Comments on: Rory Robertson a lone voice on why inflation is not the issue

By: Sonja

Sonja — Thu, 01 Jan 1970 10:00:00 +0000

Deflationary spiral? What deflationary spiral? I see no evidence of it at the petrol pump, the supermarket, the doctor’s surgery, or the offices of the insurance companies and utilities. I’m still too overcome by the effects of the inflationary spiral to see a deflationary spiral on the horizon and would welcome it if it meant less strain on the household budget.

Besides, if the deflationary slump did such terrible damage to Japan, why is it still the world’s second largest economy with people that enjoy a high standard of living?

By: Benjamin Shah

Benjamin Shah — Thu, 01 Jan 1970 10:00:00 +0000

What this article shows is just how fixated the RBA and global central banks are on a discourse that directly benefits the role and position of the central bank. Pre-crash and in the lead up to the last election we were bombarded with monetarist NAIRU crap about unemployment rates and the inflationary effects of full employment. NOT A WORD was written anywhere with M1 M2 or M3 in it. Now the real genie is out of the bottle and the worm has turned. Now inflation isn’t such a bad thing, except I suppose when it flows through to wages. As a member of Gen Y I don’t really care if house prices fall through the floor. As Michael West rightly pointed out in today’s SMH, those animal spirits possessed a great number amongst us who did the banks bidding and bought 1, 2, 3, 4, and 5 properties on little or no real security (except of course for the price of the property). Why should my generation pay with our future so that these ‘speculators’ can get away with what should never have been a safe bet. A massive loss in the property market may just curb the avarice of this society (go live in the third world for a while and you will see what I mean) and leave at least the next one or two generations with the expectation of home ownership. Also, what a load of supply side crap at the top of the article. Gerry Harvey does not create wealth. He is an IMPORTER of finished products. You want to see a few more of those dollars flow on out to China, then yes, advocate a stimulus package that promotes that kind of spending. Please don’t try to tell me that the Wall Mart economy is the way to growth and prosperity. Or did I forget, its about the banks (not bankers) isn’t it.

By: Mick

Mick — Thu, 01 Jan 1970 10:00:00 +0000

Glenn,

YES. We do want to see house prices fall. Housing is in a bubble. Trying to avoid that only makes the eventual bubble bursting worse. Why is the economic commentary in this country so bereft of ideas?

Why isn't anyone asking the government why they are encouraging first home buyers into taking on housing debt, when they think unemployment will rise? What happens to those who rush to buy and find they don't have a job in 6 months time?

These are pertinent questions. If the economic situation continues to deteriorate in this country for the next 12 months, we could have an economic disaster on our hands due to the short-sightedness of this stimulus package.

Furthermore, it isn't falling house prices that are causing the problem. It was RISING HOUSE PRICES.

By: Andrew

Andrew — Thu, 01 Jan 1970 10:00:00 +0000

Since buying a house only became a remote possibility for me in 2004, I have bet heavily that prices will fall to meet my savings as a renter faster than I could get equity as a borrower. So yes, I want house prices to fall and I am not particularly weepy about speculators going under. I figure I have already paid them out enough in tax concessions.
I am also not particularly favourable to governments practicing voodoo economics to prevent it happening. Basically, they are going to have to chose their constituency.

More to the point, however, is that the only thing which could keep house prices from falling is a supply of money for loans. Where on Earth does this come from in what is, I have heard, a credit crunch?. Possibly from savers like me, but its not going to be as much as those nice merchant banking fellows could, until lately, send over on easy terms. Bleeding everything else dry, including the Federal budget, in an attempt to make up the shortfall does not seem particularly wise. People with mortgages still need hospitals, schools, road etc. So not knowing an M1 from an M3, it seems to me that its last drinks, pay-up.

By: JR

JR — Thu, 01 Jan 1970 10:00:00 +0000

Alan Kohler understands the problem, below is from his article today.

Yes ... "extend credit like we did, without fear". That kind of sums up the problem.

Excessive leverage, lax lending standards, inadequate savings are the source of the problem, they lead to inflated asset prices. House prices and asset prices generally must fall so that people recieve a fair reward for taking risk. Dropping interest rates just leads to people and companies borrowing more, keeping up inflated asset prices rather than addressing the problem. Mick is right, it is inflating prices that cause the problem.

There's plenty of people who currently can't afford to buy a house who would love to see prices fall. Perhaps Rory and yourself should talk with a wider range of people, leave the ivory towers behind for a while.

What about the government spending $10bn on infrastructure? At least we'll have something to show for it and it will generate ongoing growth rather than plasmas and pokies.

What about encouraging people to save money and pay off their debts? We owe $29,000 per Australian to overseas lenders and they're pretty keen to see their money back in the near future. (Ask the banks about why they can't get their required dose of offshore funding these days.) Drop the tax breaks for residential property and put deposits on a level playing field with residential property.

I hear you Mick. We need an Australian Paul Krugman to state the blindingly obvious.