t. The banks and mortgage lenders must also say they didn’t package up mortgages into CDO (Collateralized debt obligations) or trade any CDS (Credit Default Swaps). We are yet to see what the complications are for Credit Default Swaps, both here in Australia and abroad.

Yes, we are intertwined into this crisis just as much, if not more than our foreign counterparts. We can only start to address this problem, once we recognise it.







www.nicholsoncartoons.com.au 25th Sep 2002


And this leads us to Turnbull’s statement that “Rudd’s Government missed the warning signs at the beginning of the year and talked up inflation, and consequently interest rates, at precisely the wrong time”. Is Turnbull really saying that this crisis started at the start of this year? Off course not, it has been brewing for years, many on which was under the leadership of the Liberal Government. Surely Investment Bankers are smarter than that, even if they have entered politics. Why didn’t the Liberal government realise household debt was spiraling out of control, household savings started to go negative in 2002 and households were spending more they earn especially at a time when Howard was saying that the Average Australian has never been better off? Why now is Rudd “rewarding greed” by propping up house prices and encouraging first home buyers into a life of excessive debt?

» Banks blast Kevin Rudd over executive salaries crackdown – The Australian, 15th October 2008.
» Government missed warning signs: Malcolm Turnbull – The Australian, 15th October 2008.


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Perth house price falls hit double digits.

Written by admin on October 14, 2008 – 7:56 pm

The Perth medium house price is now 10 percent lower at $426,000, down from $472,000 in December, the Real Estate Institute of Western Australia (REIWA) reported today.

With falls of this magnitude, the increased capital contribution from the FHOG announced by the government will disappear in a month and a half. Home buyers who are not eligible for the grant need only wait one and a bit months to get the same value as the FHOG. Is this $1.5 billion dollars down the drain?

» House prices down 10 per cent in 2008 – The Australian, 14th October 2008.


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Australian Government announces increased grants to encourage people to take on more excessive debt

Written by admin on October 14, 2008 – 12:41 pm



"Golden Opportunity" : The increased FHOG.

Among the backdrop of a global “systemic meltdown” caused by irresponsible lending and fueling the biggest housing bubble built on spiraling household debt, the Rudd Government has today announced a new $10.4 billion economic stimulus plan.

Ironically, as part of the package, first home owners will be given an extra $7k bonus to encourage them to take on loans, probably beyond their means and at the top of the housing bubble. This, at a time when most other countries have seen significant falls in house prices as their housing bubbles come crashing down.

Digging deeper into the detail, the first home owners grant will triple for those building a new home. This is to help stimulate construction in the housing sector which has been suffering for a while from poor home affordability.

Michael McNamara, former CEO of Australian Property Monitors said earlier last year that “When the $7K first home owner’s grant (FHOG) was introduced in July 1, 2000 median prices for houses in Australian capital cities rose by a staggering $32,000 on average in the following 12 months. Sadly, the FHOG immediately translated into higher property prices eroding any benefit. If the FHOG meant to ease the burden on FHBs then it was a resounding failure.”

The best long term economic stimulus package I can think of is to let the housing bubble collapse. In recent times as house prices rise greater than household income, it eats up more and more of the household budget which in turn reduces discretionary spending (Good thing for the Credit Card!). Once housing asset prices collapse and come back to long term trends, there will be a lot more money in household budgets to then sustainably stimulate the economy.

If the Government really wants to stimulate the ailing residential construction industry, grants for new homes should only be considered. There is no point propping up house prices at the top of a bubble. I’m sure there are better things $1.5 billion dollars can be spent on just now.

» Rudd to Spend A$10.4 Bln to Guard Australian Economy – Bloomberg, 14th October 2008.
» Pensioners big winners in $10.4b stimulus splurge – The ABC, 14th October 2008


Posted in Australian economy, First Home Owners' Boost | 3 Comments »

BBC: Australia’s house price fears

Written by admin on October 13, 2008 – 11:51 am

BBC news has an story on Australia’s Housing Bubble and concerns have been raised that it could be about to burst. The story is centered around Sydney’s Western Suburbs which has the Highest Repossession Rates in the country and where they claim prices have already fallen 30%.

It interviews two people who are unable to afford to rent anymore and have resorted to living in a caravan park. The caravan park featured is full, and it reports revenue from caravan parks have almost doubled in the last year.

Dr Andy Marks – St Vincent de Paul Society says “Australia is quite unique in the sense that we have a lot of systems in place to weather the economic storm, but housing and housing affordability is one area where we are really up against it. People who are entering caravan parks as a housing option are really not doing this from choice, its a last resort, its when everything else has dried up.

» Australia’s house price fears – The BBC, 13th October 2008.


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PM says crisis entering danger phase

Written by admin on October 12, 2008 – 11:46 pm

Prime Minister Kevin Rudd has warned that economic growth and job security could be in jeopardy as the global financial crisis entered a “new and dangerous” phase.

As he equated the current financial turmoil to a national security crisis, Mr Rudd signalled the jobless rate for next year was likely to be higher than originally forecast in the May budget.

» PM says crisis entering danger phase – Yahoo News, 12th October 2008


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Housing prices not safe – Rudd

Written by admin on October 12, 2008 – 10:35 pm

In an Interview for 60 minutes, Prime Minister Mr Rudd has indicated the current downturn will effect the Housing Market.

With Australian Housing costing 7.5x the average wage, one of the highest multiples in the world, a downturn in the Housing Market is probably something Rudd doesn’t need to guarantee, it’s inevitable.

» Housing prices not safe – Rudd – The Courier Mail, 12th October 2008.
» Housing will also take a hit – The Daily Telegraph, 12th October 2008


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Rudd guarantees all financial deposits

Written by admin on October 12, 2008 – 10:34 pm

Australian’s should be able to sleep better tonight, knowing that PM Rudd has today decided to guarantee all deposits (of any size) in ADIs (Authorised Deposit-taking Institutions) for three years.

Rudd has also gone further to guarantee all money Australian banks borrow internationally and instructing the Australian Office of Financial Management to purchase an additional $4 billion in residential mortgage backed securities, taking this to $8 billion.

» Rudd guarantees all financial deposits – The Australian, 12th October 2008.
» Rudd guarantees all bank deposits – The ABC, 12th October 2008.


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Crisis worse than first thought: Smith

Written by admin on October 12, 2008 – 9:17 pm

THE government’s cabinet budget committee will meet later today to take any action deemed necessary from key meetings of the International Monetary Fund and Group of 20 finance ministers in Washington today.

Foreign Minister Stephen Smith said there was a growing realisation that the international financial crisis was worse than originally thought.

He would not confirm reports that the government would follow other nations and lift the proposed savings guarantee from $20,000 to $100,000.

Considering most government’s have ignored the credit binge since banking was de-regulated, it’s no wonder the crisis is worst that first though. Just having a look at how overvalued Australian House Prices are is enough to put a shiver down your spine. Even more frightening – Now it’s all about to start to unravel. Better get that deposit guarantee into legislation quick smart.

» Crisis worse than first thought: Smith – The Australian, 12th October 2008.


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World on brink of meltdown, warns IMF

Written by admin on October 12, 2008 – 7:11 pm

Only last week the IMF was quite conservative on this crisis. Today the head of the IMF, Dominique Strauss-Kahn is saying “Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.”

umm, on the brink of systemic meltdown you say?

» World on brink of meltdown, warns IMF – The Australian, 12th October 2008.
» IMF warns of world financial system ‘meltdown’ – The Telegraph, 12th October 2008.


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House Price Predictions Discussion

Written by admin on October 11, 2008 – 10:11 pm

With a turbulent couple of weeks on global financial markets, credit around the world freezing up and with the RPdata Rismark Hedonic Index for August 2008 (prior to recent carnage) showing a fall in house prices in every Australian state (missing data for Tassy), I’m willing to endure egg on my face and call the top of the “Great Australian House Asset Bubble”.

Recent data has shown UK house prices are down 12.4% in the year to September (Hallifax), having the steepest falls not seen in 25 years.

The US S&P/Case-Shiller home-price index has dropped 16.3 percent in the year to July, the fastest on record.

Above is a chart of earnings and house price data for June and May 2008 (Most recent data). Assuming tipping point of the Australian housing market has just past us, predict the bottom of the market and why?

Historic data suggests houses normally average about about three times wages. Current ABS ordinary full time earnings for Sydney Adults is $59,456 pa. At three times wages, this makes the medium Sydney houses valued as low as $178,370, a 67.1% fall on the current Australian Properties Monitors (APM) Composition Adjusted house price.

Some believe social trends have changed. Households now consist of two wage earners, unlike that of the past. Does this mean prices won’t ever reset back to three times, but rather something more like six times taking into account the extra earning capacity? Or with an unsustainable credit binge fueling demand for goods and services, will there be enough jobs around to support the dual income household?

The International Monetary Fund believes Australian House Prices have become over-valued by 20 per cent.

Steve Keen, an economist at the University of Western Sydney says “Overall I expect about a 40% fall, and that is basically in some ways being more conservative that I think is possible.”

Hugh Pavletich, co-author of the Demographia International Housing Affordability Survey says the Sydney multiple is now about nine (ie. average Sydney house prices are nine times average annual household income). This is just about the highest multiple in the world. Other countries with high multiples have seen drops in house prices recently. Pavletich agrees with Keen’s figure of 40 per cent, saying, “I think what we’ve really got to look at is California to get some indication of what’s likely to happen in Australia but at a slightly slower pace, I would imagine. California got up to the same sort of multiples that Australia is sitting at now, which is quite unsustainable. … I would expect [the drop in prices] to play out over probably a two to three-year period.”, “California has really led the way with at least a 40% drop in the past 12 months,”

Will Sydney follow in the footsteps of California?

Make your predictions here.


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Big four eye more backing

Written by admin on October 11, 2008 – 9:08 pm

AUSTRALIA’S big four banks have warned they may need extra backing from the Rudd Government and the Reserve Bank to prevent Australia from being sucked into a global credit-crunch recession.

The chief executives of the Commonwealth Bank, Westpac, NAB and ANZ all agree that the world’s finance ministers and central bank governors must produce a bold “co-ordinated” plan from this weekend’s Washington meetings in order to calm the stampede on world financial markets.

» Big four eye more backing – The Australian, 11th October 2008


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G7 vows to fight credit crunch

Written by admin on October 11, 2008 – 9:06 pm

THE G7 nations have vowed to take all necessary steps to unfreeze credit markets and ensure banks can raise money but have offered no collective course of action to avert a deep global recession.

» G7 vows to fight credit crunch – The Australian, 11th October 2008.


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G20 ‘vital’ to easing global market turmoil

Written by admin on October 11, 2008 – 9:50 am

Well what a turbulent week it has been. On Friday the All Ords fell through 4000 points for the first time to close at 3939.5 down -8.93% for the day. The All Ords peaked on the 1st of November 2007 with a high of 6853.6 and today’s close is now 42.5% lower than the all time high.

Looking to the states, the Dow Jones Industrial Index peaked on the 9th October 2007 closing at 14164.53 points. Last night it closed at 8451.18 making the fall 40.3% from the peak.

The Aussie has been as low as 66.44 cents.

The world will now be looking for guidance from the Group of 20 meeting converging on Washington to discuss solutions to this crisis.

Citibank managing director of economics, Stephen Halmarick, says the moves made so far by international authorities will not be sufficient to avert a global recession.

“Investors will be looking to the weekend G20 meeting, which our Treasurer’s attending, to reinforce that it’s going to be a global response to this global crisis and looking for some stabilisation there,” he said.

» G20 ‘vital’ to easing global market turmoil – The ABC, 10th October 2008.


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Expert expects property boom in 2 years

Written by admin on October 10, 2008 – 8:44 pm

To even all the boom & gloom up, Gold Coast property analyst Bill Morris is predicting a property boom in 2 years time.

But he does come bearing bad news. He claims :

the value of million dollar homes has halved since 2006 and prices for more modest properties have slipped by 10 to 20 per cent.

» Expert expects property boom in 2 years – The ABC, 10th October 2008.


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US debt clock runs out of digits

Written by admin on October 10, 2008 – 8:28 pm

Debt Clock

It seems US debt is still spiraling out of control. The debt clock ran out of digits last month after US debt exceeded 10 trillion U.S. dollars.

» US debt clock runs out of digits – The ABC, 10th October 2008.


Posted in US economy | 1 Comment »

UK house price fall steepest in 25 yrs – Halifax

Written by admin on October 9, 2008 – 8:25 pm




New data released shows UK house prices fell 12.4% for the year to September. This is the biggest annual fall in over 25 years.

» UK house price fall steepest in 25 yrs – The Guardian, 12th October 2008.


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Zimbabwe inflation rises to 231 million percent

Written by admin on October 9, 2008 – 8:18 pm

While it would appear this week that the ceiling is caving in, it is always good to take a moment to benchmark our economy with that of others. Official stats just released show Zimbabwe has a July inflation rate of only 231 million percent!

» Zimbabwe inflation soars to new high – The ABC, 9th October 2008.


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Jobless rate jumps to 4.3pc

Written by admin on October 9, 2008 – 5:20 pm

Official figures show the jobless rate climbed in September.

The Bureau of Statistics says the unemployment rate jumped from 4.1 per cent to 4.3 per cent in September, as employers’ demand for workers eased against the backdrop of a slowing economy.

» Jobless rate jumps to 4.3pc – The ABC, 9th October 2008.


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Central banks cut rates to contain financial crisis

Written by admin on October 8, 2008 – 5:19 pm

The US Federal Reserve has led a global round of emergency interest rate cuts in an effort to contain the worst financial crisis since the 1930s.

The Federal Reserve said it was cutting its key federal funds rate by 50 basis points to 1.5 per cent.

» Central banks cut rates to contain financial crisis – The ABC, 8th October 2008.


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